-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QSbVYKeOShJS9E/H78f8+QKzOpU3xEqY8OrMo88AdcYkTsKdMQqBSB1qn/c36ykQ P5n28uM8Ld6hyjIx+eltvw== 0000950144-97-006912.txt : 19970616 0000950144-97-006912.hdr.sgml : 19970616 ACCESSION NUMBER: 0000950144-97-006912 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 38 CONFORMED PERIOD OF REPORT: 19970613 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970613 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPUBLIC INDUSTRIES INC CENTRAL INDEX KEY: 0000350698 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 731105145 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09787 FILM NUMBER: 97623667 BUSINESS ADDRESS: STREET 1: 450 E LAS OLAS BLVD STREET 2: STE 1200 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 BUSINESS PHONE: 9547135200 MAIL ADDRESS: STREET 1: 200 EAST LAS OLAS BLVD STREET 2: SUITE 1400 CITY: FT. LAUDERDALE STATE: FL ZIP: 33301 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC WASTE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC RESOURCES CORP DATE OF NAME CHANGE: 19900226 8-K 1 REPUBLIC INDUSTRIES FORM 8-K DATED 06/13/97 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) June 13, 1997 ------------- REPUBLIC INDUSTRIES, INC. ------------------------- (Exact name of registrant as specified in its charter) Delaware -------- (State or other jurisdiction of incorporation) 0-9787 73-1105145 ------ ---------- (Commission (IRS Employer File Number) Identification No.) 450 East Las Olas Boulevard Ft. Lauderdale, FL 33301 --------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (954) 713-5200 -------------- N.A. ------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 5. OTHER EVENTS REPORTING OF CERTAIN FINANCIAL AND OTHER INFORMATION FOR REGISTRATION AND OTHER PURPOSES In connection with the consummation of certain acquisitions of individually insignificant businesses which, in the aggregate, are significant and in accordance with Rule 3-05 of Regulation S-X, the Registrant is filing herewith certain historical and pro forma financial information relating to such consummated acquisitions. In addition, the Registrant is filing herewith: (1) audited consolidated financial statements which have been restated for the acquisitions of National Car Rental System, Inc., Maroone Automotive Group, Wallace Automotive Group, Taormina Industries, Inc. and Carlisle Motors, Inc. all of which the Company acquired during the first quarter of 1997 and have been accounted for under the pooling of interests method of accounting; and (2) audited supplemental consolidated financial statements which give retroactive effect to the acquisitions of Flemington Car and Truck Country and certain related dealerships, Spirit Rent-A-Car, Inc. and subsidiary, Chesrown Automotive Group and Bledsoe Dodge, Inc. all of which have been accounted for under the pooling of interests method of accounting. Such financial information is attached hereto as Exhibit 99 and incorporated herein by reference. Exhibit 99 is hereby incorporated by reference into the Registrant's Registration Statements on Form S-3, file numbers 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415; on Form S-4, file number 333-17915; and on Form S-8, file numbers 33-93742, 333-07623, 333-19453 and 333-20669. The Registrant also is filing herewith certain instruments relating to certain of its debt (including certain subsidiary debt), which instruments are attached hereto as exhibits. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) The financial statements of AutoNation Incorporated ("AutoNation") and Grubb Automotive ("Grubb") required by this Item 7(a) are incorporated by reference to Exhibit 99 attached hereto. (b) The pro forma financial information of AutoNation and Grubb required by this Item 7(b) are incorporated by reference to the unaudited condensed consolidated pro forma financial statements included in Exhibit 99 attached hereto. (c) Exhibits. The Exhibits to this Report are listed in the Exhibit Index set forth elsewhere herein. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REPUBLIC INDUSTRIES, INC. By: /s/ Michael S. Karsner ---------------------------------- Michael S. Karsner Senior Vice President and Chief Financial Officer Date: June 13, 1997 ---------------- 4 REPUBLIC INDUSTRIES, INC. EXHIBIT INDEX Number and Description of Exhibit - ---------------------- 1. None 2. None 3. None 4.1 Base Indenture, dated as of April 30, 1996 ("Base Indenture"), between National Car Rental Financing Limited Partnership, as Issuer, and The Bank of New York, as Trustee. 4.2 Series 1996-1 Supplement to Base Indenture, dated as of April 30, 1996, between National Car Rental Financing Limited Partnership, as Issuer, and The Bank of New York, as Trustee. 4.3 Supplement and Amendment to Base Indenture, dated as of December 20, 1996, between National Car Rental Financing Limited Partnership and The Bank of New York, as Trustee. 4.4 Series 1996-2 Supplement to Base Indenture, dated as of December 20, 1996, between National Car Rental Financing Limited Partnership, as Issuer, and The Bank of New York, as Trustee. 4.5 Consent and Amendment to Series 1996-2 Supplement and Second Master Motor Vehicle Lease and Servicing Agreement, dated as of February 19, 1997, among National Car Rental Financing Limited Partnership, National Car Rental System, Inc., The Bank of New York, as Trustee, National Fleet Funding Corporation, Credit Suisse First Boston, as Collateral Agent, Citibank, N.A., as Liquidity Agent, Deutsche Bank AG, General Motors Corporation, The Bank of New York and Caisse Nationale De Credit Agricole ("Credit Agricole"). 4.6 Second Consent and Amendment to Series 1996-2 Supplement dated May 7, 1997 among National Car Rental Financing Limited Partnership, National Car Rental System, Inc., The Bank of New York, as Trustee, National Fleet Funding Corporation, Credit Suisse First Boston, as Collateral Agent, Citibank, N.A., as Liquidity Agent, Deutsche Bank AG, General Motors Corporation, The Bank of New York and Credit Agricole. 4.7 Liquidity Agreement, dated June 7, 1995, among National Fleet Funding Corporation, certain financial institutions as Liquidity Lenders, and Citibank, N.A., as Liquidity Agent, including Definitions List dated June 7, 1995 and annexed to the Liquidity Agreement as Annex A. 4.8 Consent and Amendment to Liquidity Agreement, dated as of December 15, 1995, between National Fleet Funding Corporation and Citibank, N.A., as Liquidity Agent. 4.9 Amendment to Liquidity Agreement dated as of May 29, 1996 between National Fleet Funding Corporation and Citibank, N.A., as Liquidity Agent. 4.10 Extension of Scheduled Liquidity Commitment Termination Date, dated as of May 29, 1996 among National Fleet Funding Corporation, certain financial institutions as Liquidity Lenders, and Citibank, N.A. as Liquidity Agent. 4.11 Second Amendment to Liquidity Agreement, dated as of December 20, 1996, among National Fleet Funding Corporation, certain financial institutions as liquidity lenders and Citibank, N.A., as Liquidity Agent. 4.12 Collateral Agreement, dated as of June 7, 1995, among National Fleet Funding Corporation, General Motors Corporation, Citibank, N.A., as Liquidity Agent, Placement Agent and Depository, Credit Suisse, and CS First Boston Corporation. 4.13 Letter Agreement dated July 13, 1995 between National Fleet Funding Corporation and Goldman Sachs Money Markets, L.P. 4.14 A Support Intercreditor Agreement dated as of May 29, 1996 by and among General Motors Corporation and The Bank of New York, National Fleet Funding Corporation, and National Car Rental System, Inc. 4.15 Assignment and Assumption Agreement dated as of May 29, 1996 among Citibank, Credit Suisse and Credit Agricole. 4.16 Letter Agreement dated November 20, 1996 among Citicorp Securities, Inc. (as a Dealer), National Fleet Funding Corporation, and the other parties to the Collateral Agreement. 4.17 Supplement and Amendment to Collateral Agreement, dated as of December 20, 1996, among National Fleet Funding Corporation, General Motors Corporation, The Bank of New York, Credit Agricole, Citibank, N.A., Credit Suisse, CS First Boston Corporation, Goldman Sachs & Co., and Citicorp Securities, Inc. 4.18 Amended and Restated Master Collateral Agency Agreement, dated as of April 30, 1996, among National Car Rental System, Inc., National Car Rental Financing Limited Partnership, The Bank of New York, National Fleet Funding Corporation, General Motors Corporation, Citibank, N.A., and Credit Suisse. 4.19 Supplement and Amendment to Amended and Restated Master Collateral Agency Agreement, dated as of December 20, 1996, among National Car Rental System, Inc., National Car Rental Financing Limited Partnership, Citibank, N.A., National Fleet Funding Corporation, General Motors Corporation, The Bank of New York, Credit Agricole, and Credit Suisse. 4.20 Master Motor Vehicle Lease and Servicing Agreement, dated as of April 30, 1996, between National Car Rental Financing Limited Partnership, as lessor, and National Car Rental System, Inc., as lessee. 4.21 Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996, between National Car Rental Financing Limited Partnership, as lessor, and National Car Rental System, Inc., as lessee. 4.22 Credit Facilities and Reimbursement Agreement, dated as of April 23, 1997, by and among Republic Industries, Inc. and Republic Resources Company, as Borrowers, NationsBank National Association (South), as agent, and the lenders named therein. 4.23 Fourth Amendment, dated as of March 28, 1997, to Loan Agreement, dated June 20, 1994, between Alamo Rent-A-Car, Inc. and Alamo Funding, L.P. 4.24 Third Amendment, dated as of March 28, 1997, to Liquidity Loan Agreement, dated as of June 20, 1994, among Alamo Funding, L.P., AFL Fleet Funding, Inc., certain financial institutions, as liquidity lenders, and Citibank N.A., as Liquidity Agent. 4.25 Third Amendment, dated as of March 28, 1997, to Letter of Credit Reimbursement Agreement, dated as of June 20, 1994, among Alamo Rent-A-Car, Inc., Alamo Funding, L.P., AFL Fleet Funding, Inc., and Credit Suisse. 15. None 16. None 17. None 21. None 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Ernst & Young LLP 23.3 Consent of KPMG Peat Marwick LLP 23.4 Consent of Coopers & Lybrand L.L.P. 23.5 Consent of Cohen & Company 23.6 Consent of Bailey Saetveit & Co. P.C. 23.7 Consent of Turner & Vedrenne CPA 23.8 Consent of Ehrenkrantz, Sterling & Co. LLC 23.9 Consent of George B. Jones & Co., P.C. 24. None 27.1 Financial Data Schedule for the Year Ended December 31, 1995 (Restated) (for SEC use only) 27.2 Financial Data Schedule for the Year Ended December 31, 1996 (Restated) (for SEC use only) 99. Financial Information EX-4.1 2 BASE INDENTURE 04/30/96 1 Exhibit 4.1 EXECUTION COPY NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Issuer, and THE BANK OF NEW YORK, as Trustee ------------------------------- BASE INDENTURE Dated as of April 30, 1996 ------------------------------- Rental Car Asset Backed Notes (Issuable in Series) 2 TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Cross References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3. Accounting and Financial Determinations; No Duplication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.4. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2. THE NOTES 2.1. Designation and Terms of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.2. Notes Issuable in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3. Supplement For Each Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.5. Form of Notes; Book Entry Provisions; Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.6. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.7. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.8. Noteholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.9. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.10. Legending of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.11. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.12. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.13. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.14. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.15. Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.16. Book-Entry Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.17. Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.18. Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.19. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.20. Certain Purchaser Representations and Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE 3. SECURITY 3.1. Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.2. Certain Rights and Obligations of NFLP Unaffected . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.3. Performance of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.4. Release of Lien on Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.5. Stamp, Other Similar Taxes and Filing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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Section Page - ------- ---- ARTICLE 4. REPORTS 4.1. Agreement of Servicer to Provide Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 5. ALLOCATION AND APPLICATION OF COLLECTIONS 5.1. Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.2. Collections and Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.3. Determination of Monthly Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.4. Determination of Monthly Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.5. Paired Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 6. DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS 6.1. Distributions in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.2. Distributions to Retained Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.3. Optional Repurchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.4. Monthly Noteholders' Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE 7. REPRESENTATIONS AND WARRANTIES 7.1. Legal Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.3. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7,4. Financial Information; Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.6. No ERISA Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.7. Tax Filings and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.8. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.9. Investment Company Act; Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.10. Regulations G, T, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.11. No Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.12. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7,13. Ownership; Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.14. Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 7.15. Binding Effect of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.16. Non-Existence of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.17. Manufacturer Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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Section Page - ------- ---- 7.18. Other Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 8. COVENANTS 8.1. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.3. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8,4. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.5. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8,6. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.7. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.8. Inspection of Property, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 8.9. Compliance with Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.10. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.11. Notice of Material Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.12. Further Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8.13. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8,14. Manufacturer Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 8.15. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 8.16. Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 8.17. Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.18. Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.19. Acquisition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.20. Dividends, Officers' Compensation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.21. Name; Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.22. Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.23. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.24. No Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.25. Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.26. Maintenance of Separate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8,27. Rule 144A Information Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8,28. Use of Proceeds of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.29. Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.30. Amendments to Exchange Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.31. Demand Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 9. AMORTIZATION EVENTS AND REMEDIES 9.1. Amortization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 9.2. Rights of the Trustee upon Amortization Event or Certain Other Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 9.3. Special Provisions Concerning Remedies Upon Liquidation Event of Default in Conjunction with
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Section Page - ------- ---- a Manufacturer Event of Default or Inability to Turn Back under Manufacturer Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9.4. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.5. Waiver of Past Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.6. Control by Requisite Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 9.7. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 9.8. Unconditional Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . 72 9.9. Collection Suit by the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.10. The Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 9.11. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.12. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.13. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9,14. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.15. Reassignment of Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE 10. THE TRUSTEE 10.1. Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 10.2. Rights of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 10.3. Individual Rights of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.4. Notice of Amortization Events and Potential Amortization Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.5. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 10.6. Replacement of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 10.7. Successor Trustee by Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.8. Eligibility Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10.9. Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10.10. Representations and Warranties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 ARTICLE 11. DISCHARGE OF INDENTURE 11.1. Termination of NFLP's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 11.2. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 11.3. Repayment to NFLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 ARTICLE 12. AMENDMENTS 12.1. Without Consent of the Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 12.2. With Consent of the Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 12.3. Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 12.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
-iv- 6
Section Page - ------- ---- 12.5. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 12.6. The Trustee to Sign Amendments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 ARTICLE 13. MISCELLANEOUS 13.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 13.2. Communication by Noteholders With Other Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 90 13.3. Certificate as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 13.4. Statements Required in Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 13.5. Rules by the Trustee and the Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 13.6. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 13.7. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 13.8. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13.9. Payment on Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13.11. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13.12. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13.14. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 13.15. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 13.16. Termination; Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 13.17. No Bankruptcy Petition Against NFLP or the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 13.18. No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 EXHIBITS AND SCHEDULES SCHEDULE 1 DEFINITIONS LIST (Section 1.1) EXHIBIT A-1 FORM OF TRANSFER CERTIFICATE (Section 2.8) EXHIBIT A-2 RESERVED EXHIBIT A-3 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RESTRICTED GLOBAL NOTE TO TEMPORARY GLOBAL NOTE (Section 2.9) EXHIBIT A-4 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RESTRICTED GLOBAL NOTE TO PERMANENT GLOBAL NOTE (Section 2.9) EXHIBIT A-5 FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM TEMPORARY GLOBAL NOTE TO RESTRICTED GLOBAL NOTE (Section 2.9) EXHIBIT B FORM OF CLEARING SYSTEM CERTIFICATE
-v- 7 EXHIBIT C FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP EXHIBIT D FORM OF REPRESENTATION LETTERS EXHIBIT E FORM OF MONTHLY TRUSTEE'S CERTIFICATE
-vi- 8 BASE INDENTURE, dated as of April 30, 1996, between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership, as issuer ("NFLP"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (in such capacity, the "Trustee"). W I T N E S S E T H: WHEREAS, NFLP has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of one or more series of NFLP's Rental Car Asset Backed Notes (the "Notes"), issuable as provided in this Indenture; WHEREAS, all things necessary to make this Indenture a legal, valid and binding agreement of NFLP, in accordance with its terms, have been done, and NFLP proposes to do all the things necessary to make the Notes, when executed by NFLP and authenticated and delivered by the Trustee hereunder and duly issued by NFLP, the legal, valid and binding obligations of NFLP as hereinafter provided; NOW, THEREFORE, for and in consideration of the premises and the receipt of the Notes by the Noteholders, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Noteholders, as follows: ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. Certain capitalized terms used herein (including the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Definitions List attached hereto as Schedule I (the "Definitions List"), as such Definitions List may be amended or modified from time to time in accordance with the provisions hereof. Section 1.2. Cross-References. Unless otherwise specified, references in this Indenture and in each other Related Document to any Article or Section are references to such Article or Section of this Indenture or such other Related Document, as the case may be and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. 9 Section 1.3. Accounting and Financial Determinations; No Duplication. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Indenture, such determination or calculation shall be made, to the extent applicable and except as otherwise specified in this Indenture, in accordance with GAAP. When used herein, the term "financial statement" shall include the notes and schedules thereto. All accounting determinations and computations hereunder or under any other Related Documents shall be made without duplication. Section 1.4. Rules of Construction. In this Indenture, unless the context otherwise requires: (i) the singular includes the plural and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Indenture, and reference to any Person in a particular capacity only refers to such Person in such capacity; (iii) reference to any gender includes the other gender; (iv) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (v) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and (vi) with respect to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". -2- 10 ARTICLE 2. THE NOTES Section 2.1. Designation and Terms of Notes. Each Series of Notes shall be substantially in the form specified in the applicable Supplement and shall bear, upon its face, the designation for such Series to which it belongs so selected by NFLP. Except as specified in any Supplement for a related Series, all Notes of any Series shall be equally and ratably entitled as provided herein to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Indenture and the applicable Supplement. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is unlimited. The Notes shall be in denominations of $250,000 and integral multiples of $1,000 in excess thereof. Section 2.2. Notes Issuable in Series. The Notes may be issued in one or more Series. Each Series of Notes shall be created by a Supplement. Notes of a new Series may from time to time be executed by NFLP and delivered to the Trustee for authentication and thereupon the same shall be authenticated and delivered by the Trustee upon the receipt by the Trustee of a Company Request at least two (2) Business Days in advance of the Closing Date for such Series and upon delivery by NFLP to the Trustee, and receipt by the Trustee, of the following: (a) a Company Order authorizing and directing the authentication and delivery of the Notes of such new Series by the Trustee and specifying the designation of such new Series, the aggregate principal amount of Notes of such new Series to be authenticated and the Note Rate (or the method for allocating interest payments or other cash flow) with respect to such new Series;. (b) a Supplement in form satisfactory to the Trustee executed by NFLP, the General Partner and the Trustee and specifying the Principal Terms of such new Series; (c) the related Enhancement Agreement, if any, executed by each of the parties thereto, other than the Trustee; -3- 11 (d) written confirmation that the Rating Agency Condition shall have been satisfied with respect to such issuance; (e) an Officer's Certificate of NFLP dated as of the applicable Closing Date to the effect that (i) no Amortization Event, Asset Amount Deficiency, Enhancement Agreement Event of Default, if applicable, Lease Event of Default, Manufacturer Event of Default, Potential Amortization Event, Potential Enhancement Agreement Event of Default, Potential Lease Event of Default, or Potential Manufacturer Event of Default is continuing or will occur as a result of the issuance of the new Series of Notes, (ii) the aggregate Market Value of all Non-Program Vehicles on such date (including all Non-Program Vehicles to be acquired, financed or refinanced on the Closing Date for such Series) equals or exceeds the aggregate Net Book Value of such Non-Program Vehicles as of such date, (iii) the issuance of the new Series of Notes will not result in any breach of any of the terms, conditions or provisions of or constitute a default under any indenture, mortgage, deed of trust or other agreement or instrument to which NFLP is a party or by which it or its property is bound or any order of any court or administrative agency entered in any suit, action or other judicial or administrative proceeding to which NFLP is a party or by which it or its property may be bound or to which it or its property may be subject, (iv) all conditions precedent provided in this Base Indenture and the related Supplement with respect to the authentication and delivery of the new Series of Notes have been complied with and (v) if such new Series of Notes is a Segregated Series, the criteria used to select the Series-Specific Collateral will not have a material adverse effect on the quality of the Collateral securing any other outstanding Series of Notes; (f) unless otherwise specified in the related Supplement, an Opinion of Counsel, subject to the assumptions and qualifications stated therein, and in a form substantially acceptable to the Trustee, dated the applicable Closing Date, substantially to the effect that: (i) (x) the new Series of Notes will be treated as indebtedness of NFLP for Federal and Minnesota state income tax purposes and (y) the issuance of such Series will not adversely affect the Federal or Minnesota -4- 12 state income tax characterization of the Outstanding Notes of any Series; (ii) all instruments furnished to the Trustee conform in all material respects to the requirements of this Base Indenture and the related Supplement and constitute all the documents required to be delivered hereunder and thereunder for the Trustee to authenticate and deliver the new Series of Notes, and all conditions precedent provided for in this Base Indenture and the related Supplement with respect to the authentication and delivery of the new Series of Notes have been complied with in all material respects; (iii) (x) NFLP is a limited partnership duly organized under the laws of the jurisdiction of its organization and has the partnership power and authority to execute and deliver the related Supplement (and, in the case of the first Series to be authenticated hereunder, this Base Indenture and each other Related Document to which it is a party) and to issue the new Series of Notes, (y) the General Partner is duly incorporated under the jurisdiction of its incorporation and has the corporate power and authority to execute and deliver the related Supplement (and, in the case of the first Series to be authenticated hereunder, this Base Indenture and each other Related Document to which it is a party) and to issue the new Series of Notes and (z) National, in its capacity as Lessee and as Servicer is duly incorporated in the jurisdiction of its incorporation and, as of the date of this Indenture, has the corporate power and authority to execute and deliver each of the Related Documents to which it is a party; (iv) the related Supplement, this Base Indenture and each of the other Related Documents to which NFLP, the General Partner, the Lessee or the Servicer is a party have been duly authorized, executed and delivered by NFLP, the General Partner, the Lessee or the Servicer, as the case may be; (v) the new Series of Notes has been duly authorized and executed and, when -5- 13 authenticated and delivered in accordance with the provisions of this Base Indenture and the related Supplement, will constitute a valid, binding and enforceable obligation of NFLP entitled to the benefits of this Base Indenture and the related Supplement, subject, in the case of enforcement, to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditor's rights generally and to general principles of equity; (vi) this Base Indenture, the related Supplement and each of the other Related Documents to which NFLP, the General Partner, the Lessee or the Servicer is a party are legal, valid and binding agreements of NFLP, the General Partner, the Lessee or the Servicer, as the case may be, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and to general principles of equity; (vii) NFLP is not, and is not controlled by, an "investment company" within the meaning of, and is not required to register as an "investment company" under, the Investment Company Act of 1940, and this Base Indenture and the related Supplement are not required to be registered under the Trust Indenture Act; (viii) the offer and sale of the new Series of Notes is not required to be registered under the Securities Act; and (ix) as to the new Series of Notes and any Outstanding Series of Notes, the opinions of counsel relating to (A) the validity, perfection and priority of security interests, (B) the nature of the lease of Acquired Vehicles pursuant to the Lease as a true operating lease and not as a financing, (C) the analysis of substantive consolidation of the assets of NFLP or the General Partner with the assets of the Lessee in the event of the insolvency of the Lessee, (D) the status of NFLP as not being an investment company or controlled by an investment company under the -6- 14 Investment Company Act, as furnished by counsel retained by NFLP in connection with the issuance of the initial Series of Notes, are reaffirmed in all respects. (g) such other documents, instruments, certifications, agreements or other items as the Trustee may reasonably require. Upon satisfaction of such conditions, the Trustee shall authenticate and deliver, as provided above, such Series of Notes. Section 2.3. Supplement For Each Series. (a) In conjunction with the issuance of a new Series, the parties hereto shall execute a Supplement, which shall specify the relevant terms with respect to such new Series of Notes, which shall include, as applicable: (i) its name or designation, (ii) the aggregate principal amount of Notes of such Series, (iii) the Note Rate (or the method for calculating such Note Rate) with respect to such Series, (iv) the interest payment date or dates and the date or dates from which interest shall accrue, (v) the method of allocating Collections with respect to such Series and the method by which the principal amount of Notes of such Series shall amortize or accrete, (vi) the names of any accounts to be used by such Series and the terms governing the operation of any such account, (vii) the Servicing Fee Percentage, (viii) the terms of any Enhancement, (ix) the Enhancement Provider, if any, (x) whether the Notes may be issued in bearer form and any limitations imposed thereon, (xi) the Series Termination Date, (xii) whether the Notes will be issued in multiple classes and, if so, the method of allocating Collections among such classes, (xiii) whether such Series of Notes shall have the benefit of Series-Specific Collateral and (xiv) any other relevant terms of such Series of Notes that do not (subject to Section 2.3(b) and Article 12 hereof) change the terms of any Outstanding Series of Notes or otherwise materially conflict with the provisions of this Indenture and that do not prevent the satisfaction of the Rating Agency Condition with respect to the issuance of such new Series (all such terms, the "Principal Terms" of such Series); (b) (i) A Supplement may specify that the related Series of Notes (each, a "Segregated Series") will have Collateral that is to be solely for the benefit of the Noteholders of such Segregated Series of Notes (such Collateral being referred to as "Series-Specific Collateral"); provided, however, that no such Segregated -7- 15 Series of Notes will be issued unless (x) the Rating Agency Condition is met, (y) NFLP shall have delivered to the Trustee an Officer's Certificate to the effect that the issuance of such Segregated Series of Notes will not have a material adverse effect upon the Noteholders of any Series of Notes outstanding at the time of the issuance of the Segregated Series of Notes, and (z) the applicable Supplement provides, in form satisfactory to the Trustee, for the changes and modifications to the Indenture and the other Related Documents as are described in clause (ii) below. (ii) In the event any Segregated Series of Notes is issued, the related Supplement will provide that (A) the Servicer, the Master Collateral Agent and the Trustee will identify the Collateral for such Segregated Series of Notes such that (x) the Series-Specific Collateral will secure only the Segregated Series of Notes to which such Series-Specific Collateral is applicable and (y) the Noteholders with respect to any other Series of Notes will not be entitled to the benefit of such Series-Specific Collateral, (B) the Trustee will adjust the allocations and distributions to be made under the Indenture at the direction of the Servicer so that the Noteholders with respect to the Segregated Series of Notes will be entitled to all allocations and distributions arising from the Series-Specific Collateral applicable to such Segregated Series of Notes and the Noteholders with respect to the non-Segregated Series of Notes will be entitled to allocations and distributions arising solely from the non-Series-Specific Collateral, (C) the Trustee will act as collateral agent under the Indenture (and in such capacity the Trustee, together with the Master Collateral Agent, shall (x) establish and maintain a master collection account, and one or more segregated collection accounts, into which Collections allocated to all Series of Notes will be deposited and, after such deposit, further allocated among one or more Segregated Series of Notes and the non-Segregated Series of Notes and (y) hold its lien encumbering the non-Series-Specific Collateral for the benefit of the non-Segregated Series of Notes and hold its lien encumbering the Series-Specific Collateral for the benefit of the Segregated Series of Notes), (D) the Servicer and the Master Collateral Agent each will designate on its computer system the source of the funds for the financing of each Vehicle (as between one or more Segregated Series of Notes and the non-Segregated Series of Notes, the "Financing Provider" with respect to such Series of Notes), (E) the -8- 16 Noteholders of any Segregated Series of Notes will, subject to the limitations contained in this Base Indenture and the applicable Supplement, be entitled to cause the Trustee and the Master Collateral Agent to exercise the remedies under the Indenture and the Master Collateral Agency Agreement, as applicable, each solely on behalf of such Segregated Series of Notes, (F) separate monthly reports and other information will be furnished under the Indenture by the Trustee for the Series-Specific Collateral, which monthly reports and other information will contain substantially the same type of information as the monthly reports provided under the Indenture prior to the issuance of such Segregated Series of Notes, (G) a separate segregated Master Motor Vehicle Lease and Servicing Agreement pertaining, as applicable, solely or in part to the Series-Specific Collateral will be executed and delivered by NFLP, as lessor, and National, as lessee, (H) to the extent specified in the Supplement for such Segregated Series of Notes, NFLP and the Servicer will take such actions as are necessary to perfect (1) the Master Collateral Agent's interest in the portion of the Series-Specific Collateral that would constitute Master Collateral and to designate NFLP as the "Financing Source" and the Trustee, on behalf of the Noteholders of such Series, as the "Beneficiary" under the Master Collateral Agency Agreement with respect to the Series-Specific Collateral and (2) the Trustee's interest on behalf of the Noteholders of such Series in the Series-Specific Collateral, (1) amendments will be made to this Indenture and the other Related Documents, if necessary, to reflect the foregoing, which amendments will, among other things, provide for revisions to the terms "Aggregate Asset Amount", "Required Asset Amount", "Collateral", "Collection Account", "NFLP Agreements", "Lease", "Related Documents", "Aggregate Invested Amount" and "Requisite Investors" and such other terms as may be appropriate to reflect the creation of the Segregated Series, provided that any such amendment shall not have a material adverse effect on the Noteholders or Note Owners of any Series unless the Required Noteholders of such Series shall have given their prior written consent thereto (and, with respect to each Series, the Trustee may rely on an Officer's Certificate of the Servicer as sufficient evidence of such lack of a material adverse effect) and (J) references herein to "all" Series of Notes (other than as specifically stated herein) shall be modified to refer to all Series of Notes other than any Segregated Series of Notes which may hereafter be issued. -9- 17 Section 2.4. Execution and Authentication. (a) An Authorized Officer shall sign the Notes for NFLP by manual or facsimile signature. If an Authorized Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall nevertheless be valid. (b) At any time and from time to time after the execution and delivery of this Indenture, NFLP may deliver Notes of any particular Series executed by NFLP to the Trustee for authentication, together with one or more Company Orders for the authentication and delivery of such Notes, and the Trustee, in accordance with such Company Order and this Indenture, shall authenticate and deliver such Notes. (c) No Note shall be entitled to any benefit under this Indenture or be valid for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein, duly executed by the Trustee by the manual signature of a Trust Officer (and the Luxembourg agent (the "Luxembourg Agent"), if such Notes are listed on the Luxembourg Stock Exchange). Such signatures on such certificate shall be conclusive evidence, and the only evidence, that the Note has been duly authenticated under this Indenture. The Trustee may appoint an authenticating agent acceptable to NFLP to authenticate Notes. Unless limited by the term of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with NFLP or an Affiliate of NFLP. The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Notes of a series issued under the within mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: ----------------------------------- Authorized Signatory (d) Each Note shall be dated and issued as of the date of its authentication by the Trustee, -10- 18 (e) Notwithstanding the foregoing, if any Note shall have been authenticated and delivered hereunder but never issued and sold by NFLP, and NFLP shall deliver such Note to the Trustee for cancellation as provided in Section 2.14 together with a written statement (which need not comply with Section 13.3 and need not be accompanied by an Opinion of Counsel) stating that such Note has never been issued and sold by NFLP, for all purposes of this Indenture such Note shall be deemed never to have been authenticated and delivered hereunder and shall not be entitled to the benefits of this Indenture. Section 2.5. Form of Notes; Book Entry Provisions; Title. (a) Restricted Global Note. Any Series of Notes, or any class of such Series to be issued in the United States will be in registered form and sold initially to institutional accredited investors within the meaning of Regulation D under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act and thereafter to qualified institutional buyers within the meaning of, and in reliance on, Rule 144A under the Securities Act ("Rule 144A") as provided in the applicable Supplement and shall be issued in the form of and represented by one or more permanent global Notes in fully registered form without interest coupons (each, a "Restricted Global Note"), substantially in the form set forth in the applicable Supplement, with such legends as may be applicable thereto, which shall be deposited on behalf of the subscribers for the Notes represented thereby with a custodian for DTC, and registered in the name of DTC or a nominee of DTC, duly executed by NFLP and authenticated by the Trustee as provided in Section 2.4 for credit to the accounts of the subscribers at DTC. The aggregate initial principal amount of a Restricted Global Note may from time to time be increased or decreased by adjustments made on the records of the custodian for DTC, DTC or its nominee, as the case may be, as hereinafter provided. (b) Temporary Global Note; Permanent Global Note. Any Series of Notes, or any class of such Series, offered and sold outside of the United States will be offered and sold in reliance on Regulation S ("Regulation S") under the Securities Act and shall initially be issued in the form of one or more temporary global Notes (each, a "Temporary Global Note") in fully registered form without interest coupons substantially in the form set forth in the applicable Supplement with such legends as may be applicable thereto, registered in the name of DTC or a nominee of DTC, duly executed by NFLP and authenticated by the Trustee as -11- 19 provided in Section 2.4, for credit to the subscribers' accounts at Morgan Guaranty Trust Company of New York, Brussels Office, as operator of Euroclear or Cedel. Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (a "Permanent Global Note") in fully registered form without interest coupons, representing Notes of the same Series, substantially in the form set forth in the applicable Supplement, in accordance with the provisions of the Temporary Global Note and this Indenture. Until the Exchange Date, interests in a Temporary Global Note may only be held by the agent members of Euroclear and Cedel. The aggregate initial principal amount of the Temporary Global Note and the Permanent Global Note may from time to time be increased or decreased by adjustments made on the records of the custodian for DTC, DTC or its nominee, as the case may be, as hereinafter provided. Section 2.6. Registrar and Paying Agent. (a) NFLP shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and (ii) an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange (the "Note Register"). NFLP may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent and the term "Registrar" includes any co-registrars. NFLP may change any Paying Agent or Registrar without prior notice to any Noteholder. NFLP shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. The Trustee is hereby initially appointed as the Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes. (b) NFLP shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. Such agency agreement shall implement the provisions of this Indenture that relate to such Agent. NFLP shall notify the Trustee in writing of the name and address of any such Agent. If NFLP fails to maintain a Registrar or Paying Agent and the Trustee has knowledge of such failure, or if NFLP fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with this Indenture, until NFLP shall appoint a replacement Registrar and Paying Agent. -12- 20 Section 2.7. Paying Agent to Hold Money in Trust. (a) NFLP will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee (and if the Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section, that such Paying Agent will: (i) hold all sums held by it for the payment of amounts due with respect to the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided; (ii) give the Trustee notice of any default by NFLP (or any other obligor under the Notes) of which it has actual knowledge in the making of any payment required to be made with respect to the Notes; (iii) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; (iv) immediately resign as a Paying Agent and forthwith pay to the Trustee all sums held by it in trust for the payment of Notes if at any time it ceases to meet the standards required to be met by a Trustee hereunder at the time of its appointment; and (v) comply with all requirements of the Code with respect to the withholding from any payments made by it on any Notes of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith. (b) NFLP may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Company Order direct any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. -13- 21 (c) Subject to applicable laws with respect to escheat of funds, any money held by the Trustee or any Paying Agent or a Clearing Agency in trust for the payment of any amount due with respect to any Note and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to NFLP on Company Request; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to NFLP for payment thereof (but only to the extent of the amounts so paid to NFLP), and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of NFLP cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York City and, if the related Series of Notes has been listed on the Luxembourg Stock Exchange, and if the Luxembourg Stock Exchange so requires, in a newspaper customarily published on each Luxembourg business day and of general circulation in Luxembourg City, Luxembourg, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to NFLP. The Trustee may also adopt and employ, at the expense of NFLP, any other reasonable means of notification of such repayment. Section 2.8. Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders of each Series of Notes. If the Trustee is not the Registrar, NFLP shall furnish to the Trustee at least seven Business Days before each Distribution Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Noteholders of each Series of Notes. Section 2.9. Transfer and Exchange. (a) No Note may be resold, pledged or transferred (including, without limitation, by pledge or hypothecation) unless such sale or transfer is (1) to NFLP (upon redemption thereof or otherwise), (2) to any person the transferor reasonably believes is a qualified institutional buyer (as defined in Rule 144A) in a transaction meeting the requirements of Rule 144A, (3) outside the United States to a person who is not a U.S. Person (as such term is defined in Regulation S) in a transaction meeting the requirements -14- 22 of Regulation S, (4) in a transaction complying with or exempt from the registration requirements of the Securities Act. Subject to provisions of clauses (i) through (vii) of this Section 2.9(a), when a request to register a transfer or exchange of global Notes is presented to the Registrar or co-registrar or, in the case of Definitive Notes, when Definitive Notes of any particular Series are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount of Notes of other authorized denominations of the same Series, the Registrar shall register the transfer or make the exchange if its requirements for such transaction are met; provided, however, that the Notes surrendered for transfer or exchange (a) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to NFLP and the Registrar duly executed by the holder thereof or its attorney, duly authorized in writing and (b) shall be transferred or exchanged in compliance with the following provisions: (i) Transfer of Restricted Global Notes. (A) if such Note is being acquired for the account of such Holder, without transfer, a certification from such Holder to that effect (in substantially the form of Exhibit A-1 hereto); or (B) if such Note is being transferred to a qualified institutional buyer (as defined in Rule 144A) in accordance with Rule 144A or pursuant to an exemption from registration in accordance with Regulation S, a certification to that effect (in substantially the form of Exhibit A-1 hereto); or (C) if such Note is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit A-1 hereto) and an opinion of counsel in form and substance acceptable to NFLP and to the Registrar to the effect that such transfer is in compliance with the Securities Act. (ii) Temporary Global Note to Permanent Global Note. Interests in a Temporary Global Note as to which the Trustee has received from Euroclear or Cedel, as the case may be, a certificate substantially in the form of Exhibit B to the effect that Euroclear or Cedel, as applicable, has received a certificate substantially in the form of Exhibit C from the holder of a beneficial interest in such Note, will be exchanged, on and after the 40th day after the -15- 23 completion of the distribution of the relevant Series (the "Exchange Date"), for interests in a Permanent Global Note. To effect such exchange NFLP shall execute and the Trustee shall authenticate and deliver to DTC, or its nominee, for credit to the respective accounts of the holders of Notes, a duly executed and authenticated Permanent Global Note, representing the principal amount of interests in the Temporary Global Note initially exchanged for interests in the Permanent Global Note. The delivery to the Trustee by Euroclear or Cedel of the certificate or certificates referred to above maybe relied upon by NFLP and the Trustee as conclusive evidence that the certificate or certificates referred to therein has or have been delivered to Euroclear or Cedel pursuant to the terms of this Indenture and the Temporary Global Note. Upon any exchange of interests in a Temporary Global Note for interests in a Permanent Global Note, the Trustee shall endorse the Temporary Global Note to reflect the reduction in the principal amount represented thereby by the amount so exchanged and shall endorse the Permanent Global Note to reflect the corresponding increase in the amount represented thereby. The Temporary Global Note or the Permanent Global Note shall also be endorsed upon any cancellation of principal amounts upon surrender of Notes purchased by NFLP or any of its respective subsidiaries or affiliates or upon any repayment of the principal amount represented thereby or any payment of interest in respect of such Notes. (iii) Restricted Global Note to Temporary Global Note Prior to the Exchange Date. If, prior to the Exchange Date, a holder of a beneficial interest in a Restricted Global Note registered in the name of DTC or its nominee wishes at any time to exchange its interest in such Restricted Global Note for an interest in a Temporary Global Note or to transfer its interest in such Restricted Global Note to a Person who wishes to take delivery thereof in the form of an interest in a Temporary Global Note, such holder may, subject to the rules and procedures of DTC, exchange or cause the exchange or transfer of such interest for an equivalent beneficial interest in the Temporary Global Note. Upon receipt by the Registrar of (1) instructions given in accordance with DTC's procedures from an agent member directing the Trustee as Registrar to credit or cause to be credited a beneficial interest in the Temporary Global Note in an amount equal to the beneficial interest in the Restricted Global Note to be exchanged or transferred, (2) a written order given in accordance -16- 24 with DTC's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account, and (3) a certificate in the form of Exhibit A-3 attached hereto given by the holder of such beneficial interest stating that the exchange or transfer of such interest has been made in compliance with the transfer restrictions applicable to the Notes and pursuant to and in accordance with Regulation S, the Registrar shall instruct DTC to reduce the Restricted Global Note by the aggregate principal amount of the beneficial interest in the Restricted Global Note to be so exchanged or transferred and the Registrar, shall instruct DTC, concurrently with such reduction, to increase the principal amount of the Temporary Global Note by the aggregate principal amount of the beneficial interest in the Restricted Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions (who shall be the agent member of Euroclear or Cedel, or both, as the case may be) a beneficial interest in the Temporary Global Note equal to the reduction in the principal amount of the Restricted Global Note. (iv) Restricted Global Note to Permanent Global Note After the Exchange Date. If, after the Exchange Date, a holder of a beneficial interest in the Restricted Global Note registered in the name of DTC or its nominee wishes at any time to transfer its interest in such Restricted Global Note to a Person who wishes to take delivery thereof in the form of an interest in a Permanent Global Note, such holder may, subject to the rules and procedures of DTC, exchange or cause the exchange or transfer of such interest for an equivalent beneficial interest in such Permanent Global Note. Upon receipt by the Registrar of (1) instructions given in accordance with DTC's procedures from an agent member directing the Trustee to credit or cause to be credited a beneficial interest in the applicable Permanent Global Note in an amount equal to the beneficial interest in the applicable Restricted Global Note to be exchanged or transferred, (2) a written order given in accordance with DTC's procedures containing information regarding the participant account with DTC and, in the case of a transfer pursuant to and in accordance with Regulation S, the Euroclear or Cedel account to be credited with such increase and (3) a certificate in the form of Exhibit A-4 attached hereto given by the holder of such beneficial interest stating that the exchange or -17- 25 transfer of such interest has been made in compliance with the transfer restrictions applicable to the Notes (A) and pursuant to and in accordance with Regulation S or (B) and that the Note being exchanged or transferred is not a "restricted security" as defined in Rule 144, the Trustee shall instruct DTC to reduce such Restricted Global Note by the aggregate principal amount of the beneficial interest in such Restricted Global Note to be so exchanged or transferred and the Registrar shall instruct DTC, concurrently with such reduction, to increase the principal amount of the applicable Permanent Global Note by the aggregate principal amount of the beneficial interest in such Restricted Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the applicable Permanent Global Note equal to the reduction in the principal amount of such Restricted Global Note. (v) Temporary Global Note to Restricted Global Note. If a holder of a beneficial interest in a Temporary Global Note registered in the name of DTC or its nominee wishes at any time to exchange its interest in such Temporary Global Note for an interest in a Restricted Global Note, or to transfer its interest in such Temporary Global Note to a Person who wishes to take delivery thereof in the form of an interest in a Restricted Global Note, such holder may, subject to the rules and procedures of Euroclear or Cedel and DTC, as the case may be, exchange or cause the exchange or transfer of such interest for an equivalent beneficial interest in a Restricted Global Note. Upon receipt by the Registrar of (1) instructions from Euroclear or Cedel or DTC, as the case may be, directing the Registrar to credit or cause to be credited a beneficial interest in a Restricted Global Note equal to the beneficial interest in a Temporary Global Note to be exchanged or transferred, such instructions to contain information regarding the agent member's account with DTC to be credited with such increase, and, with respect to an exchange or transfer of an interest in a Temporary Global Note after the Exchange Date, information regarding the agent member's account with DTC to be debited with such decrease, and (2) with respect to an exchange or transfer of an interest in a Temporary Global Note for an interest in a Restricted Global Note prior to the Exchange Date, a certificate in the form of Exhibit A-5 attached hereto given by the holder of such beneficial interest and stating that the Person transferring such interest in such Temporary -18- 26 Global Note reasonably believes that the Person acquiring such interest in the applicable Restricted Global Note is a Qualified Institutional Buyer (as defined in Rule 144A) and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A, Euroclear or Cedel or the Registrar, as the case may be, shall instruct DTC to reduce such Temporary Global Note by the aggregate principal amount of the beneficial interest in such Temporary Global Note to be exchanged or transferred, and the Registrar shall instruct DTC, concurrently with such reduction, to increase the principal amount of such Restricted Global Note by the aggregate principal amount of the beneficial interest in such Temporary Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in such Restricted Global Note equal to the reduction in the principal amount of such Temporary Global Note. (vi) Permanent Global Note to Restricted Global Note. Interests in a Permanent Global Note may not be transferred for interests in a Restricted Global Note. (vii) Other Transfers or Exchanges, In the event that a Global Note is exchanged for Notes in definitive registered form without interest coupons, pursuant to Section 2.18 hereof, such Notes may be exchanged or transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of clauses (i) through (vi) above (including the certification requirements intended to insure that such exchanges or transfers comply with Rule 144A or Regulation S, as the case may be) and as may be from time to time adopted by NFLP and the Trustee. (b) The Registrar shall not register the exchange of interests in a Global Note for a Definitive Note or the transfer of or exchange of a Note during the period beginning on any Record Date and ending on the next following Distribution Date. (c) NFLP or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Notes. No service charge shall be made for any such transaction. (d) If the Notes are listed on the Luxembourg Stock Exchange, the Trustee or the Luxembourg Agent, as the case -19- 27 may be, shall send to NFLP upon any transfer or exchange of any Note information reflected in the copy of the register for the Notes maintained by the Registrar or the Luxembourg Agent, as the case may be. (e) To permit registrations of transfers and exchanges, NFLP shall execute and the Trustee shall authenticate Notes, subject to such rules as the Trustee may reasonably require. No service charge to the Noteholder shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Registrar may require payment of a sum sufficient to cover any transfer tax or similar government charge payable in connection therewith (other than any such transfer tax or similar governmental charge payable upon exchanges pursuant to Section 2.13 hereof in which event the Registrar will be responsible for the payment of any such taxes.) (f) All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of NFLP, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. (g) Prior to due presentment for registration of transfer of any Note, the Trustee, any Agent and NFLP may deem and treat the Person in whose name any Note is registered (as of the day of determination) as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and neither the Trustee, any Agent nor NFLP shall be affected by notice to the contrary. (h) Notwithstanding any other provision of this Section 2.9, the typewritten Note or Notes representing Book-Entry Notes for any Series may be transferred, in whole but not in part, only to another nominee of the Clearing Agency for such Series, or to a successor Clearing Agency for such Series selected or approved by NFLP or to a nominee of such successor Clearing Agency, only if in accordance with this Section 2.9 and Section 2.18. (i) By its acceptance of a Note, each Noteholder and Note Owner shall be deemed to have represented and warranted that its purchase and holding of the Note will not, throughout the term of its holding an interest therein, constitute a non-exempt "prohibited transaction" under Section 406(a) of ERISA or Section 4975 of the Code. -20- 28 Section 2.10. Legending of Notes. Unless otherwise provided for in a Supplement and except as permitted by the following sentence, in addition to any legend required by Section 2.16, each Note shall bear a legend in substantially the following form: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES OR "BLUE SKY" LAWS, THE HOLDER HEREOF, BY PURCHASING THIS CLASS A-1 NOTE, AGREES FOR THE BENEFIT OF NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP (THE "ISSUER") THAT THIS CLASS A-1 NOTE IS BEING ACQUIRED FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER (UPON REDEMPTION THEREOF OR OTHERWISE), (2) TO A PERSON WHO THE "TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) OUTSIDE THE UNITED STATES TO A NON U.S. PERSON (AS DEFINED IN REGULATION S OF THE SECURITIES ACT) IN A TRANSACTION IN COMPLIANCE WITH REGULATION S OF THE SECURITIES ACT, OR (4) IN A TRANSACTION COMPLYING WITH OR EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE RESALE RESTRICTIONS SET FORTH ABOVE. Upon any transfer, exchange or replacement of Notes bearing such legend, or if a request is made to remove such legend on a Note, the Notes so issued shall bear such legend, or such legend shall not be removed, as the case may be, unless there is delivered to NFLP and the Trustee or the Luxembourg Agent, if the Notes are listed on the Luxembourg Exchange, such satisfactory evidence, which may include an opinion of counsel, as may be reasonably required by NFLP that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A, Rule 144 or Regulation S. Upon provision of such satisfactory evidence, the Trustee, at the direction of NFLP, shall authenticate and deliver a Note that does not bear such legend. Section 2.11. Replacement Notes. (a) If (i) any mutilated Note is surrendered to the Trustee, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Trustee such security or indemnity as may be required by it to hold NFLP and the Trustee harmless then, in the absence of notice to NFLP, the Registrar or the Trustee that such Note has been acquired by a bona fide purchaser, and provided that the requirements of Section 8-405 of the UCC (which generally permit NFLP to -21- 29 impose reasonable requirements) are met, NFLP shall execute and upon its request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become or within seven days shall be due and payable, instead of issuing a replacement Note, NFLP may pay such destroyed, lost or stolen Note when so due or payable without surrender thereof. If, after the delivery of such replacement Note or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, NFLP and the Trustee shall be entitled to recover such replacement Note (or such payment) from the Person to whom it was delivered or any Person taking such replacement Note from such Person to whom such replacement Note was delivered or any assignee of such Person, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by NFLP or the Trustee in connection therewith. (b) Upon the issuance of any replacement Note under this Section, the Registrar, the Trustee or NFLP may require the payment by the Holder of such Note of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Trustee) connected therewith. (c) Every replacement Note issued pursuant to this Section in replacement of any mutilated, destroyed, lost or stolen Note shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. (d) The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. Section 2.12. Treasury Notes. In determining whether the Noteholders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by NFLP or any Affiliate of NFLP shall be considered as though they are not Outstanding, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes of which the Trustee has received written notice of such -22- 30 ownership shall be so disregarded. Absent written notice to the Trustee of such ownership, the Trustee shall not be deemed to have knowledge of the identity of the individual beneficial owners of the Notes. Section 2.13. Temporary Notes. (a) Pending the preparation of Definitive Notes issued under Section 2.18 hereof, NFLP may prepare and the Trustee, upon receipt of a Company Order, shall authenticate and deliver temporary Notes of such Series. Temporary Notes shall be substantially in the form of Definitive Notes of like Series but may have variations that are not inconsistent with the terms of this Indenture as the officers executing such Notes may determine, as evidenced by their execution of such Notes. (b) If temporary Notes are issued pursuant to Section 2.13(a) above, NFLP will cause Definitive Notes to be prepared without unreasonable delay. After the preparation of Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes upon surrender of the temporary Notes at the office or agency of NFLP to be maintained as provided in Section 8.2, without charge to the Noteholder. Upon surrender for cancellation of any one or more temporary Notes, NFLP shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of Definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes. Section 2.14. Cancellation. NFLP may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which NFLP may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Trustee. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation. NFLP may not issue new Notes to replace Notes that it has redeemed or paid or that have been delivered to the Trustee for cancellation. All cancelled Notes held by the Trustee shall be disposed of in accordance with the Trustee's standard disposition procedures unless by a written order, signed by two Authorized Officers, NFLP shall direct that cancelled Notes be returned to it. -23- 31 Section 2.15. Principal and Interest. (a) The principal of each Series of Notes shall be payable at the times and in the amount set forth in the related Supplement in accordance with Section 6.1. (b) Each Series of Notes shall accrue interest as provided in the related Supplement and such interest shall be payable on each Distribution Date for such Series in accordance with Section 6.1 and the related Supplement. (c) Except as provided in the following sentence, the person in whose name any Note is registered at the close of business on any Record Date with respect to a Distribution Date for such Note shall be entitled to receive the principal and interest payable on such Distribution Date notwithstanding the cancellation of such Note upon any registration of transfer, exchange or substitution of such Note subsequent to such Record Date. Any interest payable at maturity shall be paid to the Person to whom the principal of such Note is payable. (d) If NFLP defaults in the payment of interest on the Notes of any Series, such interest, to the extent paid on any date that is more than five (5) Business Days after the applicable due date, shall at the option of NFLP, cease to be payable to the persons who were Noteholders of such series at the applicable Record Date and, in such case, NFLP shall pay the defaulted interest in any lawful manner, plus, to the extent lawful, interest payable on the defaulted interest, to the persons who are Noteholders of such Series on a subsequent special record date which date shall be at least five (5) Business Days prior to the payment date, at the rate provided in this Indenture and in the Notes of such Series. NFLP shall fix or cause to be fixed each such special record date and payment date, and at least fifteen (15) days before the special record date, NFLP (or, if so requested by NFLP, the Trustee in the name of and at the expense of NFLP) shall mail to Noteholders of such Series a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.16. Book-Entry Notes. (a) For each Series of Notes to be issued in registered form, NFLP shall duly execute the Notes, and the Trustee shall, in accordance with Section 2.4 hereof, authenticate and deliver initially one or more Global Notes that (a) shall be registered on the Note Register in the name of DTC or DTC's nominee, and (b) shall bear legends substantially to the following effect: -24- 32 UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OR THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO NFLP OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. ("CEDE") OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE, HAS AN INTEREST HEREIN. So long as DTC or its nominee is the registered owner or holder of a Global Note, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for purposes of this Indenture, and such Notes. Members of, or participants in, DTC shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC, and DTC may be treated by NFLP, the Trustee, the Registrar, any Paying Agent and any agent of such entities as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent NFLP, the Trustee, the Registrar, any Paying Agent and any agent of such entities from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its agent members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) The provisions of the "Operating Procedures of the Euroclear System" and the "Terms and Conditions Governing Use of Euroclear" and the "Management Regulations" and "Instructions to Participants" of Cedel, respectively, shall be applicable to the Global Note insofar as interests in a Global Note are held by the agent members of Euroclear or Cedel (which shall only occur in the case of the Temporary Global Note and the Permanent Global Note). Account holders or participants in Euroclear and Cedel shall have no rights under this Indenture with respect to such Global Note, and the registered holder may be treated by NFLP, the Trustee, the Registrar, the Paying Agent and any agent of NFLP or any such entity as the owner of such Global Note for all purposes whatsoever. (c) Title to the Notes shall pass only by registration in the Note Register maintained by the Registrar pursuant to Section 2.6. (d) Any typewritten Note or Notes representing Book-Entry Notes shall provide that they represent the aggregate or a specified amount of Outstanding Notes from time to time -25- 33 endorsed thereon and may also provide that the aggregate amount of Outstanding Notes represented thereby may from time to time be reduced to reflect exchanges. Any endorsement of a typewritten Note or Notes representing Book-Entry Notes to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Note Owners represented thereby, shall be made in such manner and by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 2.4, Subject to the provisions of Section 2.5, the Trustee shall deliver and redeliver any typewritten Note or Notes representing Book-Entry Notes in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. Any instructions by NFLP with respect to endorsement or delivery or redelivery of a typewritten Note or Notes representing the Book-Entry Notes shall be in writing but need not comply with Section 13.3 hereof and need not be accompanied by an Opinion of Counsel. (e) Unless and until definitive, fully registered Notes ("Definitive Notes") have been issued to Note Owners pursuant to Section 2.18: (i) the provisions of this Section 2.16 shall be in full force and effect; (ii) the Paying Agent, the Registrar and the Trustee may deal with the Clearing Agency and the Clearing Agency Participants for all purposes of this Indenture (including the making of payments on the Notes and the giving of instructions or directions hereunder) as the authorized representatives of the Note Owners; (iii) to the extent that the provisions of this Section 2.16 conflict with any other provisions of this Indenture, the provisions of this Section 2.16 shall control; (iv) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders of Notes evidencing a specified percentage of the Outstanding principal amount of the Notes, the applicable Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Note Owners and/or their related Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial -26- 34 interest in the Notes and has delivered such instructions to the Trustee; and (v) the rights of Note Owners shall be exercised only through the applicable Clearing Agency and their related Clearing Agency Participants and shall be limited to those established by law and agreements between such Note Owners and their related Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Notes are issued pursuant to Section 2.18, the applicable Clearing Agencies will make book-entry transfers among their related Clearing Agency Participants and receive and transmit payments of principal and interest on the Notes to such Clearing Agency Participants. Section 2.17. Notices to Clearing Agency. Whenever notice or other communication to the Noteholders is required under this Indenture, unless and until Definitive Notes shall have been issued to Note Owners pursuant to Section 2.18, the Trustee, the Servicer and NFLP shall give all such notices and communications specified herein to be given to Noteholders to the applicable Clearing Agency for further distribution to the Note Owners in accordance with the customary practices and procedures of such Clearing Agency and Clearing Agency Participants. Section 2.18. Definitive Notes. (a) Conditions for Issuance. Interests in a Restricted Global Note or Permanent Global Note deposited with DTC or a custodian of DTC pursuant to Section 2.5 shall be transferred to the beneficial owners thereof in the form of definitive registered Notes only if such transfer complies with Section 2.9 and (x) DTC notifies NFLP that it is unwilling or unable to continue as depositary for such Restricted Global Note or Permanent Global Note or at any time ceases to be a "clearing agency" registered under the Exchange Act, and, in either case, a successor depositary so registered is not appointed by NFLP within 90 days of such notice or (y) NFLP determines that the Restricted Global Note or Permanent Global Notes with respect to the relevant Series of Notes shall be exchangeable for definitive registered Notes, in which case Definitive Notes shall be issuable or exchangeable only in respect of such Global Notes or the category of Definitive Notes represented thereby or (z) any Note Owner or purchaser or transferee of a beneficial interest in a Restricted Global Note or a Permanent Global Note requests the same in the form of a -27- 35 Definitive Note and NFLP, in its sole discretion, consents to such request (in which case a Definitive Note shall be issuable or transferable only to such Noteholder, purchaser or transferee), NFLP will deliver Notes in definitive registered form, without interest coupons, in exchange for the Restricted Global Notes or the Permanent Global Notes or, in the case of an exchange or transfer described in clause (z) above, in exchange for the applicable beneficial interest in one or more Global Notes. Definitive registered Notes shall be issued without coupons in amounts of U.S.$1,000,000 and integral multiples of U.S.$1,000, subject to compliance with all applicable legal and regulatory requirements. (b) Issuance. If interests in any Restricted Global Note or Permanent Global Note, as the case may be, are to be transferred to the beneficial owners thereof in the form of Definitive Notes pursuant to this Section 2.18, such Restricted Global Note or Permanent Global Note, as the case may be, shall be surrendered by DTC or its custodian or agent to the office or agency of the Registrar located in the Borough of Manhattan, the City of New York, or if the Notes are listed on the Luxembourg Stock Exchange, to the applicable Luxembourg Agent in Luxembourg, to be so transferred, without charge. If interests in any Permanent Global Note are to be transferred to the beneficial owners thereof in the form of Definitive Notes pursuant to this Section 2.18, such Permanent Global Note shall be surrendered by DTC or its custodian or agent to the Registrar or its agent located in London to be so transferred, without charge. The Trustee shall authenticate and deliver, upon such transfer of interests in such Restricted Global Note or Permanent Global Note, an equal aggregate principal amount of Definitive Notes of authorized denominations; provided, that in the case of an interest in a Restricted Global Note, no such interest will be transferred except upon delivery of a certificate substantially in the form of Exhibit A-1 hereto. The Definitive Notes transferred pursuant to this Section 2.18 shall be executed, authenticated and delivered only in the denominations specified in paragraph (a) above or in the related Supplement, and Definitive Notes shall be registered in such names as DTC shall direct in writing. The Registrar shall have at least 30 days from the date of its receipt of Definitive Notes and registration information to authenticate and deliver such Definitive Notes. Any Definitive Note delivered in exchange for an interest in a Restricted Global Note or Permanent Global Note shall, except as otherwise provided by Section 2.10, bear, and be subject to, the legend regarding transfer restrictions set forth in Section 2.10. NFLP will promptly make available to -28- 36 the Registrar a reasonable supply of Definitive Notes. NFLP shall bear the costs and expenses of printing or preparing any Definitive Notes. (c) Transfer of Definitive Notes. Subject to the terms of this Indenture, the Holder of any Definitive Note may transfer the same in whole or in part, in an amount equivalent to an authorized denomination, by surrendering at the office maintained by the Registrar for such purpose in the Borough of Manhattan, The City of New York, such Note with the form of transfer endorsed on it duly completed and executed by, or accompanied by a written instrument of transfer in form satisfactory to NFLP and the Registrar by, the holder thereof and accompanied by a certificate substantially in the form of Exhibit A-1 hereto. In exchange for any Definitive Note properly presented for transfer, NFLP shall execute and the Trustee shall promptly authenticate and deliver or cause to be authenticated and delivered in compliance with applicable law, to the transferee at such office, or send by mail (at the risk of the transferee) to such address as the transferee may request, Definitive Notes for the same aggregate principal amount as was transferred. In the case of the transfer of any Definitive Note in part, NFLP shall execute and the Trustee shall also promptly authenticate and deliver or cause to be authenticated and delivered to the transferor at such office, or send by mail (at the risk of the transferor) to such address as the transferor may request, Definitive Notes for the aggregate principal amount that was not transferred. No transfer of any Definitive Note shall be made unless the request for such transfer is made by the registered Holder at such office. (d) Neither NFLP nor the Trustee shall be liable for any delay in delivery of transfer instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes for such Series, the Trustee shall recognize the Holders of the Definitive Notes as Noteholders of such Series. Section 2.19. Tax Treatment. NFLP has structured this Indenture and the Notes have been (or will be) issued with the intention that the Notes will qualify under applicable tax law as indebtedness of NFLP and any entity acquiring any direct or indirect interest in any Note by acceptance of its Notes (or, in the case of a Note Owner, by virtue of such Note Owner's acquisition of a beneficial interest therein) agrees to treat the Notes (or beneficial interests therein) for purposes of Federal, state and local and income or franchise taxes and any other tax imposed on or measured by -29- 37 income, as indebtedness of NFLP. Each Noteholder agrees that it will cause any Note Owner acquiring an interest in a Note through it to comply with this Indenture as to treatment as indebtedness for such tax purposes. Section 2.20. Certain Purchaser Representations and Certifications. (a) Prior to any sale or transfer of the Notes described in clause (2) of Section 2.9(a) above, each prospective purchaser of the Notes shall be deemed to have represented and agreed as follows: (1) It is a qualified institutional buyer as defined in Rule 144A, it is aware that any sale of the Notes to it will be made in reliance on Rule 144A and it is acquiring the Notes for its own institutional account of for the account of a qualified institutional buyer. (2) The purchaser understands that the Notes are being offered in a transaction not involving any public offering in the United States within the meaning of the Securities Act, that the Notes have not been registered under the Securities Act and that (A) such Notes may be offered, resold, pledged or otherwise transferred only (i) to the Issuer, (ii) to a person who the seller reasonably believes is a qualified institutional buyer (as defined in Rule 144A) in a transaction meeting the requirements of Rule 144A, (iii) outside the United States to a person other than a U.S. Person (as defined in Regulation S) in a transaction meeting the requirements of Regulation S under the Securities Act, (iv) in a transaction exempt from the registration requirements of the Securities Act and the applicable securities laws of any State of the United States and any other jurisdiction or (v) pursuant to an effective registration statement under the Securities Act, in each such case in accordance with the Indenture and any applicable securities laws of any State of the United States and (B) the purchaser will, and each subsequent holder of a Note is required to, notify any subsequent purchaser of a Note of the resale restrictions set forth in (A) above. (b) Prior to (a) (i) any direct placement of the Notes from the Issuer or (ii) any placement by a placement agent selected by the Issuer, to an institutional accredited investor or (b) any sale or transfer of the Notes described in clause (4) of Section 2.9(a) above, each such prospective purchaser of the Notes shall represent and agree as follows: (i) to the restrictions on transfer set forth in clause (a) (2) above, (ii) that it is (w) a qualified -30- 38 institutional buyer within the meaning of Rule 144A or an accredited investor as defined in Rule 501(a)(1), (2),(3) or (7) under the Securities Act; (x) acquiring Notes having a minimum purchase price of not less than $250,000 for its own account or for any separate account for which it is acting; (y) acquiring such Notes for its own institutional account or the account of an accredited investor as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act or a qualified institutional buyer within the meaning of Rule 144A; and (z) not acquiring the Notes with a view to distribution thereof or with any present intention of offering or selling any of the Notes in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction, (iii) that the registrar and transfer agent for the Notes will not be required to accept for registration of transfer any Notes acquired by them, except upon presentation of evidence satisfactory to the transfer agent that the restrictions on transfer set forth in clause (a) (2) above have been complied with and (iv) to execute and deliver to the Issuer and the Trustee a Purchaser Representation Letter in the form of Exhibit D hereto. (c) In addition, NFLP shall require such prospective purchaser to provide additional information or certifications, as shall be reasonably requested by the Trustee, the Issuer or the Initial Purchasers, to support the truth and accuracy of the foregoing acknowledgements, representations and agreements, it being understood that such additional information is not intended to create additional restrictions on the transfer of the Notes. NFLP, the Initial Purchasers and the Trustee are not obligated, in their individual capacities or as a group, to register the Notes under the Securities Act or any state securities laws. ARTICLE 3. SECURITY Section 3.1. Grant of Security Interest. (a) To secure the NFLP Obligations, NFLP hereby pledges, assigns, conveys, delivers, transfers and sets over to the Trustee, for the benefit of the Noteholders and the Note Owners (the Noteholders and the Note Owners being referred to as the "Secured Parties"), and hereby grants to the Trustee, for the benefit of the Secured Parties, a security interest in all of the right, title and interest in and to all of the following assets, property and interests in property of NFLP whether now owned or hereafter acquired or created (all of such right, title and interest, together -31- 39 with the portion of the Master Collateral with respect to which the Trustee is named as a Beneficiary, being referred to as the "Collateral"): (i) all right, title and interest of NFLP in, to and under the NFLP Agreements, including, without limitation, all rights of NFLP arising thereunder in respect of the National Master Collateral, all monies due and to become due to NFLP from the Lessee or the Servicer under or in connection with NFLP Agreements, whether payable as rent, guaranty payments, supplemental payments, fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of NFLP Agreements or otherwise, and all rights, remedies, powers, privileges and claims of NFLP against any other party under or with respect to NFLP Agreements (whether arising pursuant to the terms of such NFLP Agreements or otherwise available to NFLP at law or in equity), the right to enforce any of the NFLP Agreements as provided herein and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with respect to NFLP Agreements or the obligations of any party thereunder; and (ii) (a) the Collection Account (including any accounts designated in a Supplement or otherwise as a subaccount thereof), (b) all funds on deposit therein from time to time, (c) all certificates and instruments, if any, representing or evidencing any or all of the Collection Account or any subaccount thereof or the funds on deposit therein from time to time, and (d) all Permitted Investments made at any time and from time to time with the moneys in the Collection Account or any subaccount thereof (including income thereon); and (iii) all right, title and interest of NFLP in, to and under the Master Collateral Agency Agreement with respect to the portion of the Master Collateral for which NFLP is designated as a Financing Source and the Trustee is designated as a Beneficiary thereunder; and (iv) all additional property that may from time to time hereafter (pursuant to the terms of any Supplement or otherwise) be subjected to the grant and pledge hereof by NFLP or by anyone on its behalf; and -32- 40 (v) all proceeds, products, rents or profits of any and all of the foregoing including, without limitation, payments under insurance (whether or not the Master Collateral Agent or the Trustee is the loss payee thereof) or Vehicle warranties and cash. (b) To secure the NFLP Obligations, NFLP hereby confirms the grant, pledge, hypothecation, assignment, conveyance, delivery and transfer to the Master Collateral Agent under the Master Collateral Agency Agreement for the benefit of the Trustee of a continuing first priority perfected Lien on all right, title and interest of NFLP in, to and under all the NFLP Master Collateral. (c) Notwithstanding anything to the contrary contained in (a) and (b) above, the Collateral shall not include the Retained Distribution Account, any funds on deposit therein from time to time, any certificates or instruments, if any, representing or evidencing any or all of the Retained Distribution Account or the funds on deposit therein from time to time, or any Permitted Investments made at any time and from time to time with the funds on deposit in the Retained Distribution Account (including the income thereon); provided, further, the Collateral shall not include any right, title or interest in the Fleet Finance Agreement or the NFLP Fleet Finance Agreement and payments thereunder. (d) The foregoing grant is made in trust to secure the NFLP Obligations and to secure compliance with the provisions of this Indenture and any Supplement, all as provided in this Indenture. The Trustee, as Trustee on behalf of the Secured Parties, acknowledges such grant, accepts the trusts under this Indenture in accordance with the provisions of this Indenture and agrees to perform its duties required in this Indenture to the best of its abilities to the end that the interests of the Noteholders may be adequately and effectively protected. The Collateral shall secure the Notes equally and ratably without prejudice, priority (except, with respect to any Series of Notes, as otherwise stated in the applicable Supplement) or distinction. Section 3.2. Certain Rights and Obligations of NFLP Unaffected. (a) Notwithstanding the assignment and security interest so granted to the Trustee, NFLP shall nevertheless be permitted, subject to the Trustee's right to revoke such permission in the event of an Amortization Event and subject -33- 41 to the provisions of Section 3.3 hereof, to give all consents, requests, notices, directions, approvals, extensions or waivers, if any, which are required to be given in the normal course of business (which does not include waivers of defaults under any of the NFLP Agreements or any of the Manufacturer Programs or revocation of powers of attorney to the Lessee) to the Lessee by NFLP and by National to the Manufacturers by the specific terms of the Lease and each Manufacturer Program, respectively. (b) The grant of a security interest in the Collateral to the Trustee shall not (i) relieve NFLP from the performance of any term, covenant, condition or agreement on NFLP's part to be performed or observed under or in connection with any of the NFLP Agreements or any of the Manufacturer Programs or from any liability to National or the Manufacturers, as the case may be, subject to the limitations contained in Section 13.18, or (ii) impose any obligation on the Trustee or any of the Secured Parties to perform or observe any such term, covenant, condition or agreement on NFLP's part to be so performed or observed or impose any liability on the Trustee or any of the Secured Parties for any act or omission on the part of NFLP or from any breach of any representation or warranty on the part of NFLP. NFLP hereby agrees to indemnify and hold harmless the Trustee, each Noteholder and each Note Owner (including, in each case, their respective directors, officers, employees and agents) from and against any and all losses, liabilities (including liabilities for penalties), claims, demands, actions, suits, judgments, out-of-pocket costs and expenses arising out of or resulting from the security interest granted hereby or by any Assignment Agreement, whether arising by virtue of any act or omission on the part of NFLP or otherwise, including, without limitation, out-of-pocket costs, expenses, and disbursements (including reasonable attorneys' fees and expenses) incurred by the Trustee, any of the Noteholders and any of the Note Owners in enforcing this Indenture or preserving any of their respective rights to, or realizing upon, any of the Collateral; provided, however, the foregoing indemnification shall not extend to any action by the Trustee, a Noteholder or a Note Owner which constitutes negligence or willful misconduct by the Trustee, such Noteholder, such Note Owner or any other Indemnified Person hereunder. The indemnification provided for in this Section 3.2 shall survive the removal of, or a resignation by, such Person as Trustee as well as the termination of this Indenture, any Supplement or any Assignment Agreement. -34- 42 Section 3.3. Performance of Agreement. Upon the occurrence of a Limited Liquidation Event of Default or Liquidation Event of Default, promptly following a request from the Trustee or the Master Collateral Agent to do so and at NFLP's expense, NFLP agrees to take all such lawful action as permitted under this Indenture as the Trustee or the Master Collateral Agent may request to compel or secure the performance and observance by: (i) National or by any other party to any of the NFLP Agreements or any other Related Document of its obligations to NFLP, and (ii) a Manufacturer under a Manufacturer Program of its obligations to the Lessor or the Lessee, or the Master Collateral Agent, as assignee, in each case in accordance with the applicable terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to NFLP to the extent and in the manner directed by the Trustee or the Master Collateral Agent, as applicable, including, without limitation, the transmission of notices of default and the institution of legal or administrative actions or proceedings to compel or secure performance by National (or such party to any NFLP Agreement or any other Related Document) or by a Manufacturer under a Manufacturer Program, of their respective obligations thereunder. If NFLP or National shall have failed, within 30 days of receiving the direction of the Trustee or the Master Collateral Agent, as applicable, to take commercially reasonable action to accomplish such directions of the Trustee or the Master Collateral Agent, as applicable, the Trustee or the Master Collateral Agent, as applicable, may take such previously directed action and any related action permitted under this Indenture which the Trustee or the Master Collateral Agent, as applicable, thereafter determines is appropriate, without the need under this provision or any other provision under the Indenture to direct NFLP to take such action) on behalf of NFLP and the Noteholders. Section 3.4. Release of Lien on Vehicles. The Lien of the Trustee on the Vehicles shall automatically be deemed to be released concurrently with any release thereof as provided in the Lease, or Sections 2.3 or 2.7 of the Master Collateral Agency Agreement. Section 3.5. Stamp, Other Similar Taxes and Filing Fees. NFLP shall indemnify and hold harmless the Trustee, the Master Collateral Agent and each Noteholder from any present or future claim for liability for any stamp or other similar tax and any penalties or interest with respect thereto, that may be assessed, levied or collected by any jurisdiction in connection with this Indenture or any Collateral. NFLP shall pay, or -35- 43 reimburse the Trustee for, any and all amounts in respect Of, all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts that may be payable or determined to be payable in respect of the execution, delivery, performance and/or enforcement of this Indenture. ARTICLE 4. REPORTS Section 4.1. Agreement of Servicer to Provide Reports. (a) Pursuant to the Lease and the Master Collateral Agency Agreement, the Servicer has agreed to provide certain reports specified therein. This Noteholders by their acceptance of the Notes consent to the provision of such reports by the Servicer in lieu of the Trustee or NFLP. (b) The Trustee and the Paying Agent shall promptly follow the instructions of the Servicer given pursuant to the Lease to withdraw funds from the Collection Account and make drawings under any Enhancement, as provided in the applicable Supplement. ARTICLE 5. ALLOCATION AND APPLICATION OF COLLECTIONS Section 5.1. Collection Account. (a) Establishment of Collection Account. The Trustee shall establish and maintain in the name of the Trustee for the benefit of the Secured Parties, or cause to be established and maintained, an account (the "Collection Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Secured Parties. The Collection Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Collection Account. If the Collection Account is not maintained in accordance with the previous sentence, then within 10 Business Days after obtaining knowledge of such fact, the Trustee shall establish a new Collection Account which complies with such sentence and transfer into the new Collection Account all cash and investments from the nonqualifying Collection Account. Initially, the Collection Account will be established with the Trustee. -36- 44 (b) Establishment of Retained Distribution Account. The Trustee shall establish and maintain in the name of the Retained Interestholder, for the benefit of the Retained Interestholder, or cause to be established and maintained, an account (the "Retained Distribution Account") bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Retained Interestholder. Unless otherwise instructed by NFLP, the Retained Distribution Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Retained Distribution Account. If the Retained Distribution Account is not maintained in accordance with the previous sentence, then within ten (10) Business Days after obtaining knowledge of such fact, the Trustee shall establish a new Retained Distribution Account which complies with such sentence and transfer into the new Retained Distribution Account all cash and investments from the non-qualifying Retained Distribution Account. Initially, the Retained Distribution Account will be established with the Trustee. (c) Establishment of Additional Accounts. To the extent specified in the Supplement with respect to any Series of Notes, the Trustee may establish and maintain one or more additional accounts and/or administrative subaccounts to facilitate the proper allocation of Collections in accordance with the terms of such Supplement. (d) Administration of the Collection Account. NFLP shall instruct the institution maintaining the Collection Account to invest funds on deposit in the Collection Account (including any administrative subaccount thereof) at all times in Permitted Investments selected by NFLP; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were so invested, except for any Permitted Investment held in the Collection Account, which is in an investment made by the Paying Agent institution, in which event such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date provided, further, that any such investment described in clause (iv) of the definition of "Permitted Investments" need not mature on or prior to such Distribution Date but need only permit withdrawals therefrom not less frequently than on each Distribution Date. The Trustee shall hold, for the benefit of the Secured Parties, possession of any negotiable instruments or securities evidencing the Permitted Investments until their maturity. -37- 45 (e) Earnings from Collection Account. Subject to the restrictions set forth above, NFLP shall have the authority to instruct the Trustee (which instructions shall be in writing) with respect to (i) the investment of funds on deposit in the Collection Account and (ii) liquidation of such investments. All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Collection Account shall be deemed to be available and on deposit for distribution. (f) Earnings from Retained Distribution Account. Subject to the restrictions set forth above, the Servicer shall have the authority to instruct the Trustee with respect to the investment of funds on deposit in the Retained Distribution Account. All interest and earnings (net of losses and investment expenses) on funds on deposit in the Retained Distribution Account shall be deemed to be available and on deposit for distribution to the Retained Interestholder. Section 5.2. Collections and Allocations. (a) Collections in General. Until this Indenture is terminated pursuant to Section 11.1, NFLP shall, and the Trustee is authorized to, cause all Collections due and to become due to NFLP or the Trustee, as the case may be, (i) under or in connection with the Master Collateral for which NFLP is designated as a Financing Source and the Trustee is designated as a Beneficiary under the Master Collateral Agency Agreement (including, without limitation, amounts due from Manufacturers under their Manufacturer Programs with respect to Vehicles other than Exchanged Vehicles but excluding amounts representing the proceeds from sales of Vehicles by the Lessee or the Lessor to third parties other than the Manufacturers, warranty payments and insurance proceeds) to be paid directly to the Master Collateral Agent for deposit into the Master Collateral Account; (ii) with respect to amounts representing the proceeds from sales of Vehicles (other than Exchanged Vehicles) by the Lessee or the Lessor to third parties other than the Manufacturers (including proceeds from sales of Vehicles at Auction which are due from third parties other than the Manufacturer) to be deposited by the Lessee or the Lessor, as applicable, within two Business Days of its receipt thereof into the Master Collateral Account; (iii) under the Lease to be paid directly to the Trustee for deposit into the Collection Account; and (iv) from any other source (other than Collections excluded from deposit into the Master Collateral Account under clause (i) above) to be paid either (a) directly into the Collection Account at such times as such amounts are due or (b) by the Lessee or the Lessor, as -38- 46 applicable, into the Collection Account within two Business Days of its receipt thereof (and, in each case, NFLP represents to the Trustee for the benefit of the Secured Parties that it has instructed the Lessee, the Servicer, the Manufacturers, and that it will instruct any other source of Collections, as applicable, to so remit such amounts). Upon the occurrence and during the continuance of an Amortization Event or Potential Amortization Event, insurance proceeds, (with respect to Vehicles other than Exchanged Vehicles) will be deposited in the Master Collateral Account within two Business Days of their receipt by the Lessee, the Lessor or the Servicer, as applicable; provided, however, upon the delivery of an Officer's Certificate of the Servicer to the Trustee (upon which it may conclusively rely) certifying (i) that a Vehicle for which insurance proceeds have been received in the Collection Account has been repaired and (ii) as to the dollar amount of such repairs, the Trustee shall release to National insurance proceeds in such dollar amount. NFLP agrees that if any such monies, instruments, cash or other proceeds shall be received by NFLP in an account other than the Master Collateral Account or the Collection Account or in any other manner, such monies, instruments, cash and other proceeds will not be commingled by NFLP with any of its other funds or property, if any, but will be held separate and apart therefrom and shall be held in trust by NFLP for, and immediately paid over to, but in any event within two Business Days from receipt, the Trustee or the Master Collateral Agent, as applicable, with any necessary endorsement. All amounts on deposit in the Master Collateral Account shall be allocated and distributed to the Trustee and other Beneficiaries as provided in the Master Collateral Agency Agreement. All monies, instruments, cash and other proceeds received by the Trustee pursuant to this Indenture (including amounts received from the Master Collateral Agent) shall be immediately deposited in the Collection Account and shall be applied as provided in this Article 5. Notwithstanding the foregoing, to the extent that the aggregate amount of proceeds received in the Collection Account with respect to any Financed Vehicle exceeds the Termination Value of such Vehicle, the Trustee shall, upon the written direction (on which it may conclusively rely) of NFLP delivered by 12:00 noon (New York City time) on a Business Day, release such excess to the Lessee on such Business Day, or, if such written direction is received by the Trustee after 12:00 noon (New York City time) on a Business Day, on the next succeeding Business Day. (b) Disqualification of Institution Maintaining Collection Account. In the event the Qualified Institution maintaining the Collection Account ceases to be such, then, -39- 47 upon the occurrence of such event and the establishment of a new Collection Account with a Qualified Institution or qualified corporate trust department pursuant to Section 5.1(a) and thereafter, the Servicer, the Lessee and NFLP shall deposit or cause to be deposited all Collections as set forth in Section 5.2(a) into the new Collection Account, and in no such event shall deposit or cause to be deposited any Collections thereafter into any account established, held or maintained with the institution formerly maintaining the Collection Account (unless it later becomes a Qualified Institution or qualified corporate trust department). NFLP will instruct the Lessee and the Servicer as to the foregoing requirements of this subsection (b). (c) Right of Servicer to Deduct Fees. Notwithstanding anything in this Indenture to the contrary but subject to any limitations set forth in the applicable Supplement, as long as the Servicer is National or an Affiliate of National and the Retained Interest Amount equals or exceeds zero, the Servicer (i) may make or cause to be made deposits to the Collection Account net of any amounts which are allocable to the Retained Distribution Account and represent amounts due and owing to the Servicer or National, and (ii) need not deposit or cause to be deposited any amounts to be paid to the Servicer or National pursuant to this Section 5.2 and such amounts will be deemed paid to National or the Servicer, as the case may be, pursuant to this Section 5.2. (d) Sharing Collections. To the extent that Principal Collections that are allocated to any Series on a Distribution Date are not needed to make payments to Noteholders of such Series or required to be deposited in a Distribution Account for such Series on such Distribution Date, such Principal Collections may at the direction of the Servicer, be applied to cover principal payments due to or for the benefit of Noteholders of another Series. Any such reallocation will not result in a reduction of the Principal Balance or Invested Amount of the Series to which such Principal Collections were initially allocated. (e) Unallocated Principal Collections. If, after giving effect to Section 5.2(d), Principal Collections allocated to any Series on any Distribution Date are in excess of the amount required to be paid in respect of such Series on such Distribution Date, then any such excess Principal Collections shall be allocated to the Retained Distribution Account, to the extent that the Retained Interest Amount, calculated as of such Distribution Date, equals or exceeds zero and such payment will not violate any restriction contained in this Indenture. -40- 48 Section 5.3. Determination of Monthly Interest. Monthly interest with respect to each Series of Notes shall be determined, allocated and distributed in accordance with the procedures set forth in the applicable Supplement. Section 5.4. Determination of Monthly Principal. Monthly principal with respect to each Series of Notes shall be determined, allocated and distributed in accordance with the procedures set forth in the applicable Supplement. However, all principal or interest with respect to any Series of Notes shall be due and payable no later than the Series Termination Date with respect to such Series. Section 5.5. Paired Series. To the extent provided in a Supplement, any Series of Notes may be paired with one or more other Series (each, a "Paired Series"). Each Paired Series may be pre-funded with an initial deposit to a pre-funding account in an amount up to the initial principal balance of such Paired Series, primarily from the proceeds of the sale of such Paired Series, or will have a variable principal amount. Any such pre-funding account will be held for the benefit of such Paired Series and not for the benefit of the Noteholders of the Series paired therewith. As funds are accumulated in a principal funding account or paid to Noteholders either (i) in the case of a pre-funded Paired Series, an equal amount of funds on deposit in any pre-funding account for such pre-funded Paired Series will be released and paid to NFLP or (ii) in the case of a Paired Series having a variable principal amount, an interest in such variable Paired Series in an equal or lesser amount may be sold by NFLP and, in either case, the invested amount of such Paired Series will increase by up to a corresponding amount. Upon payment in full of the Series paired to the Paired Series, the aggregate invested amount of such related Paired Series will have been increased by an amount up to an aggregate amount equal to the Invested Amount of such Series paid to the Noteholders thereof. The issuance of a Paired Series may be subject to certain conditions described in the related Supplement. [THE REMAINDER OF ARTICLE 5 IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES] -41- 49 ARTICLE 6. DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Section 6.1. Distributions in General. (a) Unless otherwise specified in the applicable Supplement, on each Distribution Date with respect to each Outstanding Series, (i) the Paying Agent shall deposit (in accordance with the Monthly Certificate delivered by the Servicer to the Trustee) in the Distribution Account for each such Series the amounts on deposit in the Collection Account allocable to Noteholders of such Series as interest and, if during an Amortization Period, principal, and (ii) to the extent provided for in the applicable Supplement, the Trustee (in accordance with the Monthly Certificate or other instructions of the Servicer) shall deposit in the Distribution Account for each such Series the amount of Enhancement for such Series drawn in connection with such Distribution Date. (b) Unless otherwise specified in the applicable Supplement, on each Distribution Date, the Paying Agent shall distribute to the Noteholders of each Series, to the extent amounts are on deposit in the Distribution Account for such Series, an amount sufficient to pay all principal and interest due on such Series on such Distribution Date. Such distribution shall be to each Noteholder of record of such Series on the preceding Record Date based on such Noteholder's pro rata share of the aggregate principal amount of the Notes of such Series held by such Noteholder; provided, however, that, the final principal payment due on a Note shall only be paid to the holder of a Note on due presentment of such Note for cancellation in accordance with the provisions of the Note. (c) Unless otherwise specified in the applicable Supplement, amounts distributable to a Noteholder pursuant to this Section 6.1 shall be payable by check mailed first-class postage prepaid to such Noteholder at the address for such Noteholder appearing in the Note Register except that with respect to Notes registered in the name of a Clearing Agency or its nominee, such amounts shall be payable by wire transfer of immediately available funds released by the Paying Agent from the Distribution Account no later than 2:00 p.m. (New York City time) for credit to the account designated by such Clearing Agency or its nominee, as applicable. (d) Unless otherwise specified in the applicable Supplement (i) all distributions to Noteholders of all -42- 50 classes within a Series of Notes will have the same priority and (ii) in the event that on any date of determination the amount available to make payments to the Noteholders of a Series is not sufficient to pay all sums required to be paid to such Noteholders on such date, then each class of Noteholders will receive its ratable share (based upon the aggregate amount due to such class of Noteholders) of the aggregate amount available to be distributed in respect of the Notes of such Series. (e) All distributions in respect of Notes represented by a Temporary Global Note will be made only with respect to that portion of the Temporary Global Note in respect of which Euroclear or Cedel shall have delivered to the Trustee a certificate or certificates substantially in the form of Exhibit B. The delivery to the Trustee by Euroclear or Cedel of the certificate or certificates referred to above may be relied upon by NFLP and the Trustee as conclusive evidence that the certificate or certificates referred to therein has or have been delivered to Euroclear or Cedel pursuant to the terms of this Indenture and the Temporary Global Note. No payments of interest will be made on a Temporary Global Note after the Exchange Date therefor. Section 6.2. Distributions to Retained Distribution Account. Subject to the terms and conditions of the related Supplement or Supplements, at any time and from time to time upon receipt of a duly executed Company Order, the Trustee will transfer funds from the Collection Account to the Retained Distribution Account; provided, however, that the Trustee will not make any such transfer on any date other than on a Distribution Date unless the Trustee receives an Officer's Certificate from the Servicer stating that, on the date such transfer is made and, in the reasonable anticipation of the Servicer, on the next Distribution Date, (i) the transfer of such funds from the Collection Account to the Retained Distribution Account will not cause an Asset Amount Deficiency to exist and (ii) the transfer of such funds from the Collection Account to the Retained Distribution Account will not violate any restriction contained in this Indenture or any Supplement. Section 6.3. Optional Repurchase of Notes. On any Distribution Date occurring on or after the date on which the aggregate Principal Balance of any Series or class of such Series is equal to or less than the Repurchase Amount (if any) for such series or class set forth in the Supplement related to such Series, or at such other time otherwise provided for in the Supplement relating to such Series, NFLP shall have the -43- 51 option to purchase all Outstanding Notes of such Series, or class of such Series, at a purchase price (determined after giving effect to any payment of principal and interest on such Distribution Date) equal to (unless otherwise specified in the related Supplement) the Principal Balance of such Series or class, as applicable, on such Distribution Date, plus accrued and unpaid interest on the unpaid Principal Balance of the Notes of such Series or class (calculated at the applicable Note Rate of such Series or class) through the day immediately prior to the date of such purchase plus, if provided for in the related Supplement, any premium payable at such time. NFLP shall give the Trustee at least 30 days prior written notice of the date on which NFLP intends to exercise such option to purchase. Not later than 12:00 noon, New York City time, on such Distribution Date, the purchase price of the Notes being repurchased on such Distribution Date and the amount of accrued and unpaid interest with respect to such Notes and any applicable premium will be deposited into the Distribution Account for such Series in immediately available funds. The funds deposited into such Distribution Account or distributed to the Paying Agent will be passed through in full to the Noteholders on such Distribution Date. Section 6.4. Monthly Noteholders' Statement. (a) On each Distribution Date, the Paying Agent shall forward to each Noteholder of record of all outstanding Series, the Rating Agencies, the Trustee (if other than the Paying Agent) and any Enhancement Provider the Monthly Noteholders' Statement prepared by the Servicer pursuant to the Lease. (b) Annual Noteholders' Tax Statement. On or before January 31 of each calendar year, beginning with calendar year 1997, the Paying Agent shall furnish to each Person who at any time during the preceding calendar year was a Noteholder a statement prepared by the Servicer containing the information prepared by the Servicer which is required to be contained in the Monthly Noteholders' Statement aggregated for such calendar year or the applicable portion thereof during which such Person was an Noteholder, together with such other customary information (consistent with the treatment of the Notes as debt) as the Servicer deems necessary or desirable to enable the Noteholders to prepare their tax returns (each such statement, an "Annual Noteholders' Tax Statement"). Such obligations of the Servicer to prepare and the Paying Agent to distribute the Annual Noteholders' Tax Statement shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Paying Agent pursuant -44- 52 to any requirements of the Code as from time to time in effect. ARTICLE 7. REPRESENTATIONS AND WARRANTIES NFLP hereby represents and warrants, for the benefit of the Trustee and the Noteholders, as follows as of each Closing Date: Section 7.1. Legal Existence and Power. (a) NFLP (i) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) is duly qualified to do business as a foreign limited partnership and in good standing under the laws of each jurisdiction where the character of its property, the nature of its business or the performance of its obligations make such qualification necessary, and (iii) has all partnership powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and for purposes of the transactions contemplated by this Indenture and the other Related Documents; except that NFLP may not have all required authorizations to purchase, rent and sell vehicles in all states where it operates but NFLP has applied for all such authorizations and expects to receive them within 90 days after the initial Closing Date. (b) The General Partner (i) is the sole general partner of NFLP, (ii) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, (iii) is duly qualified to do business as a foreign corporation and in good standing under the laws of each jurisdiction where the character of its property, the nature of its business or the performance of its obligations make such qualification necessary and (iv) has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and for purposes of the transactions contemplated by this Indenture and the other Related Documents. Section 7.2. Authorization. The execution, delivery and performance by NFLP of this Indenture, the related Supplement and the other Related Documents to which it is a party (a) is within NFLP's partnership powers, has been duly authorized by all necessary partnership action, (b) requires no action by or in respect of, or filing with, any governmental body, agency or official which has not been obtained -45- 53 and (c) does not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of limited partnership or partnership agreement of NFLP or of any law or governmental regulation, rule, contract, agreement, judgment, injunction, order, decree or other instrument binding upon NFLP or any of its Assets or result in the creation or imposition of any Lien on any Asset of NFLP, except for Liens created by this Indenture, the Master Collateral Agency Agreement or the other Related Documents. This Indenture and each of the other Related Documents to which NFLP is a party has been executed and delivered by a duly authorized officer of NFLP. Section 7.3. Binding Effect. This Indenture and each other Related Document is a legal, valid and binding obligation of NFLP enforceable against NFLP in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing). Section 7.4. Financial Information; Financial Condition. All balance sheets, all statements of operations, of shareholders' equity and of cash flow, and other financial data (other than projections) of NFLP which have been or shall hereafter be furnished by NFLP to the Trustee and the Rating Agencies pursuant to Section 8.3 have been and will be prepared in accordance with GAAP (to the extent applicable) and do and will present fairly the financial condition of the entities involved as of the dates thereof and the results of their operations for the periods covered thereby, subject, in the case of all unaudited statements, to normal year-end adjustments and lack of footnotes and presentation items. Section 7.5. Litigation. There is no action, suit or proceeding pending against or, to the knowledge of NFLP, threatened against NFLP before any court or arbitrator or any Governmental Authority with respect to which there is a reasonable possibility of an adverse decision that could materially adversely affect the financial position, results of operations, business, properties, performance, or condition (financial or otherwise) of NFLP or which in any manner draws into question the validity or enforceability of this Indenture, any Supplement or any other Related Document or the ability of NFLP to perform its obligations hereunder or thereunder. -46- 54 Section 7.6. No ERISA Plan. NFLP has not established and does not maintain or contribute to any Pension Plan that is covered by Title IV of ERISA and will not do so, as long as any Notes are Outstanding. Section 7.7. Tax Filings and Expenses. NFLP has filed all federal, state and local tax returns and all other tax returns which, to the knowledge of NFLP, are required to be filed (whether informational returns or not), and has paid all taxes due, if any, pursuant to said returns or pursuant to any assessment received by NFLP, except such taxes, if any, as are being contested in good faith and for which adequate reserves have been set aside on its books. NFLP has paid all fees and expenses required to be paid by it in connection with the conduct of its business, the maintenance of its partnership existence and its qualification as a foreign partnership authorized to do business in each State in which it is required to so qualify, except where the failure to pay any such fees and expenses is not reasonably likely to have a Material Adverse Effect. Section 7.8. Disclosure. The Private Placement Memorandum does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. All certificates, reports, statements, documents and other information furnished to the Trustee by or on behalf of NFLP pursuant to any provision of this Indenture or any Related Document, or in connection with or pursuant to any amendment or modification of, or waiver under, this Indenture or any Related Document, shall, at the time the same are so furnished, be complete and correct to the extent necessary to give the Trustee true and accurate knowledge of the subject matter thereof in all material respects, and the furnishing of the same to the Trustee shall constitute a representation and warranty by NFLP made on the date the same are furnished to the Trustee to the effect specified herein. Section 7.9. Investment Company Act; Securities Act. NFLP is not, and is not "controlled" by, an "investment company" within the meaning of, and is not required to register as an "investment company" under, the Investment Company Act of 1940. It is not necessary in connection with the issuance and sale of the Notes under the circumstances contemplated in the Private Placement Memorandum, any Placement Memorandum Supplement thereto and in any note purchase or similar agreement to register -47- 55 any security under the Securities Act or to qualify any indenture under the Trust Indenture Act. Section 7.10. Regulations G, T, U and X. The proceeds of the Notes will not be used to purchase or carry any "margin stock" (as defined or used in the regulations of the Board of Governors of the Federal Reserve System, including Regulations G, T, U and X thereof). NFLP is not engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock. Section 7.11. No Consent. No consent, action by or in respect of, approval or other authorization of, or registration, declaration or filing with, any Governmental Authority or other Person is required for the execution and delivery of this Indenture or any Supplement or for the performance of any of NFLP's obligations hereunder or thereunder or under any other Related Document other than such consents, approvals, authorizations, registrations, declarations or filings as shall have been obtained by NFLP prior to the initial Closing Date or as contemplated in Section 7.14, or in the case of NFLP's authorization to purchase, rent and sell vehicles in each state in which it operates, within 90 days after the initial Closing Date. Section 7.12. Solvency. Both before and after giving effect to the transactions contemplated by this Indenture and the other Related Documents, NFLP is solvent within the meaning of the Bankruptcy Code and NFLP is not the subject of any voluntary or involuntary case or proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy or insolvency law and no Event of Bankruptcy has occurred with respect to NFLP. Section 7.13. Ownership; Subsidiary. The sole general partner of NFLP is the General Partner and the sole limited partner of NFLP is National, all of the issued and outstanding common stock of the General Partner is owned by National, all of which common stock has been validly issued, is fully paid and non-assessable and is owned of record by such corporation. NFLP has no subsidiaries and owns no capital stock of, or other interest in, any other Person. -48- 56 Section 7.14. Security Interests. (a) All action necessary (including the filing of UCC-1 financing statements and the notation on the Certificates of Title for all Vehicles (other than Initial Vehicles) of the Master Collateral Agent's Lien for the benefit of NFLP and the Trustee) to protect and perfect the Trustee's security interest in the Collateral and the Master Collateral Agent's security interest in the Master Collateral now in existence and hereafter acquired or created has been duly and effectively taken. (b) No security agreement, financing statement, equivalent security or lien instrument or continuation statement listing NFLP as debtor covering all or any part of the Collateral is on file or of record in any jurisdiction, except such as may have been filed, recorded or made by NFLP in favor of the Trustee in connection with this Indenture or the Master Collateral Agent in connection with the Master Collateral Agency Agreement. (c) This Indenture constitutes a valid and continuing Lien on the Collateral in favor of the Trustee, which Lien will be prior to all other Liens (other than Permitted Liens), and the Master Collateral Agency Agreement constitutes a valid and continuing Lien on the Master Collateral in favor of the Master Collateral Agent prior to all other Liens (other than Permitted Liens) and, in each case, will be enforceable as such as against creditors of and purchasers from NFLP in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. All action necessary to perfect such prior security interest has been duly taken. (d) NFLP's principal place of business and chief executive office shall be at: 7700 France Avenue South, Minneapolis, Minnesota 55435, and the place where its records concerning the Collateral are kept is at: 7700 France Avenue South, Minneapolis, Minnesota 55435. NFLP does not transact, and has not transacted, business under any other name. (e) All authorizations in this Indenture for the Trustee to endorse checks, instruments and securities and to execute financing statements, continuation statements, security agreements, Certificates of Title, and other -49- 57 instruments with respect to the Collateral are powers coupled with an interest and are irrevocable. Section 7.15. Binding Effect of Lease. The Lease is in full force and effect and there are no existing Lease Events of Default or Manufacturer Events of Default thereunder nor have events occurred which with the giving of notice, the passage of time or both would constitute a Lease Event of Default or Manufacturer Event of Default. Section 7.16. Non-Existence of Other Agreements. As of the date of the issuance of the first Series of Notes, other than as permitted by Section 8.24 and Section 8.26 hereof (i) NFLP is not a party to any contract or agreement of any kind or nature and (ii) NFLP is not subject to any obligations or liabilities of any kind or nature in favor of any third party, including, without limitation, Contingent Obligations. Section 7.17. Manufacturer Programs. Each Manufacturer and Manufacturer Program in respect of which Vehicles will be acquired or financed under the Lease is an Eligible Manufacturer and Eligible Manufacturer Program, respectively, and each of NFLP and National is an Authorized Fleet Purchaser under each such Manufacturer Program. Section 7.18. Other Representations. All representations and warranties of NFLP made in each Related Document to which it is a party are true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) and are repeated herein as though fully set forth herein. ARTICLE 8. COVENANTS NFLP and, where specified, the General Partner, hereby covenants, to the Trustee for the benefit of the Secured Parties, as follows: Section 8.1. Payment of Notes. NFLP shall pay the principal of (and premium, if any) and interest on the Notes pursuant to the provisions of this Indenture and any applicable Supplement. Principal and interest -50- 58 shall be considered paid on the date due if the Paying Agent holds on that date money designated for and sufficient to pay all principal and interest then due. Section 8.2. Maintenance of Office or Agency. NFLP will maintain an office or agency (which may be an office of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or exchange, where notices and demands to or upon NFLP in respect of the Notes and this Indenture may be served, and where, at any time when NFLP is obligated to make a payment of principal and premium upon the Notes, the Notes may be surrendered for payment. NFLP will give prompt written notice to the Trustee of the location, and any change in the location of such office or agency. If at any time NFLP shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. NFLP may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. NFLP will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. NFLP hereby designates, the Corporate Trust Office of the Trustee as one such office or agency of NFLP. Section 8.3. Information. NFLP will deliver or cause to be delivered to the Trustee and each Rating Agency (provided that, if Duff & Phelps is then a Rating Agency, the Trustee, not NFLP, will deliver such items to Duff & Phelps promptly upon receipt of same from NPLP): (a) promptly upon the delivery by the Servicer to NFLP, a copy of the financial information and other materials required to be delivered by the Servicer to NFLP and the Master Collateral Agent pursuant to Section 24.6(i) of the Lease; (b) promptly upon the delivery by the Servicer to NFLP, copies of the financial information and other materials required to be delivered by the Servicer to NFLP and the Master Collateral Agent pursuant to Section 24.6(ii) of the Lease; (c) promptly upon the delivery by the Servicer to NFLP, the financial information and other materials required -51- 59 to be delivered by the Servicer pursuant to Section 24.6(vi) of the Lease; (d) promptly upon the delivery by the Servicer to NFLP, the financial information and other materials required to be delivered by the Servicer pursuant to Section 24.6(ix) of the Lease; (e) promptly upon the delivery by the Servicer to NFLP, the financial information and other materials required to be delivered by the Servicer pursuant to Section 24.6(x) of the Lease; (f) promptly upon the delivery by the Servicer to NFLP, the financial information and other materials required to be delivered by the Servicer pursuant to Section 24.6(xi) of the Lease; (g) from time to time such additional information regarding the financial position, results of operations or business of National and its Subsidiaries as the Trustee may reasonably request to the extent that National delivers such information to NFLP pursuant to Section 24.6(xii) of the Lease; (h) at the time of delivery of the items described in clauses (a) through (g) above, a certificate of an officer of NFLP that, except as provided in any certificate delivered in accordance with Section 8.10, no Amortization Event, Lease Event of Default or (to the best of such officer's knowledge) Potential Amortization Event or Potential Lease Event of Default has occurred or is continuing during such fiscal quarter; (i) on or prior to June 30 of each year, a certificate of the chief financial officer of NFLP certifying that (i) the ratings assigned by the Rating Agencies in respect of any outstanding Series of Notes have not been withdrawn or downgraded since the date of the related Supplement, (ii) no change in the Manufacturer Program of any Manufacturer in respect of any new model year shall have given rise to any request on the part of the Rating Agencies that any modification be made to the Lease or any other Related Document, and (iii) NFLP has apprised the Rating Agencies of all material changes in the Manufacturer Programs occurring since the date of this Indenture; (j) on or prior to the twentieth day of each month (or if such day is not a Business Day, on the next succeeding Business Day), a copy of the Monthly Vehicle Statement relating to the Collateral as of the last Business Day of -52- 60 the immediately preceding month received by NFLP from the Servicer pursuant to Section 24.6(iv) of the Lease; and (k) promptly following the introduction of any prospective change in any Manufacturer Program or the introduction of any new Manufacturer Program by an existing Manufacturer, or, if later, the date NFLP or National obtains notice thereof, notice of the same and notice thereof to the Rating Agencies describing the principal terms thereof, and at least annually a copy of each Manufacturer Program to the Rating Agencies. Section 8.4. Payment of Obligations. NFLP will pay and discharge at or before maturity, all of its respective material obligations and liabilities, including, without limitation, tax liabilities and other governmental claims, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, reserves as appropriate for the accrual of any of the same. Section 8.5. Reserved. Section 8.6. Conduct of Business and Maintenance of Existence. NFLP will maintain its corporate existence as a corporation validly existing and in good standing under the laws of the State of Delaware and duly qualified as a foreign corporation licensed under the laws of each state in which the failure to so qualify would have a material adverse effect on the business and operations of NFLP. Section 8.7. Compliance with Laws. NFLP will comply in all respects with all Requirements of Law (including, without limitation, ERISA and the rules and regulations thereunder) except where such noncompliance would not materially and adversely affect the condition, financial or otherwise, operations, performance, properties of NFLP or its ability to carry out the transactions contemplated in this Indenture and each other Related Document; provided, however, such noncompliance will not result in a Lien (other than a Permitted Lien) on any Assets of NFLP. Section 8.8. Inspection of Property, Books and Records. NFLP will keep proper books of record and account in which full, true and correct entries shall be made of all -53- 61 dealings and transactions in relation to its Assets, business and activities in accordance with GAAP; and will permit the Trustee to visit and inspect any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, directors, employees and independent public accountants, all at such reasonable times upon reasonable notice and as often as may reasonably be requested. Section 8.9. Compliance with Related Documents. NFLP will perform and comply with each and every obligation, covenant and agreement required to be performed or observed by it in or pursuant to this Indenture and each other Related Document to which it is a party, subject to the grace periods set forth therein, and will not take any action which would permit the Lessee, the Servicer or National to have the right to refuse to perform any of its obligations under any Related Document. NFLP will not amend the Lease, except in accordance with Section 22 thereof. Section 8.10. Notice of Defaults. (a) Promptly upon becoming aware of any Potential Amortization Event, Amortization Event, Lease Event of Default or Potential Lease Event of Default, NFLP shall give the Trustee, each Enhancement Provider and the Rating Agencies notice thereof, together with a certificate of the President, Vice President or principal financial officer of NFLP setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by NFLP, and (b) Promptly upon becoming aware of any default under any Related Document or under any Manufacturer Program, NFLP shall give the Trustee, each Enhancement Provider and the Rating Agencies notice thereof. Section 8.11. Notice of Material Proceedings. Promptly upon becoming aware thereof, NFLP shall give the Trustee and the Rating Agencies written notice of the commencement or existence of any, proceeding by or before any Governmental Authority against or affecting NFLP which is reasonably likely to have a material adverse effect on the business, condition (financial or otherwise), results of operations, properties or performance of NFLP or the ability of NFLP to perform its obligations under this Indenture or under any other Related Document to which it is a party. -54- 62 Section 8.12. Further Requests. NFLP will promptly furnish to the Trustee, each Enhancement Provider and the Rating Agencies such other information as, and in such form as, the Trustee or such Enhancement Provider or the Rating Agencies may reasonably request in connection with the transactions contemplated hereby. Section 8.13. Further Assurances. (a) NFLP shall do such further acts and things, and shall execute and deliver to the Trustee such additional assignments, agreements, powers and instruments, as the Trustee or the Required Noteholders reasonably determine to be necessary to carry into effect the purposes of this Indenture or the other Related Documents or to better assure and confirm unto the Trustee or the Noteholders their rights, powers and remedies hereunder including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the liens and security interests granted hereby and pursuant to the Master Collateral Agency Agreement. NFLP also hereby acknowledges that the Trustee has the right but not the obligation to file any such financing statement or continuation statement without the signature of NFLP to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, chattel paper or other instrument, such note, chattel paper or instrument shall be deemed to be held in trust and immediately pledged to the Trustee hereunder, and shall, subject to the rights of any Person in whose favor a prior Lien has been perfected, be duly endorsed in a manner satisfactory to the Trustee and delivered to the Trustee promptly. Without limiting the generality of the foregoing provisions of this Section 8.13(a), NFLP shall take all actions that are required to maintain the security interest of the Trustee in the Collateral and of the Master Collateral Agent in the Master Collateral as a perfected security interest subject to no prior Liens, including, without limitation (i) filing all Uniform Commercial Code financing statements, continuation statements and amendments thereto necessary to achieve the foregoing, (ii) causing the Lien of the Master Collateral Agent to be noted on all Certificates of Title (other than with respect to Initial Vehicles) and (iii) causing the Servicer, as agent for the Master Collateral Agent, to maintain possession of the Certificates of Title for the benefit of the Master Collateral Agent pursuant to Section [2.6] of the Master Collateral Agency Agreement. -55- 63 (b) NFLP will warrant and defend the Trustee's right, title and interest in and to the Collateral and the income, distributions and proceeds thereof, for the benefit of the Noteholders and the Trustee, against the claims and demands of all Persons whomsoever. (c) If so requested by Noteholders holding 10% or in excess of 10% of the aggregate Invested Amount of any Series of Notes (excluding for the purposes of making the foregoing calculation, any Notes held by National or any Affiliate of National), NFLP will provide, no more frequently than annually and, without the request of Noteholders on the fifth anniversary of the date hereof, an Opinion of Counsel to the effect that no UCC financing or continuation statements are required to be filed with respect to any of the Collateral in which a security interest may be perfected by the filing of UCC financing statements. Section 8.14. Manufacturer Programs. (a) Prior to acquiring or financing the acquisition of any Program Vehicles under the Lease for any model year after the 1996 model year, (i) NFLP will have received an executed Assignment Agreement with respect to National's rights under such Manufacturer Program for such model year (to the extent National will be acquiring Financed Vehicles (other than Texas Vehicles) under the Lease under such Manufacturer Program), (ii) NFLP shall have delivered an executed Assignment Agreement with respect to NFLP's rights under such Manufacturer Program for such model year, (iii) if any Series of Notes is then being rated by Standard & Poor's and/or Duff & Phelps, NFLP shall have received a written confirmation from Standard & Poor's and/or Duff & Phelps, as applicable, that the acquisition of Vehicles pursuant to such Manufacturer Program will not result in the reduction or withdrawal of any rating issued by Standard & Poor's and/or Duff & Phelps, as applicable, in respect of any outstanding Series of Notes and (iv) if there is a material change to a Manufacturer Program during a model year, NFLP shall have received written confirmation from Standard & Poor's and/or Duff & Phelps, as applicable, that the acquisition of Vehicles pursuant to such Manufacturer Program will not result in the reduction or withdrawal of any rating issued by Standard & Poor's and/or Duff & Phelps, as applicable, in respect of any outstanding Series of Notes. A copy of the rating confirmations set forth in clauses (iii) and (iv) will promptly be delivered to the Trustee for delivery to the Noteholders of any outstanding Series of Notes. -56- 64 (b) NFLP will (a) provide the Trustee with at least 30 days' prior written notice of its intention to finance Vehicles from any new Manufacturer, (b) provide the Trustee with a copy of the final Manufacturer Program of such Manufacturer promptly upon its being available and (c) certify to the Trustee and the Noteholders that such new Manufacturer is an Eligible Manufacturer and that such Manufacturer Program is an Eligible Manufacturer Program at such time. In no event shall NFLP agree, to the extent any consent of NFLP is solicited or required by the Manufacturer or any assignor of such Manufacturer Program, to any change in any Manufacturer Program that is reasonably likely to materially adversely affect its rights or the rights of the Noteholders with respect to any Vehicle previously purchased or financed under such Manufacturer Program. (c) On the date of acquisition by NFLP of each Acquired Vehicle (and each Texas Vehicle) which is a Program Vehicle, NFLP shall be an Authorized Fleet Purchaser under the related Manufacturer Program and on the date of financing under the Lease of any Financed Vehicle which is a Program Vehicle (other than any Texas Vehicle), National shall be an Authorized Fleet Purchaser under the related Manufacturer Program. Section 8.15. Liens. NFLP will not create, incur, assume or permit to exist any Lien upon any of its Assets (including the Collateral), other than (i) Liens in favor of the Trustee for the benefit of the Secured Parties, (ii) Liens upon Exchanged Vehicle Repurchase Rights and Exchanged Vehicle Insurance Payments in favor of the Exchange Lender and (iii) Liens created by or permitted under the Related Documents. Section 8.16. Other Indebtedness. Neither NFLP nor the General Partner will create, assume, incur, suffer to exist or otherwise become or remain liable in respect of any Indebtedness other than (i) Indebtedness hereunder, (ii) Indebtedness permitted under any other Related Document, (iii) Indebtedness to an Exchange Lender for the purchase of Replacement Vehicles, which Indebtedness is non-recourse to NFLP or any Master Collateral, and is created pursuant to an Exchange Financing Agreement and (v) Indebtedness permitted under NFLP's certificate of limited partnership or under the General Partner's certificate of incorporation. -57- 65 Section 8.17. Mergers. Neither NFLP nor the General Partner will merge or consolidate with or into any other Person. Section 8.18. Sales of Assets. NFLP will not sell, lease, transfer, liquidate or otherwise dispose of any Assets, except as contemplated by the Related Documents and provided that the proceeds received by NFLP are paid directly to the Collection Account or the Master Collateral Account or deposited by NFLP into the Collection Account or the Master Collateral Account within 2 Business Days after receipt thereof by NFLP (except that amounts payable to NFLP with respect to Exchanged Vehicles by the related Manufacturer under its Manufacturer Program shall be paid into the Exchange Account). Section 8.19. Acquisition of Assets. Neither NFLP nor the General Partner will acquire, by long-term or operating lease or otherwise, any Assets except in accordance with to the terms of the Related Documents. Section 8.20. Dividends, Officers' Compensation, etc. (a) NFLP may make any distribution (by reduction of capital or otherwise, whether in cash, property, securities or a combination thereof), with respect to any partnership interest in NFLP and directly or indirectly redeem, purchase, retire or otherwise acquire for value any such partnership interest or set aside any amount for such purpose, as permitted by its agreement of limited partnership; except to the extent that an Amortization Event or Potential Amortization Event has occurred and is continuing, or would result therefrom. (b) The General Partner will not (i) declare or pay any dividends on any shares of its capital stock or make any other distribution on, or any purchase, redemption or other acquisition of, any shares of its capital stock or (ii) pay any wages or salaries or other compensation to officers, directors, employees or others except, in each case, to the extent no Amortization Event or Potential Amortization Event has occurred and is continuing or would result therefrom. Section 8.21. Name; Principal Office. NFLP will neither (a) change the location of its chief executive office or principal place of business (within the meaning of the applicable UCC) without sixty (60) days', prior notice to the Trustee and the Master Collateral Agent nor -58- 66 (b) change its name without prior notice to the Trustee and the Master Collateral Agent sufficient to allow the Trustee and the Master Collateral Agent to make all filings (including filings of financing statements on form UCC-1) and recordings necessary to maintain the perfection of the interest of the Trustee in the Collateral pursuant to this Indenture and the perfection of the interest of the Master Collateral Agent in the Master Collateral pursuant to the Master Collateral Agency Agreement. In the event that NFLP desires to so change its office or change its name, NFLP will make any required filings and prior to actually changing its office or its name NFLP will deliver to the Trustee and the Master Collateral Agent (i) an Officer's Certificate and (except with respect to a change of the location of NFLP's chief executive office or principal place of business to a new location in the same county) an Opinion of Counsel confirming that all required filings have been made to continue the perfected interest of the Trustee in the Collateral and the perfected interest of the Master Collateral Agent in the Master Collateral in respect of the new office or new name of NFLP and (ii) copies of all such required filings with the filing information duly noted thereon by the office in which such filings were made. Section 8.22. Organizational Documents. Neither NFLP nor the General Partner will amend any of its organizational documents, including the certificate of limited partnership and the limited partnership of NFLP and the Certificate of Incorporation and By-Laws of the General Partner, unless, prior to such amendment, each Rating Agency confirms that after such amendment the Rating Agency Condition will be met. Section 8.23. Investments. Neither NFLP nor the General Partner will make, incur, or suffer to exist any loan, advance, extension of credit or other investment in any Person other than (in the case of NFLP), pursuant to the Demand Note or as permitted by the Lease and this Indenture and with respect to Permitted Investments and (in the case of the General Partner) in NFLP and, in addition, without limiting the generality of the foregoing, NFLP will not cause the Trustee to make any Permitted Investments on NFLP's behalf that would have the effect of causing NFLP to be an "investment company" within the meaning of the Investment Company Act. Section 8.24. No Other Agreements. NFLP will not (a) enter into or be a party to any agreement or instrument other than any Related Document, any documents related to any Enhancement, an Exchange Agreement, a Master Deposit Agreement, an Exchange Financing Agreement and documents and agreements incidental to any of the foregoing or -59- 67 entered into as contemplated in Section 8.26 or (b) except as provided for in Sections 12.1 or 12.2, amend, modify or waive any provision of any Related Document to which it is a party, or (c) give any approval or consent or permission provided for in any Related Document, except as permitted in Section 3.2(a). Section 8.25. Other Business. Neither NFLP nor the General Partner will engage in any business or enterprise or enter into any transaction other than (in the case of NFLP) the acquisition, financing, refinancing, leasing and disposition of Vehicles pursuant to the Lease and pursuant to the other Related Documents, the related exercise of its rights as lessor thereunder, the making of loans to National pursuant to the Demand Note, the incurrence and payment of ordinary course operating expenses, the issuing and selling of the Notes and other activities related to or incidental to either of the foregoing (including transactions contemplated in Sections 8.24 and 8.26) and (in the case of the General Partner) executing and entering into NFLP's limited partnership agreement and performing the obligations of the General Partner thereunder. Section 8.26. Maintenance of Separate Existence. Each of NFLP and the General Partner will do all things necessary to maintain its corporate or partnership existence separate and apart from that of National and Affiliates of National including, without limitation, (i) practicing and adhering to corporate or partnership formalities, such as maintaining appropriate corporate or partnership books and records; (ii) in the case of the General Partner, maintaining at least two corporate directors who are not officers, directors or employees of any of its Affiliates; (iii) owning or leasing (including through shared arrangements with Affiliates) all office furniture and equipment necessary to operate its business; (iv) not (A) guaranteeing or otherwise becoming liable for any obligations of any of its Affiliates, (B) having obligations guaranteed by any of its Affiliates, (C) holding itself out as responsible for debts of any of its Affiliates or for decisions or actions with respect to the affairs of any of its Affiliates and (D) being directly or indirectly named as a direct or contingent beneficiary or loss payee on any insurance policy of any Affiliate other than as required by the Related Documents with respect to insurance on the Vehicles; (v) other than as provided in the Related Documents, maintaining its deposit and other bank accounts and all of its assets separate from those of any other Person; (vi) maintaining its financial records and books of account separate and apart from those of any other Person; (vii) compensating all its employees, officers, consultants and agents for services provided to it by such Persons, or reimbursing any of its Affiliates in respect of -60- 68 services provided to it by employees, officers, consultants and agents of such Affiliate, out of its own funds; (viii) maintaining office space separate and apart from that of any of its Affiliates (even if such office space is subleased from or is on or near premises occupied by any of its Affiliates) and a telephone number separate and apart from that of any of its Affiliates; (ix) accounting for and managing all of its liabilities separately from those of any of its Affiliates; (x) allocating, on an arm's-length basis, all shared corporate or partnership operating services, leases and expenses, including, without limitation, those associated with the services of shared consultants and agents and shared computer and other office equipment and software; (xi) refraining from filing or otherwise initiating or supporting the filing of a motion in any bankruptcy or other insolvency proceeding involving NFLP, the General Partner, National or any Affiliate of National, to substantively consolidate NFLP or the General Partner with National or any Affiliate of National; (xii) remaining solvent and (xiii) conducting all of its business (whether written or oral) solely in its own name. Each of NFLP and the General Partner acknowledges its receipt of a copy of that certain opinion letter issued by Mayer, Brown & Platt dated the date of issuance of the initial Series of Notes addressing the issue of substantive consolidation as it may relate to National, the General Partner and NFLP. NFLP and the General Partner hereby agree to maintain in place all policies and procedures, and take and continue to take all action, described in the factual assumptions set forth in such opinion letter and relating to NFLP or the General Partner. On an annual basis, NFLP will provide to the Rating Agencies, the Trustee and the Master Collateral Agent, an Officer's Certificate certifying that it is in compliance with its obligations under this Section 8.26. Section 8.27. Rule 144A Information Requirement. For so long as any of the Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, NFLP covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any Noteholder in connection with any sale thereof and any prospective purchaser of Notes from such Noteholder in each case upon request, the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Securities Act. Section 8.28. Use of Proceeds of Notes. NFLP shall use the proceeds of Notes solely for one or more of the following purposes: (a) to pay amortizing Notes when due, in accordance with this Indenture; and (b) to acquire, -61- 69 finance or refinance the acquisition of Eligible Vehicles in accordance with the Lease. Section 8.29. Vehicles. NFLP shall use commercially reasonable efforts to maintain, and to cause the Lessee to maintain good, legal and marketable title to the Vehicles leased under the Lease, free and clear of all Liens except for Permitted Liens. Section 8.30. Amendments to Exchange Documents. NFLP shall not agree to any amendment of or waiver under (a) any Exchange Agreement, except such amendments or waivers as will not, in the aggregate, result in a material adverse effect on the interest of the Noteholders of any Series, or (b) any Master Deposit Agreement or Exchange Financing Agreement, except such amendments or waivers as are made only to cure any ambiguity, defect or inconsistency in, or to correct or supplement any provision of, this Indenture, unless, prior to the effectiveness of any such amendment or waiver, each Rating Agency has confirmed in writing that such amendment or waiver will not result in the reduction or withdrawal of the then current rating of any outstanding Series of Notes. Section 8.31. Demand Note. NFLP shall not reduce the amount of the Demand Note or forgive amounts payable thereunder unless NFLP has first delivered to the Trustee an Opinion of Counsel (from counsel that is nationally recognized as to tax matters) that such reduction or forgiveness will not have an adverse effect on the tax characterization of any Series of Notes. ARTICLE 9. AMORTIZATION EVENTS AND REMEDIES Section 9.1. Amortization Events. If any one of the following events shall occur during the Revolving Period, the Accumulation Period or the Controlled Amortization Period with respect to any Series of Notes: (a) NFLP defaults in the payment of any interest on any Note of such Series when the same becomes due and payable and such default continues for a period of five (5) days; (b) NFLP defaults in the payment of any principal or premium on any Note of such Series when the same becomes due and payable and such default continues for a period of five (5) Business Days; -62- 70 (c) NFLP fails to comply with any of its other agreements or covenants in, or provisions of, the Notes of a Series or this Indenture and the failure to so comply materially and adversely affects the interests of the Noteholders of any Series and continues to materially and adversely affect the interests of the Noteholders of such Series for a period of 60 days after the earlier of (i) the date on which a Responsible Officer of NFLP obtains knowledge thereof or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to NFLP by the Trustee or to NFLP or by the Required Noteholders of such Series; (d) there occurs an Event of Bankruptcy, with respect to NFLP, the General Partner or National; (e) (i) any Lease Event of Default described in Section 17.1.1(i) or 17.1.5 of the Lease shall occur, whether or not subsequently waived by NFLP or (ii) any other Lease Event of Default shall occur, whether or not subsequently waived by NFLP; (f) subject to the provisions of Section 9.2(g) , any Asset Amount Deficiency exists and continues for a period of ten (10) days; (g) NFLP shall have become an "investment company" or shall have become under the "control" of an "investment company" under the Investment Company Act of 1940, as amended; (h) the Lease is terminated for any reason; (i) any representation made by NFLP or National in this Base Indenture or any Related Document is false and such false representation materially and adversely affects the interests of the Noteholders of any Series of Notes and such false representation is not cured for a period of 60 days after the earlier of (i) the date on which a Responsible Officer of NFLP or National (as applicable) obtains knowledge thereof or (ii) the date that written notice thereof is given to NFLP or National (as applicable) by the Trustee or to NFLP or National (as applicable) and the Trustee by the Required Noteholders of such Series; or (j) any other event shall occur which may be specified in any Supplement as an "Amortization Event"; then (i) in the case of any event described in clause (a), (b), (c) or (i) above, either the Trustee, by written notice to NFLP, -63- 71 or the Required Noteholders of the applicable Series of Notes,by written notice to NFLP and the Trustee, may declare that an amortization event ("Amortization Event") has occurred with respect to such Series as of the date of the notice, or (ii) in the case of any event described in clause (j) above, an Amortization Event may be declared in a manner specified in the related Supplement, or (iii) in the case of any event described in clause (e)(ii) above, either the Trustee, by written notice to NFLP, or the Required Noteholders of any Series of Notes, by written notice to NFLP and the Trustee, may declare that an Amortization Event has occurred with respect to such Series as of the date of the notice, or (iv) in the case of any event described in clause (d), (e)(i), (f), (g) or (h) above, an Amortization Event with respect to all Series of Notes then outstanding shall immediately occur without any notice or other action on the part of the Trustee or any Noteholders; provided, however, that the Trustee shall have no liability in connection with any action or inaction taken, or not taken by it upon the occurrence of an Amortization Event unless the Trustee has actual knowledge of such Amortization Event; provided, further, however, the provisions of this sentence shall not insulate the Trustee from liability arising out of its negligence or willful misconduct. Section 9.2. Rights of the Trustee upon Amortization Event or Certain Other Events of Default. (a) General. If and whenever an Amortization Event, or certain events of default under any Enhancement Agreement (as specified in the applicable Supplement) shall have occurred and be continuing, the Trustee may and, at the direction of the Requisite Investors shall, exercise (or direct the Master Collateral Agent to exercise) from time to time any rights and remedies available to it under applicable law or any Related Document; provided, however that if such Amortization Event is based solely on an event described in clauses (a), (b), (c), (e)(ii), (i) or (j) of Section 9.1, then the Trustee's rights and remedies pursuant to the provisions of this Section 9.2 shall, to the extent not detrimental to the rights of the holders of the applicable Series of Notes, be limited to rights and remedies pertaining only to those Series of Notes with respect to which such Amortization Event has occurred. Any amounts obtained by the Trustee (or by the Master Collateral Agent at the direction of the Trustee) on account of or as a result of the exercise by the Trustee of any right shall be held by the Trustee as additional collateral for the repayment of NFLP Obligations and shall be applied as provided in Article 5 hereof. -64- 72 (b) Lease. If a Liquidation Event of Default or a Limited Liquidation Event of Default shall have occurred and be continuing, the Trustee, at the direction of the Requisite Investors (in the case of a Liquidation Event of Default) or the Required Noteholders (in the case of a Limited Liquidation Event of Default), shall direct NFLP and the Master Collateral Agent to exercise (and NFLP agrees to exercise) all rights, remedies, powers, privileges and claims of NFLP against National and National's Franchisees under or in connection with the Lease, the Subleases, the Master Collateral Agency Agreement and any of the Related Documents and against any party to any Related Document, including the right or power to take any action to compel performance or observance by National, National's Franchisees, or any such party of its obligations to NFLP, the right to take possession of any of the Vehicles, and to give any consent, request, notice, direction, approval, extension or waiver in respect of the Lease, and any right of NFLP to take such action independent of such direction shall be suspended. (c) Manufacturer Programs. If a Liquidation Event of Default or a Limited Liquidation Event of Default shall have occurred and be continuing, the Trustee may, and at the direction of the Requisite Investors (in the case of a Liquidation Event of Default) or at the direction of the Required Noteholders (in the case of a Limited Liquidation Event of Default) shall, direct the Master Collateral Agent, to exercise or cause NFLP or the Lessee, as applicable, to exercise all rights, remedies, powers, privileges and claims of NFLP, the Lessee or the Master Collateral Agent against the Manufacturers under or in connection with the Manufacturer Programs. Upon the occurrence of a Liquidation Event of Default, the Trustee shall promptly instruct the Master Collateral Agent to return or to cause NFLP or the Lessee, as applicable, to return the Program Vehicles to the related Manufacturers (after the minimum holding period specified in the Manufacturer's Manufacturer Program) and then, to the extent any Manufacturer fails to accept any such Vehicles under the terms of the applicable Manufacturer Program, to direct the Master Collateral Agent to liquidate or to cause NFLP or the Lessee, as applicable, to liquidate the Vehicles in accordance with the rights of NFLP under the Lease and to otherwise sell or cause to be sold to third parties all Non-Program Vehicles in accordance with the rights of NFLP under the Lease. Upon the occurrence of a Limited Liquidation Event of Default, the Trustee shall promptly instruct the Master Collateral Agent to return or to cause NFLP or the Lessee, as applicable, to return Program Vehicles to the related Manufacturers and to use commercially reasonable efforts to sell Non-Program Vehicles -65- 73 or cause Non-Program Vehicles to be sold to third parties to generate proceeds in an amount sufficient to pay all interest and principal on the related Series of Notes, and to the extent that any Manufacturer fails to accept any such Program Vehicles under the terms of the applicable Manufacturer Program, to direct the Master Collateral Agent to return or to cause NFLP or the Lessee, as applicable to liquidate the Vehicles in accordance with the rights of NFLP under the Lease. (d) NFLP Fleet Finance Agreement. Notwithstanding anything to the contrary contained herein, if a Liquidation Event of Default or a Limited Liquidation Event of Default shall have occurred and be continuing, the Trustee shall take such action to cause Vehicles manufactured by GM to be turned back to GM in such manner as NFLP has instructed the Trustee in writing (and NFLP hereby agrees to provide such instructions) to preserve any and all of NFLP's right to receive payments from GM under the NFLP Fleet Finance Agreement in respect of deficiencies in the sale prices of such Vehicles as described thereunder; provided that the Trustee shall not return such Vehicles to GM if it is instructed not to do so by Holders of Notes evidencing 66-2/3% or more of the Aggregate Invested Amount; provided further, that the Noteholders shall not be entitled to direct the Trustee to cause Vehicles manufactured by GM to be turned back or sold in any manner that would not preserve NFLP's rights under the NFLP Fleet Finance Agreement described above. (e) Failure of NFLP, the Lessee or the Master Collateral Agent to Take Action. If NFLP, National or the Master Collateral Agent shall have failed, within 15 Business Days of receiving the direction of the Trustee, to take commercially reasonable action to accomplish directions of the Trustee given pursuant to clauses (b) or (c) above, the Trustee may (and at the direction of the Required Noteholders of the affected Series of Notes (with respect to any Limited Liquidation Event of Default) or the Requisite Investors (with respect to any Amortization Event or any Liquidation Event of Default) shall, take such previously directed action (and any related action as permitted under this Indenture thereafter determined by the Trustee to be appropriate without the need under this provision or any other provision under this Indenture to direct NFLP, National or the Master Collateral Agent to take such action) on behalf of NFLP and the Noteholders. (f) Right to Appointment of Receiver. In the event that the Trustee determines to take action pursuant to the provisions of clause (e) above, the Trustee may, without -66- 74 notice to NFLP, the Servicer or the Lessee, direct the Master Collateral Agent to take legal proceedings for the appointment of a receiver to take possession of Acquired Vehicles pending the sale thereof and in any such event the Trustee shall be entitled to the appointment of a receiver, and neither NFLP, the Servicer or the Lessee shall object to such appointment. (g) Right of NFLP to Cure Asset Amount Deficiency. Notwithstanding anything to the contrary contained in this Article 9, if (i) a Rapid Amortization Period commences with respect to any Series of Notes as a result of an Amortization Event described in Section 9.1(f), (ii) during such Rapid Amortization Period (but prior to the Series Termination Date with respect to such Series of Notes) the Asset Amount Deficiency is cured, (iii) no other Amortization Event then exists and is continuing, and (iv) NFLP delivers to the Trustee an Officer's Certificate stating that such Asset Amount Deficiency has been cured and requesting that such Rapid Amortization Period terminate, then such Rapid Amortization Period shall automatically terminate as of the date the foregoing conditions are satisfied and the applicable Revolving Period, Accumulation Period or Controlled Amortization Period that would have been in effect if such Rapid Amortization Period had not commenced shall commence or recommence; provided, however, (x) no Revolving Period, Accumulation Period or Controlled Amortization Period shall be extended as a result of such Rapid Amortization Period interrupting the applicable Revolving Period, Accumulation Period or Controlled Amortization Period, (y) no Controlled Amortization Amount shall change as a result of such Rapid Amortization Period changing the timing or amounts of payments made during any applicable Controlled Amortization Period and NFLP shall be obligated to pay the full amount of all Controlled Distribution Amounts (provided that, with respect to each Series of Notes, the payments of principal received by the Noteholders of such Series during the terminated Rapid Amortization Period will be credited against the controlled amortization payments scheduled to be made during the Controlled Amortization Period for such Series (whether such controlled amortization payments were originally scheduled to be made during the period of time in which the terminated Rapid Amortization Period was occurring or are scheduled to be made thereafter) such that the Controlled Amortization Period for such Series will not terminate sooner than originally contemplated), and (z) if at the time of the termination of such Rapid Amortization Period pursuant to the provisions of this Section 9.2 such Series of Notes would otherwise be in a Rapid Amortization Period, then such -67- 75 Rapid Amortization Period will not terminate but shall continue uninterrupted. (h) If on the Series Termination Date any Notes of a Series are Outstanding and all Collateral and Master Collateral allocable to such Series has been liquidated and the amount of all proceeds reasonably expected to be received by the Trustee on account of such liquidation has been determined, the Trustee shall direct NFLP to, and NFLP shall, draw on the Demand Note in an amount equal to the Invested Amount of the Notes of the applicable Series which will remain Outstanding after receipt of all such liquidation proceeds. Section 9.3. Special Provisions Concerning Remedies Upon Liquidation Event of Default in Conjunction with a Manufacturer Event of Default or Inability to Turn Back under Manufacturer Program. (a) Upon the occurrence of a Liquidation Event of Default in conjunction with a Manufacturer Event of Default, the Trustee shall have the right to (and shall, upon the direction of the Requisite Investors) direct the Master Collateral Agent to, or cause NFLP, the Lessee or the Servicer to, take such reasonable actions at reasonable expense necessary to sell any or all of the Program Vehicles manufactured by such Manufacturer at a public or private sale. If the Master Collateral Agent, NFLP, the Lessee or the Servicer shall have failed, within 15 Business Days of receiving the direction of the Trustee, to take commercially reasonable action to accomplish such directions of the Trustee, the Trustee may take such previously directed action (and any related action as permitted under this Indenture thereafter determined by the Trustee to be appropriate without the need under this provision or any other provision under this Indenture to direct NFLP to take such action) on behalf of NFLP and the Noteholders. The Trustee may institute legal proceedings for the appointment of a receiver or receivers (to which the Trustee shall be entitled as a matter of right) to take possession of the Vehicles pending the sale thereof pursuant either to the powers of sale granted by this Indenture or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of this Indenture. (b) Upon any sale of any of the Collateral directly by the Trustee, or by the Master Collateral Agent at the direction of the Trustee, whether made under the power of sale given under Section 9.2(c), this Section 9.3 or under judgment, order or decree in any judicial proceeding for the -68- 76 foreclosure or involving the enforcement of this Indenture: (i) the Trustee, any Noteholder and/or any Enhancement Provider may bid for and purchase the property being sold, and upon compliance with the terms of sale may hold, retain and possess and dispose of such property in its own absolute right without further accountability; (ii) the Trustee, or the Master Collateral Agent at the direction of the Trustee, may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold; (iii) the Trustee is hereby irrevocably appointed the true and lawful attorney-in-fact of NFLP, in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property of NFLP thus sold and for such other purposes as are necessary or desirable to effectuate the provisions (including, without limitation, this Section 9.3) of this Indenture, and for that purpose it may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, NFLP hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof, but if so requested by the Trustee or by any purchaser, NFLP shall ratify and confirm any such sale or transfer by executing and delivering to the Trustee or to such purchaser all such property, deeds, bills of sale, instruments of assignment and transfer and releases as may be designated in any such request; (iv) all right, title, interest, claim and demand whatsoever, either at law or in equity or otherwise, of NFLP of, in and to the property so sold shall be divested; and such sale shall be a perpetual bar both at law and in equity against NFLP, its successors and assigns, and against any and all Persons claiming or who may claim the property sold or any part thereof from, through or under NFLP, its successors or assigns; (v) the receipt of the Trustee or of the officer thereof making such sale shall be a sufficient discharge to the purchaser or -69- 77 purchasers at such sale for his or their purchase money, and such purchaser or purchasers, and his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Trustee or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misapplication or non-application thereof; and (vi) to the extent that it may lawfully do so, NFLP agrees that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension or redemption laws, or any law permitting it to direct the order in which the Vehicles shall be sold, now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance or enforcement of this Indenture or any of the Related Documents. (c) In addition to any rights and remedies now or hereafter granted hereunder or under applicable law with respect to the Collateral, the Trustee shall (subject to the foregoing provisions in respect of the Vehicles) have all of the rights and remedies of a secured party under the UCC as enacted in any applicable jurisdiction. Section 9.4. Other Remedies. Subject to the terms and conditions of this Indenture, if an Amortization Event occurs and is continuing, the Trustee may pursue any remedy available under applicable law or in equity to collect the payment of principal or interest on the Notes (or the applicable Series of Notes, in the case of an Amortization Event that affects only one Series of Notes) or to enforce the performance of any provision of the Notes, this Indenture or any Supplement. If an Amortization Event has occurred in accordance with Section 9.1, the Trustee shall instruct NFLP to cease issuing Notes and the right of NFLP to issue Notes shall automatically terminate. In addition, the Trustee may, or shall at the direction of the Requisite Investors (or the Required Noteholders, in the case of an Amortization Event that affects only one Series of Notes), direct NFLP or the Master Collateral Agent to exercise any rights or remedies available under any Related Document or under applicable law or authorized by a court of equity. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in -70- 78 the proceeding, and any such proceeding instituted by the Trustee shall be in its own name as trustee. All remedies are cumulative to the extent permitted by law. Section 9.5. Waiver of Past Events. Subject to Section 12.2 hereof, the Noteholders of any Series owning an aggregate principal amount of Notes in excess of 66-2/3% of the aggregate principal amount of the Outstanding Notes of such Series, by notice to the Trustee, may waive any existing Potential Amortization Event or Amortization Event related to clauses (a), (b), (c), (e)(ii), (i) and (j) of Section 9.1 which relate to such Series and its consequences except a continuing Potential Amortization Event or Amortization Event in the payment of the principal of or interest on any Note. Upon any such waiver, such Potential Amortization Event shall cease to exist with respect to such Series, and any Amortization Event with respect to such Series arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Potential Amortization Event or impair any right consequent thereon. A Potential Amortization Event or an Amortization Event related to clauses (d), (e)(i), (f), (g), or (h) of Section 9.1 shall not be subject to waiver. Section 9.6. Control by Requisite Investors. The Requisite Investors (or, to the extent such remedy relates only to a particular Series of Notes, the Required Noteholders of such Series) may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, subject to Section 10.1, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Noteholders, or that may involve the Trustee in personal liability. Section 9.7. Limitation on Suits. Any other provision of this Indenture to the contrary notwithstanding, a Noteholder may pursue a remedy with respect to this Indenture or the Notes only if: (a) The Noteholder gives to the Trustee written notice of a continuing Amortization Event; (b) The Noteholders of at least 25% in principal amount of all then Outstanding Notes of such Series make a written request to the Trustee to pursue the remedy; -71- 79 (c) Such Noteholder or Noteholders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) The Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) During such 60-day period the Required Noteholders do not give the Trustee a direction inconsistent with the request. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. Section 9.8. Unconditional Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Noteholder of a Note to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Noteholder. Section 9.9. Collection Suit by the Trustee. If any Amortization Event specified in clauses (a) or (b) of Section 9.1 occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against NFLP for the whole amount of principal and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 9.10. The Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Noteholders allowed in any judicial proceedings relative to NFLP (or any other obligor upon the Notes), its creditors or its property, and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on -72- 80 any such claims and any custodian in any such judicial proceeding is hereby authorized by each Noteholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 10.5 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 10.5 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, Notes and other properties which the Noteholders of the Notes may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Noteholder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. Section 9.11. Priorities. If the Trustee collects any money pursuant to this Article, the Trustee shall pay out the money in accordance with the provisions of Article 5 of this Indenture. Section 9.12. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of any undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Noteholder pursuant to Section 9.7, or a suit by Noteholders of more than 10% in principal amount of all then outstanding Notes. Section 9.13. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the holders of Notes is intended to be exclusive of any other right or remedy, and every right or remedy shall, to the extent permitted by law, be cumulative and in -73- 81 addition to every other right and remedy given under this Indenture or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy under this Indenture, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 9.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any holder of any Note to exercise any right or remedy accruing upon any Amortization Event shall impair any such right or remedy or constitute a waiver of any such Amortization Event or an acquiescence therein. Every right and remedy given by this Article 9 or by law to the Trustee or to the holders of Notes may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the holders of Notes, as the case may be. Section 9.15. Reassignment of Surplus. After termination of this Indenture and the payment in full of NFLP Obligations, any proceeds of all the Collateral received or held by the Trustee shall be turned over to NFLP and the Collateral shall be reassigned to NFLP by the Trustee without recourse to the Trustee and without any representations, warranties or agreements of any kind. ARTICLE 10. THE TRUSTEE Section 10.1. Duties of the Trustee. (a) If an Amortization Event has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; provided, however, that the Trustee shall have no liability in connection with any action or inaction taken, or not taken, by it upon the deemed occurrence of an Amortization Event of which a Trust Officer has not received notice; provided, further, however, that the preceding sentence shall not have the effect of insulating the Trustee from liability arising out of the Trustee's negligence or willful misconduct. (b) Except during the occurrence and continuance of an Amortization Event: -74- 82 (i) The Trustee undertakes to perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This clause does not limit the effect of clause (b) of this Section 10.1. (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 9.4. (iv) The Trustee shall not be charged with knowledge of any default by the Servicer or the Lessee in the performance of its obligations under any Related Document, unless a Trust Officer of the Trustee (a) receives written notice of such failure from National or any Holders of Notes evidencing not less than 10% of the aggregate principal amount of the Notes of any Series adversely affected thereby or (b) otherwise has actual knowledge thereof. (d) Notwithstanding anything to the contrary contained in this Indenture or any of the Related Documents, no provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability if there is reasonable ground (as determined by the Trustee in its sole discretion) for believing that the repayment of such funds is not reasonably assured to it by the security -75- 83 afforded to it by the terms of this Indenture. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (e) In the event that the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Indenture, the Trustee shall be obligated as soon as practicable upon actual knowledge of a Trust Officer thereof and receipt of appropriate records and information, if any, to perform such obligation, duty or agreement in the manner so required. (f) Subject to Section 10.3, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law or the Related Documents. The Trustee may allow and credit to NFLP interest agreed upon by NFLP and the Trustee from time to time as may be permitted by law. Section 10.2. Rights of the Trustee. Except as otherwise provided by Section 10.1: (a) The Trustee may rely and shall be protected in acting or refraining from acting based upon any document believed by it to be genuine and to have been signed or presented by the proper person. (b) The Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through agents, custodians and nominees appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by the Indenture. (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or any Supplement, or to institute, -76- 84 conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Noteholders, pursuant to the provisions of this Indenture or any Supplement, unless such Noteholders shall have offered to the Trustee reasonable security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligations, upon the occurrence of a default by the Servicer or NFLP (which has not been cured), to exercise such of the rights and powers vested in it by this Indenture or any Supplement, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (f) The Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by the Required Noteholders of any Series which could be adversely affected if the Trustee does not perform such acts; provided, however, that within two Business Days of its receipt of any Monthly Certificate, the Trustee shall verify the mathematical computations contained therein on the form attached hereto as Exhibit E, based solely on the information and amounts received, and calculations required to be made, by the Trustee pursuant to the Indenture, and shall notify the Servicer and each of the Rating Agencies of the accuracy of such computations or of any discrepancies therein, provided that the rounding of numbers will not constitute a discrepancy, whereupon the Servicer shall deliver to the Rating Agencies within 5 Business Days thereafter a certificate describing the nature and cause of any such discrepancies and the action that the Servicer proposes to take with respect thereto. Concurrently with its notice to each of the Rating Agencies referred to above, the Trustee shall provide the Rating Agencies with a certificate, signed by an authorized officer of the Trustee, disclosing whether or not the Trustee has actual knowledge of any Amortization Event (and, if it does have actual knowledge of any Amortization Event, specifying the nature of that event). (g) The Trustee shall not be liable for any losses or liquidation penalties in connection with Permitted -77- 85 Investments, unless such losses or liquidation penalties were incurred through the Trustee's own willful misconduct, negligence or bad faith. (h) The Trustee shall have the right, but not the obligation to file or record any document or instrument necessary or advisable to evidence the security interest in the Collateral granted pursuant to this Indenture. Section 10.3. Individual Rights of the Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with NFLP or an Affiliate of NFLP with the same rights it would have if it were not Trustee. Any Paying Agent may do the same with like rights. However, the Trustee is subject to Section 10.8. Section 10.4. Notice of Amortization Events and Potential Amortization Events. If an Amortization Event or a Potential Amortization Event occurs and is continuing and if a Trust Officer of the Trustee receives written notice thereof, the Trustee shall promptly provide the Noteholders with notice of such Amortization Event or the Potential Amortization Event, if such Notes are represented by a Global Note, by telephone and facsimile, and, if such Notes are represented by Definitive Notes, by first class mail. Section 10.5. Compensation. (a) NFLP shall cause the Servicer to promptly pay to the Trustee from time to time compensation for its acceptance of this Indenture and services hereunder as set forth in the letter agreement dated as of April 30, 1996 between the Servicer and the Trustee, as may be amended from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. NFLP shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include (i) the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel and (ii) the reasonable expenses of the Trustee's agents in administering the Collateral. (b) The indemnification provisions in favor of the Trustee and its officers, directors, agents and employees provided for in the Lease are hereby incorporated by reference with the same force and effect as if set forth herein in full. NFLP shall not be required to reimburse any -78- 86 expense or indemnify the Trustee against any loss, liability, or expense incurred by the Trustee through the Trustee's own willful misconduct, negligence or bad faith. (c) When the Trustee incurs expenses or renders services after an Amortization Event occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Code. (d) The provisions of this Section 10.5 shall survive the termination of this Indenture and the resignation and removal of the Trustee. Section 10.6. Replacement of the Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. (b) The Trustee may, after giving sixty (60) days prior written notice to NFLP and to each Noteholder, resign at any time and be discharged from the trust hereby created by so notifying NFLP and the Servicer; provided, however, that no such resignation of the Trustee shall be effective until a successor trustee has assumed the obligations of the Trustee hereunder. The Requisite Investors may remove the Trustee by so notifying the Trustee, the Servicer and NFLP. NFLP or the Servicer may remove the Trustee if: (i) the Trustee fails to comply with Section 10.8; (ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee as a debtor under the Bankruptcy Code; (iii) a custodian or public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, NFLP shall promptly appoint a successor Trustee. (c) If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Servicer, NFLP or any Secured -79- 87 Party may petition any court of competent jurisdiction for the appointment of a successor Trustee. (d) If the Trustee, after written request by any Noteholder who has been a Noteholder for at least six months, fails to comply with Section 10.8, such Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee, the Servicer and NFLP, Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture and any Supplement. The successor Trustee shall mail a notice of its succession to Noteholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee; provided, however, that all sums owing to the Trustee hereunder have been paid. Notwithstanding replacement of the Trustee pursuant to this Section 10.6, NFLP's obligations under Section 10.5 hereof shall continue for the benefit of the retiring Trustee. Section 10.7. Successor Trustee by Merger, etc. Subject to Section 10.8, if the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 10.8. Eligibility Disqualification. (a) There shall at all times be a Trustee hereunder which shall be (i) a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, (ii) subject to supervision or examination by Federal or state authority and shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition, and (iii) if such Trustee is other than The Bank of New York as the original Trustee hereunder, acceptable to the Requisite Investors. (b) At any time the Trustee shall cease to satisfy the eligibility requirements of clauses (a)(i) or (a)(ii) above, the Trustee shall resign immediately in the manner and with the effect specified in Section 10.6. -80- 88 Section 10.9. Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of this Indenture or any Supplement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Collateral may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Collateral, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders, such title to the Collateral, or any part thereof, and, subject to the other provisions of this Section 10.9, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 10.8 of and no notice to Noteholders of the appointment of any co-trustee or separate trustee shall be required under Section 10.6 of this Base Indenture. No co-trustee shall be appointed without the consent of the Servicer unless such appointment is required as a matter of state law or to enable the Trustee to perform its functions hereunder. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) The Notes of each Series shall be authenticated and delivered solely by the Trustee or an authenticating agent appointed by the Trustee; (ii) All rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent on unqualified to perform, such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Assets or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate -81- 89 trustee or co-trustee, but solely at the direction of the Trustee; (iii) No trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iv) The Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other waiting given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article 10. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture and any Supplement, specifically including every provision of this Indenture or any Supplement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to this Indenture or any Supplement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. (e) In connection with the appointment of a co-trustee, the Trustee may, at any time, at the Trustee's sole cost and expense, without notice to the Noteholders, delegate its duties under this Base Indenture and any Supplement to any Person who agrees to conduct such duties in accordance with the terms hereof; provided, however, that no such delegation shall relieve the Trustee of its obligations and responsibilities hereunder with respect to any such delegated duties. -82- 90 Section 10.10. Representations and Warranties of Trustee. The Trustee represents and warrants that: (i) The Trustee is a banking corporation duly organized, validly existing and in good standing under the laws of the State of New York; (ii) The Trustee has full power, authority and right to execute, deliver and perform this Indenture and any Supplement issued concurrently with this Indenture and to authenticate the Notes, and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture and any Supplement issued concurrently with this Indenture and to authenticate the Notes; (iii) This Indenture has been duly executed and delivered by the Trustee; and (iv) The Trustee meets the requirements of eligibility as a trustee hereunder set forth in Section 10.8 hereof. ARTICLE 11. DISCHARGE OF INDENTURE Section 11.1. Termination of NFLP's Obligations. (a) This Indenture shall cease to be of further effect (except that NFLP's obligations under Section 10.5 and NFLP's, the Trustee's and Paying Agent's obligations under Section 11.3 shall survive) when all Outstanding Notes theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Notes which have been replaced or paid) to the Trustee for cancellation and NFLP has paid all sums payable hereunder. (b) In addition, except as may be provided to the contrary in any Supplement, NFLP may terminate all of its obligations under this Indenture if: (i) NFLP irrevocably deposits in trust with the Trustee or at the option of the Trustee, with a trustee reasonably satisfactory to the Trustee and NFLP under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, money or U.S. Government Obligations -83- 91 sufficient to pay when due principal and interest on the Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder; provided, however, that (1) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such money or the proceeds of such U.S. Government Obligations to the Trustee and (2) the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of said principal and interest with respect to the Notes; (ii) NFLP delivers to the Trustee an Officer's Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture have been complied with, and an Opinion of Counsel and a certificate from a firm of certified public accountants to the same effect; and (iii) NFLP delivers to the Trustee an Officer's Certificate stating that no Potential Amortization Event or Amortization Event, in either case, described in Section 9.1(d) shall have occurred and be continuing on the date of such deposit. Then, this Indenture shall cease to be of further effect (except as provided in this paragraph), and the Trustee, on demand of NFLP, shall execute proper instruments acknowledging confirmation of and discharge under this Indenture. (c) After such irrevocable deposit made pursuant to Section 11.1(b) and satisfaction of the other conditions set forth herein, the Trustee upon request shall acknowledge in writing the discharge of NFLP's obligations under this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal or interest on the Notes, the U.S. Government Obligations shall be payable as to principal or interest at least one Business Day before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. "U.S. Government Obligations" means direct obligations of the United States of America, or any agency or instrumentality thereof for the payment of which the full faith and credit of the United States of America is pledged. -84- 92 Section 11.2. Application of Trust Money. The Trustee or a trustee satisfactory to the Trustee and NFLP shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 11.1. The Trustee shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent in accordance with this Indenture to the payment of principal and interest on the Notes. The provisions of this Section shall survive the expiration or earlier termination of this Indenture. Section 11.3. Repayment to NFLP. The Trustee and the Paying Agent shall promptly pay or return to NFLP upon written request any excess money or, pursuant to Sections 2.11 and 2.14, any Notes held by them at any time. Subject to Section 2.7(c), the Trustee and the Paying Agent shall pay to NFLP upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years after the date upon which such payment shall have become due. The provisions of this Section shall survive the expiration or earlier termination of this Indenture. ARTICLE 12. AMENDMENTS Section 12.1. Without Consent of the Noteholders. Without the consent of any Noteholder but with the consent of the Rating Agencies, NFLP, the Trustee, and any applicable Enhancement Provider, at any time and from time to time, may enter into one or more Supplements hereto, in form satisfactory to the Trustee, for any of the following purposes; (a) to create a new Series of Notes (including, without limitation, making such modifications to the Indenture and the other Related Documents as may be required to issue a Segregated Series of Notes; provided, however, that the creation of any Segregated Series of Notes shall not result in a material adverse effect on the Noteholders or Note Owners of any Series unless the Required Noteholders of such Series shall have given their prior written consent to the creation thereof); -85- 93 (b) to add to the covenants of NFLP for the benefit of the Noteholders of all or any Series of Notes (and if such covenants are to be for the benefit of less than all Series of Notes, stating that such covenants are expressly being included solely for the benefit of such Series) or to surrender any right or power herein conferred upon NFLP (provided, however, that NFLP will not pursuant to this subsection 12.1(b) surrender any right or power it has against the Servicer, the Lessee or any Manufacturer); (c) to mortgage, pledge, convey, assign and transfer to the Trustee any property or assets as security for the Notes and to specify the terms and conditions upon which such property or assets are to be held and dealt with by the Trustee and to set forth such other provisions in respect thereof as may be required by the Indenture or as may, consistent with the provisions of the Indenture, be deemed appropriate by NFLP and the Trustee, or to correct or amplify the description of any such property or assets at any time so mortgaged, pledged, conveyed and transferred to the Trustee; (d) to cure any mistake, ambiguity, defect, or inconsistency or to correct or supplement any provision contained herein or in any Supplement or in any Notes issued hereunder; (e) to provide for uncertificated Notes in addition to certificated Notes; (f) to add to or change any of the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the issuance of Notes in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes of one or more Series and to add to or change any of the provisions of the Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (h) to correct or supplement any provision herein which may be inconsistent with any other provision herein or to make any other provisions with respect to matters or questions arising under this Indenture; -86- 94 provided, however, that, as evidenced by an Opinion of Counsel, such action shall not adversely affect in any material respect the interests of any Noteholders. Upon the request of NFLP, accompanied by a resolution of the Board of Directors authorizing the execution of any Supplement to effect such amendment, and upon receipt by the Trustee and National of the documents described in Section 2.2 hereof, the Trustee shall join with NFLP in the execution of any Supplement authorized or permitted by the terms of this Indenture and shall make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such Supplement which affects its own rights, duties or immunities under this Indenture or otherwise. Section 12.2. With Consent of the Noteholders. Except as provided in Section 12.1, the provisions of this Indenture and any Supplement (unless otherwise provided in such Supplement) and each other Related Document to which NFLP is a party may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to in writing by NFLP, National, the Trustee, any applicable Enhancement Provider, the Rating Agencies, and the Requisite Investors (or the Required Noteholders of a Series of Notes, in respect of any amendment, modification or waiver of or to this Indenture, the Supplement with respect to such Series of Notes or any Related Document which affects only the Noteholders of such Series of Notes and does not affect the Noteholders of any other Series of Notes, as substantiated by an opinion of Counsel to such effect, which Opinion of Counsel may, to the extent same is based on any factual matter, rely upon an Officer's Certificate as to the truth of such factual matter). Notwithstanding the foregoing: (i) any modification of this Section 12.2, any requirement hereunder that any particular action be taken by Noteholders holding the relevant percentage in principal amount of the Notes or any change in the definition of the terms "Aggregate Asset Amount" or "Asset Amount Deficiency" (other than in connection with the issuance of a Segregated Series of Notes), "Eligible Manufacturer" or "Eligible Manufacturer Program" (other than in connection with a waiver of such eligibility requirement by the Noteholders of any Series of Notes, but only to the extent so provided in the related Supplement in respect of such Series of Notes), "Invested Amount", "Invested Percentage", or the applicable amount of Enhancement or any defined term used for the purpose of any such definitions shall require the consent of each affected Noteholder; and -87- 95 (ii) any amendment, waiver or other modification that would (a) extend the due date for, or reduce the amount of any scheduled repayment or prepayment of principal of or interest on any Note (or reduce the principal amount of or rate of interest on any Note) shall require the consent of each affected Noteholder; (b) approve the assignment or transfer by NFLP of any of its rights or obligations hereunder or under any other Related Document to which it is a party except pursuant to the express terms hereof or thereof shall require the consent of each Noteholder; (c) release any obligor under any Related Document to which it is a party except pursuant to the express terms of such Related Document shall require the consent of each Noteholder; provided, however, that the Liens on Vehicles may be released as provided in Section 3.5; (d) affect adversely the interests, rights or obligations of any Noteholder individually in comparison to any other Noteholder shall require the consent of such Noteholder; or (e) amend or otherwise modify any Amortization Event shall require the consent of each affected Noteholder. No failure or delay on the part of any Noteholder or the Trustee in exercising any power or right under this Indenture or any other Related Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. Section 12.3. Supplements. Each amendment or other modification to this Indenture or the Notes shall be set forth in a Supplement. Each Supplement shall require the consent of the Rating Agencies. In addition to the manner provided in Sections 12.1 and 12.2, each Supplement may be amended as provided for in such Supplement. Section 12.4. Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Noteholder of a Note is a continuing consent by the Noteholder and every subsequent Noteholder of a Note or portion of a Note that evidences the same debt as the consenting Noteholder's Note, even if notation of the consent is not made on any Note. However, any such Noteholder or subsequent Noteholder may revoke the consent as to his Note or portion of a Note if the Trustee receives written notice of revocation before the date the amendment or waiver becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter -88- 96 binds every Noteholder. NFLP may fix a record date for determining which Noteholders must consent to such amendment or waiver. Section 12.5. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment or waiver on any Note thereafter authenticated. NFLP in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment or waiver. Section 12.6. The Trustee to Sign Amendments, etc. The Trustee shall sign any Supplement authorized pursuant to this Article 12 if the Supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does have such adverse effect, the Trustee may, but need not, sign it. In signing such Supplement, the Trustee shall be entitled to receive, if requested, an indemnity reasonably satisfactory to it and to receive and, subject to Section 10.1, shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel as conclusive evidence that such Supplement is authorized or permitted by this Indenture and that it will be valid and binding upon NFLP in accordance with its terms. NFLP may not sign a Supplement until its Board of Directors approves it. ARTICLE 13. MISCELLANEOUS Section 13.1. Notices. (a) Any notice or communication by NFLP, the General Partner or the Trustee to the others shall be in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other parties' respective addresses: -89- 97 If to NFLP: National Car Rental Financing Limited Partnership 7700 France Avenue South Minneapolis, Minnesota 55435 Attn: Michael J. Becker Phone: (612) 830-2522 Fax: (612) 830-2413 If to the General Partner: National Car Rental Financing Corporation 7700 France Avenue South Minneapolis, Minnesota 55435 Attn: Michael J. Becker Phone: (612) 830-2133 Fax: (612) 830-2413 If to the Trustee: The Bank of New York 101 Barclay Street Floor 12 East New York, New York 10286 Attn: Corporate Trust Division Phone: (212) 815-5218 Fax: (212) 815-5999 NFLP, the General Partner or the Trustee by notice to the other parties may designate additional or different addresses for subsequent notices or communications; provided, however, NFLP may not at any time designate more than a total of three (3) addresses to which notices must be sent in order to be effective. Any notice (i) given in person shall be deemed delivered on the date of delivery of such notice, (ii) given by first class mail shall be deemed given five (5) days after the date that such notice is mailed, (iii) delivered by telex or telecopier shall be deemed given on the date of delivery of such notice, and (iv) delivered by overnight air courier shall be deemed delivered one Business Day after the date that such notice is delivered to such overnight courier. Notwithstanding any provisions of this Indenture to the contrary, the Trustee shall have no liability based upon or arising from the failure to receive any notice required by or relating to this Indenture or the Notes. If NFLP mails a notice or communication to Noteholders, it shall mail a copy to the Trustee and the Master Collateral Agent at the same time. -90- 98 (b) Where the Indenture provides for notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if sent in writing and mailed, first-class postage prepaid, to each Noteholder affected by such event, at its address as it appears in the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed (if any) for the giving of such notice. In any case where notice to Noteholder is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In the case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made that is satisfactory to the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 13.2. Communication by Noteholders With Other Noteholders. Noteholders may communicate with other Noteholders with respect to their rights under this Indenture or the Notes. Section 13.3. Certificate as to Conditions Precedent. Upon any request or application by NFLP to the Trustee to take any action under this Indenture, NFLP shall furnish to the Trustee an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.4) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with. Section 13.4. Statements Required in Certificate. Each certificate with respect to compliance with a condition or covenant provided for in this Indenture shall include: -91- 99 (a) a statement that the Person giving such certificate has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 13.5. Rules by the Trustee and the Paying Agent. The Trustee may make reasonable rules for action by or at a meeting of Noteholders. Section 13.6. No Recourse Against Others. A director, Authorized Officer, employee or stockholder of NFLP, as such, shall not have any liability for any obligations of NFLP under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Noteholder by accepting a Note waives and releases all such liability. Section 13.7. Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. Section 13.8. Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under the Indenture. Section 13.9. Payment on Business Day. In any case where any Distribution Date, redemption date or maturity date of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture) payment of interest or principal (and premium, if any), as the case may be, need not be made on such date but may be made on the -92- 100 next succeeding Business Day with the same force and effect as if made on the Distribution Date, redemption date, or maturity date; provided, however, that no interest shall accrue for the period from and after such redemption date, or maturity date, as the case may be to and including such next Business Day. Section 13.10. Governing Law. The laws of the State of New York, including, without limitation, the UCC, but excluding any conflicts of laws, shall govern and be used to construe this Indenture and the Notes and the rights and duties of the Trustee, Registrar, Paying Agent, Noteholders and Note Owners. Section 13.11. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of NFLP or an Affiliate of NFLP. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.12. Successors. All agreements of NFLP in this Indenture and the Notes shall bind its successor; provided, however, NFLP may not assign its obligations or rights under this Indenture or any Related Document. All agreements of the Trustee in this Indenture shall bind its successor. Section 13.13. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 13.14. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 13.15. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. -93- 101 Section 13.16. Termination; Collateral. This Indenture, and any grants, pledges and assignments hereunder, shall become effective concurrently with the issuance of the first Series of Notes and shall terminate when (a) all NFLP Obligations shall have been fully paid and satisfied, (b) the obligations of each Enhancement Provider under any Enhancement and related documents have terminated, and (c) any Enhancement shall have terminated, at which time the Trustee, at the request of NFLP and upon receipt of an Officer's Certificate from NFLP to the effect that the conditions in clauses (a), (b) and (c) above have been complied with and upon receipt of a certificate from the Trustee and each Enhancement Provider to the effect that the conditions in clauses (a), (b) and (c) above relating to NFLP Obligations to the Noteholders and each Enhancement Provider have been complied with, shall reassign (without recourse upon, or any warranty whatsoever by, the Trustee) and deliver all Collateral and documents then in the custody or possession of the Trustee promptly to NFLP. NFLP and the Secured Parties hereby agree that, if any Deposited Funds remain on deposit in the Collection Account after the termination of this Indenture, such amounts shall be released by the Trustee and paid to NFLP. Section 13.17. No Bankruptcy Petition Against NFLP or the General Partner. Each of the Secured Parties, the Servicer, the Retained Interestholder and the Trustee hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of the latest maturing Note, it will not institute against, or join with any other Person in instituting, against NFLP or the General Partner any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings, under any Federal or state bankruptcy or similar law; provided, however, that nothing in this Section 13.17 shall constitute a waiver of any right to indemnification, reimbursement or other payment from NFLP or the General Partner pursuant to this Indenture. In the event that any such Secured Party, the Servicer, the Retained Interestholder or the Trustee takes action in violation of this Section 13.17, NFLP or the General Partner, as applicable, shall file an answer with the bankruptcy court or otherwise properly contesting the filing of such a petition by any such Secured Party, the Servicer, the Retained Interestholder or the Trustee against NFLP or the General Partner or the commencement of such action and raising the defense that such Secured Party, the Servicer, the Retained Interestholder or the Trustee has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 13.17 shall survive the -94- 102 termination of this Indenture, and the resignation or removal of the Trustee. Nothing contained herein shall preclude participation by any Secured Party, the Servicer, the Retained Interestholder or the Trustee in the assertion or defense of its claims in any such proceeding involving NFLP or the General Partner. Section 13.18. No Recourse. The obligations of NFLP under this Indenture are solely the obligations of NFLP and are payable solely from the assets of NFLP. No recourse shall be had for the payment of any amount owing in respect of any fee hereunder or any other obligation or claim arising out of or based upon this Indenture against any limited partner of NFLP or against the capital or any other asset of the General Partner or against any stockholder, employee, officer, director or incorporator of the General Partner. Fees, expenses or costs payable by NFLP hereunder shall be payable by NFLP to the extent and only to the extent that NFLP is reimbursed therefor pursuant to the Lease or the Related Documents, or funds are then available or thereafter become available for such purpose pursuant to Article 5. -95- 103 IN WITNESS WHEREOF, the Trustee and NFLP have caused this Base Indenture to be duly executed by their respective duly authorized officers as of the day and year first written above. NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Issuer By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ ---------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee By: /s/ ----------------------------------- Name: Title: -96- EX-4.2 3 SUPPLEMENT TO BASE INDENTURE 04/30/96 1 EXHIBIT 4.2 EXECUTION COPY NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Issuer, and THE BANK OF NEW YORK, as Trustee -------------------------- SERIES 1996-1 SUPPLEMENT dated as of April 30, 1996 to BASE INDENTURE dated as of April 30, 1996 -------------------------- Rental Car Asset Backed Notes 2 TABLE OF CONTENTS
PAGE PRELIMINARY STATEMENT....................... 1 ARTICLE 1 DESIGNATION............................ 1 ARTICLE 2 DEFINITIONS............................ 2 Section 2.1 Incorporation of Schedule 1, Etc..................... 2 Section 2.2 Defined Terms........................................ 2 ARTICLE 3 SERIES 1996-1 ALLOCATIONS....................... 43 Section 3.1 Establishment of Series 1996-1 Collection Account, Series 1996-1 Excess Funding Account and......... 43 Series 1996-1 Accrued Interest Account........... 43 Section 3.2 Allocations with respect to the Series 1996-1 Notes............................................ 43 Section 3.3 Monthly Payments..................................... 53 Section 3.4 Payment of Note Interest............................. 56 Section 3.5 Payment of Note Principal............................ 58 Section 3.6 Retained Distribution Account........................ 68 Section 3.7 The Servicer's Failure to Instruct the Trustee to Make a Deposit or Payment........................ 68 Section 3.8 Draw on Letter of Credit............................. 68 Section 3.9 Letter of Credit Termination Demand.................. 69 Section 3.10 The Cash Collateral Account.......................... 70 Section 3.11 Class A Distribution Account......................... 73 Section 3.12 Class B Distribution Account......................... 74 Section 3.13 Class B Notes Subordinate to Class A Notes........... 76 ARTICLE 4 AMORTIZATION EVENTS......................... 76 ARTICLE 5 RIGHT TO WAIVE MAXIMUM NON-PROGRAM VEHICLE AMOUNT AND MAXIMUM MANUFACTURER AMOUNT..................... 78 Section 5.1 Request for Waiver................................... 78 Section 5.2 Consents............................................. 79
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ARTICLE 6 FORM OF SERIES 1996-1 NOTES..................... 82 Section 6.1 Class A Notes........................................ 82 Section 6.2 Class B Notes........................................ 83 ARTICLE 7 GENERAL............................... 84 Section 7.1 Optional Repurchase.................................. 84 Section 7.2 Conditions to Exchanges.............................. 84 Section 7.3 Minimum Overcollateralization........................ 86 Section 7.4 Maintenance of Rating; Payment of Rating Agency Fees............................................. 86 Section 7.5 Exhibits............................................. 86 Section 7.6 Ratification of Base Indenture....................... 86 Section 7.7 Counterparts......................................... 87 Section 7.8 Governing Law........................................ 87 Section 7.9 Amendments........................................... 87 Section 7.10 Discharge of Indenture............................... 89 Section 7.11 Inspection of Property, Books and Records............ 89
Exhibit A-1 - Form of Restricted Global Class A Note Exhibit A-2 - Form of Temporary Global Class A Note Exhibit A-3 - Form of Permanent Global Class A Note Exhibit B-1 - Form of Restricted Global Class B Note Exhibit B-2 - Form of Temporary Global Class B Note Exhibit B-3 - Form of Permanent Global Class B Note Exhibit C - Form of Consent
- ii - 4 SERIES 1996-1 SUPPLEMENT, dated as of April 30, 1996 (this "Supplement"), is between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership ("NFLP") and THE BANK OF NEW YORK, a New York banking corporation (together with its successors in trust thereunder as provided in the Base Indenture referred to below, the "Trustee"), to the Base Indenture, dated as of April 30, 1996, between NFLP and the Trustee (as amended, supplemented or otherwise modified from time to time and in effect, exclusive of Supplements creating a new Series of Notes, the "Base Indenture"). PRELIMINARY STATEMENT WHEREAS, Sections 2.2 and 12.1 of the Base Indenture provide, among other things, that NFLP and the Trustee may at any time and from time to time enter into a supplement to the Base Indenture for the purpose of authorizing the issuance of one or more Series of Notes. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DESIGNATION There is hereby created a Series of Notes to be issued pursuant to the Base Indenture and this Supplement and such Series of Notes shall be designated generally as Rental Car Asset Backed Notes, Series 1996-1. The Series 1996-1 Notes (as defined below) shall be issued in four classes of Class A Notes, the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes, and three classes of Class B Notes, the Class B-1 Notes, the Class B-2 Notes and the Class B-3 Notes. The Class A-1 Rental Car Asset Backed Notes, the Class A-2 Rental Car Asset Backed Notes, the Class A-3 Rental Car Asset Backed Notes and the Class A-4 Rental Car Asset Backed Notes are designated generally herein as the "Class A Notes" and the Class B-1 Rental Car Asset Backed Notes, the Class B-2 Rental Car Asset Backed Notes and the Class B-3 Rental Car Asset Backed Notes are designated generally herein as the "Class B Notes". The Class A Notes and the Class B Notes are referred to collectively as the "Series 1996-1 Notes". The Class B Notes are subordinated in right of payment to the Class A Notes to the extent set forth herein. The proceeds from the sale of the Series 1996-1 Notes shall be deposited in the Collection Account (and allocated to the Series 1996-1 Excess Funding Account) and shall be used (i) on the Series 1996-1 Closing Date, to refinance the Refinanced Vehicles, (ii) from the Series 1996-1 Closing Date to the 90th 5 day after the Series 1996-1 Closing Date, to finance the acquisition by National of additional Eligible Vehicles for leasing in states in which NFLP as of the time of acquisition shall not have obtained all licenses and qualifications necessary to conduct its leasing business, (iii) on and after the Series 1996-1 Closing Date, to acquire Texas Vehicles, (iv) on and after the Series 1996-1 Closing Date, to acquire Acquired Vehicles from certain Eligible Manufacturers, and (v) in certain circumstances, to pay principal on amortizing Notes of other Series or principal of and interest on the Series 1996-1 Notes. The Series 1996-1 Notes are a non-Segregated Series of Notes (as more fully described in the Base Indenture). Accordingly, all references in this Supplement to "all" Series of Notes (and all references in this Supplement to terms defined in the Base Indenture that contain references to "all" Series of Notes) shall refer to all Series of Notes other than Segregated Series of Notes. ARTICLE 2 DEFINITIONS Section 2.1 Incorporation of Schedule 1, Etc. All capitalized terms not otherwise defined herein are defined in the Definitions List attached to the Base Indenture as Schedule 1 thereto. All references to "Articles", "Sections" or "Subsections" herein shall refer to Articles, Sections or Subsections of the Base Indenture, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Base Indenture, each capitalized term used or defined herein shall relate only to the Series 1996-1 Notes and not to any other Series of Notes issued by NFLP. Section 2.2 Defined Terms. The following words and phrases shall have the following meanings with respect to the Series 1996-1 Notes and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "Additional Manufacturer Vehicle Enhancement Percentage" means, with respect to each Manufacturer (other than GM and Chrysler) that has become an Eligible Manufacturer and has an Eligible Manufacturer Program, the percentage approved by each Rating Agency then rating the Series 1996-1 Notes at the request of National and NFLP for such Manufacturer. - 2 - 6 "Additional Manufacturer Vehicle Percentage" means, as of any date of determination, with respect to each Manufacturer (other than GM and Chrysler) that has become an Eligible Manufacturer and has an Eligible Manufacturer Program, the product of (i) a fraction, expressed as a percentage, (a) the numerator of which is the aggregate Net Book Value of all Program Vehicles manufactured by such Manufacturer as of such day and (b) the denominator of which is an amount equal to the Aggregate Invested Amount on such day and (ii) the Series 1996-1 Invested Percentage as of such date. "Additional Overcollateralization Amount" means, as of any date of determination, an amount equal to (a) the Overcollateralization Portion on such date divided by the Series 1996-1 Enhancement Factor as of such date minus (b) the Overcollateralization Portion. "Base Indenture" has the meaning set forth in the preamble. "Cash Collateral Account" has the meaning specified in Section 3.9(a) of this Supplement. "Cash Collateral Account Surplus" means, as of any date of determination subsequent to the establishment and funding of the Cash Collateral Account pursuant to Section 3.10 of this Supplement, the amount, if any, by which the Letter of Credit Amount exceeds the Required Enhancement Amount. "Certificate of Credit Demand" means a certificate in the form of Annex A to the Letter of Credit. "Certificate of Termination Demand" means a certificate in the form of Annex B to the Letter of Credit. "Chrysler Vehicle Percentage" means, as of any date of determination, the product of (a) a fraction, expressed as a percentage, (i) the numerator of which is the aggregate Net Book Value of all Program Vehicles manufactured by Chrysler as of such date and (ii) the denominator of which is an amount equal to the Aggregate Invested Amount on such date and (b) the Series 1996-1 Invested Percentage as of such date. "Class A Carryover Controlled Amortization Amount" means any or all of the Class A-1 Carryover Controlled Amortization Amount, the Class A-2 Carryover Controlled Amortization Amount, the Class A-3 Carryover Controlled Amortization Amount and the Class A-4 Carryover Controlled Amortization Amount. - 3 - 7 "Class A Collateral" means the Collateral, the Master Collateral allocable to the Class A Notes and the Class A Distribution Account Collateral. "Class A Controlled Distribution Amount" means any or all of the Class A-1 Controlled Distribution Amount, the Class A-2 Controlled Distribution Amount, the Class A-3 Controlled Distribution Amount and the Class A-4 Controlled Distribution Amount, as the context requires. "Class A Controlled Distribution Amount Deficiency" means any or all of the Class A-1 Controlled Distribution Amount Deficiency, the Class A-2 Controlled Distribution Amount Deficiency, the Class A-3 Controlled Distribution Amount Deficiency and the Class A-4 Controlled Distribution Amount Deficiency, as the context requires. "Class A Deficiency Amount" means any or all of the Class A-1 Deficiency Amount, the Class A-2 Deficiency Amount, the Class A-3 Deficiency Amount and the Class A-4 Deficiency Amount, as the context requires. "Class A Distribution Account" has the meaning specified in Section 3.11(a) of this Supplement. "Class A Distribution Account Collateral" has the meaning specified in Section 3.11(d) of this Supplement. "Class A Expected Final Distribution Date" means any or all of the Class A-1 Expected Final Distribution Date, the Class A-2 Expected Final Distribution Date, the Class A-3 Expected Final Distribution Date and the Class A-4 Expected Final Distribution Date, as the context requires. "Class A Initial Invested Amount" means any or all of the Class A-1 Initial Invested Amount, the Class A-2 Initial Invested Amount, the Class A-3 Initial Invested Amount and the Class A-4 Initial Invested Amount, as the context requires. "Class A Interest Rate" means any of the Class A-1 Interest Rate, the Class A-2 Interest Rate, the Class A-3 Interest Rate or the Class A-4 Interest Rate, as the context requires. "Class A Invested Amount" means, when used with respect to any date, an amount equal to (a) the aggregate Class A Initial Invested Amount minus (b) the amount of principal payments made to Class A Noteholders on or prior to such date minus (c) all Losses allocated to the Class A Noteholders on or prior to such - 4 - 8 date plus (d) all Recoveries allocated to the Class A Noteholders on or prior to such date. "Class A Invested Percentage" means, on any date of determination, the sum of the Class A-1 Invested Percentage, the Class A-2 Invested Percentage, the Class A-3 Invested Percentage and the Class A-4 Invested Percentage for such date of determination. "Class A Investor Monthly Servicing Fee" means, on any Distribution Date, an amount equal to the product of 1/12th of 0.50% of the Class A Invested Amount as of the preceding Distribution Date (or, in the case of the initial Distribution Date, the aggregate Class A Initial Invested Amount), after giving effect to any payments of principal on such preceding Distribution Date; provided, however, that if a Rapid Amortization Period shall occur and be continuing and if National is no longer the Servicer, the Class A Investor Monthly Servicing Fee shall equal the greater of (a) the product of (i) a fraction, the numerator of which is the Class A Invested Amount on such Distribution Date and the denominator of which is the aggregate invested amounts for all outstanding Series of Notes on such Distribution Date, (ii) $20 and (iii) the number of Vehicles as of the last day of the Related Month, and (b) the amount described in the first clause of this definition. "Class A Monthly Interest" means (a) with respect to the first Distribution Date and with respect to any or all of the classes of Class A Notes, as the context requires, an amount equal to the product of (i) a fraction the numerator of which is the number of days from and including the date of issuance of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) to but excluding the first Distribution Date and the denominator of which is 360, (ii) the Class A Interest Rate for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) and (iii) the Class A Initial Invested Amount for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) and (b) with respect to each other Distribution Date, an amount equal to one-twelfth of the product of (A) the Class A Interest Rate for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) and (B) the Class A Principal Balance for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) as of the preceding Distribution Date (determined after giving effect to all payments, deposits and withdrawals on such preceding Distribution Date). "Class A Monthly Interest Shortfall" means as of any Distribution Date and with respect to any or all of the classes - 5 - 9 of Class A Notes, as the context requires, the excess, if any, of the Class A Monthly Interest for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) and any unpaid Class A Deficiency Amounts for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes (as applicable) (together with accrued interest on such unpaid Class A Deficiency Amounts) over the amount withdrawn from the Series 1996-1 Accrued Interest Account and deposited in the Class A Distribution Account on such Distribution Date pursuant to Section 3.2(a) of this Supplement. "Class A Monthly Supplemental Servicing Fee" means, on any Distribution Date, the product of the Supplemental Servicing Fee accrued during the related Series 1996-1 Interest Period times a fraction, the numerator of which is the Class A Invested Amount on such Distribution Date and the denominator of which is the aggregate invested amounts for all outstanding Series of Notes on such Distribution Date. "Class A Noteholder" means a Person in whose name a Class A Note is registered in the Note Register. "Class A Notes" means any or all of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class A-4 Notes, in each case executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4, Exhibit A-5, Exhibit A-6, Exhibit A-7, Exhibit A-8, Exhibit A-9, Exhibit A-10, Exhibit A-11 or Exhibit A-12 to this Supplement (as applicable). Definitive Class A Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.18 of the Base Indenture. "Class A Principal Balance" means, as of any date of determination, an amount equal to the Class A Initial Invested Amount minus the aggregate amount of payments of principal distributed to the Class A Noteholders prior to such date. "Class A Repurchase Amount" has the meaning specified in Section 7.1(a) of this Supplement. "Class A Waiver Deficiency Adjustment Prepayments" has the meaning specified in Section 5.2(b) of this Supplement. "Class A-1 Carryover Controlled Amortization Amount" means, with respect to the Class A-1 Notes for any Related Month during the Class A-1/A-2 Controlled Amortization Period, the amount, if any, by which the portion of the Monthly Total Principal Allocation allocable to the Class A-1 Noteholders on a pro rata basis with the Class A-2 Noteholders for the previous - 6 - 10 Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account on account of the Class A-1 Controlled Distribution Amount was less than the Class A-1 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the Class A-1 Controlled Amortization Period, the Class A-1 Carryover Controlled Amortization Amount shall be zero. "Class A-1 Controlled Amortization Amount" means $23,950,000. "Class A-1 Controlled Distribution Amount" means, with respect to any Related Month during the Class A-1/A-2 Controlled Amortization Period, an amount equal to the sum of the Class A-1 Controlled Amortization Amount and any Class A-1 Carryover Controlled Amortization Amount for such Related Month. "Class A-1 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(a)(i)(A) of this Supplement. "Class A-1 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class A Monthly Interest payable in respect of the Class A-1 Notes exceeds the amount available to pay such interest on such Distribution Date. "Class A-1 Expected Final Distribution Date" means the July 1999 Distribution Date. "Class A-1 Initial Invested Amount" means an aggregate initial principal amount of $143,700,000. "Class A-1 Interest Rate" means a rate per annum equal to the sum of (a) LIBOR plus (b) .50% per annum, calculated on the basis of the actual number of days elapsed in the related Interest Period divided by 360. "Class A-1 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class A-1 Initial Invested Amount minus (b) the amount of principal payments made to Class A-1 Noteholders on or prior to such date minus (c) all Losses allocated to the Class A-1 Noteholders on or prior to such date plus (d) all Recoveries allocated to the Class A-1 Noteholders on or prior to such date. "Class A-1 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections, the percentage equivalent of a fraction the numerator of - 7 - 11 which will be equal to the Class A-1 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), or, during the Series 1996-1 Controlled Amortization Period and the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period, and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class A-1 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class A-1 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all Series of Notes and all classes of such Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses allocated to the Class A-1 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. - 8 - 12 "Class A-1 Noteholders" means the holders of the Class A-1 Notes. "Class A-1 Notes" means the Series 1996-1 Floating Rate Rental Car Asset Backed Notes, Class A-1, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit A-1, Exhibit A-5 or Exhibit A-9, as the context requires. "Class A-1/A-2 Controlled Amortization Period" means a period commencing on January 1, 1999, and ending on the earliest to occur of (a) the date on which the Class A-1 Notes and the Class A-2 Notes are paid in full, (b) the Series 1996-1 Termination Date for the Class A-1 Notes and the Class A-2 Notes and (c) the commencement of the Series 1996-1 Rapid Amortization Period. "Class A-2 Carryover Controlled Amortization Amount" means, with respect to the Class A-2 Notes for any Related Month during the Class A-1/A-2 Controlled Amortization Period, the amount, if any, by which the portion of the Monthly Total Principal Allocation allocable to the Class A-2 Noteholders on a pro rata basis with the Class A-1 Noteholders for the previous Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account on account of the Class A-2 Controlled Distribution Amount was less than the Class A-2 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the Class A-2 Controlled Amortization Period, the Class A-2 Carryover Controlled Amortization Amount shall be zero. "Class A-2 Controlled Amortization Amount" means $23,950,000. "Class A-2 Controlled Distribution Amount" means, with respect to any Related Month during the Class A-1/A-2 Controlled Amortization Period, an amount equal to the sum of the Class A-2 Controlled Amortization Amount and any Class A-2 Carryover Controlled Amortization Amount for such Related Month. "Class A-2 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(a)(i)(B) of this Supplement. "Class A-2 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class A Monthly Interest payable in respect of the Class A-2 Notes exceeds the amount available to pay such interest on the Distribution Date. - 9 - 13 "Class A-2 Expected Final Distribution Date" means the July 1999 Distribution Date. "Class A-2 Initial Invested Amount" means an aggregate initial principal amount of $143,700,000. "Class A-2 Interest Rate" means an interest rate equal to 6.80% per annum, calculated on the basis of a 360-day year of twelve 30-day months. "Class A-2 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class A-2 Initial Invested Amount minus (b) the amount of principal payments made to Class A-2 Noteholders on or prior to such date minus (c) all Losses allocated to the Class A-2 Noteholders on or prior to such date plus (d) all Recoveries allocated to the Class A-2 Noteholders on or prior to such date. "Class A-2 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections, the percentage equivalent of a fraction the numerator of which will be equal to the Class A-2 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), or, during the Series 1996-1 Controlled Amortization Period and the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period, and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class A-2 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; - 10 - 14 (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class A-2 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all Series of Notes and all classes of such Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses allocated to the Class A-2 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Class A-2 Noteholders" means the holders of the Class A-2 Notes. "Class A-2 Notes" means the Series 1996-1 6.80% Rental Car Asset Backed Notes, Class A-2, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit A-2, Exhibit A-6 or Exhibit A-10, as the context requires. "Class A-3 Carryover Controlled Amortization Amount" means, with respect to the Class A-3 Notes for any Related Month during the Class A-3 Controlled Amortization Period, the amount, if any, by which the Monthly Total Principal Allocation for the previous Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account was less than the Class A-3 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the Class A-3 Controlled Amortization Period, the Class A-3 Carryover Controlled Amortization Amount shall be zero. "Class A-3 Controlled Amortization Amount" means $51,891,667. "Class A-3 Controlled Amortization Period" means a period commencing on January 1, 2001, and ending on the earliest to occur of (a) the date on which the Class A-3 Notes are paid in - 11 - 15 full, (b) the Series 1996-1 Termination Date for the Class A-3 Notes and (c) the commencement of the Series 1996-1 Rapid Amortization Period. "Class A-3 Controlled Distribution Amount" means, with respect to any Related Month during the Class A-3 Controlled Amortization Period, an amount equal to the sum of the Class A-3 Controlled Amortization Amount and any Class A-3 Carryover Controlled Amortization Amount for such Related Month. "Class A-3 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(a)(i)(C) of this Supplement. "Class A-3 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class A Monthly Interest that is payable in respect of the Class A-3 Notes exceeds the amount available to pay such interest on such Distribution Date. "Class A-3 Expected Final Distribution Date" means the July 2001 Distribution Date. "Class A-3 Initial Invested Amount" means an aggregate initial principal amount of $311,350,000. "Class A-3 Interest Rate" means a interest rate equal to 7.10% per annum, calculated on the basis of a 360-day year of twelve 30-day months. "Class A-3 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class A-3 Initial Invested Amount minus (b) the amount of principal payments made to Class A-3 Noteholders on or prior to such date minus (c) all Losses allocated to the Class A-3 Noteholders on or prior to such date Plus (d) all Recoveries allocated to the Class A-3 Noteholders on or prior to such date. "Class A-3 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections, the percentage equivalent of a fraction the numerator of which will be equal to the Class A-3 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), or, during the Series 1996-1 Controlled Amortization Period and the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period, and the - 12 - 16 denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class A-3 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class A-3 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses allocated to the Class A-3 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Class A-3 Noteholders" means the holders of the Class A-3 Notes. "Class A-3 Notes" means the Series 1996-1 7.10% Rental Car Asset Backed Notes, Class A-3, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, - 13 - 17 substantially in the form of Exhibit A-3, Exhibit A-7 or Exhibit A-11, as the context requires. "Class A-4 Carryover Controlled Amortization Amount" means, with respect to the Class A-4 Notes for any Related Month during the Class A-4 Controlled Amortization Period, the amount, if any, by which the Monthly Total Principal Allocation for the previous Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account was less than the Class A-4 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the Class A-4 Controlled Amortization Period, the Class A-4 Carryover Controlled Amortization Amount shall be zero. "Class A-4 Controlled Amortization Amount" means $27,941,667. "Class A-4 Controlled Amortization Period" means a period commencing on January 1, 2003, and ending on the earliest to occur of (a) the date on which the Class A-4 Notes are paid in full, (b) the Series 1996-1 Termination Date for the Class A-4 Notes and (c) the commencement of the Series 1996-1 Rapid Amortization Period. "Class A-4 Controlled Distribution Amount" means, with respect to any Related Month during the Class A-4 Controlled Amortization Period, an amount equal to the sum of the Class A-4 Controlled Amortization Amount and any Class A-4 Carryover Controlled Amortization Amount for such Related Month. "Class A-4 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(a)(i)(D) of this Supplement. "Class A-4 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class A Monthly Interest that is payable in respect of the Class A-4 Notes exceeds the amount available to pay such interest on such Distribution Date. "Class A-4 Expected Final Distribution Date" means the July 2003 Distribution Date. "Class A-4 Initial Invested Amount" means an aggregate initial principal amount of $167,650,000. "Class A-4 Interest Rate" means an interest rate equal to 7.35% per annum, calculated on the basis of a 360-day year of twelve 30-day months. - 14 - 18 "Class A-4 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class A-4 Initial Invested Amount minus (b) the amount of principal payments made to Class A-4 Noteholders on or prior to such date minus (c) all Losses allocated to the Class A-4 Noteholders on or prior to such date plus (d) all Recoveries allocated to the Class A-4 Noteholders on or prior to such date. "Class A-4 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections, the percentage equivalent of a fraction the numerator of which will be equal to the Class A-4 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), or, during the Series 1996-1 Controlled Amortization Period and the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period, and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class A-4 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class A-4 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all - 15 - 19 Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses allocated to the Class A-4 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Class A-4 Noteholders" means the holders of the Class A-4 Notes. "Class A-4 Notes" means the Series 1996-1 7.35% Rental Car Asset Backed Notes, Class A-4, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit A-4, Exhibit A-8 or Exhibit A-12, as the context requires. "Class B Carryover Controlled Amortization Amount" means any and all of the Class B-1 Carryover Controlled Amortization Amount, the Class B-2 Carryover Controlled Amortization Amount and the Class B-3 Carryover Controlled Amortization Amount. "Class B Collateral" means the Collateral, the Master Collateral allocable to the Class B Notes and the Class B Distribution Account Collateral. "Class B Controlled Distribution Amount" means any or all of the Class B-1 Controlled Distribution Amount, the Class B-2 Controlled Distribution Amount and the Class B-3 Controlled Distribution Amount, as the context requires. "Class B Controlled Distribution Amount Deficiency" means the sum of the Class B-1 Controlled Distribution Amount Deficiency, the Class B-2 Controlled Distribution Amount Deficiency, the Class B-3 Controlled Distribution Amount Deficiency and the Class B-4 Controlled Distribution Amount Deficiency. "Class B Deficiency Amount" has means any or all of the Class B-1 Deficiency Amount, the Class B-2 Deficiency Amount and the Class B-3 Deficiency Amount, as the context requires. - 16 - 20 "Class B Distribution Account" has the meaning specified in Section 3.12(a) of this Supplement. "Class B Distribution Account Collateral" has the meaning specified in Section 3.12(d) of this Supplement. "Class B Enhancement Amount" means the sum of (a) the Series 1996-1 Available Subordinated Amount plus (b) the Letter of Credit Amount. "Class B Expected Final Distribution Date" means any or all of the Class B-1 Expected Final Distribution Date, the Class B-2 Expected Final Distribution Date and the Class B-3 Expected Final Distribution Date, as the context requires. "Class B Initial Invested Amount" means any or all of the Class B-1 Initial Invested Amount, the Class B-2 Initial Invested Amount or the Class B-3 Initial Invested Amount, as the context requires. "Class B Interest Rate" means any of the Class B-1 Interest Rate, the Class B-2 Interest Rate or the Class B-3 Interest Rate, as the context requires. "Class B Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class B Initial Invested Amount minus (b) the amount of principal payments made to Class B Noteholders on or prior to such date minus (c) all Losses allocated to the Class B Noteholders on or prior to such date Plus (d) all Recoveries allocated to the Class B Noteholders on or prior to such date. "Class B Invested Percentage" means on any date of determination, the sum of the Class B-1 Invested Percentage, the Class B-2 Invested Percentage and the Class B-3 Invested Percentage for such date of determination. "Class B Investor Monthly Servicing Fee" means, on any Distribution Date, an amount equal to the product of 1/12th of 0.50% of the Class B Invested Amount as of the preceding Distribution Date (or, in the case of the initial Distribution Date, the Class B Initial Invested Amount), after giving effect to any payments of principal on such preceding Distribution Date; provided, however, that if a Rapid Amortization Period shall occur and be continuing and if National is no longer the Servicer, the Class B Investor Monthly Servicing Fee shall equal the greater of (x) the product of (i) a fraction, the numerator of which is the Class B Invested Amount on such Distribution Date and the denominator of which is the aggregate invested amounts for all outstanding Series of Notes on such Distribution Date, - 17 - 21 (ii) $20 and (iii) the number of Vehicles as of the last day of the Related Month, and (y) the amount described in the first clause of this definition. "Class B Monthly Interest" means (a) with respect to the first Distribution Date and with respect to any of all of the classes of Class B Notes, as the context requires, an amount equal to the product of (i) a fraction the numerator of which is the number of days from and including the date of issuance of the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) to but excluding the first Distribution Date and the denominator of which is 360, (ii) the Class B Interest Rate for the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) and (iii) the Class B Initial Invested Amount for the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) and (b) with respect to each other Distribution Date, an amount equal to one-twelfth of the product of (A) the Class B Interest Rate for the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) and (B) the Class B Principal Balance for the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) as of the preceding Distribution Date (determined after giving effect to all payments, deposits and withdrawals on such preceding Distribution Date). "Class B Monthly Interest Shortfall" means as of any Distribution Date and with respect to any or all of the classes of Class B Notes, as the context requires, the excess, if any, of the Class B Monthly Interest for the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) and any unpaid Class B Deficiency Amounts for the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes (as applicable) (together with accrued interest on such unpaid Class B Deficiency Amounts) over the amount withdrawn from the Series 1996-1 Accrued Interest Account and deposited in the Class B Distribution Account on such Distribution Date pursuant to Section 3.2(b) of this Supplement. "Class B Monthly Supplemental Servicing Fee" means, on any Distribution Date, the product of the Supplemental Servicing Fee accrued during the related Series 1996-1 Interest Period times a fraction, the numerator of which is the Class B Invested Amount on such Distribution Date and the denominator of which is the aggregate of the invested amounts for all outstanding Series of Notes on such Distribution Date. "Class B Noteholder" means a Person in whose name a Class B Note is registered in the Note Register. "Class B Notes" means any or all of the Class B-1 Notes, the Class B-2 Notes or the Class B-3 Notes, in each case - 18 - 22 executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit B-1, Exhibit B-2, Exhibit B-3, Exhibit B-4, Exhibit B-5, Exhibit B-6 Exhibit B-7, Exhibit B-8 or Exhibit B-9 of this Supplement (as applicable). Definitive Class B Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.18 of the Base Indenture. "Class B Principal Balance" means, as of any date of determination, an amount equal to the Class B Initial Invested Amount minus the aggregate amount of payments of principal distributed to the Class B Noteholders prior to such date. "Class B Repurchase Amount" has the meaning specified in Section 7.1(a) of this Supplement. "Class B-1 Carryover Controlled Amortization Amount" means, with respect to the Class B-1 Notes for any Related Month during the Class B-1 Controlled Amortization Period, the amount, if any, by which the Monthly Total Principal Allocation for the previous Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account was less than the sum of the Class A-1 Controlled Distribution Amount, the Class A-2 Controlled Distribution Amount and the Class B-1 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the Class B-1 Controlled Amortization Period, the Class B-1 Carryover Controlled Amortization Amount shall be zero. "Class B-1 Controlled Amortization Amount" means $12,600,000. "Class B-1 Controlled Amortization Period" means a period commencing on the later to occur of (a) July 1, 1999, and (b) the date on which the Class A-1 Notes and the Class A-2 Notes are paid in full, and ending on the earliest to occur of (i) the date on which the Class B-1 Notes are paid in full, (b) the Series 1996-1 Termination Date for the Class B-1 Notes and (c) the commencement of the Series 1996-1 Rapid Amortization Period. "Class B-1 Controlled Distribution Amount" means, with respect to any Related Month during the Class B-1 Controlled Amortization Period, an amount equal to the sum of the Class B-1 Controlled Amortization Amount and any Class B-1 Carryover Controlled Amortization Amount for such Related Month. "Class B-1 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(b)(i)(A) of this Supplement. - 19 - 23 "Class B-1 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class B Monthly Interest that is payable in respect of the Class B-1 Notes exceeds the amount available to pay such interest on such Distribution Date. "Class B-1 Expected Final Distribution Date" means the August 1999 Distribution Date. "Class B-1 Initial Invested Amount" means an aggregate initial principal amount of $12,600,000. "Class B-1 Interest Rate" means an interest rate equal to 7.35% per annum, calculated on the basis of a 360-day year of twelve 30-day months. "Class B-1 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class B-1 Initial Invested Amount minus (b) the amount of principal payments made to Class B-1 Noteholders on or prior to such date minus (c) all Losses allocated to the Class B-1 Noteholders on or prior to such date plus (d) all Recoveries allocated to the Class B-1 Noteholders on or prior to such date. "Class B-1 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections during the Series 1996-1 Revolving Period, the percentage equivalent of a fraction the numerator of which will be equal to the Class B-1 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), and, during the Series 1996-1 Controlled Amortization Period or the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); -20- 24 (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class B-1 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class B-1 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses allocated to the Class B-1 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Class B-1 Noteholders" means the holders of the Class B-1 Notes. "Class B-1 Notes" means the Series 1996-1 7.35% Rental Car Asset Backed Notes, Class B-1, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit B-1, Exhibit B-4 or Exhibit B-7, as the context requires. "Class B-2 Carryover Controlled Amortization Amount" means, with respect to the Class B-2 Notes for any Related Month during the Class B-2 Controlled Amortization Period, the amount, if any, by which the Monthly Total Principal Allocation for the previous Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account was less than the sum of the Class A-3 Controlled Distribution Amount and the Class B-2 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the -21- 25 Class B-2 Controlled Amortization Period, the Class B-2 Carryover Controlled Amortization Amount shall be zero. "Class B-2 Controlled Amortization Amount" means $13,650,000. "Class B-2 Controlled Amortization Period" means a period commencing on the later to occur of (a) July 1, 2001, and (b) the date on which the Class A-3 Notes are paid in full, and ending on the earliest to occur of (i) the date on which the Class B-2 Notes are paid in full, (b) the Series 1996-1 Termination Date for the Class B-2 Notes and (c) the commencement of the Series 1996-1 Rapid Amortization Period. "Class B-2 Controlled Distribution Amount" means, with respect to any Related Month during the Class B-2 Controlled Amortization Period, an amount equal to the sum of the Class B-2 Controlled Amortization Amount and any Class B-2 Carryover Controlled Amortization Amount for such Related Month. "Class B-2 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(b)(i)(B) of this Supplement. "Class B-2 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class B Monthly Interest that is payable in respect of the Class B-2 Notes exceeds the amount available to pay such interest on such Distribution Date. "Class B-2 Expected Final Distribution Date" means the August 2001 Distribution Date. "Class B-2 Initial Invested Amount" means an aggregate initial principal amount of $13,650,000. "Class B-2 Interest Rate" means an interest rate equal to 7.70% per annum, calculated on the basis of a 360-day year of twelve 30-day months. "Class B-2 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class B-2 Initial Invested Amount minus (b) the amount of principal payments made to Class B-2 Noteholders on or prior to such date minus (c) all Losses allocated to the Class B-2 Noteholders on or prior to such date plus (d) all Recoveries allocated to the Class B-2 Noteholders on or prior to such date. -22- 26 "Class B-2 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections during the Series 1996-1 Revolving Period, the percentage equivalent of a fraction the numerator of which will be equal to the Class B-2 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), and, during the Series 1996-1 Controlled Amortization Period or the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class B-2 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class B-2 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses -23- 27 allocated to the Class B-2 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Class B-2 Noteholders" means the holders of Class B-2 Notes. "Class B-2 Notes" means the Series 1996-1 Floating Rate Rental Car Asset Backed Notes, Class B-2, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit B-2, Exhibit B-5 or Exhibit B-8, as the context requires. "Class B-3 Carryover Controlled Amortization Amount" means, with respect to the Class B-3 Notes for any Related Month during the Class B-3 Controlled Amortization Period, the amount, if any, by which the Monthly Total Principal Allocation for the previous Related Month plus any amounts drawn from the Series 1996-1 Excess Funding Account was less than the sum of the Class A-4 Controlled Distribution Amount and the Class B-3 Controlled Distribution Amount for such previous Related Month; provided, however, that for the first Related Month in the Class B-3 Controlled Amortization Period, the Class B-3 Carryover Controlled Amortization Amount shall be zero. "Class B-3 Controlled Amortization Amount" means $7,350,00. "Class B-3 Controlled Amortization Period" means a period commencing on the later to occur of (a) July 1, 2003, and (b) the date on which the Class A-4 Notes are paid in full, and ending on the earliest to occur of (i) the date on which the Class B-3 Notes are paid in full, (ii) the Series 1996-1 Termination Date for the Class B-3 Notes and (iii) the commencement of the Series 1996-1 Rapid Amortization Period. "Class B-3 Controlled Distribution Amount" means, with respect to any Related Month during the Class B-3 Controlled Amortization Period, an amount equal to the sum of the Class B-3 Controlled Amortization Amount and any Class B-3 Carryover Controlled Amortization Amount for such Related Month. "Class B-3 Controlled Distribution Amount Deficiency" has the meaning set forth in Section 3.5(b)(i)(C) of this Supplement. -24- 28 "Class B-3 Deficiency Amount" means, with respect to any Distribution Date, the amount by which the Class B Monthly Interest that is payable in respect of the Class B-3 Notes exceeds the amount available to pay such interest on such Distribution Date. "Class B-3 Expected Final Distribution Date" means the August 2003 Distribution Date. "Class B-3 Initial Invested Amount" means an aggregate initial principal amount of $7,350,000. "Class B-3 Interest Rate" means an interest rate equal to 7.80% per annum, calculated on the basis of a 360-day year of twelve 30-day months. "Class B-3 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Class B-3 Initial Invested Amount minus (b) the amount of principal payments made to Class B-3 Noteholders on or prior to such date minus (c) all Losses allocated to the Class B-3 Noteholders on or prior to such date plus (d) all Recoveries allocated to the Class B-3 Noteholders on or prior to such date. "Class B-3 Invested Percentage" means on any date of determination: (a) when used with respect to Principal Collections during the Series 1996-1 Revolving Period, the percentage equivalent of a fraction the numerator of which will be equal to the Class B-3 Invested Amount, determined during the Series 1996-1 Revolving Period as of the end of the Related Month (or, if prior to the end of the initial Related Month, as of the Series 1996-1 Closing Date), and, during the Series 1996-1 Controlled Amortization Period or the Series 1996-1 Rapid Amortization Period, as of the end of the Series 1996-1 Revolving Period and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); -25- 29 (b) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Class B-3 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination; (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which will be the Class B-3 Invested Amount as of the end of the Related Month and the denominator of which will be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Losses (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which will be the cumulative amount of all unreimbursed Losses allocated to the Class B-3 Noteholders as of the end of the Related Month and the denominator of which will be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Class B-3 Noteholders" means the holders of the Class B-3 Notes. "Class B-3 Notes" means the Series 1996-1 Floating Rate Rental Car Asset Backed Notes, Class B-3, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit B-3, Exhibit B-6 or Exhibit B-9, as the context requires. "Consent" has the meaning specified in Section 5.1(c) of this Supplement. "Consent Period Expiration Date" has the meaning specified in Section 5.1(c) of this Supplement. "Deposit Date" means each Business Day on which Collections are deposited into the Collection Account. -26- 30 "Designated Amounts" has the meaning specified in Section 5.1(b) of this Supplement. "Enhancement" means the Class B Invested Amount, the Letter of Credit, the Cash Collateral Account and the Series 1996-1 Available Subordinated Amount. "Enhancement Amount" means, as of any date of determination, the sum of (a) the Class B Invested Amount as of such date, plus (b) the Letter of Credit Amount as of such date plus (c) the Series 1996-1 Available Subordinated Amount as of such date. "Excess Collections" has the meaning specified in Section 3.3(d) of this Supplement. "Expected Final Distribution Date" means any Class A Expected Final Distribution Date or Class B Expected Final Distribution Date, as the context requires. "GM Vehicle Percentage" means, as of any date of determination, the product of (a) a fraction, expressed as a percentage, (i) the numerator of which is the aggregate Net Book Value of all Program Vehicles manufactured by GM as of such day and (ii) the denominator of which is an amount equal to the Aggregate Invested Amount on such day and (b) the Series 1996-1 Invested Percentage as of such date. "Index Maturity" means, with respect to LIBOR, (a) during the Series 1996-1 Revolving Period, three months and (b) during the Series 1996-1 Controlled Amortization Period or the Series 1996-1 Rapid Amortization Period, one month. "Interest Period" means (a) in the case of the initial Distribution Date, the period from the Series 1996-1 Closing Date to but excluding the initial Distribution Date and (b) thereafter, a period from the then preceding Distribution Date to the next Distribution Date. "Interest Reset Date" means the first day of the applicable Interest Period. "Invested Amount" means, with respect to the Series 1996-1 Notes, the Series 1996-1 Invested Amount. "Lease Payment Losses" means as of any Distribution Date, the amount of payments due from the Lessee under the Lease with respect to the Related Month which were not paid when due (including by application of amounts drawn on the Letter of Credit). -27- 31 "Lease Payment Recoveries" means, as of any day, an amount equal to all payments made by the Lessee under the Lease and applications of amounts drawn on the Letter of Credit on such day on account of past due payments under the Lease. "Letter of Credit" means the irrevocable letter of credit issued by the Letter of Credit Provider in favor of the Trustee for the benefit of the Series 1996-1 Noteholders pursuant to the Letter of Credit Reimbursement Agreement. "Letter of Credit Amount" means, as of any date of determination, the amount (a) available to be drawn on such date under the Letter of Credit, as specified therein or (b) if the Cash Collateral Account has been established and funded pursuant to Section 3.10, the amount on deposit in the Cash Collateral Account on such date. "Letter of Credit Expiration Date" means the date the Letter of Credit expires as specified in the Letter of Credit. "Letter of Credit Provider" means Deutsche Bank AG, New York Branch. "LIBOR" means an interest rate for each Interest Period in respect of the Class A-1 Notes which is be determined by the Trustee as follows: (i) On each LIBOR Determination Date, until the principal amounts of the Class A-1 Notes are paid in full, the Trustee will determine the arithmetic mean of the offered rates (rounded upwards to the nearest one sixty-fourth of one percent (1/64%)) for deposits in U.S. dollars for the period of the applicable Index Maturity, commencing on such Interest Reset Date, which appear on the Reuters Screen LIBO Page at approximately 11:00 a.m., London time, on such LIBOR Determination Date. If at least two such offered rates appear on the Reuters Screen LIBO Page, for such Interest Period will be the arithmetic mean of such offered rates (rounded upwards to the nearest one sixty-fourth of one percent (1/64%)) as determined by the Trustee for each such Series 1996-1 Notes. (ii) If fewer than two offered rates appear on the Reuters Screen LIBO Page on such LIBOR Determination Date, "LIBOR" will be the London interbank offered rate for U.S. dollar deposits for the period of the applicable Index Maturity that appears on the Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR Determination Date. "Telerate Page 3750" means the display designated as page "3750" on the Telerate Service (or such other page as may -28- 32 replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers, Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits). With respect to a LIBOR Determination Date on which no rate appears on the Reuters Screen LIBO Page or Telerate Page 3750, the Trustee will request the principal London offices of each of four major banks in the London interbank market selected by the Trustee to provide the Trustee with offered quotations for deposits in U.S. dollars for the period of the specified Index Maturity, commencing on such Interest Reset Date, to prime banks in the London interbank market at approximately 11:00 a.m., London time, on such LIBOR Determination Date and in a principal amount equal to an amount of not less than $250,000 that is representative of a single transaction in such market at such time. If at least two such quotations are provided, "LIBOR" for such Interest Period will be the arithmetic mean of such quotations (rounded upwards to the nearest one sixty-fourth of one percent (1/64%)). If fewer than two such quotations are provided, "LIBOR" for such Interest Period will be the arithmetic mean of rates quoted by three major banks in the City of New York selected by the Trustee at approximately 11:00 a.m., New York City time, on such LIBOR Determination Date for loans in U.S. dollars to leading European banks, for the period of the specified Index Maturity, commencing on such Interest Reset Date, and in a principal amount equal to an amount of not less than $250,000 that is representative of a single transaction in such market at such time; provided, however, that if the banks selected as aforesaid by such Trustee are not quoting rates as mentioned in this sentence, "LIBOR" for such Interest Period will be the same as "LIBOR" for the immediately Preceding Interest Period. "LIBOR Determination Date" means, with respect to any Interest Period, the second London Banking Day prior to the Interest Reset Date for such Interest Period. "London Banking Day" means, for purposes of calculating LIBOR, any business day on which dealings in deposits in United States dollars are transacted in the London interbank market. "Losses"' means, with respect to any Related Month, the sum (without duplication) of the following with respect to Acquired Vehicles (other than any Exchanged Vehicles): (a) all Manufacturer Late Payment Losses, Manufacturer Event of Default Losses and Purchaser Late Payment Losses for such Related Month plus (b) with respect to Disposition Proceeds received during Related Month from the sale or other disposition of Acquired Vehicles (other than pursuant to a Manufacturer Program), the -29- 33 excess, if any, of (i) the Net Book Values of such Acquired Vehicles calculated on the Disposition Date, over (ii) the aggregate amount of such Disposition Proceeds received during the Related Month in respect thereof by NFLP, the Master Collateral Agent or the Trustee (including by deposit into the Collection Account or the Master Collateral Account) plus any Termination Payments that are past due with respect to such Vehicles. "Manufacturer Event of Default Losses" with respect to any Related Month, means, after the occurrence of a Manufacturer Event of Default with respect to any Manufacturer, all payments that are required to be made (but are not made) by such Manufacturer to NFLP with respect to Acquired Vehicles that are either sold at Auction or returned to such Manufacturer under its Manufacturer Program; provided that the grace or other similar period for the determination of such Manufacturer Event of Default expires during such Related Month. "Manufacturer Late Payment Losses" means with respect to any Related Month, the amount of all payments required to be made by Manufacturers under Manufacturer Programs with respect to Acquired Vehicles, which are more than ninety (90) days past due as of the end of such Related Month; provided that such amount shall be net of amounts that are the subject of a good faith dispute as evidenced in writing by the Manufacturer questioning the accuracy of the amounts paid or payable in respect of any such Acquired Vehicles. "Market Value" means, with respect to any Non-Program Vehicle as of any date of determination, the market value of such Non-Program Vehicle as specified in the Related Month's published National Automobile Dealers Association, Official Used Car Guide, Central Edition (the "NADA Guide") for the model class and model year of such Vehicle based on the average equipment and the average mileage of each Vehicle of such model class and model year. If such Vehicle is not listed in the NADA Guide published in the Related Month preceding such date of determination, then the Black Book Official Finance/Lease Guide (the "Lease Guide") shall be used to estimate the wholesale price of the Vehicle, based on the Vehicle's model class and model year or the closest model class and model year thereto, for purposes of such months for which the wholesale price of such Vehicle is not so published in the NADA Guide; provided, however, if the NADA Guide was not published in the Related Month, then the Lease Guide shall be relied upon in its place, and if the Lease Guide is unavailable, the Market Value of such Vehicle shall be based on an independent third-party data source approved by each Rating Agency that is rating any Series of Notes at the request of NFLP or National based on the average equipment and average mileage of each -30- 34 Vehicle of such model class and model year or based upon such other methodology approved by each such Rating Agency. "Market Value Adjustment Amount" means, as of any day on or after the third Determination Date after the Series 1996-1 Closing Date, an amount equal to the product of (a) the Series 1996-1 Invested Percentage for such day and (b) the greater of (i) the amount by which (A) the aggregate Net Book Value of Non-Program Vehicles leased under the Lease as of the preceding Determination Date exceeds (B) the average of the aggregate Market Value of such Non-Program Vehicles as of such preceding Determination Date and the two Determination Dates precedent thereto and (ii) the Measurement Month Shortfall for the most recently ended Measurement Month. "Maximum Manufacturer Amount" means with respect to the Series 1996-1 Notes, as of any day, the greater of (i) $40 million and (ii) 4% of the aggregate Net Book Value of all Vehicles leased under the Lease on such day. "Maximum Non-Program Vehicle Amount" means with respect to the Series 1996-1 Notes, as of any day, the greater of (i) $80 million and (ii) 10% of the aggregate Net Book Value of all Vehicles leased under the Lease on such day. "Measurement Month" with respect to any date, means the three calendar months preceding such date. "Measurement Month Shortfall" means, with respect to any Measurement Month, the amount by which (a) the aggregate Net Book Value (as of the date of their respective sales) of all Non-Program Vehicles sold at Auction or otherwise during such Measurement Month exceeds (b) the aggregate amount of Disposition Proceeds received from the sale of such Non-Program Vehicles. "Minimum Class B Enhancement Amount" means, as of any day, the sum of (a) 13.5% of the product of (i) the Non-Program Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date plus (b) 6.5% of the product of (i) the GM Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date plus (c) 7.5% of the product of (i) the Chrysler Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date plus (d) with respect to each Eligible Manufacturer of Program Vehicles (other than GM and Chrysler) the applicable Additional Manufacturer Enhancement Percentage of the product of (i) the applicable Additional Manufacturer Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount allocable to the Class B Notes as of such date. -31- 35 "Monthly Total Principal Allocation" means the sum of all Series 1996-1 Principal Allocations and Series 1996-1 Available Subordinated Amount Allocations with respect to a Related Month. "Non-Program Acquired Vehicle Percentage" means, as of any date of determination, the product of (a) a fraction, expressed as a percentage, (i) the numerator of which is the aggregate Net Book Value of all Non-Program Vehicles that are Acquired Vehicles as of such day and (ii) the denominator of which is an amount equal to the Aggregate Invested Amount on such day and (b) the Series 1996-1 Invested Percentage as of such date. "Non-Program Vehicle Percentage" means, as of any date of determination, the product of (a) a fraction, expressed as a percentage, (i) the numerator of which is the aggregate Net Book Value of all Non-Program Vehicles as of such day and (ii) the denominator of which is an amount equal to the Aggregate Invested Amount on such day and (b) the Series 1996-1 Invested Percentage as of such date. "Overcollateralization Portion" means, as of any date of determination, (i) the sum of the amounts determined pursuant to clauses (a), (b), (c), (d), (e), and (f) of the definition of the Required Enhancement Amount as of such date minus (ii) the Letter of Credit Amount as of such date. "Permanent Global Class A Note" means any Permanent Global Class A-1 Note, Permanent Global Class A-2 Note, Permanent Global Class A-3 Note or Permanent Global Class A-4 Note. "Permanent Global Class A-1 Note" means a permanent Global Class A-1 Note in registered form without interest coupons, substantially in the form of Exhibit A-9 hereto. "Permanent Global Class A-2 Note" means a permanent Global Class A-2 Note in registered form without interest coupons, substantially in the form of Exhibit A-10 hereto. "Permanent Global Class A-3 Note" means a permanent Global Class A-3 Note in registered form without interest coupons, substantially in the form of Exhibit A-11 hereto. "Permanent Global Class A-4 Note" means a permanent Global Class A-4 Note in registered form without interest coupons, substantially in the form of Exhibit A-12 hereto. -32- 36 "Permanent Global Class B Note" means any Permanent Global Class B-1 Note, Permanent Global Class B-2 Note or Permanent Global Class B-3 Note. "Permanent Global Class B-1 Note" means a permanent Global Class B-1 Note in registered form without interest coupons, substantially in the form of Exhibit B-7 hereto. "Permanent Global Class B-2 Note" means a permanent Global Class B-2 Note in registered form without interest coupons, substantially in the form of Exhibit B-8 hereto. "Permanent Global Class B-3 Note" means a permanent Global Class B-3 Note in registered form without interest coupons, substantially in the form of Exhibit B-9 hereto. "Purchase Agreement" means the Purchase Agreement dated April 17, 1996 among NFLP, National, CS First Boston Corporation and Citicorp Securities, Inc. by which CS First Boston Corporation and Citicorp Securities, Inc. agree to act as initial purchasers of the Series 1996-1 Notes. "Purchaser Late Payment Losses" means, with respect to any Related Month, the amount of all payments required to be made during such Related Month by any Person in connection with the sale or other final disposition of Acquired Vehicles which are more than sixty (60) days past due as of the end of such Related Month. "Rating Agency" means, with respect to the Series 1996-1 Notes, Standard & Poor's and Duff & Phelps. "Recoveries" means, with respect to any Related Month, the sum (without duplication) of (i) all amounts received by any of NFLP, the Master Collateral Agent or the Trustee (including by deposit into the Collection Account or the Master Collateral Account) from any Person during such Related Month in respect of Losses, plus (ii) the excess, if any, of (x) the aggregate amount of Disposition Proceeds received during such Related Month by NFLP, the Master Collateral Agent or the Trustee (including by deposit into the Collection Account or the Master Collateral Account) during such Related Month and resulting from the sale or other final disposition of Acquired Vehicles (other than pursuant to Manufacturer Programs), plus any Termination Payments that have been paid with respect to such Vehicles over (y) the Net Book Values of such Vehicles, calculated on the dates of the respective sales or dispositions thereof. "Repurchase Date" shall have the meaning specified in Section 7.1(a) of this Supplement. -33- 37 "Required Enhancement Amount" means, as of any date of determination, the sum of (a) 19.5% of the product of (i) the Non-Program Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date plus (b) 10.5% of the product of (i) the GM Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date plus (c) 11.5\ of the product of (i) the Chrysler Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date Plus (d) with respect to each Eligible Manufacturer of Program Vehicles (other than GM and Chrysler) the applicable Additional Manufacturer Vehicle Enhancement Percentage of the product of (i) the applicable Additional Manufacturer Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date plus (e) the Market Value Adjustment Amount for such day plus (f) the aggregate of all amounts contributed by NFLP to the Series 1996-1 Excess Funding Account during the preceding 12 month period to increase the Series 1996-1 Available Subordinated Amount in order to cure a Series 1996-1 Enhancement Deficiency (but not including any increase in the Series 1996-1 Available Subordinated Amount through Recoveries) plus (g) the Additional Overcollateralization Amount as of such date. "Requisite Series 1996-1 Noteholders" means Series 1996-1 Noteholders holding Notes which evidence 25% or more of the Series 1996-1 Invested Amount. "Restricted Global Class A Note" means any Restricted Global Class A-1 Note, Restricted Global Class A-2 Note, Restricted Global Class A-3 Note or Restricted Global Class A-4 Note. "Restricted Global Class A-1 Note" means a permanent global Class A-1 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit A-1 hereto. "Restricted Global Class A-2 Note" means a permanent global Class A-2 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit A-2 hereto. "Restricted Global Class A-3 Note" means a permanent global Class A-3 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit A-3 hereto. "Restricted Global Class A-4 Note" means a permanent global Class A-4 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit A-4 hereto. -34- 38 "Restricted Global Class B Note" means any Restricted Global Class B-1 Note, Restricted Global Class B-2 Note or Restricted Global Class B-3 Note. "Restricted Global Class B-1 Note" means a permanent global Class B-1 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit B-1 hereto. "Restricted Global Class B-2 Note" means a permanent global Class B-2 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit B-2 hereto. "Restricted Global Class B-3 Note" means a permanent global Class B-3 Note in fully registered form without interest coupons, substantially in the form set forth in Exhibit B-3 hereto. "Retained Interest Percentage" means, on any date of determination, when used with respect to Principal Collections, Recoveries and Losses, an amount equal to one hundred percent (100%) minus the sum of (a) the invested percentages for all outstanding classes of all Series of Notes and (b) the available subordinated amount percentages for all Series Of Notes that provide for credit enhancement in the form of overcollateralization, in each case as such percentages are calculated on such date with respect to Principal Collections, Recoveries or Losses, as applicable. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London interbank offered rates of major banks). "Series 1996-1 Accrued Interest Account" has the meaning specified in Section 3.1(c) of this Supplement. "Series 1996-1 Amortization Event" means the events described in Article 4 of this Supplement. "Series 1996-1 Available Subordinated Amount" means for any Determination Date, an amount equal to (a) the Series 1996-1 Available Subordinated Amount for the preceding Determination Date (or, in the case of the initial Determination Date, as of the Series 1996-1 Closing Date) minus (b) the Series 1996-1 Available Subordinated Amount Incremental Losses for the Related Month plus (c) all Series 1996-1 Incremental Recoveries for the Related Month, minus (d) the Series 1996-1 Lease Payment Losses -35- 39 accrued since the preceding Determination Date, plus (e) the Series 1996-1 Lease Payment Recoveries received since the preceding Determination Date plus (f) additional amounts, if any, contributed by NFLP since the preceding Determination Date (or, in the case of the first Determination Date, since the Series 1996-1 Closing Date) to the Series 1996-1 Excess Funding Account for allocation to the Series 1996-1 Available Subordinated Amount, minus (g) any amounts withdrawn from the Series 1996-1 Excess Funding Account since the preceding Determination Date (or, in the case of the first Determination Date, since the Series 1996-1 Closing Date) for allocation to the Retained Distribution Account. The "Series 1996-1 Available Subordinated Amount" for the first Determination Date means $42,388,000. "Series 1996-1 Available Subordinated Amount Allocation" is defined in Section 3.2(a)(x)(ii). "Series 1996-1 Available Subordinated Amount Incremental Losses" means, for any Related Month, the sum of all Losses that became Losses during such Related Month and which were allocated to the Series 1996-1 Available Subordinated Amount. "Series 1996-1 Available Subordinated Amount Incremental Recoveries" means, for any Related Month, the sum of all Recoveries that became Recoveries during such Related Month and which were allocated to the Series 1996-1 Available Subordinated Amount. "Series 1996-1 Available Subordinated Amount Maximum Increase" means 10' of the sum of (x) the total of the Initial Invested Amounts of all outstanding Series of Notes plus (y) the sum of the minimum available subordinated amounts of all outstanding Series of Notes that provide for credit enhancement in the form of overcollateralization; provided, however, that if (i) a Series 1996-1 Enhancement Deficiency arises out of any Losses and (ii) the Rating Agencies shall have notified NFLP and the Trustee in writing that, if such Series 1996-1 Enhancement Deficiency is cured, the Class A Notes and the Class B Notes will each receive the same rating from the Rating Agencies as they received prior to the occurrence of such Series 1996-1 Enhancement Deficiency, then the Series 1996-1 Available Subordinated Amount Maximum Increase shall not be limited in amount, to the extent necessary to cure such Series 1996-1 Enhancement Deficiency. -36- 40 "Series 1996-1 Available Subordinated Amount Percentage" means on any date of determination: (a) when used with respect to Principal Collections during the Series 1996-1 Revolving Period, the percentage equivalent of a fraction the numerator of which shall be equal to the Series 1996-1 Available Subordinated Amount as of the end of the Related Month or, until the end of the initial Related Month, on the Series 1996-1 Closing Date and the denominator of which is the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) Invested Percentages for allocations with respect to Principal Collections (for all classes of all Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (b) when used with respect to Principal Collections during the Series 1996-1 Controlled Amortization Period and the Series 1996-1 Rapid Amortization Period, the percentage equivalent of a fraction the numerator of which shall be the Series 1996-1 Available Subordinated Amount as of the end of the Series 1996-1 Revolving Period, and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) Invested Percentages for allocations with respect to Principal Collections (for all Series of Notes and all classes of such Series of Notes) and (ii) available subordinated amount percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); (c) when used with respect to Losses, the percentage equivalent of a fraction, the numerator of which shall be the Series 1996-1 Available Subordinated Amount as of the end of the Related Month and the denominator of which shall be the greater of (A) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the second Related Month, as of the Series 1996-1 Closing Date, and (B) as of the same date as in clause (A), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Losses for all classes of all Series of Notes and (ii) available subordinated amount percentages for allocations with respect to Losses (for all -37- 41 Series of Notes that provide for credit enhancement in the form of overcollateralization); and (d) when used with respect to Recoveries, the percentage equivalent of a fraction, the numerator of which shall be the cumulative amount of all unreimbursed Losses allocated to the Series 1996-1 Available Subordinated Amount as of the end of the Related Month and the denominator of which shall be the cumulative amount of all unreimbursed Losses for the Noteholders of all Series of Notes and the Retained Interestholder (including all unreimbursed Losses in respect of available subordinated amounts, if any, for all Series) as of the end of such Related Month. "Series 1996-1 Closing Date" means April 30, 1996. "Series 1996-1 Collection Account" is defined in Section 3.1(b) of this Supplement. "Series 1996-1 Controlled Amortization Period" means any or all of the Class A-1/A-2 Controlled Amortization Period, the Class A-3 Controlled Amortization Period, the Class A-4 Controlled Amortization Period, the Class B-1 Controlled Amortization Period, the Class B-2 Controlled Amortization Period or the Class B-3 Controlled Amortization Period, as the context requires. "Series 1996-1 Deposit Date" is defined in Section 3.2 of this Supplement. "Series 1996-1 Enhancement Deficiency" means, on any day, (a) the amount by which the Enhancement Amount is less than the Required Enhancement Amount or (b) the Class B Enhancement Amount is less than the Minimum Class B Enhancement Amount. "Series 1996-1 Enhancement Factor" means, as of any date of determination, 100% minus the percentage calculated pursuant to clause (a) of the definition of "Series 1996-1 Enhancement Percentage" on such date. "Series 1996-1 Enhancement Percentage" means, as of any date of determination, (a) the percentage equivalent of a fraction, the numerator of which is the sum of the amounts determined pursuant to clauses (a), (b), (c), (d), (e) and (f) of the definition of "Required Enhancement Amount" as of such date and the denominator of which is the Series 1996-1 Invested Amount as of such date minus (b) the percentage equivalent of a fraction, the numerator of which is the Letter of Credit Amount as of such date and the denominator of which is the Series 1996-1 Invested Amount as of such date. -38- 42 "Series 1996-1 Excess Funding Account" is defined in Section 3.1(b) of this Supplement. "Series 1996-1 Interest Period" means a period commencing on and including a Distribution Date and ending on the day preceding the next succeeding Distribution Date; provided, however, that the initial Series 1996-1 Interest Period shall commence on the Series 1996-1 Closing Date and end on the day preceding the May 1996 Distribution Date. "Series 1996-1 Invested Amount" means, as of any day, the sum of the Class A Invested Amount and the Class B Invested Amount on such day. "Series 1996-1 Invested Percentage" means, as of any day, the sum of (i) the Class A Invested Percentage as of the last day of the Related Month (for allocations with respect to Principal Collections) plus (ii) the Class B Invested Percentage as of the last day of the Related Month (for allocations with respect to Principal Collections) plus (iii) the Series 1996-1 Available Subordinated Amount Percentage as of the last day of the Related Month (for allocations with respect to Principal Collections). "Series 1996-1 Lease Payment Deficit" means on any Distribution Date, an amount equal to the deficit, if any, of the aggregate amount of Principal Collections and Interest Collections with respect to the Related Month which were actually allocated in respect of Series 1996-1 Notes, and the aggregate amount of Principal Collections and Interest Collections that would have been allocated with respect to the Related Month in respect of Series 1996-1 Notes, if all payments required to be made under the Lease with respect to the Related Month were paid in full. "Series 1996-1 Lease Payment Losses" means, for any Distribution Date, an amount equal to the excess, if any, of (a) the Series 1996-1 Lease Payment Deficit on such Distribution Date over (b) amounts drawn on the Letter of Credit and/or the Cash Collateral Account with respect to such Series 1996-1 Lease Payment Deficit. "Series 1996-1 Lease Payment Recoveries" means, for any day, the Series 1996-1 Lease Payment Recoveries Percentage of all Lease Payment Recoveries on such day. "Series 1996-1 Lease Payment Recoveries Percentage" means the percentage equivalent of a fraction, (a) the numerator of which is the cumulative amount of all unreimbursed Series 1996-1 Lease Payment Losses as of the last day of the -39- 43 Related Month and (b) the denominator of which is the cumulative amount of all unreimbursed Lease Payment Losses for all Series as of the last day of the Related Month. "Series 1996-1 Limited Liquidation Event of Default" means, so long as such event or condition continues, any event or condition of the type specified in Section 4(a) through (d) of this Supplement that continues for thirty (30) days or more (without double counting any cure periods provided for in Sections 4(a) through (d) of this Supplement; provided, however, that such event or condition shall not constitute a Series 1996-1 Limited Liquidation Event of Default if (i) within such thirty (30) day period, NFLP or National shall have cured such Series 1996-1 Amortization Event and (ii) the Rating Agency shall have notified NFLP, National and the Trustee in writing that after such cure of such Series 1996-1 Amortization Event is provided for, the Class A Notes and the Class B Notes will each receive the same rating from the Rating Agency as they received prior to the occurrence of such Series 1996-1 Amortization Event. "Series 1996-1 Liquidity Amount" means, as of any day during the Series 1996-1 Controlled Amortization Period, an amount in cash equal to the sum of (a) the Class A Controlled Distribution Amount for the next Distribution Date plus (b) the Class B Controlled Distribution Amount for the next Distribution Date. "Series 1996-1 Minimum Overcollateralization Deficit" means, as of any day, that (a) the Overcollateralization Portion on such day is less than (b) 19.5` of the product of (i) the Non-Program Acquired Vehicle Percentage as of such date and (ii) the Series 1996-1 Invested Amount as of such date. "Series 1996-1 Monthly Servicing Fee" means the sum of (a) the Class A Investor Monthly Servicing Fee, plus (b) the Class B Investor Monthly Servicing Fee, plus (c) the Class A Monthly Supplemental Servicing Fee, plus (d) the Class B Monthly Supplemental Servicing Fee. "Series 1996-1 Note Prepayment Premium" has the meaning specified in Section 7.1(c). "Series 1996-1 Noteholders" means the Class A Noteholders and the Class B Noteholders. "Series 1996-1 Notes" has the meaning set forth in Article 1 of this Supplement. "Series 1996-1 Principal Allocation" is defined in Section 3.2(a)(x)(ii) of this Supplement. -40- 44 "Series 1996-1 Principal Balance" means, as of any date of determination, an amount equal to the sum of the Class A Principal Balance on such day and the Class B Principal Balance on such day. "Series 1996-1 Rapid Amortization Period" means the period beginning at the close of business on the Business Day immediately preceding the day on which an Amortization Event is deemed to have occurred with respect to the Series 1996-1 Notes and ending upon the earlier to occur of (a) the date on which the Series 1996-1 Notes are paid in full and (b) the Series 1996-1 Termination Date. "Series 1996-1 Revolving Period" means, with respect to any Class A Note or Class B Note, the period from and including the Series 1996-1 Closing Date to the earlier of (i) the commencement of the Series 1996-1 Controlled Amortization Period for such class of Series 1996-1 Notes and (ii) the commencement of the Series 1996-1 Rapid Amortization Period. "Series 1996-1 Termination Date" means (a) with respect to the Class A-1 Notes, the Class A-2 Notes and the Class B-1 Notes, the April 2000 Distribution Date, (b) with respect to the Class A-3 Notes and the Class B-2 Notes, the April 2002 Distribution Date and (c) with respect to the Class A-4 Notes and the Class B-3 Notes, the October 2003 Distribution Date. "Servicing Fee" shall have the meaning specified in Section 3.3(c) of this Supplement. "Support Credit Enhancer" means General Motors Corporation. "Support Letter of Credit Reimbursement Agreement" means the Support Letter of Credit Reimbursement Agreement, dated as of April 30, 1996, between the Support Credit Enhancer and National, as amended, modified or supplemented from time to time in accordance with the terms thereof. "Temporary Global Class A Note" means any Temporary Global Class A-1 Note, Temporary Global Class A-2 Note, Temporary Global Class A-3 Note or Temporary Global Class A-4 Note. "Temporary Global Class A-1 Note" means a temporary global Class A-1 Note in registered form without interest coupons, substantially in the form of Exhibit A-5 hereto. "Temporary Global Class A-2 Note" means a temporary global Class A-2 Note in registered form without interest coupons, substantially in the form of Exhibit A-6 hereto. -41- 45 "Temporary Global Class A-3 Note" means a temporary global Class A-3 Note in registered form without interest coupons, substantially in the form of Exhibit A-7 hereto. "Temporary Global Class A-4 Note" means a temporary global Class A-4 Note in registered form without interest coupons, substantially in the form of Exhibit A-8 hereto. "Temporary Global Class B Note" any Temporary Global Class B-1 Note, Temporary Global Class B-2 Note or Temporary Global Class B-3 Note. "Temporary Global Class B-1 Note" means a temporary global Class B-1 Note in registered form without interest coupons, substantially in the form of Exhibit B-4 hereto. "Temporary Global Class B-2 Note" means a temporary global Class B-2 Note in registered form without interest coupons, substantially in the form of Exhibit B-5 hereto. "Temporary Global Class B-3 Note" means a temporary global Class B-3 Note in registered form without interest coupons, substantially in the form of Exhibit B-6 hereto. "Waiver Deficiency" means, as of any determination date, the amount by which the aggregate principal balance of Class A Notes held by consenting Class A Noteholders exceeds 89% of the sum of (a) the aggregate principal balance of Class A Notes held by consenting Class A Noteholders, Plus (b) the aggregate principal amount of Class B Notes held by consenting Class B Noteholders, plus (c) the Series 1996-1 Available Subordinated Amount, plus (d) the Letter of Credit Amount. "Waiver Event" means the occurrence of the delivery of a Waiver Request and the subsequent waiver of the eligibility requirements for any Eligible Manufacturer Program in accordance with the provisions of Article 5 of this Supplement. "Waiver Request" shall have the meaning specified in Section 5.1(a) of this Supplement. -42- 46 ARTICLE 3 SERIES 1996-1 ALLOCATIONS With respect to the Series 1996-1 Notes only, the following shall apply: Section 3.1 Establishment of Series 1996-1 Collection Account. Series 1996-1 Excess Funding Account and Series 1996-1 Accrued Interest Account. (a) All Collections allocable to the Class A Notes and the Class B Notes shall be allocated to the Collection Account. (b) The Trustee will create two administrative sub-accounts within the Collection Account for the benefit of the Series 1996-1 Noteholders: the Series 1996-1 Collection Account (such sub-account, the "Series 1996-1 Collection Account") and the Series 1996-1 Excess Funding Account (such sub-account, the "Series 1996-1 Excess Funding Account"). (c) The Trustee will further divide the Series 1996-1 Collection Account by creating an additional administrative sub-account for the Series 1996-1 Noteholders (such sub-account, the "Series 1996-1 Accrued Interest Account"). Section 3.2 Allocations with respect to the Series 1996-1 Notes. The proceeds from the sale of the Series 1996-1 Notes, together with not less than $42,388,000 deposited by National with NFLP as a contribution to capital, will initially be deposited by the Trustee into the Collection Account and, concurrently with such initial deposit, allocated by the Trustee to the Series 1996-1 Excess Funding Account. On each Business Day on which Collections are deposited into the Series 1996-1 Collection Account (each such date, a "Series. 1996-1 Deposit Date"), the Servicer will direct the Trustee in writing pursuant to the Lease to allocate all amounts deposited into the Series 1996-1 Collection Account in accordance with the provisions of this Section 3.2. (a) Allocations During the Series 1996-1 Revolving Period. During the Series 1996-1 Revolving Period, the Servicer will direct the Trustee pursuant to the Lease to allocate on each day, prior to 1:00 p.m. (New York City time) on each Series 1996-1 Deposit Date, all amounts deposited into the Collection Account as set forth below: -43- 47 (x) with respect to all Collections (including Recoveries, all of which Recoveries shall be treated as Principal Collections): (i) allocate to the Series 1996-1 Collection Account an amount equal to the sum of (A) the Class A Invested Percentage (as of such day) of the aggregate amount of Interest Collections on such day and (B) the Class B Invested Percentage (as of such day) of the aggregate amount of Interest Collections on such day. All such amounts allocated to the Series 1996-1 Collection Account shall be further allocated to the Series 1996-1 Accrued Interest Account; (ii) allocate to the Series 1996-1 Excess Funding Account an amount equal to the sum of (A) the Class A Invested Percentage (as of such day) of the aggregate amount of Principal Collections on such day plus (B) the Class B Invested Percentage (as of such day) of the aggregate amount of Principal Collections on such day (for any such day, the sum of (A) and (B) (the "Series 1996-1 Principal Allocation")) plus (C) the Series 1996-1 Available Subordinated Amount Percentage (as of such day) of the aggregate amount of Principal Collections on such day (for any such day, the amount set forth in (C), the "Series 1996-1 Available Subordinated Amount Allocation"); provided, however, that if a Waiver Event shall have occurred, then such allocation shall be modified as provided in Article 5 of this Supplement; and (iii) allocate to the Retained Distribution Account an amount equal to (x) the applicable Retained Interest Percentage (as of such day) of the aggregate amount of Principal Collections on such date, minus (y) any amounts, other than Monthly Servicing Fees, which have been withheld by the Servicer pursuant to Section 5.2(c) of the Base Indenture to the extent such amounts withheld under Section 5.2(c) of the Base Indenture constitute all or part of the Retained Interest Amount; (y) with respect to all Recoveries: (i) allocate an amount equal to the sum of (A) the Class A Invested Percentage (as of such -44- 48 day) of the aggregate amount of Recoveries on such day, plus (B) the Class B Invested Percentage (as of such day) of the aggregate amount of Recoveries on such day, plus (C) the Series 1996-1 Available Subordinated Amount Percentage (as of such day) of the aggregate amount of Recoveries on such day, first, to increase the Class A-1 Invested Amount, the Class A-2 Invested Amount, the Class A-3 Invested Amount and the Class A-4 Invested Amount on a pro rata basis (to the extent that the Class A-1 Invested Amount, the Class A-2 Invested Amount, the Class A-3 Invested Amount and the Class A-4 Invested Amount have theretofore been reduced as a result of any Losses allocated thereto pursuant to clause (z) below and not increased pursuant to this clause (y)); second, to increase the Class B-1 Invested Amount, the Class B-2 Invested Amount and the Class B-3 Invested Amount on a pro rata basis (to the extent that the Class B-1 Invested Amount, the Class B-2 Invested Amount and the Class B-3 Invested Amount have theretofore been reduced as a result of any Losses allocated thereto pursuant to clause (z) below and not increased pursuant to this clause by); and, third, to increase the Series 1996-1 Available Subordinated Amount (to the extent that the Series 1996-1 Available Subordinated Amount has theretofore been reduced as a result of any Losses allocated thereto pursuant to clause (z) below and not increased pursuant to this clause (y); and (ii) allocate to the Retained Interest Amount an amount equal to the Retained Interest Percentage (as of such day) of the aggregate amount of Recoveries on such date (to the extent that the Retained Interest Amount has theretofore been reduced as a result of any Losses allocated thereto pursuant to clause (z) below and not increased pursuant to this clause (y); (z) with respect to all Losses: (i) allocate an amount equal to the sum of (A) the Class A Invested Percentage (as of such day) of the aggregate amount of Losses on such day, plus (B) the Class B Invested Percentage (as of such day) of the aggregate amount of Losses on such day, plus (C) the Series 1996-1 Available Subordinated Amount Percentage (as of such day) of -45- 49 the aggregate amount of Losses on such day, to reduce the Series 1996-1 Available Subordinated Amount and, if the Series 1996-1 Available Subordinated Amount has been reduced to zero, to reduce the Class B-1 Invested Amount, the Class B-2 Invested Amount and the Class B-3 Invested Amount on a pro rata basis and, if the Class B-1 Invested Amount, the Class B-2 Invested Amount and the Class B-3 Invested Amount have been reduced to zero, to reduce the Class A-1 Invested Amount, the Class A-2 Invested Amount, the Class A-3 Invested Amount and the Class A-4 Invested Amount on a pro rata basis; and (ii) allocate to the Retained Interest Amount an amount equal to the Retained Interest Percentage (as of such day) of the aggregate amount of such Losses on such day. (b) Allocations During the Series 1996-1 Controlled Amortization Period. During the Series 1996-1 Controlled Amortization Period, the Servicer will direct the Trustee pursuant to Lease to allocate, prior to 1:00 p.m. (New York City time) on each Series 1996-1 Deposit Date, all amounts deposited into the Collection Account as set forth below: (x) with respect to all Collections (including Recoveries, all of which Recoveries shall be treated as Principal Collections): (i) allocate to the Series 1996-1 Collection Account an amount determined as set forth in Section 3.2(a)(x)(i) above for such day, which amount shall be further allocated to the Series 1996-1 Accrued Interest Account; (ii) (A) during the Class A-1/A-2 Controlled Amortization Period, allocate to the Series 1996-1 Collection Account an amount equal to the sum of (1) the Series 1996-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class A-1 Notes and the Class A-2 Notes on a pro rata basis, and (2) and the Series 1996-1 Available Subordinated Amount Allocation for such day; provided, however, that if the Monthly Total Principal Allocation exceeds the sum of the Class A-1 Controlled Distribution Amount and the Class A-2 Controlled Distribution Amount, then the amount of such excess will be allocated to the -46- 50 Series 1996-1 Excess Funding Account; provided, further, however, that if a Waiver Event shall have theretofore occurred, then such allocation shall be modified in accordance with Article 5 of this Supplement; (B) during the Class A-3 Controlled Amortization Period, allocate to the Series 1996-1 Collection Account an amount equal to the sum of (1) the Series 1996-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class A-3 Notes, and (2) the Series 1996-1 Available Subordinated Amount Allocation for such day; provided, however, that if the Monthly Total Principal Allocation exceeds the Class A-3 Controlled Distribution Amount, then such excess will be allocated to the Series 1996-1 Excess Funding Account; Provided, further, however, that if a Waiver Event shall have theretofore occurred, then such allocation shall be modified as provided in Article 5 of this Supplement; (C) during the Class A-4 Controlled Amortization Period, allocate to the Series 1996-1 Collection Account an amount equal to the sum of (1) the Series 1996-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class A-4 Notes, and (2) the Series 1996-1 Available Subordinated Amount Allocation for such day; provided, however, that if the Monthly Total Principal Allocation exceeds the Class A-4 Controlled Distribution Amount, then such excess will be allocated to the Series 1996-1 Excess Funding Account; provided, further, however, that if a Waiver Event shall have theretofore occurred, then such allocation shall be modified as provided in Article 5 of this Supplement; (D) during the Class B-1 Controlled Amortization Period, allocate to the Series 1996-1 Collection Account an amount equal to the sum of (1) the Series 1996-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class 13-1 Notes, and (2) the Series 1996-1 Available Subordinated Amount Allocation for such day; provided, however, that if the Monthly Total Principal Allocation exceeds the Class B-1 -47- 51 Controlled Distribution Amount, then such excess will be allocated to the Series 1996-1 Excess Funding Account; provided, further, however, that if a Waiver Event shall have theretofore occurred, then such allocation shall be modified as provided in Article 5 of this Supplement; (E) during the Class B-2 Controlled Amortization Period, allocate to the Series 1996-1 Collection Account an amount equal to the sum of (1) the Series 1996-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class B-2 Notes, and (2) the Series 1996-1 Available Subordinated Amount Allocation for such day; Provided, however, that if the Monthly Total Principal Allocation exceeds the Class B-2 Controlled Distribution Amount, then such excess will be allocated to the Series 1996-1 Excess Funding Account; provided, further, however, that if a Waiver Event shall have theretofore occurred, then such allocation shall be modified as provided in Article 5 of this Supplement; and (F) during the Class B-3 Controlled Amortization Period, allocate to the Series 1996-1 Collection Account an amount equal to the sum of (1) the Series 1996-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Class B-3 Notes, and (2) the Series 1996-1 Available Subordinated Amount Allocation for such day; provided, however, that if the Monthly Total Principal Allocation exceeds the Class B-3 Controlled Distribution Amount, then such excess will be allocated to the Series 1996-1 Excess Funding Account; provided, further, however, that if a Waiver Event shall have theretofore occurred, then such allocation shall be modified as provided in Article 5 of this Supplement; and (iii) allocate to the Retained Distribution Account an amount determined as set forth in Section 3.2(a)(x)(iii) above for such day; (y) with respect to all Recoveries: (i) increase the Class A Invested Amount, the Class B Invested Amount and the Series 1996-1 Available Subordinated Amount as and to the extent -48- 52 provided in Section 3.2(a)(y)(i) above for such day; and (ii) allocate to the Retained Interest Amount an amount determined as set forth in Section 3.2(a)(y)(ii) above for such day; (z) with respect to all Losses: (i) decrease the Class A Invested Amount, the Class B Invested Amount and the Series 1996-1 Available Subordinated Amount as and to the extent provided in Section 3.2(a)(z)(i) above for such day; and (ii) allocate to the Retained Interest Amount an amount determined as set forth in Section 3.2(a)(z)(ii) above for such day, which amount shall reduce the Retained Interest Amount. (c) Allocations During the Series 1996-1 Rapid Amortization Period. During the Series 1996-1 Rapid Amortization Period, the Servicer will direct the Trustee pursuant to the Lease to allocate, prior to 1:00 p.m. (New York City time) on any Deposit Date, all amounts deposited into the Collection Account as set forth below: (x) with respect to all Collections (including Recoveries, all of which Recoveries shall be treated as Principal Collections): (i) allocate to the Series 1996-1 Collection Account an amount determined as set forth in Section 3.2(a)(x)(i) above for such day, which amount shall be further allocated to the Series 1996-1 Accrued Interest Account; (ii) (A) allocate to the Series 1996-1 Collection Account an amount equal to the Series 1996-1 Principal Allocation for such day and (B) allocate to the Series 1996-1 Excess Funding Account an amount equal to the Series 1996-1 Available Subordinated Amount Allocation for such day, which amounts shall be used, to the extent described in Section 3.5(a)(iii), to make principal payments in respect of the Class A Notes and, after the Class A Notes have been paid in full; to make principal payments in respect of the Class B Notes: and -49- 53 (iii) allocate to the Retained Distribution Account an amount determined as set forth in Section 3.2(a)(x)(iii) above for such day; (y) with respect to all Recoveries: (i) increase the Class A Invested Amount, the Class B Invested Amount and the Series 1996-1 Available Subordinated Amount as and to the extent provided in Section 3.2(a)(y)(i) above for such day; and (ii) allocate to the Retained Interest Amount an amount determined as set forth in Section 3.2(a)(y)(ii) above for such day; and (z) with respect to all Losses: (i) decrease the Class A Invested Amount, the Class B Invested Amount and the Series 1996-] Available Subordinated Amount as and to the extent provided in Section 3.2(a)(z)(i) above for such day; and (ii) allocate to the Retained Interest Amount an amount determined as set forth in Section 3.2(a)(z)(ii) above for such day, which amount shall reduce the Retained Interest Amount. (d) Allocation Adjustments. Notwithstanding the foregoing provisions of this Section 3.2: (i) provided the Series 1996-1 Rapid Amortization Period has not commenced, amounts in excess of the Series 1996-1 Liquidity Amount (if applicable) allocated to the Series 1996-1 Excess Funding Account that are not required to make payments under the Series 1996-1 Notes pursuant hereto may, as and to the extent permitted in the related Supplements, be used to pay the principal amount of other Series of Notes that are then in amortization and, after such payment, any remaining funds in excess of the Series 1996-1 Liquidity Amount (if applicable) may, at NFLP's option, be (i) used to finance or acquire Vehicles (other than Replacement Vehicles), to the extent Eligible Vehicles have been requested by the Lessee or (ii) transferred, on any Distribution Date, to the Retained Distribution Account, to the extent that the Retained Interest Amount equals or -50- 54 exceeds zero after giving effect to such payment and so long as no Series 1996-1 Enhancement Deficiency, Series 1996-1 Minimum Overcollateralization Deficit or Asset Amount Deficiency exists or would result therefrom; provided, however, that funds in excess of the Series 1996-1 Liquidity Amount (if applicable) may be transferred to the Retained Distribution Account on a day other than a Distribution Date if the Servicer furnishes to the Trustee an Officer's Certificate to the effect that such transfer will not cause any of the foregoing deficiencies to occur either on the date that such transfer is made or, in the reasonable anticipation of the Servicer, on the next Distribution Date. Funds in the Retained Distribution Account shall, at the option of NFLP, be available to finance or acquire Vehicles, to the extent Eligible Vehicles have been requested by the Lessee, or for distribution to the Retained Interestholder (including as an advance made under the Demand Note); (ii) in the event that the Servicer is not National or an Affiliate of National, the Servicer shall not be entitled to withhold any amounts pursuant to Section 5.2(c) of the Base Indenture and the Trustee shall deposit amounts payable to National in the Collection Account pursuant to the provisions of Section 5.2 of the Base Indenture on each Series 1996-1 Deposit Date; (iii) any amounts withheld by the Servicer and not deposited in the Collection Account pursuant to Section 5.2 (c) of the Base Indenture shall be deemed to be deposited in the Collection Account on the date such amounts are withheld for purposes of determining the amounts to be allocated pursuant to this Section 3.2; (iv) if there is more than one Series of Notes outstanding, then Sections 3.2 (a) (x) (iii), 3.2 (b) (x) (iii) and 3.2 (c) (x) (iii) above shall not be duplicative with any similar provisions contained in any other Supplement and the Retained Interestholder shall only be paid such amount once with respect to any Distribution Date; (v) on any day on which the Market Value Adjustment Amount exceeds zero and a Series 1996-1 Enhancement Deficiency exists, NFLP shall provide -51- 55 funds to the Trustee in an amount equal to the Market Value Adjustment Amount for deposit in the Series 1996-1 Excess Funding Account and allocation to the Series 1996-1 Available Subordinated Amount; and (vi) NFLP may, from time to time in its sole discretion, increase the Series 1996-1 Available Subordinated Amount by (i) depositing funds into the Series 1996-1 Excess Funding Account by transfer from the Retained Distribution Account or otherwise, and (ii) delivering to the Servicer and the Trustee an Officer's Certificate setting forth the amount of such funds and stating that such funds shall be allocated to the Series 1996-1 Available Subordinated Amount; provided, however, that (x), except as otherwise provided in clause (v) above, NFLP shall have no obligation to so increase the Series 1996-1 Available Subordinated Amount at any time and (y) NFLP may not increase the Series 1996-1 Available Subordinated Amount at any time if the amount of such increase, together with the sum of the amounts of all prior increases, if any, of the Series 1996-1 Available Subordinated Amount would exceed the Series 1996-1 Available Subordinated Amount Maximum Increase, excluding from such calculation (1) any increase in the Series 1996-1 Available Subordinated Amount through Recoveries or from funds constituting repayments of principal under the Demand Note, (2) any increase in the Series 1996-1 Available Subordinated Amount relating to an increase in the Required Enhancement Amount that results from changes in the relative proportions of Non-Program Vehicles and/or Program Vehicles leased under the Lease, or (3) any increase in the Series 1996-1 Available Subordinated Amount due to payments by NFLP into the Series 1996-1 Excess Funding Account on account of the Market Value Adjustment Amount. (vii) NFLP shall not permit any additional Non-Program Vehicle to be leased under the Lease if, on the Lease Commencement Date with respect to such Vehicle, (a) the percentage equivalent of a fraction (I) the numerator of which is the sum of (A) the Series 1996-1 Invested Percentage of the sum of (1) the amount determined as of such day pursuant to clause (a) of the definition of "Required Enhancement Amount" (taking account of -52- 56 the leasing of such Non-Program Vehicle and all other Non-Program Vehicles to be leased on such day) and (2) the Market Value Adjustment Amount as of such day plus (B) the Class B Invested Amount as of such day and (II) the denominator of which is the Series 1996-1 Invested Amount as of such day, would exceed (b) 25%. Section 3.3 Monthly Payments. On each Determination Date, as provided below, the Servicer shall instruct the Paying Agent pursuant to the Lease to withdraw, and on the following Distribution Date the Paying Agent, acting in accordance with such instructions, shall withdraw the amounts required to be withdrawn from the Collection Account pursuant to Sections 3.3 (a), (b), (c) and (d) below in respect of all funds available from Interest Collections processed since the preceding Distribution Date and allocated to the holders of the Series 1996-1 Notes. (a) Note Interest with respect to the Class A Notes. On each Determination Date, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the amount to be withdrawn from the Series 1996-1 Accrued Interest Account to the extent funds will be available from Interest Collections allocable to the Class A Notes which will have been processed from but not including the preceding Distribution Date through the succeeding Distribution Date, which amount shall be withdrawn in respect of (x) first, an amount equal to the sum of (i) the Class A Monthly Interest for the Class A-1 Notes for such Distribution Date, (ii) the Class A Monthly Interest for the Class A-2 Notes for such Distribution Date, (iii) the Class A Monthly Interest for the Class A-3 Notes for such Distribution Date and (iv) the Class A Monthly Interest for the Class A-4 Notes for such Distribution Date, and (y) then, an amount equal to the sum of (1) the amount of any unpaid Class A Deficiency Amounts (as defined below) for the Class A-1 Notes, (2) the amount of any unpaid Class A Deficiency Amounts for the Class A-2 Notes, (3) the amount of any unpaid Class A Deficiency Amounts for the Class A-3 Notes and (4) the amount of any unpaid Class A Deficiency Amounts for the Class A-4 Notes, in each case, as of the preceding Distribution Date (in each case, together with any accrued interest on such Class A Deficiency Amounts). If the amounts described in this Section 3.3(a) are insufficient, after taking into account any portion of the Letter of Credit Amount applied as described in Section 3.4(a) of this Supplement and any amounts available in the Series 1996-1 Excess Funding Account, to pay such interest on any Distribution Date, payments of interest (A) to the Class A-1 Noteholders will be reduced by the amount of the Class A Deficiency Amount for the Class A-1 Notes, (B) to the Class A-2 Noteholders will be reduced by the amount of the -53- 57 Class A Deficiency Amount for the Class A-2 Notes, (C) to the Class A-3 Noteholders will be reduced by the amount of the Class A Deficiency Amount for the Class A-3 Notes and (D) to the Class A-4 Noteholders will be reduced by the amount of the Class A Deficiency Amount for the Class A-4 Notes. Interest shall accrue on the Class A Deficiency Amount for the Class A-1 Notes at the Class A-1 Interest Rate, on the Class A Deficiency Amount for the Class A-2 Notes at the Class A-2 Interest Rate, on the Class A Deficiency Amount for the Class A-3 Notes at the Class A-3 Interest Rate and on the Class A Deficiency Amount for the Class A-4 Notes at the Class A-4 Interest Rate. On the related Distribution Date, the Trustee shall withdraw the Class A Monthly Interest for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes and the Class A Deficiency Amounts for the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes (in each case, together with accrued interest thereon) from the Series 1996-1 Accrued Interest Account and, to the extent provided in Section 3.4(a), any applied portion of the Letter of Credit Amount and amounts withdrawn from the Series 1996-1 Excess Funding Account, and deposit such amount in the Class A Distribution Account; provided that the sum of the amounts to be withdrawn from the Series 1996-1 Excess Funding Account pursuant to this Section 3.3(a) and Section 3.3(b) shall not exceed for any Determination Date the Series 1996-1 Available Subordinated Amount at such time. (b) Note Interest with respect to the Class B Notes. On each Determination Date, subject to Section 3.12 of this Supplement, provided that all payments on account of interest that are required to be made to the Class A Noteholders are available in the Class A Distribution Account, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the amount to be withdrawn from the Series 1996-1 Accrued Interest Account to the extent funds will be available from Interest Collections allocable to the Class B Notes which will have been processed from but not including the preceding Distribution Date through the succeeding Distribution Date, which amount shall be withdrawn in respect of (x) first, an amount equal to the sum of (i) the Class B Monthly Interest for the Class B-1 Notes for such Distribution Date, (ii) the Class B Monthly Interest for the Class B-2 Notes for such Distribution Date and (iii) the Class B Monthly Interest for the Class B-3 Notes for such Distribution Date, and (y) then, an amount equal to the sum of (1) the amount of any unpaid Class B Deficiency Amounts (as defined below) for the Class B-1 Notes, (2) the amount of any unpaid Class B Deficiency Amounts for the Class B-2 Notes and (3) the amount of any unpaid Class B Deficiency Amounts for the Class B-3 Notes, in each case, as of the preceding -54- 58 Distribution Date (in each case, together with any accrued interest on such Class B Deficiency Amounts). If the amounts described in this Section 3.3(b) are insufficient, after taking into account any portion of the Letter of Credit Amount applied as described in Section 3.4(b) of this Supplement and any amounts available in the Series 1996-1 Excess Funding Account (and subject to the provisions of Section 3.13 of this Supplement), to pay such interest on any Distribution Date, payments of interest (A) to the Class B-1 Noteholders will be reduced by the amount of the Class B Deficiency Amount for the Class B-1 Notes, (B) to the Class B-2 Noteholders will be reduced by the amount of the Class B Deficiency Amount for the Class B-2 Notes and (C) to the Class B-3 Noteholders will be reduced by the amount of the Class B Deficiency Amount for the Class B-3 Notes. Interest shall accrue on the Class B Deficiency Amount for the Class B-1 Notes at the Class B-1 Interest Rate, on the Class B Deficiency Amount for the Class B-2 Notes at the Class B-2 Interest Rate and on the Class B Deficiency Amount for the Class B-3 Notes at the Class B-3 Interest Rate. On the related Distribution Date, provided that all payments on account of interest that are required to be made to the Class A Noteholders are available in the Class A Distribution Account (including, without limitation, all accrued interest, all Class A Deficiency Amounts, and all interest accrued on all such Class A Deficiency Amounts), the Trustee shall withdraw the Class B Monthly Interest for the Class B-1 Notes, the Class B-2 Notes and the Class B-3 Notes and the Class B Deficiency Amounts for the Class B-1 Notes, the Class B-2 Notes and the Class B-3 Notes (in each case, together with accrued interest thereon) from the Series 1996-1 Accrued Interest Account and, to the extent provided in Section 3.4(b), any applied portion of the Letter of Credit Amount and amounts withdrawn from the Series 1996-1 Excess Funding Account, and deposit such amount in the Class B Distribution Account; provided that the sum of the amounts to be withdrawn from the Series 19961 Excess Funding Account pursuant to Section 3.3(a) and this Section 3.3(b) shall not exceed for any Determination Date the Series 1996-1 Available Subordinated Amount at such time. (c) Servicing Fee. On each Distribution Date, the Servicer shall, after making all deposits to the Class A Distribution Account and the Class B Distribution Account required to be made pursuant to Sections 3 3(a) and (b), or in the event that on the related Determination Date National shall no longer be the Servicer, prior to such deposits being made, instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Accrued Interest Account an amount equal to (i) the Class A Investor Monthly Servicing Fee (and any Class A Monthly Supplemental Servicing Fee) accrued during the preceding Series 1996-1 Interest Period, plus (ii) the Class B Investor Monthly Servicing Fee (and any Class B Monthly Supplemental Servicing -55- 59 Fee) accrued during the preceding Series 1996-1 Interest Period, plus (iii) all accrued and unpaid Class A Investor Monthly Servicing Fees (and any accrued and unpaid Class A Monthly Supplemental Servicing Fees) and all accrued and unpaid Class B Investor Monthly Servicing Fees (and any accrued and unpaid Class B Monthly Supplemental Servicing Fees) in respect of previous periods. On each such Distribution Date, the Trustee or the Paying Agent shall withdraw such amount from the Series 19961 Accrued Interest Account and remit such amount to the Servicer. (d) Balance. On each Distribution Date, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the balance (after making the deposits required in Sections 3.3 (a), (b) and (c) of this Supplement), if any, of the Interest Collections allocated to holders of the Series 1996-1 Notes since the preceding Distribution Date ("Excess Collections"). On such Distribution Date, the Paying Agent shall withdraw such balance from the Collection Account and pay such balance to the Retained Distribution Account, to the extent that, after giving effect to such transfer, the Retained Interest Amount exceeds zero and provided that such payment will not cause an Asset Amount Deficiency, a Series 1996-1 Minimum Overcollateralization Deficit or a Series 1996-1 Enhancement Deficiency to exist. Section 3.4 Payment of Note Interest. (a) Class A Notes. On each Distribution Date, (i) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (A) the amount on deposit in the Series 1996-1 Collection Account representing such amount drawn on the Letter of Credit and (B) the amount of the Class A Monthly Interest Shortfall and deposit such amount in the Class A Distribution Account to pay the Class A Monthly Interest and any unpaid Class A Deficiency Amounts with respect to such Class A Monthly Interest (together with accrued interest on all such unpaid Class A Deficiency Amounts) and (ii) to the extent any such Class A Monthly Interest Shortfall remains after the deposits required pursuant to Section 3.2(a) and Section 3.4(a)(i) have been made, the Servicer shall instruct the or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (A) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time, and (B) the remaining amount of the Class A Monthly Interest Shortfall, and deposit such amount in the Class A Distribution Account to pay the -56- 60 Class A Monthly Interest and any unpaid Class A Deficiency Amounts with respect to such Class A Monthly Interest (together with accrued interest on all such unpaid Class A Deficiency Amounts). On each Distribution Date, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the Class A Noteholders from the Class A Distribution Account the amount deposited in the Class A Distribution Account for the payment of interest pursuant to Section 3.3(a) of this Supplement and clauses (i) and (ii) of this Section 3.4(a). (b) Class B Notes. On each Distribution Date, (i) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (A) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any amounts pursuant to Section 3.4(a) of this Supplement) and (B) the amount of the Class B Monthly Interest Shortfall and deposit such amount in the Class B Distribution Account to pay the Class B Monthly Interest and any unpaid Class B Deficiency Amounts with respect to such Class B Monthly Interest (together with accrued interest on all such unpaid Class B Deficiency Amounts) and (ii) to the extent any such Class B Monthly Interest Shortfall remains after the deposits required pursuant to Section 3.2(b) and Section 3.4(b)(i) have been made, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (A) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Section 3.4(a) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time, and (B) the remaining amount of the Class B Monthly Interest Shortfall, and deposit such amount in the Class B Distribution Account to pay the Class B Monthly Interest and any unpaid Class B Deficiency Amounts with respect to such Class B Monthly Interest (together with accrued interest on all such unpaid Class B Deficiency Amounts). On each Distribution Date, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture but subject to Section 3.13 of this Supplement, pay to the Class B Noteholders from the Class B Distribution Account the amount deposited in the Class B Distribution Account for the payment of interest pursuant to Section 3.3(b) of this Supplement and clauses (i) and (ii) of this Section 3.4(b). -57- 61 Section 3.5 Payment of Note Principal. (a) Class A Notes. (i) Commencing on the second Determination Date after the commencement of the Class A-1/A-2 Controlled Amortization Period, the Class A-3 Controlled Amortization Period or the Class A-4 Controlled Amortization Period (as the case may be) or the first Determination Date after the commencement of the Series 1996-1 Rapid Amortization Period, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the following: (A)(1) during the Class A-1/A-2 Controlled Amortization Period with respect to the Class A-1 Notes, the Class A-1 Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class A-1 Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3.2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (A)(1) above exceeds the amount in clause (A)(2) above (the amount of such excess the "Class A-1 Controlled Distribution Amount Deficiency"); (B)(1) during the Class A-1/A-2 Controlled Amortization Period with respect to the Class A-2 Notes, the Class A-2 Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class A-2 Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3,2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (B)(1) above exceeds the amount in clause (B)(2) above (the amount of such excess the "Class A-2 Controlled Distribution Amount Deficiency"); (C)(1) during the Class A-3 Controlled Amortization Period, the Class A-3 Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class A-3 Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3.2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (C)(1) above exceeds the amount in clause (C)(2) above (the amount of such excess the "Class A-3 Controlled Distribution Amount Deficiency"); and -58- 62 (D)(1) during the Class A-4 Controlled Amortization Period, the Class A-4 Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class A-4 Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3.2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (D)(1) above exceeds the amount in clause (D)(2) above (the amount of such excess the "Class A-4 Controlled Distribution Amount Deficiency"). (ii) (A) Commencing on the second Distribution Date after the commencement of the Class A-1/A-2 Controlled Amortization Period, the Trustee shall, in respect of the Class A-1 Notes, (1) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (A)(1) and (A)(2) of Section 3.5(a)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the cries 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a) and 3.4(b)) and (y) he amount of the Class A-1 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class A Distribution account to be paid, pro rata, to the Class A-1 Noteholders on account of the Class A-1 Controlled Distribution Amount and (3) to the extent any Class A-1 Controlled Distribution Amount Deficiency still remains after application of the mounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date after application of any amounts pursuant to Sections 3.4(a) and 3.4(b)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class A-1 Controlled Distribution Amount Deficiency and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the -59- 63 Class A-1 Noteholders on account of the Class A-1 Controlled Distribution Amount; provided that, the aggregate of all amounts allocated to the Class A-1 Notes pursuant to Section 3.5(a)(i)(A) and all amounts allocated to the Class A-2 Notes pursuant to Section 3.5(a)(i)(B) shall be aggregated and distributed to the Class A-1 Notes and the Class A-2 Notes pursuant to Sections 3.5(a)(ii)(A) and (B) on a pro rata basis. (B) Commencing on the second Distribution Date after the commencement of the Class A-1/A-2 Controlled Amortization Period, the Trustee shall, in respect of the Class A-2 Notes, (1) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (B)(1) and (B)(2) of Section 3.5(a)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1-996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a) and 3.4(b)) and (y) the amount of the Class A-2 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A-2 Noteholders on account of the Class A-2 Controlled Distribution Amount and (3) to the extent any Class A-2 Controlled Distribution Amount Deficiency still remains after application of the amounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a) and 3.4(b)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class A-2 Controlled Distribution Amount Deficiency and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A-2 Noteholders on account of the Class A-2 -60- 64 Controlled Distribution Amount; provided that, the aggregate of all amounts allocated to the Class A-1 Notes pursuant to Section 3.5(a)(i)(A) and all amounts allocated to the Class A-2 Notes pursuant to Section 3.5(a)(i)(B) shall be aggregated and distributed to the Class A-1 Notes and the Class A-2 Notes pursuant to Sections 3.5(a)(ii)(A) and (B) on a pro rata basis. (C) Commencing on the second Distribution Date after the commencement of the Class A-3 Controlled Amortization Period, the Trustee shall (1) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (C)(1) and (C)(2) of Section 3.5(a)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3 8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a) and 3.4(b)) and (y) the amount of the Class A-3 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A-3 Noteholders on account of the Class A-3 Controlled Distribution Amount and (3) to the extent any Class A-3 Controlled Distribution Amount Deficiency still remains after application of the amounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a) and 3.4(b)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class A-3 Controlled Distribution Amount Deficiency and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A-3 Noteholders on account of the Class A-3 Controlled Distribution Amount. -61- 65 (D) Commencing on the second Distribution Date after the commencement of the Class A-4 Controlled Amortization Period, the Trustee shall (1) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (D)(1) and (D)(2) of Section 3.5(a)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a) and 3.4(b)) and (y) the amount of the Class A-4 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A-4 Noteholders on account of the Class A-4 Controlled Distribution Amount and (3) to the extent any Class A-4 Controlled Distribution Amount Deficiency still remains after application of the amounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a) and 3.4(b)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class A-4 Controlled Distribution Amount Deficiency and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A-4 Noteholders on account of the Class A-4 Controlled Distribution Amount (iii) Commencing on the first Distribution Date after the commencement of the Series 1996-1 Rapid Amortization Period, the Trustee shall (1) withdraw from the Series 1996-1 Collection Account the amount allocated thereto pursuant to Section 3.2(c)(x)(ii) and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.3 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent -62- 66 to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a) and 3.4(b)) and (y) the excess of the Class A Invested Amount over the amount described in clause (1) and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A Noteholders and (3) to the extent any portion of the Class A Invested Amount still remains unpaid after application of the amounts specified in clauses (1) and ~M, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a), and 3.4(b)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the unpaid portion of the Class A Invested Amount and deposit such amount in the Class A Distribution Account to be paid, pro rata, to the Class A Noteholders; provided, however, that on the final Distribution Date for the Class A Notes, the Trustee shall withdraw from the Series 1996-1 Collection Account, as provided above, an amount which is no greater than the Class A Invested Amount as of such date. The Invested Amount of each Outstanding Class of Class A Notes shall be due and payable on the Series 1996-1 Termination Date for such Class. (iv) On each Distribution Date occurring on or after the date a withdrawal is made pursuant to Section 3.5(a)(ii) or (iii) of this Supplement, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the applicable Class A Noteholders specified in Section 3.5(a)(ii) or (iii), as applicable, pro rata, the amount deposited in the Class A Distribution Account for the payment of principal pursuant to Section 3.5(a)(ii) or (iii), as applicable, of this Supplement. (b) Class B Notes. (i) Commencing on the first Determination Date after the commencement of the Class B-1 Controlled Amortization Period, the Class B-2 Controlled Amortization Period or the Class B-3 Controlled Amortization Period (as the case may be) or the first -63- 67 Determination Date after the commencement of the Series 1996-1 Rapid Amortization Period, provided that the Class A Notes shall have then been paid in full, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the following: (A)(1) during the Class B-l Controlled Amortization Period, the Class B-l Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class B-l Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3.2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (A)(l) above exceeds the amount in clause (A)(2) above (the amount of such excess, the "Class B-l Controlled Distribution Amount Deficiency"); (B)(1) during the Class B-2 Controlled Amortization Period, the Class B-2 Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class B-2 Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3.2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (B)(1) above exceeds the amount in clause (B)(2) above (the amount of such excess, the Class B-2 Controlled Distribution Amount Deficiency); and (C)(1) during the Class B-3 Controlled Amortization Period, the Class B-3 Controlled Distribution Amount for the Related Month, (2) the amount allocated to the Class B-3 Notes during the Related Month pursuant to Section 3.2(b)(x)(ii) or 3.2(c)(x)(ii), as applicable, and (3) the amount, if any, by which the amount in clause (C)(1) above exceeds the amount in clause (C)(2) above (the amount of such excess, the "Class B-3 Controlled Distribution Amount Deficiency"). (ii) (A) Commencing on the second Distribution Date after the commencement of the Class B-1 Controlled Amortization Period, the Trustee shall, subject to Section 3.13, (l) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (A)(1) and (A)(2) of Section 3.5(b)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the -64- 68 Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) and (y) the amount of the Class B-1 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B-1 Noteholders on account of the Class B-1 Controlled Distribution Amount and (3) to the extent any Class B-1 Controlled Distribution Amount Deficiency still remains after application of the amounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class B-1 Controlled Distribution Amount Deficiency and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B-1 Noteholders on account of the Class B-1 Controlled Distribution Amount. (B) Commencing on the second Distribution Date after the commencement of the Class B-2 Controlled Amortization Period, the Trustee shall, subject to Section 3.13, (1) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (B)(1) and (B)(2) of Section 3.5(b)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) and (y) the amount of the Class B-2 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B-2 Noteholders on account of the Class B-2 Controlled Distribution Amount and (3) to the extent any Class B-2 Controlled Distribution Amount Deficiency still remains after application of -65- 69 the amounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class B-2 Controlled Distribution Amount Deficiency and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B-2 Noteholders on account of the Class B-2 Controlled Distribution Amount. (C) Commencing on the second Distribution Date after the commencement of the Class B-3 Controlled Amortization Period, the Trustee shall, subject to Section 3 13, (1) withdraw from the Series 1996-1 Collection Account an amount equal to the lesser of the amounts specified in clauses (C)(1) and (C)(2) of Section 3.5(b)(i), and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) and (y) the amount of the Class B-3 Controlled Distribution Amount Deficiency (if any), and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B-3 Noteholders on account of the Class B-3 Controlled Distribution Amount and (3) to the extent any Class B-3 Controlled Distribution Amount Deficiency still remains after application of the amounts specified in clauses (1) and (2), the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the remaining amount of the Class B-3 Controlled Distribution Amount Deficiency and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the -66- 70 Class B-3 Noteholders on account of the Class B-3 Controlled Distribution Amount. (iii) (A) Commencing on the first Distribution Date after the commencement of the Series 1996-1 Rapid Amortization Period, provided that the Class A Notes shall have then been paid in full, the Trustee shall (1) withdraw from the Series 1996-1 Collection Account the amount allocated thereto pursuant to Section 3.2(c)(x)(ii) and (2) if amounts have been drawn on the Letter of Credit and deposited into the Series 1996-1 Collection Account pursuant to Section 3.8 of this Supplement, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-1 Collection Account representing such draw on the Letter of Credit (after application of any portion thereof pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) and (y) the excess of the Class B Invested Amount over the amount described in clause (1) and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B Noteholders and (3) to the extent any portion of the Class B Invested Amount still remains unpaid after application of the amounts specified in clauses (1) and by, the Servicer shall instruct the Trustee or the Paying Agent to withdraw from the Series 1996-1 Excess Funding Account an amount equal to the lesser of (v) the amount on deposit in the Series 1996-1 Excess Funding Account on such Distribution Date (after application of any amounts pursuant to Sections 3.4(a), 3.4(b) and 3.5(a)) in an amount not to exceed the Series 1996-1 Available Subordinated Amount at such time and (w) the unpaid portion of the Class B Invested Amount and deposit such amount in the Class B Distribution Account to be paid, pro rata, to the Class B Noteholders; provided, however, that on the final Distribution Date for the Class B Notes, the Trustee shall withdraw from the Series 1996-1 Collection Account, as provided above, an aggregate amount which is no greater than the Class B Invested Amount as of such date. Subject to Section 3.13, the Invested Amount of each Outstanding Class of Class B Notes shall be due and payable on the Series 1996-1 Termination Date for such Class. (iv) On each Distribution Date occurring on or after the date a withdrawal is made pursuant to Section 3.5(b)(ii) or (iii) of this Supplement, the Paying Agent shall, in accordance with Section 6.1 of the Base -67- 71 Indenture, pay to the applicable Class B Noteholders specified in Section 3.5(b)(ii) and/or (iii), as applicable, pro rata, the amount deposited in the Class B Distribution Account for the payment of principal pursuant to Section 3.s(b)(ii) and/or (iii) of this Supplement. Section 3.6 Retained Distribution Account. On each Distribution Date, the Servicer shall instruct the Trustee to instruct the Paying Agent to transfer to the Retained Distribution Account (established pursuant to Section 5.1(b) of the Base Indenture) (i) all funds in excess of the Series 1996-1 Liquidity Amount which are in the Collection Account that have been allocated to the Retained Distribution Account as of such Distribution Date and (ii) all funds that were previously allocated to the Retained Distribution Account but not transferred to the Retained Distribution Account. Section 3.7 The Servicer's Failure to Instruct the Trustee to Make a Deposit or Payment. If the Servicer fails to give notice or instructions to make any payment from or deposit into the Collection Account required to be given by the Servicer, at the time specified in the Lease or any other Related Document (including applicable grace periods), and such failure is known by the Trustee, the Trustee shall make such payment or deposit into or from the Collection Account without such notice or instruction from the Servicer. Pursuant to the Lease, the Servicer has agreed that it shall, upon request of the Trustee, promptly provide the Trustee with all information necessary to allow the Trustee to make such a payment or deposit. Section 3.8 Draw on Letter of Credit. (a) At or before 12:00 p.m. (New York City time) on each Distribution Date, the Servicer shall notify the Trustee pursuant to the Lease of the amount of the Series 1996-1 Lease Payment Deficit, such notification to be in the form of Exhibit E to the Lease. (b) So long as the Letter of Credit shall not have been terminated, on any Business Day that a Series 1996-1 Lease Payment Deficit exists, the Trustee shall, by 2:00 p.m. (New York City time) on the same Business Day, draw on the Letter of Credit by presenting a draft in the amount equal to the lesser of the Series 1996-1 Lease Payment Deficit and the amount available to be drawn on the Letter of Credit on such Business Day accompanied by a Certificate of Credit Demand in the form of Annex A to the Letter of Credit. The proceeds of such draw shall be deposited in the Series 1996-1 Collection Account for further allocation to -68- 72 the Class A Distribution Account and/or the Class B Distribution Account in accordance with the instructions of the Servicer. Section 3.9 Letter of Credit Termination Demand. (a) If prior to the date which is 30 days prior to the then scheduled Letter of Credit Expiration Date, (i) there shall not have been appointed a successor institution to act as Letter of Credit Provider, or (ii) the payments to be made by the Lessee under the Lease shall not have otherwise been credit enhanced with (A) the funding of the Cash Collateral Account with cash in the amount of the Letter of Credit Amount, (B) other cash collateral accounts, overcollateralization or subordinated securities or (C) with the consent of the Required Noteholders, a surety bond or other similar arrangements; provided, however, that (1) any such successor institution or other form of substitute credit enhancement referred to in the foregoing clauses (i) and (ii) shall be approved by each Rating Agency; and (2) any such successor institution or other form of substitute credit enhancement referred to in the foregoing clauses (i) or (ii)(C) shall, if the ratings with respect to such substitute credit enhancement, if applicable, are less than A-1 or the equivalent from Standard & Poor's (and if Duff & Phelps is then a Rating Agency, a comparable rating by Duff & Phelps, if any), be approved by the Required Noteholders; then the Servicer shall notify the Trustee pursuant to the Lease no later than one Business Day prior to the Letter of Credit Expiration Date of (i) the principal balance of all Outstanding Series 1996-1 Notes on such date, and (ii) the amount available to be drawn on the Letter of Credit on such date. Upon receipt of such notice by the Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Trustee shall, by 2:00 p.m (New York City time) on such Business Day (or, in the case of notice given to the Trustee after 10:00 a.m. (New York City time), by 2:00 p.m. (New York City time) on the next following Business Day), draw the lesser of the amounts set forth in clauses (i) and (ii) above on the Letter of Credit by presenting a draft accompanied by a Certificate of Termination Demand in the form of Annex B to the Letter of Credit and shall deposit the proceeds of the disbursement resulting therefrom in a special deposit account (the "Cash Collateral Account"). -69- 73 (b) The Servicer shall notify the Trustee pursuant to the Lease within one Business Day of becoming aware that the long-term debt credit rating of the Letter of Credit Provider has fallen below "A" as determined by Standard & Poor's and Duff & Phelps. At such time the Servicer shall also notify the Trustee of (i) the principal balance of all Outstanding Series 1996-1 Notes on such date, and (ii) the Letter of Credit Amount on such date. Upon receipt of such notice by the Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Trustee shall, by 2:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Trustee after 10:00 a.m. (New York City time), by 2:00 p.m. (New York City time) on the next following Business Day), draw on the Letter of Credit in an amount equal to the lesser of the principal balance of all Outstanding Series 1996-1 Notes on such Business Day and the amount available to be drawn on the Letter of Credit on such Business Day by presenting a draft accompanied by a Certificate of Termination Demand in the form of Annex B to the Letter of Credit and shall deposit the proceeds of the disbursement resulting therefrom in the Cash Collateral Account. Section 3.10 The Cash Collateral Account. (a) Upon receipt of notice of a draw on the Letter of Credit pursuant to Section 3.8 or 3.9, the Trustee shall establish and maintain in the name of the Trustee for the benefit of the Series 1996-1 Noteholders, or cause to be established and maintained, the Cash Collateral Account bearing a designation clearly indicating that the funds deposited therein are held for the Series 1996-1 Noteholders. The Cash Collateral Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Cash Collateral Account. If the Cash Collateral Account is not maintained in accordance with the prior sentence, then within 10 Business Days after obtaining knowledge of such fact, National has agreed pursuant to the Lease that it shall establish a new Cash Collateral Account which complies with such sentence and shall instruct the Trustee to transfer into the new Cash Collateral Account all cash and investments from the non qualifying Cash Collateral Account. When established, the Cash Collateral Account is intended to function in all respects as the replacement for, and the equivalent of, the Letter of Credit. Accordingly, following its creation, each reference to a draw on the Letter of Credit shall refer to withdrawals from the Cash Collateral Account and references to similar terms shall mean and be a reference to actions taken with respect to the Cash Collateral Account that correspond to actions that otherwise would have been taken with respect to the Letter of Credit. -70- 74 Without limiting the generality of the foregoing, upon funding of the Cash Collateral Account, the Trustee shall, at all times when otherwise required to make a draw under the Letter of Credit pursuant to Sections 3.8 or 3.9 of this Supplement, make a draw from the Cash Collateral Account in the amount and at such time as a draw would be made under the Letter of Credit pursuant to Sections 3.8 or 3.9 of this Supplement. The Trustee shall provide written notice to National of any draw from the Cash Collateral Account pursuant to Sections 3.8 or 3.9 of this Supplement. (b) In order to secure and provide for the repayment and payment of the NFLP Obligations with respect to the Series 1996-1 Notes (but not the other Notes), NFLP hereby assigns, pledges, grants, transfers and sets over to the Trustee, for the benefit of the Series 1996-1 Noteholders, all of NFLP,s right, title and interest in and to the following (whether now or hereafter existing and whether now owned or hereafter acquired): (i) the Cash Collateral Account; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Cash Collateral Account or the funds on deposit therein from time to time; (iv) all Permitted Investments made at any time and from time to time with the monies in the Cash Collateral Account; and (v) all proceeds of any and all of the foregoing, including, without limitation, cash. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Cash Collateral Account and in all proceeds thereof. The Cash Collateral Account shall be under the sole dominion and control of the Trustee for the benefit of the Series 1996-1 Noteholders, the Letter of Credit Provider and the Support Credit Enhancer, as their interests appear herein, which interest in the case of the Letter of Credit Provider and the Support Credit Enhancer shall be subject to the interests of the holders of Series 1996-1 Notes as provided herein. (c) Funds on deposit in the Cash Collateral Account shall at the direction of the Servicer given pursuant to the Lease be invested by the Trustee in Permitted Investments. Funds on deposit in the Cash Collateral Account on any Distribution Date, after giving effect to any deposits to or withdrawals from the Cash Collateral Account on such Distribution Date, shall be invested in Permitted Investments that will mature at such time that such funds will be available for withdrawal on or prior to the following Distribution Date. The proceeds of any such investment, to the extent not distributed on such Distribution Date, shall be invested in Permitted Investments that will mature at such time that such funds will be available for withdrawal on or prior to the Distribution Date immediately following the date of such investment. The Trustee shall maintain for the benefit -71- 75 of the Series 1996-1 Noteholders, the Letter of Credit Provider and the Support Credit Enhancer as their interests appear herein, which interest in the case of the Letter of Credit Provider and the Support Credit Enhancer shall be subject to the interests of the holders of the Series 1996-1 Notes as provided herein, possession of the negotiable instruments or securities evidencing the Permitted Investments from the time of purchase thereof until the time of sale or maturity. On each Distribution Date, all interest and earnings (net of losses and investment expenses) accrued since the preceding Distribution Date on funds on deposit in the Cash Collateral Account shall be paid in the following order of priority, first, to the Letter of Credit Provider to the extent of any unreimbursed draws on the Letter of Credit and, second, to the Support Credit Enhancer for application in accordance with the Support Letter of Credit Reimbursement Agreement. Subject to the restrictions set forth above, National, or a Person designated in written notification thereof to the Trustee, shall have the authority to instruct the Trustee with respect to the investment of funds on deposit in the Cash Collateral Account. For purposes of determining the availability of funds or the balances in the Cash Collateral Account for any reason under the Indenture, all investment earnings on such funds shall be deemed not to be available or on deposit. (d) Cash Collateral Account Surplus. In the event that the Cash Collateral Account Surplus on any Distribution Date, after giving effect to all withdrawals from the Cash Collateral Account, is greater than zero, the Trustee, acting in accordance with the instructions of the Servicer, shall withdraw from the Cash Collateral Account an amount equal to the Cash Collateral Amount Surplus and shall pay such amount in the following order of priority: first, to the Letter of Credit Provider, an amount equal to the amount of unreimbursed draws under the Letter of Credit and, second, to the Support Credit Enhancer, an amount equal to the remainder of the Cash Collateral Account Surplus for application in accordance with the provisions of the Support Letter of Credit Reimbursement Agreement. (e) Termination of Cash Collateral Account. Upon the later to occur of (i) the termination of the Indenture pursuant to Section 11.1 of the Base Indenture and (ii) the Business Day immediately following the Letter of Credit Expiration Date, the Trustee, acting in accordance with the instructions of the Servicer, after the prior payment of all amounts owing to the the Cash Collateral from the Cash Series 1996-1 Noteholders and payable from Account as provided herein, shall withdraw Collateral Account all amounts on deposit therein for payments in the following order of priority: first, to the Letter of Credit Provider to the extent of unreimbursed draws on the Letter of -72- 76 Credit and, second, to the Support Credit Enhancer, an amount equal to the remainder of such amounts on deposit in the Cash Collateral Account for application in accordance with the Support Letter of Credit Reimbursement Agreement. Section 3.11 Class A Distribution Account. (a) Establishment of Class A Distribution Account. The Trustee shall establish and maintain in the name of the Trustee for the benefit of the Class A Noteholders, or cause be established and maintained, an account (the "Class A Distribution Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Class A Noteholders. The Class A Distribution Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Class A Distribution Account. If the Class A Distribution Account is not maintained in accordance with the previous sentence, the Servicer shall establish a new Class A Distribution Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Trustee to transfer all cash and investments from the non-qualifying Class A Distribution Account into the new Class A Distribution Account. Initially, the Class A Distribution Account will be established with the Trustee. (b) Administration of the Class A Distribution Account. The Servicer shall instruct the institution maintaining the Class A Distribution Account to invest funds on deposit in the Class A Distribution Account at all times in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Class A Distribution Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date. The Trustee shall hold, for the benefit of the Class A Noteholders, possession of any negotiable instruments or securities evidencing Permitted Investments from the time of purchase thereof until the time of maturity. (c) Earnings from Class A Distribution Account. Subject to the restrictions set forth above, the Servicer shall have the authority to instruct the Trustee with respect to the investment of funds on deposit in the Class A Distribution Account. All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Class A Distribution -73- 77 Account shall be deemed to be on deposit and available for distribution. (d) Class A Distribution Account Constitutes Additional Collateral for Class A Notes. In order to secure and provide for the payment of the NFLP Obligations with respect to the Class A Notes (but not the other Notes), NFLP hereby assigns, pledges, grants, transfers and sets over to the Trustee, for the benefit of the Class A Noteholders, all of NFLP's right, title and interest in and to the following (whether now or hereafter existing and whether now owned or hereafter acquired): (i) the Class A Distribution Account; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Class A Distribution Account or the funds on deposit therein from time to time; (iv) all Permitted Investments made at any time and from time to time with monies in the Class A Distribution Account; and (v) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (i) through (v) are referred to, collectively, as the "Class A Distribution Account Collateral"). The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Class A Distribution Account and in all proceeds thereof. The Class A Distribution Account Collateral shall be under the sole dominion and control of the Trustee for the benefit of the Class A Noteholders. Section 3.12 Class B Distribution Account. (a) Establishment of Class B Distribution Account. The Trustee shall establish and maintain in the name of the Trustee for the benefit of the Class B Noteholders, or cause to be established and maintained, an account (the "Class B Distribution Account"), bearing a designation clearly indicating I'd--- Me funds deposited therein are held for the benefit of the Class B Noteholders. The Class B Distribution Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Class B Distribution Account. If the Class B Distribution Account is not maintained in accordance with the previous sentence, the Servicer shall establish a new Class B Distribution Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Trustee to transfer all cash and investments from the non-qualifying Class B Distribution Account into the new Class B Distribution Account. Initially, the Class B Distribution Account will be established with the Trustee. -74- 78 (b) Administration of the Class B Distribution Account. The Servicer has agreed pursuant to the Lease that it shall instruct the institution maintaining the Class B Distribution Account to invest funds on deposit in the Class B Distribution Account at all times in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Class B Distribution Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date. The Trustee shall hold, for the benefit of the Class B Noteholders and National, possession of any negotiable instruments or securities evidencing Permitted Investments from the time of purchase thereof until the time of maturity. (c) Earnings from Class B Distribution Account. Subject to the restrictions set forth above, the Servicer shall have the authority to instruct the Trustee with respect to the investment of funds on deposit in the Class B Distribution Account. All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Class B Distribution Account shall be deemed to be on deposit and available for distribution. (d) Class B Distribution Account Constitutes Additional Collateral for Class B Notes. In order to secure and provide for the repayment and payment of the NFLP Obligations with respect to the Class B Notes (but not the other Notes), NFLP hereby assigns, pledges, grants, transfers and sets over to the Trustee, for the benefit of the Class B Noteholders, all of NFLP's right, title and interest in and to the following (whether now or hereafter existing and whether now owned or hereafter acquired): (i) the Class B Distribution Account; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Class B Distribution Account or the funds on deposit therein from time to time; (iv) all Permitted Investments made at any time and from time to time with monies in the Class B Distribution Account; and (v) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (i) through (v) are referred to, collectively, as the "Class B Distribution Account Collateral"). The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Class B Distribution Account and in all proceeds thereof. The Class B Distribution Account Collateral shall be under the sole dominion and control of the Trustee for the benefit of the Class B Noteholders. -75- 79 Section 3.13 Class B Notes Subordinate to Class A Notes. Notwithstanding anything to the contrary contained herein or in any other Related Document, the Class B Notes will be subordinate in all respects to the Class A Notes. Except as provided in Article 5 of this Supplement, no payments on account of interest shall be made with respect to the Class B Notes until all payments of interest then due and payable with respect to the Class A Notes (including, without limitation, all accrued interest, all interest accrued on such accrued interest, and all Class A Deficiency Amounts) have been made in full. The Class B-1 Notes will be subordinated to the Class A-1 Notes and the Class A-2 Notes, such that no payments on account of principal shall be made with respect to the Class B-1 Notes until the Class A-1 Notes and the Class A-2 Notes have been paid in full (except as may otherwise be required in connection with a Waiver Event). The Class B-2 Notes will be subordinated to the Class A-3 Notes, such that no payments on account of principal shall be made with respect to the Class B-2 Notes until the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes have been paid in full (except as may otherwise be required in connection with a Waiver Event). The Class B-3 Notes will be subordinated to the Class A-4 Notes, such that no payments on account of principal shall be made with respect to the Class B-3 Notes until the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes have been paid in full (except as may otherwise be required in connection with a Waiver Event); provided, however, that with respect to (x) allocations and payments on account of principal during a Series 1996-1 Rapid Amortization Period, and (y) allocation of Losses and Recoveries at any time, all of the Class B Notes will be subordinated to the Class A Notes, as specified herein. ARTICLE 4 AMORTIZATION EVENTS In addition to the Amortization Events set forth in Section 9.1 of the Base Indenture, the following shall be Amortization Events with respect to the Series 1996-1 Notes (without notice or other action on the part of the Trustee or any Series 1996-1 Noteholders) and shall not be waived by the Trustee without the prior written consent of each Series 1996-1 Noteholder: (a) a Series 1996-1 Enhancement Deficiency or Series 1996-1 Minimum Overcollateralization Deficit shall occur and continue for at least two (2) Business Days; provided, however, that such event or condition shall not be an Amortization Event if (i) during such two (2) Business -76- 80 Day period the Lessee shall have increased the Letter of Credit Amount or NFLP shall have contributed to the Series 1996-1 Excess Funding Account funds to increase the Series 1996-1 Available Subordinated Amount, in either case, so that there no longer exists a Series 1996-1 Enhancement Deficiency or Series 1996-1 Minimum Overcollateralization Deficit and (ii) the amount of any increase in the Letter of Credit Amount pursuant to clause (i) and any amount contributed to the Series 1996-1 Excess Funding Account pursuant to clause (i) above, together with all previous increases in the Letter of Credit Amount pursuant to clause ~ above and contributions to the Series 1996-1 Excess Funding Account made pursuant to clause (i) above or otherwise made to increase the Letter of Credit Amount or the Series 1996-1 Available Subordinated Amount, does not exceed the Series 1996-1 Available Subordinated Amount Maximum Increase; (b) at any time prior to the funding of the Cash Collateral Account pursuant to Section 3.9 of this Supplement, the Letter of Credit shall not be in full force and effect; (c) from and after the funding of the Cash Collateral Account pursuant to Section 3.9 of this Supplement, the Cash Collateral Account shall be subject to an injunction, estoppel or other stay or a Lien (other than Liens permitted under the Related Documents); (d) unless (i) (A) the inclusion of the Letter of Credit Amount in the Enhancement Amount is not necessary for the Enhancement Amount to equal or exceed the Required Enhancement Amount and (B) the inclusion of the Letter of Credit Amount in the Class B Enhancement Amount is not necessary for the Class B Enhancement Amount to equal or exceed the Minimum Class B Enhancement Amount, or (ii) the Cash Collateral Account shall theretofore have been funded to the full extent required hereunder and under the Letter of Credit Reimbursement Agreement, an Event of Bankruptcy shall have occurred with respect to the Letter of Credit Provider or the Letter of Credit Provider repudiates the Letter of Credit or refuses to honor a proper draw thereon; and (e) all principal and interest of the Class A-1 Notes is not paid in full on or before the Class A-1 Expected Final Distribution Date, all principal and interest in respect of the Class A-2 Notes is not paid in full on or before the Class A-2 Expected Final Distribution Date, all principal and interest of the Class A-3 Notes is not paid in -77- 81 full on or before the Class A-3 Expected Final Distribution Date, all principal and interest in respect of the Class A-4 Notes is not paid in full on or before the Class A-4 Expected Final Distribution Date, all principal and interest in respect of the Class B-1 Notes is not paid in full on or before the Class B-1 Expected Final Distribution Date, all principal and interest in respect of the Class B-2 Notes is not paid in full on or before the Class B-2 Expected Final Distribution Date or all principal and interest in respect of the Class B-3 Notes is rot paid in full on or before the Class B-3 Expected Final Distribution Date. ARTICLE 5 RIGHT TO WAIVE MAXIMUM NON-PROGRAM VEHICLE AMOUNT AND MAXIMUM MANUFACTURER AMOUNT Section 5.1 Request for Waiver. (a) Notwithstanding any provision to the contrary in the Indenture or the Related Documents, upon the Trustee's receipt of notice from National or NFLP to the effect that a Manufacturer Program is no longer an Eligible Manufacturer Program and that, as a result, the Maximum Non-Program Vehicle Amount and/or the Maximum Manufacturer Amount is or will be exceeded (such notice, a "Waiver Request"), each Series 1996-1 Noteholder may, at its option, waive the Maximum Non-Program Vehicle Amount and/or the Maximum Manufacturer Amount if (i) no Amortization Event exists and (ii) the Requisite Series 1996-1 Noteholders consent to such waiver. (b) From and after the Consent Period Expiration Date (provided that the Series 1996-1 Rapid Amortization Period has not theretofore commenced and is continuing), all Series 1996-1 Principal Allocations allocated to the Series 1996-1 Excess Funding Account and all Series 1996-1 Available Subordinated Amount Allocations (collectively, the "Designated Amounts") will be held by the Trustee in the Series 1996-1 Collection Account for ratable distribution as described below. (c) Within ten (10) Business Days after the Trustee receives a Waiver Request, the Trustee shall furnish notice thereof to the Series 1996-1 Noteholders, which notice shall be accompanied by a form of consent (each a "Consent") in the form of Exhibit C, by which the Series 1996-1 Noteholders may, on or before the Consent Period Expiration Date, consent to waiver of the Maximum Non-Program Vehicle Amount and/or the Maximum Manufacturer Amount, as applicable. If the Trustee receives Consents from the Requisite Series 1996-1 Noteholders agreeing to waiver of the Maximum Non-Program Vehicle Amount and/or the -78- 82 Maximum Manufacturer Amount, as applicable, within forty-five (45) days after the Trustee notifies the Series 1996-1 Noteholders of a Waiver Request (the day on which such forty-five (45) day period expires, the "Consent Period Expiration Date"), (i) the Maximum Non-Program Vehicle Amount and/or the Maximum Manufacturer Amount, as applicable, shall be deemed waived by the consenting Series 1996-1 Noteholders, (ii) the Trustee will distribute the Designated Amounts as set forth below and (iii) the Trustee shall promptly (but in any event within two days) provide each Rating Agency with notice of such waiver. Any Class A or Class ~ Noteholder from whom the Trustee has not received a Consent on or before the Consent Period Expiration Date will be deemed not to have consented to such waiver of the requirements of the Maximum Non-Program Vehicle Amount and/or the Maximum Manufacturer Amount, as applicable. Section 5.2 Consents. (a) If the Trustee receives Consents from the Requisite Series 1996-1 Noteholders on or before the Consent Period Expiration Date and a Waiver Deficiency exists, then the Class A Noteholders that consent to waive will (as described in the following two paragraphs) receive early prepayment (in part) of the principal amount of their Notes (such prepayment to be paid to each such Class A Noteholder pro rata in the ratio that the aggregate principal amount of Class A Notes held by such consenting Class A Noteholder bears to the aggregate principal amount of all Class A Notes held by all consenting Class A Noteholders) until the Waiver Deficiency no longer exists (such prepayments, "Class A Waiver Deficiency Adjustment Prepayments"). (b) If the Trustee receives Consents from the Requisite Series 1996-1 Noteholders on or before the Consent Period Expiration Date, then (whether or not a Waiver Deficiency exists) on the immediately following Distribution Date, the Trustee will pay the Designated Amounts as follows: (i) to the non-consenting Class A Noteholders, any, pro rata up to the amount required to pay all Class A Notes held by such non-consenting Class A Noteholders in full; (ii) any remaining Designated Amounts, to the consenting Class A Noteholders, if any, pro rata up the amount required to pay all Class A Waiver Deficiency Adjustment Prepayments, if any, in full; (iii) any remaining Designated Amounts, to the non-consenting Class B Noteholders, if any, pro rata up to the amount required to pay all Class B Notes held by such non-consenting Class B Noteholders in full; and -79- 83 (iv) any remaining Designated Amounts, to the Series 1996-1 Excess Funding Account. (c) If the amounts paid pursuant to clauses (i), (ii) or (iii) of Section 5.2(b) are insufficient to pay in full all non-consenting Class A Noteholders, Waiver Deficiency Adjustment Prepayments or non-consenting Class B Noteholders, then on each day following such Distribution Date, the Servicer will allocate to the Series 1996-1 Collection Account on a daily basis all Designated Amounts collected on such day. On each following Distribution Date, the Trustee will withdraw a portion of such Designated Amounts from the Series 1996-1 Collection Account and deposit the same in the Class A Distribution Account and, to the extent the Designated Amounts available exceed the amounts required to be distributed to the Class A Noteholders, in the Class B Distribution Account, for distribution as follows: (i) to the non-consenting Class A Noteholders, if any, pro rata an amount equal to the sum of (1) the Class A Invested Percentage of the Designated Amounts in the Series 1996-1 Collection Account as of the applicable Determination Date plus (2) the Class B Invested Percentage of the Designated Amounts in the Series 1996-1 Collection Account as of the applicable Determination Date, plus (3) the Series 1996-1 Available Subordinated Amount Percentage of the Designated Amounts in the Series 1996-1 Collection Account as of the applicable Determination Date (each of such invested percentages and available subordinated amount percentages determined as during a Rapid Amortization Period, but, if the Waiver Event has occurred during the Revolving Period, determined by reference to the invested amounts and the Series 1996-1 Available Subordinated Amount as of the close of business on the Consent Period Expiration Date) up to the AGGREGATE OUTSTANDING PRINCIPAL BALANCE of the Class A Notes held by the non-consenting Class A Noteholders; (ii) any remaining Designated Amounts, to the consenting Class A Noteholders, if any, pro rata an amount equal to the sum of (1) the Class A Invested Percentage of the Designated Amounts remaining after payment of the amounts required in clause (i) above as of the applicable Determination Date plus (2) the Class B Invested Percentage of such Designated Amounts remaining after payment of the amounts required in clause (i) above as of the applicable Determination Date, plus (3) the Series 1996-1 Available Subordinated Amount percentage of the Designated Amounts remaining -80- 84 after payment of the amounts required in clause (i) above as of the applicable Determination Date (each of such invested percentages determined as during a Rapid Amortization Period, but, if the Waiver Event has occurred during the Revolving Period, determined by reference to the invested amounts and the Series 1996-1 Available Subordinated Amount as of the close of business on the Consent Period Expiration Date) up to the amount required to pay any Class A Waiver Deficiency Adjustment Prepayments in full; (iii) any remaining Designated Amounts, to the non-consenting Class B Noteholders, if any, pro rata an amount equal to the sum of (1) the Class A Invested Percentage of the Designated Amounts remaining after payment of the amounts required in clauses (i) and (ii) above as of the applicable Determination Date plus (2) the Class B Invested Percentage of such Designated Amounts remaining after payment of the amounts required in clauses (i) and (ii) above as of the applicable Determination Date, plus (3) the Series 1996-1 Available Subordinated Amount Percentage of the Designated Amounts remaining after payment of the amounts required in clauses (i) and (ii) above as of the applicable Determination Date (each of such invested percentages and available subordinated amount percentages determined as during a Rapid Amortization Period, but, if the Waiver Event has occurred during the Revolving Period, determined by reference to the invested amounts and the Series 1996-1 Available Subordinated Amount as of the close of business on the Consent Period Expiration Date) up to the aggregate outstanding principal balance of the Class B Notes held by the non-consenting Class B Noteholders; and (iv) any remaining Designated Amounts, to the Series 1996-1 Excess Funding Account. If the Requisite Series 1996-1 Noteholders do not timely consent to such waiver, the Designated Amounts will be allocated to the Series 1996-1 Excess Funding Account. -81- 85 ARTICLE 6 FORM OF SERIES 1996-1 NOTES Section 6.1 Class A Notes. (a) Restricted Global Class A Note. Class A Notes to be issued in the United States will be issued in book-entry form of and represented by a Restricted Global Class A Note, substantially in the form of Exhibit A-1, Exhibit A-2, Exhibit A3, or Exhibit A-4 (as applicable) appended hereto, with such legends as may be applicable thereto as set forth in the Base Indenture, and will be sold initially to institutional accredited investors within the meaning of Regulation D under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act and thereafter to qualified institutional buyers within the meaning of, and in reliance on, Rule 144A under the Securities Act and shall be deposited on behalf of the purchasers of the Class A Notes represented thereby, with a custodian for DTC, and registered in the name of Cede as DTC's nominee, duly executed by NFLP and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. (b) Temporary Global Class A Note: Permanent Global Class A Note. Class A Notes to be issued outside the United States will be issued and sold in transactions outside the United States in reliance on Regulation S under the Securities Act, as provided in the applicable placement agreement, and shall initially be issued in the form of a Temporary Global Class A Note, substantially in the form of Exhibit A-5, Exhibit A-6, Exhibit A-7 or Exhibit A-8 (as applicable) appended hereto, which shall be deposited on behalf of the purchasers of the Class A Notes represented thereby with a custodian for, and registered in the name of a nominee of DTC, for the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear and for Cedel, duly executed by NFLP and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. Interests in a Temporary Global Class A Note will be exchangeable, in whole or in part, for interests in Permanent Global Class A Note, substantially in the form of Exhibit A-9, Exhibit A-10, Exhibit A-ll, or Exhibit A-12 (as applicable) appended hereto, in accordance with the provisions of such Temporary Global Class A Note and the Base Indenture (as modified by this Supplement). Interests in a Permanent Global Class A Note will be exchangeable for definitive Class A Notes in accordance with the provisions of such Permanent Global Class A Note and the Base Indenture (as modified by this Supplement). -82- 86 Section 6.2 Class B Notes. (a) Restricted Global Class B Note. Class B Notes to be issued in the United States will be issued in book-entry form of and represented by a Restricted Global Class B Note, substantially in the form of Exhibit B-1, Exhibit B-2 or Exhibit B-3 (as applicable) appended hereto, with such legends as may be applicable thereto as set forth in the Base Indenture, and will be sold initially to institutional accredited investors within the meaning of Regulation D under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act and thereafter to qualified institutional buyers within the meaning of, an in reliance on, Rule 144A under the Securities Act and shall be deposited on behalf of the purchasers of the Class B Notes represented thereby, with a custodian for DTC, and registered in the name of Cede as DTC's nominee, duly executed by NFLP and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. (b) Temporary Global Class B Note: Permanent Global Class B Note. Class B Notes to be issued outside the United States will be issued and sold in transactions outside the United States in reliance on Regulation S under the United States Securities Act, as provided in the applicable placement agreement, and shall initially be issued in a form of Temporary Global Class B Note, substantially in the form of Exhibit B-4, Exhibit B-5, or Exhibit B-6 (as applicable) appended hereto, which shall be deposited on behalf of the purchasers of the Class B Notes represented thereby with a custodian for, and registered in the name of a nominee of, DTC, for the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear and for Cedel, duly executed by NFLP and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. Interests in a Temporary Global Class B Note will be exchangeable, in whole or in part, for interests in a Permanent Global Class B Note, substantially in the form of Exhibit B-7, Exhibit B-8 or Exhibit B-9 (as applicable) appended hereto, in accordance with the provisions of such Temporary Global Class B Note and the Base Indenture (as modified by this Supplement). Interests in a Permanent Global Class B Note will be exchangeable for definitive Class B Notes in accordance with the provisions of such Permanent Global Class B Note and the Base Indenture. -83- 87 ARTICLE 7 GENERAL Section 7.1 Optional Repurchase. Class A Notes and Class B Notes shall be subject to repurchase in whole, but not in part, by NFLP at its option in accordance with Section 6.3 of the Base Indenture, as follows: (a) with respect to the Class A Notes, on any Distribution Date on or after which the Class A Principal Balance is reduced to an amount less than or equal to 10` of the Class A Initial Invested Amount (the "Class A Repurchase Amount"), and with respect to the Class B Notes, on any Distribution Date on or after which the Class A Notes have been paid in full and the Class B Principal Balance has been reduced to an amount less than or equal to 10` of the Class B Initial Invested Amount (the "Class B Repurchase Amount") (such Distribution Date, a "Repurchase Date"). The repurchase price for the Class A Notes shall equal the Class A Principal Balance (determined after giving effect to any payments of principal and interest on such Distribution Date), plus accrued and unpaid interest on such outstanding Class A Principal Balance. The repurchase price for the Class B Notes shall equal the Class B Principal Balance (determined after giving effect to any payments of principal and interest on such Distribution Date), plus accrued and unpaid interest on such outstanding Class B Principal Balance. (b) A prepayment premium (the "Series 1996-1 Note Prepayment Premium") will be payable to the Series 1996-1 Noteholders upon (i) any repurchase of the Series 1996-1 Notes by NFLP other than as described in Section 7.1(a) and (ii) a prepayment in connection with a Waiver Request made other than by reason of a Manufacturer Event of Default or the unavailability of sufficient Vehicles subject to an Eligible Manufacturer Program. The Series 1996-1 Note Prepayment Premium with respect to the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class B-1 Notes, Class B-2 Notes and Class B-3 Notes will be the excess, if any, of (A) the amount of interest that would have accrued on such repurchased Series 1996-1 Notes at the Class A-2 Rate, Class A-3 Rate, Class A-4 Rate, Class B-1 Rate, Class B-2 Rate or Class B-3 Rate (as applicable) during the period from and including the Distribution Date on which the repurchase price for such Series 1996-1 Notes is required to be distributed to such Series 1996-1 Noteholders to but excluding the Expected Final Distribution Date for the Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class B-1 -84- 88 Notes, Class B-2 Notes, and Class B-3 Notes (taking account of the scheduled reductions in the aggregate principal balance of such Class A Notes and Class B Notes during the related Series 1996-1 Controlled Amortization Period), over (B) the amount of interest that would have accrued on an amount equal to the Principal Balance (taking account of the scheduled reductions in such aggregate principal balance during the related Series 1996-1 Controlled Amortization Period) of the repurchased Series 1996-1 Notes over the same period at an annual interest rate equal to the yield to maturity on the Determination Date preceding such Distribution Date on (1) in the case of the Class A-2 Notes, the 6-1/2% United States Treasury Notes maturing April 1999, (2) in the case of the Class A-3 Notes, the 5-5/8% United States Treasury Notes maturing February 2001, (3) in the case of the Class A-4 Notes, the 6-1/4% Treasury Notes due February 2003 and (4) in the case of the Class B-1 Notes, the 6-7/8% United States Treasury Notes maturing August 1999, (5) in the case of the Class B-2 Notes, the 7-7/8% United States Treasury Notes maturing August 2001 and (6) in the case of the Class B-3 Notes, the 5-3/4% United States Treasury Notes maturing August 2003. Such excess, if any, will be discounted to present value as of such Distribution Date at the related yield described in subclause (B) above. (c) The Series 1996-1 Note Prepayment Premium in respect of the Class A-1 Notes will equal the amount of interest that would have accrued on the aggregate principal balance of the Class A-1 Notes for the period commencing on the Distribution Date on which the repurchase price for the Class A-1 Notes to be distributed to the Class A-1 Noteholders and ending on the Expected Final Distribution Date applicable to the Class A-1 Notes, at a rate of interest equal to 0.5t discounted to present value at an interest rate per annum equal to the corporate bond equivalent yield to maturity on the Determination Date preceding such Distribution Date on the 6-1/2% United States Treasury Notes maturing April 1999. Section 7.2 Conditions to Exchanges. During the Series 1996-1 Controlled Amortization Period, neither NFLP nor the Servicer shall have any authority to release the Lien of the Master Collateral Agent on any Designated Vehicle pursuant to Section 3.4(b) of the Base Indenture unless on such day there are funds on deposit in the Series 1996-1 Excess Funding Account in an amount equal to or greater than the Series 1996-1 Liquidity Amount. -85- 89 Section 7.3 Minimum Overcollateralization. NFLP agrees and covenants with the Trustee that it shall not permit the sum of (a) the Overcollateralization Portion on any day plus (b) the Additional Overcollateralization Amount on such day to be less than an amount equal to 4.0% of the sum of (x) the Class A Invested Amount on such day plus (y) the Class B Invested Amount on such day. Section 7.4 Maintenance of Rating; Payment of Rating Agency Fees. NFLP agrees and covenants with the Trustee to use commercially reasonable efforts to maintain the initial rating of the 1996-1 Notes issued by any Rating Agency. NFLP agrees and covenants with National and the Trustee to pay all reasonable fees and expenses of the Rating Agency and to promptly provide all documents and other information that the Rating Agency may reasonably request. Section 7.5 Exhibits. The following exhibits attached hereto supplement the exhibits included in the Indenture: Exhibit A-1: Form of Restricted Global Class A-1 Note Exhibit A-2: Form of Restricted Global Class A-2 Note Exhibit A-3: Form of Restricted Global Class A-3 Note Exhibit A-4: Form of Restricted Global Class A-4 Note Exhibit A-5: Form of Temporary Global Class A-1 Note Exhibit A-6: Form of Temporary Global Class A-2 Note Exhibit A-7: Form of Temporary Global Class A-3 Note Exhibit A-8: Form of Temporary Global Class A-4 Note Exhibit A-9: Form of Permanent Global Class A-1 Note Exhibit A-10: Form of Permanent Global Class A-2 Note Exhibit A-11: Form of Permanent Global Class A-3 Note Exhibit A-12: Form of Permanent Global Class A-4 Note Exhibit B-1: Form of Restricted Global Class B-1 Note Exhibit B-2: Form of Restricted Global Class B-2 Note Exhibit B-3: Form of Restricted Global Class B-3 Note Exhibit B-4: Form of Temporary Global Class B-1 Note Exhibit B-5: Form of Temporary Global Class B-2 Note Exhibit B-6: Form of Temporary Global Class B-3 Note Exhibit B-7: Form of Permanent Global Class B-1 Note Exhibit B-8: Form of Permanent Global Class B-2 Note Exhibit B-9: Form of Permanent Global Class B-3 Note Exhibit C: Form of Consent Section 7.6 Ratification of Base Indenture. As supplemented by this Supplement, the Base Indenture is in all respects ratified and confirmed and the Base Indenture as so supplemented by this Supplement shall be read, taken, and construed as one and the same instrument. -86- 90 Section 7.7 Counterparts. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Section 7.8 Governing Law. This Supplement shall be construed in accordance with the law of the State of New York (without giving effect to the provisions thereof regarding conflicts of laws), and the obligations, rights and remedies of the parties hereto shall be determined in accordance with such law. Section 7.9 Amendments. This Supplement may be modified or amended from time to time in accordance with the terms of the Base Indenture; provided, however, that the consent of the Support Credit Enhancer shall be required for any amendment to this Indenture or the Lease which modifies the definition of "Lease Event of Default", "Series 1996-1 Lease Payment Deficit", "Rent", "Monthly Base Rent", "Monthly Variable Rent" or "Monthly Supplemental Rent", or any amendment that affects the conditions for, or the method of, drawing on the Letter of Credit; provided, however, that if, pursuant to the terms of the Base Indenture or this Supplement, the consent of the Required Noteholders is required for an amendment or modification of this Supplement, such requirement shall be satisfied if such amendment or modification is consented to by Noteholders representing more than 50% of the Series 1996-1 Principal Balance; Provided, further, however, if the consent the Required Noteholders is required for an amendment or modification of this Supplement that (a) affects only the Class A-1 Notes (and does not affect in any material respect the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes or the Class B Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class A-1 Noteholders representing more than 50% of the aggregate outstanding principal amount of the Class A-1 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes or the Class B Notes), (b) affects only the Class A-2 Notes (and does not affect in any material respect the Class A-1 Notes, the Class A-3 Notes, the Class A-4 Notes or the Class B Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class A-2 Noteholders representing more than 50% of the aggregate outstanding principal amount of the Class A-2 necessity of obtaining the consent of the Required Noteholders respect of the Class A-1 Notes, the Class A-3 Notes, the Class A-4 Notes or the Class B Notes), (c) affects only the -87- 91 Class A-3 Notes (and does not affect in any material respect the Class A-1 Notes, the Class A-2 Notes, the Class A-4 Notes or the Class B Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class A-3 Noteholders representing more than 50% of the aggregate outstanding principal amount of the Class A-3 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A-1 Notes, the Class A-2 Notes, the Class A-4 Notes or the Class B Notes), (d) affects only the Class A-4 Notes (and does not affect in any material respect the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class B Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class A-4 Noteholders representing more than 50` of the aggregate outstanding principal amount of the Class A-4 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes or the Class B Notes), (e) affects only the Class A Notes (and does not affect in any material respect the Class B Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class A Noteholders representing more than 50% of the Class A Principal Balance (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class B Notes), (f) affects only the Class B-1 Notes (and does not affect in any material respect the Class A Notes, the Class B-3 Notes or the Class B-2 Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class B-1 Noteholders representing more than 50` of the aggregate outstanding principal amount of the Class B1 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A, the Class B-2 Notes or the Class B-3 Notes), (g) affects only the Class B-2 Notes (and does not affect in any material respect the Class A Notes, the Class B-1 Notes or the Class B-3 Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class B-2 Noteholders representing more than 50% of the aggregate outstanding amount of the Class B-2 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A Notes, the Class B-1 Notes or the Class B-3 Notes), (h) affects only the Class B-3 Notes (and does not affect in any material respect the Class A Notes, the Class B-1 Notes or the Class B-2 Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class B-3 Noteholders representing more than 50` of the aggregate -88- 92 outstanding principal amount of the Class B-3 Notes (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A Notes, the Class E-1 Notes or the Class B-2 Notes) or (i) affects only the Class B Notes (and does not affect in any material respect the Class A Notes, as evidenced by an Opinion of Counsel to such effect), then such requirement shall be satisfied if such amendment or modification is consented to by Class B Noteholders representing more than 50\ of the Class B Principal Balance (without the necessity of obtaining the consent of the Required Noteholders in respect of the Class A Notes). Section 7.10 Discharge of Indenture. Notwithstanding anything to the contrary contained in the Base Indenture, no discharge of the Indenture pursuant to Section ll.l(b) of the Base Indenture will be effective as to the Series 1996-1 Notes without the consent of the Required Noteholders of the Series 1996-1 Notes. Section 7.11 Inspection of Property. Books and Records. At the written request of Series 1996-1 Noteholders evidencing 10% or more of the Series 1996-1 Invested Amount (which request shall specify the matters to be investigated with reasonable specificity), but in no event more than semi-annually, the Trustee shall investigate such matters as permitted under Section 8.8 of the Base Indenture. -89- 93 IN WITNESS WHEREOF, NFLP and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ ---------------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee By: /s/ -------------------------------------- Name: Title: EX-4.3 4 SUPPLEMENT & AMENDMENT TO BASE INDENTURE 12/20/96 1 Exhibit 4.3 SUPPLEMENT AND AMENDMENT TO BASE INDENTURE, dated as of December 20, 1996 (this "Amendment"), between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership ("NFLP"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"), to the Base Indenture, dated as of April 30, 1996, between NFLP and the Trustee (the "Base Indenture"). PRELIMINARY STATEMENTS WHEREAS, NFLP and the Trustee have entered into that certain Series 1996-2 Supplement, dated as of December 20, 1996 (the "Series 1996-2 Supplement"), to the Base Indenture, creating the Floating Rate Rental Car Asset Backed Variable Funding Note, Series 1996-2 (the "Series 1996-2 Note"), which Series is a Segregated Series of Notes; and WHEREAS, Section 2.3(b)(ii)(I) of the Base Indenture provides that in connection with the issuance of a Segregated Series of Notes, amendments will be made to the Base Indenture and the other Related Documents, if necessary, to provide for the creation of such Segregated Series; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. Capitalized terms used but not defined in this Amendment, including the preamble and the recitals (WHEREAS clauses) hereof, shall have the meanings assigned to such term in the Base Indenture. SECTION 2. Amendments to Base Indenture. The Base Indenture is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) Clause (x) of Section 2.2(f)(i) of the Base Indenture is amended in its entirety to read as follows: "(x) the new Series of Notes will be treated as indebtedness of NFLP (or, in the case of the Series 1996-2 Note, indebtedness of NFLP or National) for Federal and Minnesota state income tax purposes and". 2 2 (b) Section 2.3(b)(i) of the Base Indenture is amended by adding after the proviso thereto the following additional proviso: "; provided, further, however, that no Series of Shared Collateral Series Notes (as defined in the Series 1996-2 Supplement) may be issued unless, in addition to the other conditions set forth in this Section 2.3 and otherwise in this Indenture, the NFC Collateral Agent, the Liquidity Agent and each Series 1996-2 Support Credit Enhancer (in each case as defined in the Series 1996-2 Supplement) shall have (A) received an Opinion of Counsel, in a form substantially acceptable to the NFC Collateral Agent, the Liquidity Agent and each Series 1996-2 Support Credit Enhancer, dated the applicable Closing Date, to the effect that such issuance will not have a material adverse effect upon the Series 1996-2 Note, or any other Noteholder of any Shared Collateral Series Notes, or any assignee of any thereof, and (B) consented in writing to such issuance." (c) Section 2.5 of the Base Indenture is amended in its entirety to read as follows: "Section 2.5. Form of Notes; Book Entry Provisions; Title. (a) Restricted Global Note. Any Series of Notes (other than Variable Funding Notes), or any class of such Series to be issued in the United States will be in registered form and sold initially to institutional accredited investors within the meaning of Regulation D under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act and thereafter to qualified institutional buyers within the meaning of, and in reliance on, Rule 144A under the Securities Act ("Rule 144A") as provided in the applicable Supplement and shall be issued in the form of and represented by one or more permanent global Notes in fully registered form without interest coupons (each, a "Restricted Global Note"), substantially in the form set forth in the applicable Supplement, with such legends as may be applicable thereto, which shall be deposited on behalf of the subscribers for the Notes represented thereby with a custodian for DTC, and registered in the name of DTC or a nominee of DTC, duly executed by NFLP and authenticated by the Trustee as provided in Section 2.4 for credit to the accounts of the subscribers at DTC. The aggregate initial principal amount of a Restricted Global Note may from time to time be increased or decreased by adjustments made on the records of the custodian for DTC, DTC or its nominee, as the case may be, as hereinafter provided. (b) Temporary Global Note; Permanent Global Note. Any Series of Notes (other than Variable Funding Notes), or any class of such Series, offered and sold outside of the United States will be offered and sold in reliance on Regulation S ("Regulation S") under the Securities Act and shall initially be issued in the form of 3 3 one or more temporary global Notes (each, a "Temporary Global Note") in fully registered form without interest coupons substantially in the form set forth in the applicable Supplement with such legends as may be applicable thereto, registered in the name of DTC or a nominee of DTC, duly executed by NFLP and authenticated by the Trustee as provided in Section 2.4, for credit to the subscribers' accounts at Morgan Guaranty Trust Company of New York, Brussels Office, as operator of Euroclear or Cedel. Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global note (a "Permanent Global Note") in fully registered form without interest coupons, representing Notes of the same Series, substantially in the form set forth in the applicable Supplement, in accordance with the provisions of the Temporary Global Note and this Indenture. Until the Exchange Date, interests in a Temporary Global Note may only be held by the agent members of Euroclear and Cedel. The aggregate initial principal amount of the Temporary Global Note and the Permanent Global Note may from time to time be increased or decreased by adjustments made on the records of the custodian for DTC, DTC or its nominee, as the case may be, as hereinafter provided. (c) Variable Funding Note. Any Series of Variable Funding Notes shall initially be sold to investors in reliance on an exemption from the registration requirements of the Securities Act. Such Series of Notes shall be issued in the form of one or more Variable Funding Notes (each, a "Variable Funding Note") in fully registered form without interest coupons substantially in the form set forth in the applicable Supplement with such legends as may be applicable thereto, duly executed by NFLP and authenticated by the Trustee as provided in Section 2.4. The aggregate initial principal amount of a Variable Funding Note may from time to time be increased or decreased in accordance with the applicable Supplement by adjustments made on the records of the Note Register." (d) Section 2.9(a) of the Base Indenture is amended by renumbering clause (vii) thereof as clause (viii), and by adding immediately prior to such clause (viii) a new clause (vii) to read as follows: "(vii) Transfers of Variable Funding Notes. The Variable Funding Notes shall not be transferable except in the limited circumstances, if any, described in the applicable Supplement; provided, however, that the Variable Funding Note issued under the Series 1996-2 Supplement may be pledged as security (and transferred) in accordance with the terms of the NFC Collateral Agreement and the Related Documents." 4 4 (e) Section 2.10 of the Base Indenture is amended in its entirety to read as follows: "Section 2.10. Legending of Notes. (a) Unless otherwise provided for in a Supplement and except as permitted by the following sentence, in addition to any legend required by Section 2.16, each Note (other than any Variable Funding Note) shall bear a legend in substantially the following form: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES OR "BLUE SKY" LAWS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP (THE "ISSUER") THAT THIS CLASS A-1 NOTE IS BEING ACQUIRED FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER (UPON REDEMPTION THEREOF OR OTHERWISE), (2) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (3) OUTSIDE THE UNITED STATES TO A NON U.S. PERSON (AS DEFINED IN REGULATION S OF THE SECURITIES ACT) IN A TRANSACTION IN COMPLIANCE WITH REGULATION S OF THE SECURITIES ACT, OR (4) IN A TRANSACTION COMPLYING WITH OR EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE RESALE RESTRICTIONS SET FORTH ABOVE. Upon any transfer, exchange or replacement of Notes bearing such legend, or if a request is made to remove such legend on a Note, the Notes so issued shall bear such legend, or such legend shall not be removed, as the case may be, unless there is delivered to NFLP and the Trustee or the Luxembourg Agent, if the Notes are listed on the Luxembourg Exchange, such satisfactory evidence, which may include an opinion of counsel, as may be reasonably required by NFLP that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A, Rule 144 or Regulation S. Upon provision of such satisfactory evidence, the Trustee, at the direction of NFLP, shall authenticate and deliver a Note that does not bear such legend. 5 5 (b) Unless otherwise provided for in a Supplement, each Variable Funding Note shall bear a legend in substantially the following form: THIS VARIABLE FUNDING NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES OR "BLUE SKY" LAWS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP (THE "COMPANY") THAT THIS NOTE IS BEING ACQUIRED FOR ITS ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION. THIS VARIABLE FUNDING NOTE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE INDENTURE REFERRED TO HEREIN." (f) Section 2.16(a) of the Base Indenture is amended by adding after the words "For each Series of Notes to be issued in registered form" at the beginning thereof the parenthetical "(other than any Variable Funding Notes)". (g) Section 6.1(c) of the Base Indenture is amended in its entirety to read as follows: "(c) Unless otherwise specified in the applicable Supplement, amounts distributable to a Noteholder pursuant to this Section 6.1 shall be payable by check mailed first-class postage prepaid to such Noteholder at the address for such Noteholder appearing in the Note Register except that with respect to (i) Notes registered in the name of a Clearing Agency or its nominee, such amounts shall be payable by wire transfer of immediately available funds released by the Paying Agent from the Distribution Account no later than 2:00 p.m. (New York City time) for credit to the account designated by such Clearing Agency or its nominee, as applicable, or (ii) any Series of Segregated Notes, such amounts shall be payable by wire transfer of immediately available funds released by the Paying Agent from the Distribution Account no later than 2:00 p.m. (New York City time) for credit to the account designated by or on behalf of each Noteholder thereof or its nominee, as applicable." (h) Section 7.15 of the Base Indenture is amended in its entirety to read as follows: "Section 7.15. Binding Effect of Lease. In the case of each Series of Notes, the Lease applicable thereto is in full force and effect and there is no existing Lease Event of Default or Manufacturer Event of Default thereunder nor has any event 6 6 occurred which with the giving of notice, the passage of time or both would constitute a Lease Event of Default or Manufacturer Event of Default." (i) Section 8.3 of the Base Indenture is amended by: (i) amending subsection (a) thereof by adding after the words "Section 24.6(i) of the Lease" at the end thereof the words "or, in the case of the Series 1996-2 Lease, Section 24.7(i) thereof", (ii) amending subsection (b) thereof by adding after the words "Section 24.6(ii) of the Lease" at the end thereof the words "or, in the case of the Series 1996-2 Lease, Section 24.7(ii) thereof", (iii) amending subsection (c) thereof by adding after the words "Section 24.6(vi) of the Lease" at the end thereof the words "or, in the case of the Series 1996-2 Lease, Section 24.7(vi) thereof", (iv) amending subsections (d), (e) and (f) thereof by adding after the words "of the Lease" at the end thereof the words "other than in the case of the Series 1996-2 Lease", and (v) amending subsection (g) thereof by adding after the words "Section 24.6(xii) of the Lease" at the end thereof the words "or, in the case of the Series 1996-2 Lease, Section 24.7(xi) thereof". (j) Section 8.14(a) of the Base Indenture is amended in its entirety to read as follows: "(a) Prior to acquiring or financing the acquisition of any Program Vehicles under any Lease for any model year after the 1996 model year, (i) NFLP will have received an executed Assignment Agreement with respect to National's rights under such Manufacturer Program for such model year (to the extent National will be acquiring Financed Vehicles (other than Texas Vehicles) under such Lease under such Manufacturer Program), (ii) NFLP shall have delivered an executed Assignment Agreement with respect to NFLP's rights under such Manufacturer Program for such model year, (iii) if any series of Notes or, in the case of the Series 1996-2 Note, any Commercial Paper Notes are then being rated by Standard & Poor's and/or Duff & Phelps and/or Moody's, NFLP shall have received a written confirmation from Standard & Poor's and/or Duff & Phelps and/or Moody's, as applicable, that the acquisition of Vehicles pursuant to such Manufacturer Program will not result in the reduction or withdrawal of any rating issued by Standard & Poor's and/or Duff & Phelps and/or Moody's, as applicable, in respect of any outstanding Series of Notes 7 7 or any outstanding Commercial Paper Notes and (iv) if there is a material change to a Manufacturer Program during a model year, NFLP shall have received written confirmation from Standard & Poor's and/or Duff & Phelps and/or Moody's, as applicable, that the acquisition of Vehicles pursuant to such Manufacturer Program will not result in the reduction or withdrawal of any rating issued by Standard & Poor's and/or Duff & Phelps and/or Moody's, as applicable, in respect of any outstanding Series of Notes or any outstanding Commercial Paper Notes. A copy of the rating confirmations set forth in clauses (iii) and (iv) will promptly be delivered to the Trustee for delivery to the Noteholders of any outstanding Series of Notes." (k) Section 8.18 of the Base Indenture is amended in its entirety to read as follows: "Section 8.18. Sales of Assets. NFLP will not sell, lease, transfer, liquidate or otherwise dispose of any Assets, except as contemplated by the Related Documents and provided that the proceeds received by NFLP are paid directly to the Collection Account to which such proceeds are applicable or the Master Collateral Account or deposited by NFLP into the Collection Account to which such proceeds are applicable or the Master Collateral Account within 2 Business Days after receipt thereof by NFLP (except that amounts payable to NFLP with respect to Exchanged Vehicles by the related Manufacturer under its Manufacturer Program shall be paid into the Exchange Account)." (l) Section 8.21 of the Base Indenture is amended in its entirety to read as follows: "Section 8.21. Name; Principal Office. NFLP will neither (a) change the location of its chief executive office or principal place of business (within the meaning of the applicable UCC) without sixty (60) days' prior notice to the Trustee, the Master Collateral Agent and the Rating Agencies nor (b) change its name without prior notice to the Trustee, the Master Collateral Agent and the Rating Agencies sufficient to allow the Trustee and the Master Collateral Agent to make all filings (including filings of financing statements on form UCC-1) and recordings necessary to maintain the perfection of the interest of the Trustee in the Collateral pursuant to this Indenture and the perfection of the interest of the Master Collateral Agent in the Master Collateral pursuant to the Master Collateral Agency Agreement. In the event that NFLP desires to so change its office or change its name, NFLP will make any required filings and prior to actually changing its office or its name NFLP will deliver to the Trustee, the Master Collateral Agent and the Rating Agencies (i) an Officer's Certificate and (except with respect to a change of the location of NFLP's chief executive office or principal place of business to a new location in the same county) an Opinion of Counsel confirming 8 8 that all required filings have been made to continue the perfected interest of the Trustee in the Collateral and the perfected interest of the Master Collateral Agent in the Master Collateral in respect of the new office or new name of NFLP and (ii) copies of all such required filings with the filing information duly noted thereon by the office in which such filings were made." (m) Section 8.28 of the Base Indenture is amended in its entirety to read as follows: "Section 8.28. Use of Proceeds of Notes. NFLP shall use the proceeds of Notes solely for one or more of the following purposes: (a) other than in the case of any proceeds of the Series 1996-2 Note, to pay amortizing Notes when due, in accordance with this Indenture; (b) to acquire, finance or refinance the acquisition of Eligible Vehicles applicable to such Notes in accordance with the Lease applicable to such Notes; and (c) in the case of the issuance of the Series 1996-2 Note, to refinance the aggregate outstanding principal amount of the Loans referred to in Section 3.1(a) of the Series 1996-2 Supplement as contemplated by such Section." (n) Section 9.1(e) of the Base Indenture is amended in its entirety to read as follows: "(e)(i) any Lease Event of Default described in Section 17.1.1(i) or 17.1.5 of any Lease shall occur, whether or not subsequently waived by NFLP, or (ii) any other Lease Event of Default shall occur under any Lease whether or not subsequently waived by NFLP;". (o) Section 9.1(h) of the Base Indenture is amended in its entirety to read as follows: "(h) in the case of any Series of Notes, the Lease applicable thereto is terminated for any reason;". (p) Section 9.2(d) of the Base Indenture is amended in its entirety to read as follows: "(d) NFLP Fleet Finance Agreement. Notwithstanding anything to the contrary contained herein, if a Liquidation Event of Default or a Limited Liquidation Event of Default shall have occurred and be continuing, the Trustee shall take such action to cause Vehicles manufactured by GM to be turned back to GM in such manner as NFLP has instructed the Trustee in writing (and NFLP hereby agrees to provide such instructions) to preserve any and all rights of the party entitled thereto to receive payments from GM under the NFLP Fleet Finance Agreement in respect of 9 9 deficiencies in the sale prices of such Vehicles as described thereunder; provided that the Trustee shall not return such Vehicles to GM if it is instructed not to do so by Holders of Notes evidencing 66-2/3% or more of the Aggregate Invested Amount; provided further, that the Noteholders shall not be entitled to direct the Trustee to cause Vehicles manufactured by GM to be turned back or sold in any manner that would not preserve the rights of the party entitled thereto to receive payments under the NFLP Fleet Finance Agreement described above." (q) Section 12.1 of the Base Indenture is amended by replacing the phrase "Without the consent of any Noteholder but with the consent of the Rating Agencies, NFLP, the Trustee, and any applicable Enhancement Provider," contained therein with the phrase "Without the consent of any Noteholder but with the consent of the Rating Agencies (or, in the case of any Rating Agency, the confirmation by such Rating Agency that upon giving effect to each such Supplement the Rating Agency Condition will be met with respect to such Rating Agency), NFLP, the Trustee, and any applicable Enhancement Provider, and, in the case of each such Supplement that relates to or will affect the Series 1996-2 Note, the NFC Collateral Agent and the Liquidity Agent (in each case as defined in the series 1996-2 Supplement),". (r) The first sentence of Section 12.2 of the Base Indenture is amended in its entirety to read as follows: "Except as provided in Section 12.1, the provisions of this Indenture and any Supplement (unless otherwise provided in such Supplement) and each other Related Document to which NFLP is a party may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to in writing by NFLP, National, the Trustee, any applicable Enhancement Provider, the Rating Agencies (unless, in the case of any Rating Agency, such Rating Agency shall have instead confirmed in writing that upon giving effect to such amendment, modification or waiver the Rating Agency Condition will be met with respect to such Rating Agency), and the Requisite Investors (or the Required Noteholders of a Series of Notes, in respect of any amendment, modification or waiver of or to this Indenture, the Supplement with respect to such Series of Notes or any Related Document which affects only the Noteholders of such Series of Notes and does not affect the Noteholders of any other Series of Notes, as substantiated by an Opinion of Counsel to such effect, which Opinion of Counsel may, to the extent same is based on any factual matter, rely upon an Officer's Certificate as to the truth of such factual matter) and, to the extent relating to or affecting the Series 1996-2 Note, the NFC Collateral Agent and the Liquidity Agent (in each case as defined in the Series 1996-2 Supplement)." 10 10 (s) The Definitions List set forth in Schedule I to the Base Indenture is amended by adding to the beginning thereof, below the heading "DEFINITIONS LIST", the following: "In the case of any term, including without limitation each of the terms "Amortization Commencement Date", "Amortization Event", "Capitalized Cost", "Casualty", "Depreciation Charge", "Designated Period", "Eligible Manufacturer", "Eligible Vehicle", "Excluded Payments", "Federal Funds Rate", "Financed Vehicle", "Liquidation Event of Default", "Missing Equipment Charges", "Refinanced Vehicles" and "Termination Value", which is defined below but is otherwise defined in any Supplement creating or otherwise relating to any Series of Segregated Notes, each Article, Section, subsection, other definition or other provision of the Base Indenture containing such term shall (unless the context otherwise requires) apply to such Segregated Series with such term having the meaning set forth in such Supplement." (t) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending in their entirety the following definitions as set forth below: "'Aggregate Asset Amount' means, on any date of determination for any Series, without duplication, the sum of (i) the Net Book Value of all Eligible Vehicles leased under the Lease for such Series as of such date pursuant to Section 3.1 of such Lease, plus, (ii) all amounts receivable, as of such date, by NFLP or National from Eligible Manufacturers under and in accordance with their respective Eligible Manufacturer Programs (other than Excluded Payments), with respect to Eligible Vehicles (other than Exchanged Vehicles) applicable to such Series at any time owned, financed or refinanced by NFLP, plus (iii) all amounts (other than amounts specified in clause (ii) above) receivable, as of such date, by NFLP or National from any person or entity in connection with the Auction, sale or other disposition of Eligible Vehicles applicable to such Series at any time leased under such Lease (other than Excluded Payments), plus (iv) all accrued and unpaid Monthly Base Rent and Monthly Supplemental Payments (other than amounts specified in clauses (ii) and (iii) above) under such Lease, plus (v) cash and Permitted Investments on deposit in the Collection Account applicable to such Series, minus (vi) any Ineligible Asset Amount applicable to such Series." "'Aggregate Invested Amount' means, with respect to any Series of Notes then Outstanding, the sum of the Invested Amounts with respect to such Series and all other Series of Related Collateral Series Notes applicable to such Series." "'Amortization Event' with respect to each Series of Notes unless such term is otherwise defined in the Supplement relating to such Series, has the meaning specified in Section 9.1 of the Base Indenture." 11 11 "'Amortization Period' means, with respect to any Series of Notes unless such term is otherwise defined in the Supplement relating to such Series, the period following the Revolving Period (as defined in any related Supplement) which shall be the Accumulation Period, the Controlled Amortization Period, or the Rapid Amortization Period, each as defined in the related Supplement." "'Annual Certificate' is defined in Section 24.6(ix) of the Lease (other than in the case of the Series 1996-2 Lease)." "'Available Subordinated Amount Losses' with respect to a Series to which such term is applicable shall have the meaning specified in the related Supplement." "'Availability Payment', in the case of any Lease to which such term is applicable, is defined in Section 5.2 of such Lease." "'Base Indenture' means the Base Indenture, dated as of April 30, 1996, between NFLP and the Trustee, as supplemented and amended by the Supplement and Amendment to the Base Indenture, dated as of December 20, 1996, and as further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, exclusive of Supplements creating a new Series of Notes." "'Base Lease' means (i) other than in connection with any Series of Segregated Notes, the Master Motor Vehicle Lease and Servicing Agreement, dated as of April 30, 1996, between NFLP, as the lessor thereunder, and National, as the lessee and servicer thereunder, and (ii) in connection with any Series of Segregated Notes, the 'Base Lease' as defined in the Supplement relating to such Series, in each case of clauses (i) and (ii) as the same may be amended, modified or supplemented from time to time in accordance with its terms, exclusive of Lease Annexes." "'Business Day' means any day other than (i) a Saturday, Sunday, or (ii) any other day on which banks are authorized by law to close in New York City, New York or Minneapolis, Minnesota, or (iii) in connection with any Series of Notes, any other day not designated as a "Business Day" in the Supplement relating to such Series." "'Carryover Controlled Amortization Amount' means, with respect to each Series of Note to which such term is applicable, the amount specified as such in the related Supplement." "'Collateral' (i) is defined in Section 3.1 of the Base Indenture, other than in connection with any Series of Segregated Notes, and (ii) in connection with any Series of Segregated Notes, is defined in the Supplement relating thereto." 12 12 "'Collection Account' (i) is defined in Section 5.1 of the Base Indenture, other than in connection with any Series of Segregated Notes, (ii) in connection with the Series 1996-2 Note and any other Shared Collateral Series Note (as defined in the Series 1996-2 Supplement), means the NFC Collection Account under and as defined in the Series 1996-2 Supplement, and (iii) in connection with any Series of Segregated Notes other than the Series 1996-2 Note and any other Shared Collateral Series Notes, is defined in the Supplement relating thereto." "'Collections' means for any Series (i) all payments (including, without limitation, Recoveries) and prepayments by, or on behalf of National under the Lease for such Series other than, in the case of the Series 1996-2 Lease, any such payments under Section 15 thereof to or for the account of any Person other than NFLP, (ii) all payments on the Master Collateral applicable to such Series allocable to the Trustee or the NFC Collateral Agent (as defined in the Series 1996-2 Supplement) as a Beneficiary, including payments (other than Excluded Payments) made by, or on behalf of, any Manufacturer or auction dealer, under the related Manufacturer Program (other than payments thereunder with respect to Exchanged Vehicles), (iii) all payments by, or on behalf of, any other Person as proceeds from the sale of Vehicles applicable to such Series (other than Exchanged Vehicles) or payments of insurance proceeds which are required to be deposited into the Master Collateral Account applicable to such Series, whether such payments are in the form of cash, checks, wire transfers or other forms of payments and whether in respect of principal, interests, repurchase price, fees, expenses or otherwise, and (iv) all amounts earned on Permitted Investments of funds in the Collection Account applicable to such Series. To the extent so specified in a Supplement, Collections shall also include all proceeds from the sale of the Notes issued under such Supplement. "'Controlled Amortization Period' means, with respect to any Series of Notes to which such term is applicable, the period specified in the applicable Supplement." "'Controlled Distribution Amount' means, with respect to any Class of Notes to which such term is applicable, the amount (or amounts) specified in the applicable Supplement." "'Daily Report' is defined in Section 24.6(v) (or, in the case of the Series 1996-2 Lease, 24.7(v)) of the Base Lease." "'Definitions List' means this Definitions List, as supplemented and amended by the Supplement and Amendment to the Base Indenture, dated as of December 20, 1996, and as further amended or modified from time to time in accordance with the terms of the Indenture." 13 13 "'Deposited Funds' with respect to any Series of Notes, means (i) to the extent relating to any Collateral applicable to such Series, all funds on deposit in the Collection Account applicable to such Series, and (ii) in the case of any such Series that is a Series of Segregated Notes, and to the extent relating to any Assigned Collateral (as defined in the Supplement relating to such Series) applicable to such Series, the "Deposit Account" as defined in the Related Document in which any Noteholder of any such Segregated Notes grants a security interest in such Assigned Collateral." "'Distribution Date' means, unless otherwise specified in any Supplement for the related Series of Notes, the twentieth day of each calendar month, or, if such day is not a Business Day, the next succeeding Business Day, commencing (i) May 20, 1996 or (ii) in the case of any Series created after the date hereof, the first such twentieth day to occur after the Closing Date for such Series." "'Expected Final Distribution Date' means, with respect to any Series of Notes to which such term is applicable, the date stated in the related Supplement as the date on which such Series of Notes is expected to be paid in full." "'Financing Lease' means, with respect to any Series of Notes, the Base Lease applicable to such Series supplemented by Annex B to such Lease." "'Fleet Finance Agreement' means the Fleet Financing Support Agreement dated as of June 7, 1995 between GM and the B Support Credit Enhancer under and as defined in the Series 1996-2 Supplement (as assignee of Citibank and Credit Suisse), as amended, supplemented, restated or otherwise modified or replaced from time to time, together with any other fleet financing support agreement between such parties covering the same subject matter (including, among other vehicles (if applicable), any Vehicles for the Series 1996-2 Note) as such Fleet Financing Support Agreement." "'Indebtedness', as applied to any Person, means, without duplication, (a) all indebtedness for borrowed money, (b) that portion of obligations with respect to any lease of any property (whether real, personal or mixed) that is properly classified as a liability on a balance sheet in conformity with GAAP, (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (d) any obligation owed for all or any part of the deferred purchase price for property or services, which purchase price is (i) due more than six months from the date of the incurrence of the obligation in respect thereof or (ii) evidenced by a note or similar written instrument, (e) all indebtedness secured by any Lien on any property or asset owned by the Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, (f) all Contingent Obligations of such Person in respect of any 14 14 of the foregoing, and (g) to the extent the term 'Indebtedness' appears in the Series 1996-2 Lease or the Series 1996-2 Supplement, all Liabilities of National under the Series 1996-2 Lease and all other Leases." "'Initial Vehicles' means, in the case of any Series other than any Series of Segregated Notes, the Vehicles acquired by National from Old National under the Asset Purchase Agreement on April 4, 1995." "'Intercreditor Agreement' means the Intercreditor and Subordination Agreement, dated as of June 7, 1995, among National, certain subordinated creditors listed on Schedule A thereto and certain senior creditors listed on Schedule B thereto, as modified by the Joinder by Senior Debt Holder, executed by The Bank of New York as of April 30, 1996, the Acceptance by Subordinated Debt Holder, executed by GM as of April 30, 1996, the Acceptance by Subordinated Debt Holder, executed by the B Support Credit Enhancer as of May 24, 1996, and the Acceptance by Subordinated Debt Holder, executed by The Bank of New York as of May 29, 1996, and as amended by the Amendment to Intercreditor and Subordination Agreement, dated as of December 20, 1996, and as further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof." "'Interest Collections' means on any date of determination for any Series of Notes, all Collections applicable to such Series which, pursuant to the Lease relating to such Series, represent Monthly Variable Rent, Monthly Finance Rent or the Availability Payment, plus any amounts earned on Permitted Investments in the Collection Account applicable to such Series which are available for distribution on such date." "'Interest Period' means (i) with respect to any Series of Notes other than the Series 1996-2 Note, the period specified in the related Supplement between, with respect to the initial Interest Period, the Closing Date and the first Distribution Date, and thereafter, between Distribution Dates during which interest will accrue, and (ii) with respect to the Series 1996-2 Note, the Series 1996-2 Interest Period under and as defined in the Series 1996-2 Supplement." "'Lease' means, for any Series of Notes, the Base Lease applicable to such Series together with all Lease Annexes applicable thereto, in each case as the same may be amended, modified or supplemented from time to time in accordance with its terms." "'Lease Annex' means, with respect to any Series of Notes, Annex A or Annex B to the Base Lease applicable to such Series, as the same may be amended, supplemented or modified from time to time in accordance with its terms." 15 15 "'Market Value', with respect to any Series of Notes to which such term is applicable, shall have the meaning specified in the applicable Supplement." "'Material Adverse Effect' means, with respect to any occurrence, event or condition: (i) a materially adverse effect on the financial condition, business, assets or operations of National and its Consolidated Subsidiaries taken as a whole, other than a materially adverse effect on the business prospects of National and its Consolidated Subsidiaries taken as a whole that have similarly affected National's major competitors; (ii) a materially adverse effect on the ability of (a) National to perform its material obligations under any of the Related Documents or (b) the Lessor to perform its material obligations under any of the Related Documents; (iii) in the case of any Series of Notes, an adverse effect on (a) the enforceability of the Lease applicable thereto or (b) on the priority or perfection of the Trustee's or the Master Collateral Agent's Lien on a material portion of the Collateral applicable thereto or the Master Collateral applicable thereto; and (iv) in the case of any Series of Segregated Notes, any other occurrence, event or condition defined as being a "Material Adverse Effect" in the related Supplement." "'Maximum Lease Commitment' means, on any date of determination with respect to any Series of Notes, the sum (without duplication) of (i) the Aggregate Invested Amount on such date for such Series and all other Series of Related Collateral Series Notes applicable to such Series, plus (ii) with respect to all such Series of Notes that provide for Enhancement in the form of overcollateralization, the sum of the available subordinated amounts on such date for each such Series of Notes, plus (iii) the aggregate Net Book Values of all Vehicles leased under the Lease applicable to such Series on such date that were acquired, financed or refinanced with funds representing any portion of the Retained Interest, if any (other than available subordinated amounts), plus (iv) any amounts held in the Retained Distribution Account, if any, that the Lessor commits on or prior to such date to invest in new Vehicles (as evidenced by a Company Order) in accordance with the terms of such Lease and the Indenture." "'Maximum Manufacturer Amount' with respect to a Series of Notes to which such term is applicable is defined in the related Supplement." 16 16 "'Maximum Non-Program Vehicle Amount' with respect to a Series of Notes to which such term is applicable is defined in the related Supplement." "'Monthly Certificate' is defined in Section 24.6(vi) (or, in the case of the Series 1996-2 Lease, 24.7(vi)) of the Lease." "'Monthly Vehicle Statement' is defined in Section 24.6(iv) (or, in the case of the Series 1996-2 Lease, 24.7(iv)) of the Lease." "'NFLP Agreements' means, for any Series of Notes, the Lease relating to such Series, the Subleases (if applicable) relating to such Lease, the Assignment Agreements relating to such Series, the Indenture, the Master Collateral Agency Agreement, any Enhancement Agreement relating to such Series and any other agreements to which NFLP is a party and relating to such Series (other than such ordinary course agreements as are permitted pursuant to Sections 8.24 and 8.26 of the Base Indenture and other than Exchange Documents)." "'NFLP Fleet Finance Agreement' means one or more (as in effect from time to time) fleet financing support agreements among GM, the Master Collateral Agent and NFLP and/or any Enhancement Provider which cover, among other vehicles (if applicable), any Vehicles for the Series 1996-1 Notes." "'NFLP Obligations' means, for any Series of Notes, all principal and interest, at any time and from time to time, owing by NFLP on such Notes and on all other Related Collateral Series Notes applicable to such Series, and all costs, fees and expenses payable by, or obligations of, NFLP under the Indenture and/or the Related Documents applicable to such Series and such other Series." "'Non-Program Vehicle Report', in the case of any Lease to which such term is applicable, is defined in Section 24.6(xi) of such Lease." "'Non-Program Vehicle Termination Payment', in the case of any Lease to which such term is applicable, is defined in Section 12.3 of such Lease." "'Operating Lease' means, with respect to any Series of Notes, the Base Lease applicable to such Series as supplemented by Annex A to such Lease." "'Principal Collections' means, for any Series of Notes, any Collections applicable to such Series other than Interest Collections." "'Qualified Institution' means a depositary institution or trust company (which may include the Trustee) organized under the laws of the United States of America or 17 17 any one of the states thereof or the District of Columbia; provided, however, that at all times such depositary institution or trust company is a member of the FDIC and has (i) from Standard & Poor's and Moody's a long-term indebtedness rating not lower than AA and Aa2, respectively, and a short-term indebtedness rating of A-1+ and P-1, respectively (and not lower than the comparable ratings from Duff & Phelps, if Duff & Phelps is a Rating Agency and provides such ratings with respect to such institution or company), or (ii) such other rating which has been approved by the Rating Agencies." "'Rating Agency' means, with respect to each outstanding Series of Notes, any rating agency or agencies then issuing a rating for such Series of Notes at the request of NFLP or National or, if applicable, any 'Rating Agency' under and as defined in the Supplement relating to such Series." "'Rating Agency Condition' means, with respect to any action, that each Rating Agency shall have notified NFLP, National, any Enhancement Provider and the Trustee (or in the case of any Commercial Paper Notes shall have notified National) in writing that such action will not result in a reduction or withdrawal of the rating (in effect immediately before the taking of such action) of any outstanding Series of Notes or Commercial Paper Notes with respect to which it is a Rating Agency and, with respect to the issuance of a Series of Notes, the 'Rating Agency Condition' also means that each Rating Agency that is referred to in the related Supplement as being required to deliver its rating with respect to such Series of Notes or the related Commercial Paper Notes, if any, shall have notified NFLP, National, any Enhancement Provider and the Trustee (or in the case of any Commercial Paper Notes shall have notified National) in writing that such rating has been issued by such Rating Agency." "'Related Documents' means, collectively, for any Series of Notes, the Indenture, the Notes for such Series and all other Series of Related Collateral Series Notes applicable to such Series, any Enhancement Agreement relating to such Series, the Lease relating to such Series, the Master Collateral Agency Agreement, the Assignment Agreements relating to such Series, the Intercreditor Agreement, any Purchase Agreement relating to such Series or to any other Series of Related Collateral Series Notes applicable to such Series, any agreements relating to the purchase of any of the Notes for such Series or any other Related Collateral Series Notes applicable to such Series, and, in the case of any Series of Segregated Notes, any other 'Related Documents' under and as defined in the Supplement relating thereto." "'Required Asset Amount' means, at any date of determination for any Series of Notes, the sum of (i) the Invested Amounts for all Series of Notes that do not 18 18 provide for Enhancement in the form of overcollateralization and including, as applicable, such Series and all other Series of Related Collateral Series Notes applicable to such Series, plus (ii) the aggregate amount, with respect to all Series of Notes that provide for Enhancement in the form of overcollateralization and including, as applicable, such Series and all other Series of Related Collateral Series Notes applicable to such Series, of (a) the Invested Amount for each such Series of Notes (less the Invested Amount of any subordinated class of Notes constituting a portion of such Series of Notes) divided (in the case only of clause (ii) above) by (b) 100% minus the Enhancement Percentage for such Series of Notes." "'Required Noteholders' means, in connection with any Series of Notes, Noteholders holding in excess of 50% of the aggregate Invested Amount of such Series of Notes (excluding, for the purposes of making the foregoing calculation, any Notes held by National, or any Affiliate of National other than, in connection with any Series of Segregated Notes, NFC)." "'Requisite Investors' means, in connection with any Series of Notes, Noteholders holding in excess of 50% of the aggregate Invested Amount of such Series and of all other outstanding Series of Related Collateral Series Notes applicable to such Series (excluding, for the purposes of making the foregoing calculation, any notes held by National, or any Affiliate of National other than, in connection with any Series of Segregated Notes, NFC)." "'Secured Parties' (i) is defined in Section 3.1 of the Base Indenture, other than in connection with any Series of Segregated Notes, and (ii) in connection with any Series of Segregated Notes, is defined in the Supplement relating thereto or means the Secured Party under and as defined in such Supplement, as applicable." "'Texas Vehicle' means (i) an Eligible Vehicle acquired by National on or after the Lease Commencement Date for lease in the State of Texas, or (ii) in the case of any Series of Segregated Notes, a National Vehicle under and as defined in the Supplement related to such Series." "'Vehicle' means, for any Series of Notes, a passenger automobile or light truck purchased, financed or refinanced by NFLP under the Lease applicable to such Series and pledged under the Master Collateral Agency Agreement for the benefit of the Trustee (on behalf of the applicable Noteholders), but solely during the Vehicle Term for such Vehicle." (n) The Definitions List set forth in Schedule I to the Base Indenture is further amended by adding thereto in alphabetical order the following definitions: 19 19 "'all Notes' means (i) other than in connection with any Segregated Notes, all Notes other than any Segregated Notes, and (ii) in connection with any Segregated Notes in any Series, all Notes of such Series and all Related Collateral Series Notes applicable to such Series." "'all Series of Notes' means (i) other than in connection with any Series of Segregated Notes, all Series of Notes other than any Segregated Notes, and (ii) in connection with any Series of Segregated Notes, such Series and all other Series of Related Collateral Series Notes applicable to such Series." "'Commercial Paper Notes', if applicable to any Series of Notes, has the meaning specified in the Supplement relating thereto." "'Moody's' means Moody's Investors Service, Inc., or any successor thereto." "'NFC' means National Fleet Funding Corporation, a Delaware corporation." "'Related Collateral Series Notes' means, for any Series of Notes, any other Notes the NFLP Obligations with respect to which are identified in the Base Indenture or any Supplement relating to such Series as being secured by the same Collateral as secures such Series." "'Series 1996-2 Lease' means the Lease applicable to the Series 1996-2 Note." "'Series 1996-2 Supplement' means the Series 1996-2 Supplement, dated as of December 20, 1996, to the Base Indenture, creating the Floating Rate Rental Car Asset Backed Variable Funding Note, Series 1996-2." "'Variable Funding Note' is defined in Section 2.5(c) of the Base Indenture." (o) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending the definitions of the terms "Approved Non-Program Vehicle Manufacturer", "Eligible Franchisee", "Exchange Account", "Exchange Agreement", "Exchange Assignment Agreement", "Exchange Financing Agreement", "Exchange Documents", "Exchange Lender", "Exchanged Vehicle", "Exchanged Vehicle Insurance Proceeds", "Exchanged Vehicle Repurchase Rights", "Lessee Agreements", "Non-Program Vehicle", "Retained Interest", "Retained Interest Amount", "Retained Interestholder", "Replacement Vehicle", "Sublease" and "Sublessee" by adding to the beginning of each such definition, after the word "means", the words ", in the case of any Series of Notes to which such term is applicable,". 20 20 (p) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending the definition of the term "Eligible Manufacturer Program" by adding to the end thereof the following proviso: "provided, however, that if applicable to any Series of Segregated Notes, "Eligible Manufacturer Program" shall, in connection with such Series, mean, an Eligible Repurchase Program as defined in the Supplement relating to such Series". (q) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending the definition of the term "Manufacturer Event of Default" by adding to the end thereof the following proviso: "provided, however, that if applicable to any Series of Segregated Notes, "Manufacturer Event of Default" shall, in connection with such Series, mean a Manufacturer Default as defined in the Supplement relating to such Series". (r) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending the definition of the term "Manufacturer Program" by adding to the end thereof the following proviso: "provided, however, that if applicable to any Series of Segregated Notes, "Manufacturer Program" shall, in connection with such Series, mean a Repurchase Program as defined in the Supplement relating to such Series". (s) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending the definition of the term "Permitted Investment" by adding to the end thereof the following proviso: "provided, however, that if applicable to any Series of Segregated Notes, "Permitted Investment" shall, in connection with such Series, mean a Eligible Investment as defined in the Supplement relating to such Series". (t) The Definitions List set forth in Schedule I to the Base Indenture is further amended by amending the definition of the term "Potential Manufacturer Event of Default" by adding to the end thereof the following proviso: "provided, however, that if applicable to any Series of Segregated Notes, "Potential Manufacturer Event of Default" shall, in connection with such Series, mean a Potential Manufacturer Default as defined in the Supplement relating to such Series". 21 21 SECTION 3. Conditions of Effectiveness. This Amendment shall become effective when, and only when, the Master Collateral Agent, the Trustee, the Liquidity Agent (as defined in the Series 1996-2 Supplement) and the NFC Collateral Agent (as defined in the Series 1996-2 Supplement) shall have received counterparts of this Amendment executed by NFLP and the Trustee, and Sections 2 and 3 hereof shall become effective when: (a) The Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated, or dated as of, the Series 1996-2 Closing Date (as defined in the Series 1996-2 Supplement) and in form and substance satisfactory to the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent: (i) The written consent of the Rating Agencies and all applicable Enhancement Providers to this Amendment, (ii) Each of the documents set forth in Section 2.2 of the Base Indenture, Section 3.1(b) of the Series 1996-2 Supplement and Section 35 of the Lease (as defined in Schedule I to the Base Indenture giving effect to this Amendment) with respect to the Series 1996-2 Note, it being understood that the Trustee shall receive original Counterpart No. 1 of the Lease relating to the Series 1996-2 Note (as set forth on the cover page and signature page of such Lease); (iii) A copy of the limited partnership agreement of NFLP, together with all other organizational documents of NFLP, duly certified by a Responsible Officer of NFLP; (iv) Copies of resolutions of the Board of Directors of the General Partner of NFLP authorizing or ratifying the execution, delivery and performance of this Amendment, the Base Indenture as amended hereby, and the other Related Documents to which NFLP is party, duly certified by the Secretary or Assistant Secretary of such General Partner; (v) Certified copies of all documents evidencing any necessary corporate or partnership action, as applicable, by the General Partner of NFLP or NFLP, as applicable, consents and governmental approvals (if any) with respect to this Amendment, the Base Indenture as amended hereby, and the other Related Documents to which NFLP is party; (vi) A certificate of each of the Secretary or an Assistant Secretary of the General Partner of NFLP, certifying the names of the individual or individuals authorized to sign this Amendment and the other Related Documents to which NFLP is party, together with a sample of the true signature of each such individual (the 22 22 Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein); (vii) The favorable opinion of Faegre & Benson LLP, counsel for NFLP and the General Partner of NFLP, addressed to National, the Trustee, the NFC Collateral Agent, the Master Collateral Agent, the Series 1996-2 Fronting Credit Enhancers, the Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary, the Placement Agents, the Dealers and the Rating Agencies; and the favorable opinion of counsel to the Trustee addressed to NFLP, National, NFC, the NFC Collateral Agent, the Master Collateral Agent, the Liquidity Agent, the Series 1996-2 Fronting Credit Enhancers, the Series 1996-2 Support Credit Enhancers and the Rating Agencies; in each case, satisfactory in form and substance to the addressees thereof and including, among other things, in the case of the opinion of Faegre & Benson LLP, the opinion that NFLP's execution and delivery of this Amendment and its performance of the Base Indenture as amended hereby does not, and will not, adversely affect in any material respect the interests of any Noteholder; (viii) Certificates of good standing for each of the General Partner of NFLP and NFLP in the jurisdiction of its organization and the jurisdiction of its principal place of business; (ix) A written search report from a Person satisfactory to the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent listing all effective financing statements that name NFLP as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to clause (x) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent showing no evidence of such liens filed against NFLP (other than in connection with any Related Documents); (x) Executed, proper financing statements on Form UCC-1, (i) naming NFLP as debtor and the Master Collateral Agent as secured party, or other, similar instruments or documents, as may be necessary or, in the reasonable opinion of the Master Collateral Agent, the Trustee, the Liquidity Agent or the NFC Collateral Agent, desirable under the UCC of all applicable jurisdictions to perfect the Master Collateral Agent's interest in the Master Collateral with respect to which the NFC Collateral Agent is designated as the Beneficiary, and (ii) naming NFLP as debtor and the Trustee as secured party, as may be necessary or, in the reasonable opinion of the Trustee, the Liquidity Agent or the NFC Collateral Agent, desirable under the UCC of all applicable jurisdictions to perfect the Trustee's interest in the Collateral; 23 23 (xi) A certificate of the Lessee and Servicer, executed by a Responsible Officer thereof, setting forth the representation and warranty of the Lessee and Servicer that, as of the effective date hereof, there are no Initial Vehicles that are part of the Refinanced Vehicles under any Lease; and (xii) Such other documents as the Master Collateral Agent, the Trustee, the Liquidity Agent or the NFC Collateral Agent may reasonably request; (b) All conditions to the effectiveness of the Series 1996-2 Supplement and the issuance of the Series 1996-2 Note thereunder shall have been satisfied in all respects; (c) All conditions to the effectiveness of the Second Amendment to Liquidity Agreement, dated as of December 20, 1996, shall have been satisfied in all respects; and (d) All conditions to the effectiveness of the Lease relating to the Series 1996-2 Note shall have been satisfied in all respects. SECTION 4. Reference to and Effect on the Related Documents. (a) Upon the effectiveness of this Amendment, including Section 2 hereof, on and after the date hereof each reference in the Base Indenture to "this Indenture", "hereunder", "hereof" or words of like import referring to the Base Indenture, and each reference in the other Related Documents to "the Base Indenture" or "the Indenture", "thereunder", "thereof" or words of like import referring to the Base Indenture, shall mean and be a reference to the Base Indenture as supplemented and amended hereby, and each reference in the Related Documents to "the Definitions List attached to the Base Indenture as Schedule I thereto" or words of like import shall mean and be a reference to the "Definitions List" as defined in the Base Indenture as supplemented and amended by this Amendment. (b) Except as specifically supplemented and amended above or as contemplated by Section 3 above, the Base Indenture and all other Related Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Base Indenture and all of the Collateral described therein do and shall continue to secure the payment of all NFLP Obligations to which such Collateral is applicable (giving effect to this Amendment). (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party thereto under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. 24 24 SECTION 5. Costs and Expenses. NFLP agrees to pay on demand all costs and expenses of the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent in connection with the preparation, execution, delivery and administration of this Amendment and the other instruments and documents to be delivered under, or as contemplated by, Section 3 hereof, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent with respect thereto and with respect to advising the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent as to their respective rights and responsibilities hereunder and thereunder. SECTION 6. No Recourse. The obligations of NFLP under this Amendment are solely the obligations of NFLP and are payable solely from the assets of NFLP. No recourse shall be had for the payment of any amount owing in respect of any fee hereunder or any other obligation or claim arising out of or based upon this Amendment against any limited partner of NFLP or against the capital or any other asset of the General Partner or against any stockholder, employee, officer, director or incorporator of the General Partner. Fees, expenses or costs payable by NFLP hereunder shall be payable by NFLP to the extent and only to the extent that NFLP is reimbursed therefor pursuant to any Lease (as defined giving effect to this Amendment) or the Related Documents (as defined giving effect to this Amendment), or funds are then available or thereafter become available for such purpose pursuant to Article 5 of the Base Indenture. SECTION 7. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall constitute delivery of a manually executed counterpart of this Amendment. SECTION 8. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. 25 25 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ M.J. Becker ----------------------------------------- Name: M.J. Becker Title: Asst. Secretary and Treasurer THE BANK OF NEW YORK, as Trustee By: /s/ Cheryl L. Laser ----------------------------------------- Name: Cheryl L. Laser Title: Assistant Vice President EX-4.4 5 SUPPLEMENT TO THE BASE INDENTURE 12/20/96 1 Exhibit 4.4 NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Issuer and THE BANK OF NEW YORK, as Trustee ------------------ SERIES 1996-2 SUPPLEMENT dated as of December 20, 1996 to BASE INDENTURE dated as of April 30, 1996 ------------------ Rental Car Asset Backed Variable Funding Note 2 TABLE OF CONTENTS Page ARTICLE 1 DESIGNATION ARTICLE 2 DEFINITIONS Section 2.1. Incorporation of Schedule 1, Etc.............................. 2 Section 2.2. Defined Terms................................................ 2 ARTICLE 3 ISSUANCE OF SERIES 1996-2 NOTE AND INCREASES AND DECREASES Section 3.1. Procedure for Issuance of Series 1996-2 Note and Increasing the Series 1996-2 Invested Amount...................... 49 Section 3.2. Procedure for Decreasing the Series 1996-2 Invested Amount................................................... 52 ARTICLE 4 SERIES 1996-2 ALLOCATIONS Section 4.1. Establishment of NFC Collection Account, Series 1996-2 Collection Account and Series 1996-2 Accrued Interest Account..... 53 Section 4.2. Allocations with Respect to the Series 1996-2 Note........... 54 Section 4.3. Monthly Payments............................................. 56 Section 4.4. Payment of Note Interest from a Series 1996-2 Fronting Letter of Credit.................................................. 57 Section 4.5. Payment of Note Principal.................................... 58 Section 4.6. Servicer's Failure to Instruct the Trustee to Make a Deposit or Payment....................... 59 Section 4.7. Series 1996-2 Distribution Account ...........................59 Section 4.8. Notice of Series 1996-2 Lease Payment Deficit................ 60 ARTICLE 5 SECURITY Section 5.1. Grant of Security Interest.................................. 61
i 3 ARTICLE 6 AMORTIZATION EVENTS Section 6.1................................................................. 63 ARTICLE 7 FORM OF SERIES 1996-2 NOTE Section 7.1................................................................. 63 ARTICLE 8 GENERAL Section 8.1. Maintenance of Rating; Payment of Rating Agency Fees......... 64 Section 8.2. Exhibits......................................................64 Section 8.3. Ratification of Base Indenture................................64 Section 8.4. Counterparts..................................................64 Section 8.5. Governing Law.................................................64 Section 8.6. Amendments....................................................65 Section 8.7. Discharge of Indenture........................................65 Section 8.8. Inspection of Property, Books and Records.....................65 Section 8.9. Acknowledgment of Trustee.....................................65
ii 4 Series 1996-2 SUPPLEMENT, dated as of December 20, 1996 (this "Supplement"), between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership ("NFLP"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (together with its successors in trust thereunder as provided in the Base Indenture referred to below, the "Trustee"), to the Base Indenture, dated as of April 30, 1996, between NFLP and the Trustee (as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, and as further amended, supplemented or otherwise modified from time to time and in effect, exclusive of Supplements creating a new Series of Notes, the "Base Indenture"). PRELIMINARY STATEMENT WHEREAS, Sections 2.2 and 12.1 of the Base Indenture provide, among other things, that NFLP and the Trustee may at any time and from time to time enter into a supplement to the Base Indenture for the purpose of authorizing the issuance of one or more Series of Notes. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 DESIGNATION There is hereby created a Series of Notes to be issued pursuant to the Base Indenture and this Supplement and such Series of Notes shall be designated generally as the Floating Rate Rental Car Asset Backed Variable Funding Note, Series 1996-2. The Series 1996-2 Note (as defined herein) shall be issued on the Series 1996-2 Closing Date to refinance the Refinanced Vehicles and shall be in the initial principal amount equal to the aggregate principal amount of the Loans outstanding under and as defined in the Loan Agreement on such date (giving effect to the payment by National of all amounts payable by it on such date under the Loan Agreement, and with the unpaid interest accrued thereon being paid by National on the day of such repayment), and the proceeds from any further Series 1996-2 Advance (as defined herein) shall be deposited in the NFC Collection Account and shall be used by NFLP to finance the acquisition by National of National Vehicles, and to acquire Acquired Vehicles, from certain Eligible Manufacturers. The Series 1996-2 Note is a Segregated Series of Notes (as more fully described in the Base Indenture). Accordingly, all references in this Supplement to "all" Series of Notes (and all references in this Supplement to terms defined in the Base Indenture that contain references to "all" Series of Notes) shall refer to the Series 1996-2 Note and any other Shared Collateral Series Notes. 5 2 ARTICLE 2 DEFINITIONS Section 2.1. Incorporation of Schedule 1, Etc. All capitalized terms not otherwise defined herein are defined in the Definitions List attached to the Base Indenture as Schedule 1 thereto. All references to "Articles", "Sections" or "Subsections" herein shall refer to Articles, Sections or Subsections of the Base Indenture, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Base Indenture, each capitalized term used or defined herein shall relate only to the Series 1996-2 Note and not to any other Series of Notes issued by NFLP. Furthermore, in the case of any term which is defined in the Base Indenture but is otherwise defined in this Supplement, each Article, Section, subsection, other definition or other provision of the Base Indenture containing such term shall (unless the context otherwise requires) apply to the Series 1996-2 Note with such term having the meaning set forth in this Supplement. All references herein and in any Related Document to the "Series 1996-2 Supplement" shall mean the Base Indenture, as supplemented hereby. Section 2.2. Defined Terms. The following words and phrases shall have the following meanings with respect to the Series 1996-2 Note and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "A Credit Demand" means a demand for an A LOC Credit Disbursement under the A Letter of Credit pursuant to a Certificate of A Credit Demand. "A Credit Enhancer" means Deutsche Bank AG, a German banking corporation, and any successor thereto as issuer of the A Letter of Credit. "A Credit Enhancer's Office" is defined in the A Letter of Credit. "A Letter of Credit" means the Irrevocable Letter of Credit No. 839-53422 issued on June 8, 1995 in favor of the NFC Collateral Agent for the account of the A Support Credit Enhancers by the A Credit Enhancer, as amended by Amendment No. 1 to Irrevocable Letter of Credit, dated April 30, 1996, Amendment No. 2 to Irrevocable Letter of Credit, dated May 29, 1996, and Amendment No. 3 to Irrevocable Letter of Credit, dated December 20, 1996, and as the same may be further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, and any replacement thereof. "A Letter of Credit Amount" means, as of any date of determination, the amount (i) available to be drawn on such date under the A Letter of Credit as specified 6 3 therein, or (ii) on deposit in the Cash Collateral Account A on such date less the amount of any A Support Reduction Disbursement to be paid as of such date to any A Support Credit Enhancer by National pursuant to Section 2.1(d)(y) (or, in the case of any such payment to any Reduction Support Credit Enhancer, Section 2.2(d)(y)) of the applicable A Support Reimbursement Agreement. "A Letter of Credit Expiration Date" means the date on which the A Letter of Credit or any replacement enhancement in whatever form expires in accordance with its terms. "A Liquidity Deficiency" is defined in the Certificate of A Liquidity Demand attached as Annex B to the A Letter of Credit. "A Liquidity Demand" means a demand for an A LOC Liquidity Disbursement under the A Letter of Credit pursuant to a Certificate of A Liquidity Demand. "A LOC Credit Disbursement" means an amount drawn under the A Letter of Credit pursuant to a Certificate of A Credit Demand. "A LOC Liquidity Disbursement" means an amount drawn under the A Letter of Credit pursuant to a Certificate of A Liquidity Demand. "A LOC Reduction Disbursement" means an amount drawn under the A Letter of Credit pursuant to a Certificate of A Reduction Demand. "A LOC Termination Disbursement" means an amount drawn under the A Letter of Credit pursuant to a Certificate of A Termination Demand. The amount of such A LOC Termination Disbursement shall be the amount so drawn or thereafter, if greater, the amount of the Deposited Funds in the Series 1996-2 Cash Collateral Accounts. "A Reduction Demand" means a demand for an A LOC Reduction Disbursement under the A Letter of Credit pursuant to a Certificate of A Reduction Demand. "A Support Commitment" means as of any day (a) with respect to GM, the GM Letter of Credit Commitment, and (b) with respect to any Reduction Support Credit Enhancer, the amount of credit support such Reduction Support Credit Enhancer has agreed to provide to the A Credit Enhancer pursuant to its Reduction Support Agreement. "A Support Credit Demand" means either (a) the "A Support Credit Demand" as defined in Section 1(a) of the A Support Letter of Credit Agreement or (b) the "Reduction A Support Credit Demand" as defined in a Reduction Support Agreement. 7 4 "A Support Credit Disbursement" means an amount paid under an A Support Letter of Credit pursuant to a Certificate of A Support Credit Demand. "A Support Credit Enhancer" means GM, and any successor thereto or replacement thereof or addition thereto pursuant to the A Support Letter of Credit Agreement, or any Reduction Support Credit Enhancer. "A Support Credit Enhancer Agents" means, for any A Support Credit Enhancer, those officers, employees and agents of such A Support Credit Enhancer whose signatures and incumbency shall have been certified to the NFC Collateral Agent pursuant to clause (d) of Section 3.01 of the NFC Collateral Agreement or in such other certificates as may be delivered by such A Support Credit Enhancer to the NFC Collateral Agent from time to time as duly authorized to act, and to give instructions and notices, on behalf of such A Support Credit Enhancer, under the NFC Collateral Agreement. "A Support Credit Enhancer Incumbency Certificate" is defined in Section 3.01(d) of the NFC Collateral Agreement. "A Support Disbursements" means, collectively, the A Support Credit Disbursements, the A Support Liquidity Disbursements, the A Support Termination Disbursements, the A Support Event of Default Disbursements and the A Support Reduction Disbursements. "A Support Event of Default" means (a) with respect to GM, an "A Support Event of Default" as defined in Section 2.9 of its A Support Reimbursement Agreement, and (b) with respect to a Reduction Support Credit Enhancer, a Reduction A Support Event of Default. "A Support Event of Default Disbursement" means an amount paid under an A Support Letter of Credit as a result of an Event of Default by an A Support Credit Enhancer as defined in such A Support Letter of Credit. "A Support Intercreditor Agreement" means the A Support Intercreditor Agreement, dated as of May 29, 1996, among GM, The Bank of New York, NFC, National, and the other Reduction Support Credit Enhancers party thereto from time to time, as amended by the Amendment to A Support Intercreditor Agreement, dated as of December 20, 1996, and as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "A Support Letter of Credit" means the A Support Letter of Credit Agreement or a Reduction Support Agreement. 8 5 "A Support Letter of Credit Agreement" means the Letter of Credit Agreement, dated as of June 7, 1995, between GM and the A Credit Enhancer, providing for the reimbursement of the A Credit Enhancer for draws under the A Letter of Credit, as amended by the First Amendment to the A Support Letter of Credit Agreement, dated as of April 30, 1996, and as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "A Support Liquidity Demand" means either (a) the "A Support Liquidity Demand" as defined in Section 1(b) of the A Support Letter of Credit Agreement or (b) the "Reduction A Support Liquidity Demand" as defined in a Reduction Support Agreement. "A Support Liquidity Disbursement" means an amount paid under an A Support Letter of Credit pursuant to a Certificate of A Support Liquidity Demand. "A Support Reduction Amount", in the case of GM, is defined in Section 2.1(c) of its A Support Reimbursement Agreement. "A Support Reduction Demand" means either (a) the "A Support Reduction Demand" as defined in Section l(d) of the A Support Letter of Credit Agreement or (b) the "Reduction A Support Reduction Demand" as defined in a Reduction Support Agreement. "A Support Reduction Disbursement" means an amount drawn under an A Support Letter of Credit pursuant to a Certificate of A Support Reduction Demand. "A Support Reimbursement Agreement" means (a) the A Support Reimbursement Agreement, dated as of June 7, 1995, among National, NFC and GM, as amended by the Amendment to A Support Reimbursement Agreement, dated as of April 30, 1996, and the Second Amendment to A Support Reimbursement Agreement, dated as of December 20, 1996, and as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof, or (b) a Reduction A Support Reimbursement Agreement. "A Support Termination Demand" means either (a) the "A Support Termination Demand" as defined in Section l(c) of the A Support Letter of Credit Agreement or (b) the "Reduction A Support Termination Demand" as defined in a Reduction A Support Agreement. "A Support Termination Disbursement" means an amount paid under an A Support Letter of Credit pursuant to a Certificate of A Support Termination Demand. 9 6 "A Termination Demand" means a demand for an A LOC Termination Disbursement under the A Letter of Credit pursuant to a Certificate of A Termination Demand. "Accounts" is defined in Section 5.01 of the NFC Collateral Agreement. "Affected Liquidity Lender" is defined in clause (a) of Section 5.9 of the Liquidity Agreement. "Aggregate A Support Commitment" as of any day means the aggregate of all A Support Commitments as of such day. "Aggregate Face Amount" means, on any date, with respect to Commercial Paper Notes issued at a discount, the aggregate face amount of all such Commercial Paper Notes Outstanding on such date and, with respect to interest bearing Commercial Paper Notes, the aggregate face amount of all such Commercial Paper Notes Outstanding on such date plus the accrued and unpaid interest thereon and interest that will accrue prior to maturity. "Aggregate Liquidity Commitment" means, as of any date of determination, the sum of the Liquidity Lenders' Liquidity Commitments on such date. "Aggregate Outstanding CP" means, as of any date, the Aggregate Face Amount of Commercial Paper Notes Outstanding on such date, net of any amounts on deposit on such date in the NFC Collection Account and/or the NFC Collateral Account and/or the Commercial Paper Account and/or the Termination Advance Account, in each case to the extent such amounts shall have been set aside for the repayment of the principal of, or interest on, Commercial Paper Notes. "Aggregate Outstandings" means, as of any date, the sum of (i) the aggregate principal amount of and accrued interest on all Liquidity Advances Outstanding on such date, (ii) the aggregate principal amount of and accrued interest on Support Liquidity Disbursements Outstanding on such date and (iii) the Aggregate Outstanding CP on such date, net of any amounts on deposit on such date in the NFC Collection Account and/or the NFC Collateral Account and/or the Termination Advance Account and/or the Liquidity Lender Account, in each case to the extent such amounts shall have been set aside for the repayment of the principal of, or interest on, Liquidity Advances or Support Liquidity Disbursements. "Amortization Commencement Date" means the earliest to occur of (a) the occurrence of an Amortization Event described in Section 9.1.7 with respect to NFC or NFLP or National, or Section 9.1.13 or 9.1.15, in each case, of the Liquidity Agreement, or 10 7 (b) the date of declaration of the commencement of the Amortization Period by written notice to NFC pursuant to Section 9.2 of the Liquidity Agreement, or (c) the Amortization Commencement Date under and as defined in the Base Indenture. "Amortization Event" is defined in Section 9.1 of the Liquidity Agreement. "Amortization Period" means the period commencing on the Amortization Commencement Date and ending on the date Liquidity Commitments have been terminated and all amounts due and payable to the Liquidity Agent, the Liquidity Lenders, the Series 1996-2 Support Credit Enhancers (with respect to Support Disbursements and other amounts payable by NFC under the A Support Reimbursement Agreements and the B Support Letter of Credit Reimbursement Agreement, as applicable) and the Holders with respect to the Commercial Paper Notes have been paid in full. "Applicable Law" means all applicable provisions of all (a) constitutions, statutes, treaties, rules, regulations and orders of governmental bodies, (b) governmental approvals and (c) orders, decisions, judgments and decrees of all courts and arbitrators. "Assets" means any interest of any kind in any assets or property of any kind (including, without limitation, the Vehicles), tangible or intangible, real, personal or mixed, now owned or hereafter acquired by NFC or such other Person as the context may require. "Assigned Collateral" is defined in Section 4.01 of the NFC Collateral Agreement. "Assignee Lender" is defined in Section 11.11.1 of the Liquidity Agreement. "Authenticating Representatives" is defined in Section 2 of the Depositary Agreement. "Authorized Officer" means (a) as to NFC, any of those officers, employees and agents of NFC whose signatures and incumbency shall have been certified to the Liquidity Agent and the Liquidity Lenders pursuant to Section 6.1.1 of the Liquidity Agreement or in such other certificates as may be delivered by NFC to the Liquidity Agent from time to time as duly authorized to execute and deliver the Liquidity Agreement, any other Liquidity Document and any other Related Document to which NFC is a party and any instruments or documents in connection therewith on behalf of NFC and to take, from time to time, all other actions on behalf of NFC in connection therewith or (b) any Authorized Officer under and as defined in the Base Indenture. "Authorized Representatives" is defined in Section 2 of the Depositary Agreement. 11 8 "Authorized Signatories" is defined in Section 2 of the Depositary Agreement. "B Credit Demand" means a demand for a B LOC Credit Disbursement under the B Letter of Credit pursuant to a Certificate of B Credit Demand. "B Credit Draw Amount" is defined in Section 5.05 of the NFC Collateral Agreement. "B Credit Enhancer" means Deutsche Bank AG, a German banking corporation, and any successor thereto or replacement thereof or addition thereto pursuant to the B Letter of Credit Reimbursement Agreement. "B Credit Enhancer's Office" is defined in the B Letter of Credit. "B Letter of Credit" means the Irrevocable Letter of Credit No. 839-53755 issued on April 30, 1996 in favor of the NFC Collateral Agent by the B Credit Enhancer, as amended by Amendment No. 1 to Irrevocable Letter of Credit, dated as of May 29, 1996, and Amendment No. 2 to Irrevocable Letter of Credit, dated as of December 20, 1996, and as the same may be further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, and any replacement thereof provided pursuant to the B Letter of Credit Reimbursement Agreement. "B Letter of Credit Amount" means, as of any date of determination, the amount (i) available to be drawn on such date under the B Letter of Credit as specified therein, or (ii) on deposit in the Cash Collateral Account B on such date. "B Letter of Credit Expiration Date" means the date on which the B Letter of Credit or any replacement enhancement in whatever form expires or terminates in accordance with its terms. "B Letter of Credit Reimbursement Agreement" means the B Letter of Credit Reimbursement Agreement, dated as of June 7, 1995, among National, NFC and the B Credit Enhancer, as amended by the Amendment to B Letter of Credit Reimbursement Agreement, dated as of April 30, 1996, and the Second Amendment to B Letter of Credit Reimbursement Agreement, dated as of December 20, 1996, and as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "B Liquidity Demand" means a demand for a B LOC Liquidity Disbursement under the B Letter of Credit pursuant to a Certificate of B Liquidity Demand. 12 9 "B Liquidity Draw Amount" is defined in Section 5.06(c) of the NFC Collateral Agreement. "B LOC Cash Collateral" is defined in Section 5.3 of the B Letter of Credit Reimbursement Agreement. "B LOC Cash Collateral Credit Shortfall" is defined in Section 2.3(a) of the B Letter of Credit Reimbursement Agreement. "B LOC Cash Collateral Liquidity Shortfall" is defined in Section 2.3(a) of the B Letter of Credit Reimbursement Agreement. "B LOC Cash Collateral Termination Shortfall" is defined in Section 2.3(a) of the B Letter of Credit Reimbursement Agreement. "B LOC Credit Disbursement" means an amount drawn under the B Letter of Credit pursuant to a Certificate of B Credit Demand. "B LOC Liquidity Disbursement" means an amount drawn under the B Letter of Credit pursuant to a Certificate of B Liquidity Demand. "B LOC Termination Disbursement" means an amount drawn under the B Letter of Credit pursuant to a Certificate of B Termination Demand. The amount of such B LOC Termination Disbursement shall be the amount so drawn or thereafter, if greater, the amount of the Deposited Funds in the Series 1996-2 Cash Collateral Accounts. "B Support Credit Demand" means a demand for a B Support LOC Credit Disbursement under the B Support Letter of Credit pursuant to a Certificate of B Support Credit Demand. "B Support Credit Enhancer" means Caisse Nationale de Credit Agricole, and any successors thereto or replacements thereof or addition thereto pursuant to the B Support Letter of Credit Reimbursement Agreement. "B Support Credit Enhancer Agents" means those officers, employees and agents of the B Support Credit Enhancer whose signatures and incumbency shall have been certified to the NFC Collateral Agent pursuant to clause (d) of Section 3.01 of the NFC Collateral Agreement or in such other certificates as may be delivered by the B Support Credit Enhancer to the NFC Collateral Agent from time to time as duly authorized to act, and to give instructions and notices, on behalf of the B Support Credit Enhancer, under the NFC Collateral Agreement. 13 10 "B Support Credit Enhancer Incumbency Certificate" is defined in Section 3.01(c) of the NFC Collateral Agreement. "B Support Credit Enhancer's Office" is defined with respect to the B Support Credit Enhancer in the B Support Letter of Credit. "B Support Letter of Credit" means the Irrevocable Letter of Credit No. 59786 issued on May 29, 1996 in favor of the B Credit Enhancer for the account of National and NFC, as the case may be, by the B Support Credit Enhancer, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, and any replacements thereof provided pursuant to the B Support Letter of Credit Reimbursement Agreement. "B Support Letter of Credit Amount" means, as of any date of determination, the amount (i) available to be drawn on such date under the B Support Letter of Credit as specified therein, or (ii) on deposit in the Cash Collateral Account B. "B Support Letter of Credit Expiration Date" is defined in Section 2.1 of the B Support Letter of Credit Reimbursement Agreement. "B Support Letter of Credit Reimbursement Agreement" means the B Support Letter of Credit Reimbursement Agreement, dated as of June 7, 1995, among National, NFC and the B Support Credit Enhancer (as assignee of Citibank and Credit Suisse), as modified by the Assignment and Assumption Agreement, dated as of May 29, 1996, among the B Support Credit Enhancer, Citibank and Credit Suisse, the Amendment to B Support Letter of Credit Reimbursement Agreement, dated as of April 30, 1996, the Second Amendment to B Support Letter of Credit Reimbursement Agreement, dated as of May 29, 1996, and the Third Amendment to B Support Letter of Credit Reimbursement Agreement, dated as of December 20, 1996, as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "B Support Liquidity Demand" means a demand for a B Support LOC Liquidity Disbursement under the B Support Letter of Credit pursuant to a Certificate of B Support Liquidity Demand. "B Support LOC Credit Disbursement" means an amount drawn under the B Support Letter of Credit pursuant to a Certificate of B Support Credit Demand. "B Support LOC Liquidity Disbursement" means an amount drawn under the B Support Letter of Credit pursuant to a Certificate of B Support Liquidity Demand. 14 11 "B Support LOC Termination Disbursement" means an amount drawn under the B Support Letter of Credit pursuant to a Certificate of B Support Termination Demand. The amount of such B Support LOC Termination Disbursement shall be the amount so drawn or thereafter, if greater, the amount of the Deposited Funds in the NFC Cash Collateral Accounts. "B Support Termination Demand" means a demand for a B Support LOC Termination Disbursement under the B Support Letter of Credit pursuant to a Certificate of B Support Termination Demand. "B Termination Demand" means a demand for a B LOC Termination Disbursement under the B Letter of Credit pursuant to a Certificate of B Termination Demand. "Base Lease" means the Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996, between NFLP, as the lessor thereunder, and National, as the lessee and servicer thereunder, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, exclusive of Lease Annexes. "Base Rate" means, on any date and with respect to any Base Rate Advance, a fluctuating rate of interest per annum equal to the higher of (a) the Prime Rate for such day; and (b) the Federal Funds Rate plus 0.25% per annum. Changes in the rate of interest on that portion of any Liquidity Advance or Support Disbursement maintained as Base Rate Advances will take effect simultaneously with each change in the Base Rate. "Base Rate Advance" means a Liquidity Advance under the Liquidity Agreement or a Disbursement under any Series 1996-2 Fronting Letter of Credit bearing interest at a fluctuating rate determined by reference to the Base Rate. "Book Entry CP Holder" is defined in Section 6(e) of the Depositary Agreement. "Book Entry CP Notes" is defined in Section 6(a) of the Depositary Agreement. "Book Entry Issuance Instruction" is defined in Section 3(ii) of the Depositary Agreement. 15 12 "Book Entry Procedures" is defined in Section 6(a) of the Depositary Agreement. "Borrowing" means the Liquidity Advances of the same type and, in the case of LIBOR Advances, having the same Interest Period, and either (i) made by all Liquidity Lenders on the same Business Day pursuant to the same Borrowing Request in accordance with Sections 3.1.1 or 3.1.2 of the Liquidity Agreement or (ii) made by the Swing Line Lender pursuant to a Borrowing Request in accordance with Section 3.1.3 of the Liquidity Agreement. "Borrowing Base" means, as of any date of determination, an amount equal to the sum of (without duplication) (a) the Series 1996-2 Invested Amount as of such date, plus (b) in the case of that portion, if any, of the principal amount of the Series 1996-2 Note funded by Commercial Paper Notes, interest accrued and unpaid on such portion of such principal amount as of such date and interest that will accrue on such portion of such principal amount through the maturity date of the Commercial Paper Notes issued to fund the Series 1996-2 Note, plus (c) in the case of that portion, if any, of the principal amount of the Series 1996-2 Note not funded by Commercial Paper Notes, interest accrued and unpaid on such portion of such principal amount as of such date, plus (d) the outstanding principal amount of Eligible Investments and cash (other than any amounts on deposit on such date in the NFC Collection Account or the NFC Collateral Account, in each case to the extent such amounts shall have been set aside for the repayment of the principal of, or interest on, Liquidity Advances, Support Liquidity Disbursements, or Commercial Paper Notes) then held by the Trustee in the NFC Collection Account and the NFC Collateral Agent in the NFC Collateral Account, respectively, minus (e) any Borrowing Base Decline. "Borrowing Base Decline" means, as of any date, the aggregate amount of the Series 1996-2 Lease Payment Deficit for such date (if such date is a Distribution Date) and all prior Series 1996-2 Lease Payment Deficits (in each case other than to the extent relating to any amount (i) the maturity of which has been accelerated as contemplated by Section 17.2 of the Base Lease or clause (b) of the definition of the term "Amortization Commencement Date" contained in this Section 2.2, and (ii) payable in connection with any payment by the Lessee pursuant to clause (ii)(a)(y) or (ii)(b)(2) of the definition of the term "Monthly Supplemental Payment" contained in Section 6 of Annex B to the Base Lease), which have not been reimbursed by (x) a draw under a Series 1996-2 Fronting Letter of Credit or the Series 1996-2 Cash Collateral Accounts or (y) a payment by the Lessee under the Lease in respect of such Series 1996-2 Lease Payment Deficit. "Borrowing Base Deficiency" means, with respect to any date of determination, the amount by which the Aggregate Outstandings on such date exceeds the Borrowing Base on such date. 16 13 "Borrowing Request" means a request and certificate for Liquidity Advances, substantially in the form of Exhibit C to the Liquidity Agreement. "Business Day" means, with respect to the Related Documents, (a) any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in New York City, New York or Minneapolis, Minnesota and (b) relative to the making, continuing, prepaying or repaying of LIBOR Advances, any day on which dealings in Dollars are carried on in the London interbank market. "Capitalized Cost" means, with respect to each Vehicle, the price paid for such Vehicle by the Lessee or the Lessor to the dealer selling such Vehicle, including dealer profit and delivery charges but excluding taxes and any registration or titling fees. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP and the amount of such debt shall be the capitalized amount of such obligations determined in accordance with such principles. "Cash" means cash and cash equivalents (including marketable securities and short-term investments). "Cash Collateral Account A" is defined in Section 5.07(a) of the NFC Collateral Agreement. "Cash Collateral Account B" is defined in Section 5.07(b) of the NFC Collateral Agreement. "Cash Equivalents" means (i) units of money market funds rated at least A-1 by S&P or at least P-1 by Moody's or otherwise acceptable to the B Credit Enhancer and the B Support Credit Enhancer, and (ii) certificates of deposit of Deutsche Bank AG. "Cash Flow" means, for any period, the Consolidated Net Income plus the sum of (a) amounts that have been deducted for Total Net Interest of National and its Consolidated Subsidiaries in determining Consolidated Net Income for such period, plus (b) amounts (without duplication) that have been deducted for the provision for income tax expense, depreciation of plant and equipment (excluding depreciation of revenue-earning assets), amortization of Indebtedness discount and Indebtedness issuance costs, amortization of capitalized acquisition transaction costs, and amortization of interest rate cap expense of 17 14 National and its Consolidated Subsidiaries in determining Consolidated Net Income for such period. "Casualty" means, with respect to any Vehicle, that (i) such Vehicle is lost, converted or stolen for a period of at least 90 days, (ii) such Vehicle is destroyed, seized or otherwise rendered permanently unfit or unavailable for use, (iii) the return of such Vehicle to the applicable Manufacturer during the applicable Repurchase Period cannot be, or is not, effected for any reason (other than as a result of the occurrence and continuance of an Event of Bankruptcy with respect to such Manufacturer or otherwise as a result of the creditworthiness of such Manufacturer) or (iv) the applicable Manufacturer did not accept such Vehicle for repurchase for any reason (other than as a result of the occurrence and continuance of an Event of Bankruptcy with respect to such Manufacturer or otherwise as a result of the creditworthiness of such Manufacturer) unless the Lessee reasonably believes such Manufacturer will accept such Vehicle for repurchase upon a subsequent return. "Certificate of A Credit Demand" means a certificate in the form of Annex A to the A Letter of Credit. "Certificate of A Liquidity Demand" means a certificate in the form of Annex B to the A Letter of Credit. "Certificate of A Reduction Demand" means a certificate in the form of Annex F to the A Letter of Credit. "Certificate of A Termination Demand" means a certificate in the form of Annex C to the A Letter of Credit. "Certificate of A Support Credit Demand" means a certificate in the form of Annex A to the applicable A Support Letter of Credit. "Certificate of A Support Liquidity Demand" means a certificate in the form of Annex B to the applicable A Support Letter of Credit. "Certificate of A Support Reduction Demand" means a certificate in the form of Annex D to the applicable A Support Letter of Credit. "Certificate of A Support Termination Demand" means a certificate in the form of Annex C to the applicable A Support Letter of Credit. "Certificate of B Credit Demand" means a certificate in the form of Annex A to the B Letter of Credit. 18 15 "Certificate of B Liquidity Demand" means a certificate in the form of Annex B to the B Letter of Credit. "Certificate of B Termination Demand" means a certificate in the form of Annex C to the B Letter of Credit. "Certificate of B Support Credit Demand" means a certificate in the form of Annex A to the B Support Letter of Credit. "Certificate of B Support Liquidity Demand" means a certificate in the form of Annex B to the B Support Letter of Credit. "Certificate of B Support Termination Demand" means a certificate in the form of Annex C to the B Support Letter of Credit. "Certificate of Reduction A Support Event of Default Demand" means a certificate in the form of Annex D to any Reduction Support Agreement. "Certificated Notes" is defined in Section 2 of the Depositary Agreement. "Change of Control" means (i) a transaction or series of transactions whereby any Person or group within the meaning of Section 13(d)(3) of the Exchange Act and the rules and regulations promulgated thereunder (other than William E. Lobeck, Jr. or a group which is managed by William E. Lobeck, Jr.) acquires beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of National (or other securities convertible into such securities) representing 40% of the combined voting power of all securities of National entitled to vote in the election of directors (a "Controlling Person") or (ii) at any time, a majority of National's directors are persons who were not (A) in office on June 7, 1995, (B) initially nominated by a group which is managed by William E. Lobeck, Jr., or (C) successor directors whose nomination for election by the stockholders of National was approved by a vote of a majority of the directors then still in office. For this purpose, a Person or group shall not be a Controlling Person if such Person or group holds voting power in good faith and not for the purpose of circumventing the effect of the occurrence of a Change of Control as an agent, bank, broker, nominee, trustee, or holder of revocable proxies given in response to a solicitation pursuant to the Exchange Act, for one or more beneficial owners who do not individually, or, if they are a group acting in concert, as a group, have the voting power specified in the previous sentence. "Citibank" means Citibank, N.A., a national banking association. "Collateral" is defined in Section 5.1(a) of this Supplement. 19 16 "Commercial Paper Account" is defined in clause (a) of Section 2.4 of the Liquidity Agreement. "Commercial Paper Deficit" is defined in Section 3.6.2 of the Liquidity Agreement. "Commercial Paper Notes" means the promissory notes of NFC issued by NFC in the commercial paper market pursuant to the Depositary Agreement. "Commitment Fee" is defined in Section 4.5(a) of the Liquidity Agreement. "Commitment Termination Date Liquidity Advance" means a Liquidity Advance made by a Liquidity Lender on the Scheduled Liquidity Commitment Termination Date with respect to such Liquidity Lender, pursuant to Section 3.6.4 of the Liquidity Agreement. "Consolidated Net Income" means and refers to, for any period, the net income (or deficit) of National and its Consolidated Subsidiaries, determined on a consolidated basis for such period; provided, however that there shall be excluded from Consolidated Net Income (a) the income (or deficit) of any Person accrued prior to the date it becomes a Consolidated Subsidiary of National or is merged into or consolidated with National or such Person's assets are acquired by National, and (b) any income or gain resulting from any write-up or revaluation of the assets of National and its Consolidated Subsidiaries. "Consolidated Subsidiary" means, at any time, any Subsidiary or other entity the accounts of which would be consolidated with those of National in its consolidated financial statements as of such time. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate, duly executed by an Authorized Officer of NFC, substantially in the form of Exhibit D to the Liquidity Agreement. "Controlling Person" shall have the meaning set forth in the definition of Change of Control. "Conversion" is defined in Section 5.08 of the NFC Collateral Agreement. "Credit Enhancer Commitment" means, (i) as to any Series 1996-2 Fronting Credit Enhancer, the amount of such Series 1996-2 Fronting Credit Enhancer's commitment to provide credit support for National's obligations under the Lease and/or liquidity support for the Commercial Paper Notes, and (ii) as to any Series 1996-2 Support Credit Enhancer, the amount of such Series 1996-2 Support Credit Enhancer's commitment to provide support 20 17 for obligations of the related Series 1996-2 Fronting Credit Enhancer's obligations under its Credit Enhancer Commitment. "Dealer Agreement" means the Dealer Agreement, dated as of June 7, 1995, between CS First Boston Corporation, as the initial Dealer, National and NFC, as modified by the Letter Agreement, dated as of July 13, 1995, between NFC and Goldman, Sachs & Co. (successor organization to Goldman Sachs Money Markets, L.P.), as an additional Dealer, and the Letter Agreement, dated as of November 20, 1996, between NFC and Citicorp Securities, Inc., as an additional Dealer, and as amended by the Amendment to Dealer Agreement, dated as of December 20, 1996, and as further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "Dealers" means CS First Boston Corporation, a Massachusetts corporation, Goldman, Sachs & Co., a New York limited partnership (successor organization to Goldman Sachs Money Markets, L.P., a Delaware limited partnership), and Citicorp Securities, Inc., a Delaware corporation, and/or (as applicable) any other dealer of Commercial Paper Notes engaged by NFC from time to time and who becomes a party to the NFC Collateral Agreement, for so long as such Person is so engaged by NFC. "Decreases" is defined in Section 3.2 of this Supplement. "Deficiency Amount" is defined in Section 4.3(a)(ii) of this Supplement. "Depositary" means Citibank, or such other banking institution as NFC shall appoint, with the prior written consent of the Required Liquidity Providers (which consent shall not be unreasonably withheld or delayed), as issuing and paying agent for Commercial Paper Notes under the Depositary Agreement and as agent for the Holders thereof. "Depositary Agents" means those officers, employees and agents of the Depositary whose signatures and incumbency shall have been certified to the NFC Collateral Agent pursuant to clause (b) of Section 3.01 of the NFC Collateral Agreement or in such other certificates as may be delivered by the Depositary to the NFC Collateral Agent from time to time as duly authorized to act, and to give instructions and notices, on behalf of the Depositary, under the NFC Collateral Agreement. "Depositary Agreement" means the Depositary Agreement, dated as of June 7, 1995, between NFC and the Depositary, as amended by the Amendment to Depositary Agreement, dated as of December 20, 1996, and as further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "Depositary Authorization Letter" is defined in Section 2 of the Depositary Agreement. 21 18 "Depositary Incumbency Certificate" is defined in Section 3.01(b) of the NFC Collateral Agreement. "Deposited Funds" (a) to the extent relating to any Collateral, has the meaning set forth in Schedule 1 to the Base Indenture, and (b) to the extent relating to any Assigned Collateral, is defined in Section 5.01 of the NFC Collateral Agreement. "Depreciation Charge" means, with respect to (a) any Vehicle manufactured by GM and subject to GM's Matrix Repurchase Program, the rate determined by dividing (x) 100% minus the repurchase price percentage specified in respect of such Vehicle pursuant to the terms of such Repurchase Program for the Designated Period applicable to such Vehicle by (y) the number of days in such Designated Period (or, if such Vehicle is held past the Designated Period set forth in the related Vehicle Acquisition Schedule, the applicable depreciation charge set forth in such Repurchase Program for such Vehicle calculated on a daily basis), and (b) any other Vehicle (including any other Vehicle subject to any other Repurchase Program of GM), the applicable depreciation charge set forth in the related Repurchase Program for such Vehicle with respect to such Vehicle calculated on a daily basis. If such charge is expressed as a percentage, the Depreciation Charge for such Vehicle shall be such percentage times the Capitalized Cost for such Vehicle calculated on a daily basis. For Vehicles not held for a full month in the month of acquisition, the Depreciation Charges shall be prorated by multiplying the applicable depreciation amount by a fraction, the numerator of which is the number of days from the date depreciation begins related to such Vehicle to the first day of the next month and the denominator of which is the number of days in such month. For the month in which such Vehicle is turned back to the applicable Manufacturer, the Depreciation Charge shall be prorated by multiplying the applicable depreciation amount by a fraction, the numerator of which is the number of days from the first day of such month to the Turnback Date for such Vehicle and the denominator of which is the number of days in such month. In the event a Vehicle is sold (other than pursuant to the Repurchase Program of a Manufacturer) instead of turned back to the applicable Manufacturer, the Depreciation Charge shall be prorated by multiplying the applicable depreciation amount by a fraction, the numerator of which is the number of days from the first day of such month to the date proceeds were received by the NFC Collateral Agent on the sale of such Vehicle and the denominator of which is the number of days in such month. "Designated Period" shall mean, with respect to any Vehicle subject to GM's Matrix Repurchase Program, the period (up to a maximum of 15 months) designated by the Servicer in the applicable Vehicle Acquisition Schedule relating to such Vehicle as the period of time for which the Servicer expects such Vehicle to be subject to the Lease. "Designated Persons" is defined in Section 2 of the Depositary Agreement. 22 19 "Disbursement" shall mean any LOC Liquidity Disbursement, any LOC Credit Disbursement or any LOC Termination Disbursement, or other disbursement by a Series 1996-2 Fronting Credit Enhancer under a Credit Enhancer Commitment, or any combination thereof, as the context may require. "Distributions" means (i) contributions, loans or other distributions made by National to a profit sharing or pension plan not made in the ordinary course of the operation of such Plan (other than company contributions made to a 401(k) plan from time to time, in each case with the approval of National's Board of Directors) and (ii) all fees, rents and other compensation or payments paid or made by National or its Subsidiaries to any stockholder of National except for such fees, rents or other compensation or payments paid or made in exchange for actual services rendered to National on an arm's length basis by such stockholder. "Dividends" is defined in Section 25.8 of the Lease. "Domestic Office" shall mean, relative to any Liquidity Lender or Series 1996-2 Support Credit Enhancer, as the case may be, the office of such Liquidity Lender or Series 1996-2 Support Credit Enhancer, as the case may be, designated as such below its signature to the Liquidity Agreement, the A Support Reimbursement Agreements or the B Support Letter of Credit Reimbursement Agreement, as applicable, or such other office of such Liquidity Lender or Series 1996-2 Support Credit Enhancer, as the case may be, within the United States as may be designated from time to time by notice from such Liquidity Lender or Series 1996-2 Support Credit Enhancer, as the case may be, to each other Person party to the Liquidity Agreement, the A Support Reimbursement Agreements or the B Support Letter of Credit Reimbursement Agreement, as applicable. "EBIT" means, for any period, the Consolidated Net Income for such period plus the sum of (a) amounts that have been deducted for Total Net Interest of National and its Consolidated Subsidiaries in determining Consolidated Net Income for such period, and (b) amounts (without duplication) that have been deducted for the provision for income tax expense, amortization of Indebtedness issuance costs, and depreciation of plant and equipment (excluding depreciation of revenue-earning assets) of National and its Consolidated Subsidiaries in determining Consolidated Net Income for such period. "Eligible Credit Enhancer" means (a) a commercial bank having total assets in excess of $500,000,000, (b) a finance company, insurance company or other financial institution that in the ordinary course of business enters into transactions of a type similar to that entered into by the Series 1996-2 Fronting Credit Enhancers under the Series 1996-2 Fronting Letter of Credits or the B Support Credit Enhancer under the B Support Letter of Credit Reimbursement Agreement and has total assets in excess of $200,000,000, and whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of 23 20 ERISA and (c) any other financial institution, in each case reasonably satisfactory to National and NFC having a short-term rating or an equivalent long-term debt rating from S&P and Moody's at least equal to A-1, or better, by S&P and P-1 by Moody's; provided, however, that any Person who does not have either a short-term rating from S&P or Moody's shall be deemed to have the required rating set forth above if such Rating Agency confirms in writing that such Person, if its short-term debt obligations were rated, would be assigned such required rating. "Eligible Investments" means: (a) Government Obligations; (b) Participation certificates (excluding strip mortgage securities which are purchased at prices exceeding their principal amounts) and senior debt obligations of the Federal Home Loan Mortgage Corporation, consolidated system wide bonds and notes of the Farm Credit System, senior debt obligations and mortgage-backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) of the Federal National Mortgage Association which, in the case of mortgage-backed securities, are rated at least AA by S&P and Aa by Moody's, senior debt obligations (excluding securities that have no fixed value and/or whose terms do not promise a fixed dollar amount at maturity or call date) of the Student Loan Marketing Association and debt obligations of the Resolution Funding Corp. (collectively, "Agency Obligations"); (c) Direct obligations of any state of the United States of America or any subdivision or agency thereof whose short-term unsecured general obligation debt has ratings from S&P of at least A-1 and Moody's of at least P-1 or any obligation that has ratings from S&P and Moody's at least equivalent to A-1 and P-1, respectively, and which is fully and unconditionally guaranteed by any state, subdivision or agency whose short term, unsecured general obligation debt has ratings from S&P and Moody's at least equivalent to A-1 and P-1, respectively; (d) Commercial paper maturing in not more than three hundred sixty-five (365) days and having ratings from S&P and Moody's of A-1 and P-1, respectively; (e) Deposits, federal funds or bankers acceptances (maturing in not more than three hundred sixty-five (365) days) of any domestic bank (including a branch office of a foreign bank which branch office is located in the United States, provided that the NFC Collateral Agent shall have received a legal opinion or opinions to the effect that full timely payment of such deposit or similar obligation is enforceable against the principal office or any branch of such bank), which: 24 21 (i) has an unsecured, uninsured and unguaranteed obligation which has ratings from S&P and Moody's of A-1 and P-1, respectively, or (ii) is the lead bank of a parent bank holding company with an uninsured, unsecured and unguaranteed obligation meeting the rating requirements in (i) above; (f) Deposits of any bank or savings and loan association which has combined capital, surplus and undivided profits of not less than $100 million, provided such deposits are fully insured by the Federal Deposit Insurance Corporation, the Banking Insurance Fund or the Savings Association Insurance Fund; (g) Investments in a money-market fund which may be a 12b-1 fund as registered under the Investment Company Act and is rated at least AAm or AAm-G by S&P and Aa by Moody's; (h) Repurchase agreements with a term of six (6) months or less with any institution having short-term, unsecured debt rated at least A-1 by S&P and P-1 by Moody's; (i) Repurchase agreements collateralized by Government Obligations or Agency Obligations (the "Collateral Securities") with any registered broker-dealer which is under the jurisdiction of the Securities Investors Protection Corp. or any commercial bank, if such broker-dealer or bank has uninsured, unsecured and unguaranteed debt rated at least A-1 by S&P and P-1 by Moody's, provided that: (A) a master repurchase agreement or other specific written repurchase agreement governs the transaction; (B) the Collateral Securities are held free and clear of any other Lien by the NFC Collateral Agent or an independent third party acting solely as agent for the NFC Collateral Agent, provided that any such third party (A) is (1) a Federal Reserve bank, (2) a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less that $25 million, or (3) a bank approved in writing for such purpose by the Required Liquidity Providers, and (B) certifies in writing to the NFC Collateral Agent (or delivers to the NFC Collateral Agent a written opinion of counsel to such third party) that such third party holds the Collateral Securities free and clear of any Lien, as agent for the NFC Collateral Agent; 25 22 (C) a perfected first security interest under the Uniform Commercial Code is created in, or book entry procedures prescribed at 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq. (or any successor regulations) are followed with respect to, the Collateral Securities for the benefit of the NFC Collateral Agent; (D) such repurchase agreement has a term of thirty (30) days or less, or the NFC Collateral Agent will value the Collateral Securities no less frequently than monthly and will liquidate the Collateral Securities if any deficiency in the required collateral percentage is not restored within two (2) business days of such valuation; (E) such repurchase agreement matures (or permits the NFC Collateral Agent to withdraw all or any portion of the invested funds) at least ten (10) days (or other appropriate liquidation period) prior to each Payment Date; (F) the fair market value of the Collateral Securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least one hundred and three percent (103%); and (G) the NFC Collateral Agent obtains an opinion of counsel to such broker-dealer or bank to the effect that such repurchase agreement is a legal, valid, binding and enforceable agreement of such broker-dealer or bank (and, in the case of a bank which is a branch of a foreign bank, of such foreign bank) in accordance with its terms; and (j) Other investment instruments approved in writing by the Majority Banks and offered by financial institutions that have a combined capital and surplus and undivided profits of not less than $250,000,000 and with respect to which the NFC Collateral Agent shall have received written confirmation of the Rating Agencies that inclusion of any such investment instrument as an Eligible Investment will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies. "Eligible Liquidity Lender" means (a) a commercial bank having total assets in excess of $500,000,000, (b) a finance company, insurance company or other financial institution that in the ordinary course of business enters into transactions of a type similar to that entered into by the Liquidity Lenders under the Liquidity Agreement and has total assets in excess of $200,000,000, and whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of ERISA and (c) any other financial institution satisfactory to NFC, the B Support Credit Enhancer and the Liquidity Agent, in each case 26 23 having a short-term rating or an equivalent long-term debt rating from S&P and Moody's at least equal to the then current rating of the Commercial Paper Notes, but in any event not less than a rating of A-2 by S&P and P-2 by Moody's; provided, however, that any Person who does not have either a short-term rating from S&P or Moody's shall be deemed to have the required rating set forth above if such Rating Agency confirms in writing that such Person, if its short-term debt obligations were rated, would be assigned such required rating. "Eligible Manufacturer" means any Manufacturer (including GM and Chrysler) that (i) maintains an Eligible Repurchase Program and (ii) has been approved by the Required Liquidity Providers (other than in the case of GM and Chrysler); provided that upon the occurrence of a Manufacturer Ineligibility Event with respect to such Manufacturer, such Manufacturer shall no longer qualify as an Eligible Manufacturer. "Eligible Repurchase Program" means, at any time, a Repurchase Program that is in full force and effect with an Eligible Manufacturer (a) pursuant to which the Repurchase Price is at least equal to (i) with respect to GM's Matrix Repurchase Program, a specified percentage of the Capitalized Cost of each Vehicle, such percentage being determined for each Vehicle based upon the model year of such Vehicle and the calendar month in which such Vehicle is returned to GM, minus (A) Excess Mileage Charges, (B) Excess Damage Charges and (C) Missing Equipment Charges, or (ii) with respect to any other Manufacturer or any other Repurchase Program of GM, the Capitalized Cost of each Vehicle, minus (A) all Depreciation Charges accrued with respect to such Vehicle prior to the date that the Vehicle is submitted for repurchase, (B) Excess Mileage Charges, (C) Excess Damage Charges and (D) Missing Equipment Charges, (b) that cannot be amended or terminated with respect to any Vehicle after the purchase of that Vehicle, and (c) under which, with respect to Acquired Vehicles, NFLP is an Authorized Fleet Purchaser or, with respect to Financed Vehicles, National is an Authorized Fleet Purchaser and, in each case, the assignment of the benefits of which to the Master Collateral Agent for the benefit of the Trustee (on behalf of the Series 1996-2 Noteholder) and the NFC Collateral Agent (on behalf of the NFC Secured Parties) has been acknowledged in writing by the related Manufacturer, and NFLP, the Master Collateral Agent, the Trustee and the NFC Collateral Agent have been provided with an opinion of counsel reasonably satisfactory to them that NFLP (and the Master Collateral Agent on behalf of NFLP, the Trustee and the NFC Collateral Agent) can enforce the applicable Manufacturer's obligations thereunder; provided that (a) with respect to any new Repurchase Program (including a new model year Repurchase Program of an Eligible Manufacturer and a Repurchase Program of a new Manufacturer) that is proposed for consideration after the date hereof as an Eligible Repurchase Program, prior to such new Repurchase Program constituting an "Eligible Repurchase Program" hereunder, the Rating Agencies have been given 30 days notice (or such shorter period of time as shall be acceptable to the Rating Agencies) of a draft of such new Repurchase Program as it then exists at the time of such notice (and shall be provided a final copy of such Repurchase Program promptly upon its being available) and shall have consented to the inclusion of such 27 24 new Repurchase Program as an "Eligible Repurchase Program" hereunder and (b) with respect to any change (other than as specified in proviso clause (a)) in the terms of any existing Eligible Repurchase Program, prior to such Repurchase Program constituting an "Eligible Repurchase Program" hereunder, the Rating Agencies shall have been notified of such change and shall have approved such change; provided further that in either case described in proviso clause (a) or (b), (1) if and to the extent required by the Ratings Agencies in order for NFC to preserve the then current credit ratings from S&P and Moody's, and, in any event, a rating of not less than A-2 by S&P and P-2 by Moody's, in respect of its Commercial Paper Notes, NFC shall have caused the face amount of the Series 1996-2 Fronting Letters of Credit (or other then existing credit enhancement) to have been increased or (2) if such new Repurchase Program or such change in the terms of an existing Repurchase Program would have a material adverse effect on the interests of the Secured Parties or the NFC Secured Parties, prior to any such Repurchase Program constituting an "Eligible Repurchase Program", NFLP shall have obtained the written consent of the NFC Collateral Agent thereto. "Eligible Vehicle" means an automobile or light truck (other than a light truck manufactured by Chrysler and that is subject to a 9 month or longer minimum hold period under the Guaranteed Depreciation Program with Chrysler) (i) that at the time of purchase or financing by NFLP is eligible for repurchase under an Eligible Repurchase Program, (ii) that is owned by National or NFLP free and clear of all Liens other than Permitted Liens, (iii) with respect to which the Master Collateral Agent is noted as the first lienholder on the Certificate of Title therefor, or the Certificate of Title has been submitted to the appropriate state authorities for such notation, and (iv) that is a Related Vehicle with the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, designated as the Beneficiaries pursuant to the Master Collateral Agency Agreement. "Environmental Laws" shall mean all federal, state and local laws, statutes, regulations, rules and ordinances and those orders, judgments and decrees which specifically apply to National's operations or facilities concerning pollution or protection of human health or the environment. "Event of Default" is defined in Section 5.1 of the B Support Letter of Credit Reimbursement Agreement. "Excess Collections" is defined in Section 4.3(c) of this Supplement. "Excluded Payments" means the following amounts payable to National or NFLP pursuant to the Repurchase Programs: (i) all incentive payments payable to National or NFLP to purchase vehicles under the Repurchase Programs, (ii) all amounts payable to National or NFLP as compensation for the preparation by National or NFLP of newly 28 25 delivered Vehicles under the Repurchase Programs, (iii) all amounts payable to National or NFLP in reimbursement for warranty work performed by National or NFLP on the Vehicles under the Repurchase Programs and (iv) all amounts payable to National under Section 6.11 of the Asset Purchase Agreement. "Federal Funds Rate" means, with respect to any day, an interest rate per annum equal to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day for such transactions received by the Liquidity Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means the fee letter, dated as of June 8, 1995, from the NFC Collateral Agent, addressed to, and acknowledged and agreed to by, NFC, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Financed Vehicle" means an Eligible Vehicle that is (a) a Refinanced Vehicle or (b) a National Vehicle. "GM Event of Default" means an Event of Default as defined in the A Support Letter of Credit Agreement. "GM Letter of Credit Commitment" is defined in Section 2.1 of GM's A Support Reimbursement Agreement. "GM Letter of Credit Expiration Date" is defined in Section 2.1 of GM's A Support Reimbursement Agreement. "GM LOC Reduction Amount" means, as of any date, the lesser of an A Support Reduction Amount or the A Letter of Credit Amount. "GM's Matrix Repurchase Program" means the General Motors Corporation Passenger Car and Light Duty Truck 100% Repurchase Program for Daily Rental Operators - Program No. 97-02, and any substantially similar Repurchase Program for any other model years, and pursuant to which the repurchase price for any Vehicle is calculated 29 26 based upon a specified percentage of the Capitalized Cost of such Vehicle as set forth in such Program. "GM Note" means the Promissory Note in the original principal amount of $47,000,000 issued on June 1, 1995 by NCR Acquisition Corp. in favor of GM. "Government Obligations" means direct obligations of, or obligations the timely payment of principal of and interest on which is fully and unconditionally guaranteed by, the United States of America and U.S. Treasury REFCORPS. "Guaranteed Depreciation Program" means a guaranteed depreciation program pursuant to which a Manufacturer has agreed with National or NFLP to (a) cause Vehicles manufactured by it or one of its Affiliates that are turned back during the specified Repurchase Period to be sold by an auction dealer, (b) cause the proceeds of any such sale to be paid to National or NFLP, as applicable, by such auction dealer within seven days of such sale and (c) pay to National or NFLP, as applicable, the excess, if any, of the guaranteed payment amount with respect to any such Vehicle calculated as of the Turnback Date in accordance with the provisions of such guaranteed depreciation program over the amount paid to National or NFLP, as applicable, by an auction dealer pursuant to clause (b) above. "Guaranteed Repurchase Program" means a program pursuant to which a Manufacturer has agreed with National or NFLP to repurchase Vehicles manufactured by it or one of its Affiliates during the specified Repurchase Period. "Hazardous Substance" means any waste, pollutant, contaminant, hazardous or toxic material, substance or waste, chemical, petroleum, petroleum-based or petroleum-derived substance or waste, or asbestos-containing material with respect to which liability or standards of conduct are imposed, or which are regulated, pursuant to any Environmental Laws. "Holder" (a) with respect to any Commercial Paper Note, means the holder from time to time of such Commercial Paper Note, and (b) with respect to any Note, has the meaning set forth in Schedule 1 to the Base Indenture. "Increases" is defined in Section 3.1(a) of this Supplement. "Incumbency Certificate" is defined in Section 2 of the Depositary Agreement. "Indemnified Liabilities" is defined for purposes of the Liquidity Agreement in Section 11.4 thereof. "Indemnified Parties" is defined in Section 11.4 of the Liquidity Agreement. 30 27 "Independent Director" means a director who is not, and never was, (a) a stockholder, director, officer, employee, affiliate, associate, customer or supplier of, or any Person that has received any benefit (excluding, however, any compensation received by the directors, in such Person's capacity as such director) in any form whatsoever from, or any Person that has provided any service (excluding, however, any service provided by such director, in such Person's capacity as such director) in any form whatsoever to, Old National or National or any of their Affiliates or associates, or (b) any Person owning beneficially, directly or indirectly, any outstanding shares of common stock of Old National or National or any of their Affiliates, or a stockholder, director, officer, employee, affiliate, associate, customer or supplier of, or any Person that has received any benefit (excluding, however, any compensation received by such director, in such Person's capacity as such director) in any form whatsoever from, or any Person that has provided any service (excluding, however, any service provided by such director, in such Person's capacity as such director) in any form whatsoever to, such beneficial owner or any of such beneficial owner's Affiliates or associates, provided that the ownership of up to 5% of any class of stock (other than stock of NFC) listed on a national securities exchange shall not prevent an individual from meeting the foregoing requirements. "Initial Aggregate Liquidity Commitment" means the amount of the Aggregate Liquidity Commitment as of the Series 1996-2 Closing Date. "Instruction to Transfer" means a notice in the form of (i) Annex D to the A Letter of Credit, (ii) Annex D to the B Letter of Credit or (iii) Annex D to the B Support Letter of Credit, as the case may be. "Intercreditor Agreement" means the Intercreditor and Subordination Agreement, dated as of June 7, 1995, among National, certain subordinated creditors listed on Schedule A thereto and certain senior creditors listed on Schedule B thereto, as modified by the Joinder by Senior Debt Holder, executed by The Bank of New York as trustee under the Base Indenture as of April 30, 1996, the Acceptance by Subordinated Debt Holder, executed by GM as of April 30, 1996, the Acceptance by Subordinated Debt Holder, executed by the B Support Credit Enhancer as of May 24, 1996, and the Acceptance by Subordinated Debt Holder, executed by The Bank of New York as of May 29, 1996, and as amended by the Supplement and Amendment to Intercreditor and Subordination Agreement, dated as of December 20, 1996, and as further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Interest Period" means (a), with respect to any LIBOR Advance, a one-week (only in the case of Swing Line Advances), or a one-, two-, three- or six-month period commencing on the date of such LIBOR Advance, as selected by NFC in its Borrowing Request or its written election under Section 2.4 of the applicable A Support Reimbursement Agreement or Section 2.11 of the B Support Letter of Credit Reimbursement Agreement, as 31 28 applicable; and (b), with respect to any Base Rate Advance, a period commencing on the date of such Base Rate Advance and ending on a Business Day no later than 180 days after such date, as selected by NFC in its Borrowing Request or its written election under Section 2.4 of the applicable A Support Reimbursement Agreement or Section 2.11 of the B Support Letter of Credit Reimbursement Agreement, as applicable; provided, however, that if any such period would otherwise end on a day which is not a Business Day, the Interest Period shall instead end on the next succeeding Business Day; and provided, further, that in the case of the Interest Period for a LIBOR Advance, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "Investment" means, relative to any Person, (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Obligation of such Person; and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. "Issuer" means NFC, in its capacity as the issuer under the Depositary Agreement. "L.A. Agents" means those officers, employees and agents of the Liquidity Agent whose signatures and incumbency shall have been certified to the NFC Collateral Agent pursuant to clause (d) of Section 3.01 of the NFC Collateral Agreement or in such other certificates as may be delivered by the Liquidity Agent to the NFC Collateral Agent from time to time as duly authorized to act, and to give instructions and notices, on behalf of the Liquidity Agent, under the NFC Collateral Agreement. "Letter" is defined in Section 6(a) of the Depositary Agreement. "Liabilities" means all obligations to the Lessor of the Lessee arising under or in connection with the Lease, in each case howsoever created, arising or evidenced, whether 32 29 direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due including, without limitation, interest accruing after the filing of a bankruptcy petition whether or not allowed as a claim. "LIBOR" means, relative to any Interest Period for any LIBOR Advance: (i) the rate for deposits in Dollars for a period equal to such Interest Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, on the day that is two Business Days preceding the first day of such Interest Period, or (ii) if such rate does not appear on Telerate Page 3750, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum at which Dollar deposits are offered by each Reference Lender's LIBOR Office in the London interbank market to prime banks as at or about 11:00 a.m., London time, on a day that is two Business Days preceding the first day of such Interest Period for delivery on such first day and for a period equal to such Interest Period. If either Reference Lender fails to provide its offered quotation to the Liquidity Agent, LIBOR shall be determined on the basis of the offered quotation by the other Reference Lender. "LIBOR Advance" means a Liquidity Advance under the Liquidity Agreement or a Support Disbursement bearing interest, at all times during the Interest Period applicable thereto, at a fixed rate of interest determined by reference to LIBOR. "LIBOR Office" means, relative to any Reference Lender, Liquidity Lender, the NFC Collateral Agent or B Support Credit Enhancer, as the case may be, the office of such Reference Lender, Liquidity Lender, the NFC Collateral Agent or B Support Credit Enhancer, as the case may be, designated as such below its signature to the Liquidity Agreement or the B Support Letter of Credit Reimbursement Agreement, respectively, or such other office of such Reference Lender, Liquidity Lender, the NFC Collateral Agent or B Support Credit Enhancer, as the case may be, as designated from time to time by notice from such Reference Lender, Liquidity Lender, the NFC Collateral Agent or B Support Credit Enhancer, as the case may be, to NFC and the Liquidity Agent, whether or not outside the United States, which shall be making or maintaining LIBOR Advances of such Reference Lender, Liquidity Lender or B Support Credit Enhancer, as the case may be, under the Liquidity Agreement or the B Support Letter of Credit, respectively. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBOR Advances of any Liquidity Lender, the reserve percentage (expressed as a decimal) equal to the aggregate reserve requirements of such Liquidity Lender (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as then currently defined in 33 30 Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Limited Amortization Event" is defined in Section 9.3 of the Liquidity Agreement. "Liquidation Event of Default" means (a) any event or condition with respect to National or NFC of the type described in Section 9.1.7 of the Liquidity Agreement or (b) any event or condition of the type specified in Section 9.1.8 or Section 9.1.9 of the Liquidity Agreement or (c) any Liquidation Event of Default under and as defined in the Base Indenture. "Liquidity Advance" means any Revolving Advance, any Refunding Advance, any Commitment Termination Date Liquidity Advance or any Swing Line Advance, or any combination thereof, as the context may require. "Liquidity Advance Notes" means, with respect to any Liquidity Lender, the Revolving Note and the Refunding Note issued to such Liquidity Lender by NFC. "Liquidity Agent" means Citibank, as agent for the Liquidity Lenders, or such other Person as shall have subsequently been appointed as the successor Liquidity Agent pursuant to Section 10.4 of the Liquidity Agreement. "Liquidity Agent Incumbency Certificate" is defined in Section 3.01(d) of the NFC Collateral Agreement. "Liquidity Agreement" means the Liquidity Agreement, dated as of June 7, 1995, among NFC, the Liquidity Lenders and the Liquidity Agent, as modified by the Consent and Amendment to Liquidity Agreement, dated as of December 15, 1995, the Consent of Liquidity Lenders (to change the Liquidity Commitments reflected in the respective Revolving Notes, and Refunding Notes, dated as of May 29, 1996), and the Extension of Scheduled Liquidity Commitment Termination Date, dated as of May 29, 1996, the Amendment to Liquidity Agreement, dated as of May 29, 1996, and the Second Amendment to Liquidity Agreement, dated as of December 20, 1996, and as such Agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "Liquidity Commitment" means, as to any Liquidity Lender, the amount set forth on the signature pages of the Liquidity Agreement for such Liquidity Lender as its Liquidity Commitment or set forth in its Liquidity Lender Assignment Agreement, as such amount may be increased or decreased from time to time pursuant to Section 3.3, 3.4, 5.9 or 11.11.1 of the Liquidity Agreement. 34 31 "Liquidity Commitment Agreement" means a Liquidity Commitment Agreement substantially in the form of Exhibit M to the Liquidity Agreement. "Liquidity Commitment Termination Date" means the earlier to occur of (a) the date on which the Aggregate Liquidity Commitment has been terminated in full or reduced to zero pursuant to Section 3.3 or 9.2 of the Liquidity Agreement; and (b) the Scheduled Liquidity Commitment Termination Date. "Liquidity Demand" means a demand for an LOC Liquidity Disbursement under a Series 1996-2 Fronting Letter of Credit pursuant to a Certificate of Liquidity Demand. "Liquidity Documents" means the Liquidity Agreement, the Liquidity Advance Notes, any Borrowing Request, any Continuation/Conversion Notice, any Liquidity Commitment Agreement, any Liquidity Lender Assignment Agreement, the Series 1996-2 Closing Date Certificate, and each other agreement, instrument, certificate or other document delivered in connection therewith. "Liquidity Lender Account" means the account established pursuant to Section 5.01 of the NFC Collateral Agreement. "Liquidity Lender Assignment Agreement" means a Liquidity Lender Assignment Agreement substantially in the form of Exhibit F to the Liquidity Agreement. "Liquidity Lenders" is defined in the preamble of the Liquidity Agreement, and, unless otherwise indicated, shall include any Liquidity Lender acting in the capacity of Swing Line Lender. "Liquidity Participant" is defined in Section 11.11.2 of the Liquidity Agreement. "Loan Agreement" means the Loan Agreement, dated as of June 7, 1995, between National, as the borrower thereunder, and NFC, as the lender thereunder, as amended, supplemented or otherwise modified from time to time to and in effect on the date hereof. "LOC Credit Disbursements" means collectively, the A LOC Credit Disbursements and the B LOC Credit Disbursements. 35 32 "LOC Liquidity Disbursements" means collectively, the A LOC Liquidity Disbursements and the B LOC Liquidity Disbursements. "LOC Termination Disbursements" means collectively, the A LOC Termination Disbursements and the B LOC Termination Disbursements. "Majority Banks" means, at any time, Liquidity Lenders holding, in the aggregate, Liquidity Commitments equaling or exceeding 66-2/3% of the Aggregate Liquidity Commitment; provided, however, that any Liquidity Lender that has defaulted in making a Liquidity Advance, shall (if such default is then continuing) be considered to have a Liquidity Commitment equal to its unreimbursed Liquidity Advances; provided further that the Liquidity Commitment of any Liquidity Lender whose Liquidity Commitment has been drawn, terminated and not repaid shall equal the unpaid or unreimbursed balance of its Liquidity Advances. "Mandatorily Redeemable Obligations" means, as applied to a Person, an obligation of such Person to the extent that it is redeemable, payable or required to be purchased or otherwise retired or extinguished (a) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (b) at the option of any Person other than such Person or (c) upon the occurrence of a condition not solely within the control of such Person, such as a redemption required to be made out of future earnings. "Manufacturer Default" means, with respect to (a) (i) a Manufacturer whose Repurchase Program is a Guaranteed Depreciation Program, the failure by such Manufacturer or any related auction dealers to pay any amount due under such Manufacturer's Repurchase Program with respect to a Vehicle turned in to such Manufacturer and such failure continues for more than 90 days after such amount shall have been due and payable and (ii) any other Manufacturer, the failure by such Manufacturer to pay any amount due under its Repurchase Program with respect to a Vehicle turned in to such Manufacturer and such failure continues for more than 90 days following the Turnback Date for such Vehicle (in either case, a "Past Due Amount") and the aggregate Past Due Amounts relating to such Manufacturer are in excess of $25 million under its Repurchase Program in respect of Vehicles that are subject to the Lease, in each case net of Past Due Amounts, aggregating no more than $50 million, that are the subject of a good faith dispute as evidenced by a writing by National or NFLP, as applicable, or the Manufacturer questioning the accuracy of amounts paid or payable in respect of certain Vehicles tendered for repurchase under a Repurchase Program (as distinguished from any dispute relating to the repudiation by such Manufacturer generally of its obligations under such Repurchase Program or the assertion by such Manufacturer of the invalidity or unenforceability as against it of such Repurchase Program) or (b) the occurrence of an Event of Bankruptcy with respect to such Manufacturer. 36 33 "Manufacturer Ineligibility Event" shall mean (i) an event with respect to a Manufacturer as set forth in Section 9.3.1(b) of the Liquidity Agreement, or (ii) the Manufacturer shall be the subject of an Event of Bankruptcy. "Master Note" means the form of Commercial Paper Note attached to the Depositary Agreement as Exhibit E thereto. "Material Adverse Effect" means, with respect to any occurrence, event or condition: (i) a materially adverse effect on the financial condition, business, assets, operations or business prospects of National and its Consolidated Subsidiaries taken as a whole, other than a materially adverse effect on the business prospects of National and its Consolidated Subsidiaries taken as a whole that have similarly affected National's major competitors; (ii) a materially adverse effect on the ability of (a) National to perform its material obligations under any of the Related Documents or (b) NFLP to perform its material obligations under any of the Related Documents or (c) NFC to perform its material obligations under any of the Related Documents; or (iii) an adverse effect on (a) the enforceability of the Lease or (b) on the priority or perfection of the Trustee's, the NFC Collateral Agent's or the Master Collateral Agent's Lien on a material portion of the Collateral or Assigned Collateral. "Missing Equipment Charges" means, with respect to any Vehicle, the amount charged to National or NFLP, or deducted from the Repurchase Price, by the Manufacturer of such Vehicle due to missing equipment at the time such Vehicle is turned in to such Manufacturer or its agent for repurchase pursuant to the applicable Repurchase Program. "Monthly Total Principal Allocation" means the sum of all Series 1996-2 Principal Allocations with respect to a Related Month. "Moody's" means Moody's Investors Service, Inc., or any successor thereto. "National Agents" means those officers, employees and agents of National whose signatures and incumbency shall have been certified to the Master Collateral Agent pursuant to clause (e) of Section 3.5 of the Master Collateral Agency Agreement or in such other certificates as may be delivered by National to the Master Collateral Agent from time to time as duly authorized to act, and to give instructions and notices, on behalf of National, under the Master Collateral Agency Agreement. 37 34 "National Equity" means the $30 million of equity financing committed to National by its principal stockholders on or prior to June 7, 1995. "National Event of Default Reimbursement Share", in the case of GM's A Support Reimbursement Agreement, is defined in Section 2.3(d) thereof. "National Incumbency Certificate" is defined in Section 3.5 of the Master Collateral Agency Agreement. "National Liability" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), obligation or commitment of National and its Subsidiaries, including any liability for taxes. "National Reimbursement Share" (a) with respect to GM's A Support Reimbursement Agreement, means, collectively, the National Event of Default Reimbursement Share and the National Termination Reimbursement Share, and (b) with respect to a Reduction Support Credit Enhancer's A Support Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement, is defined in Section 2.3(c) thereof. "National Termination Reimbursement Share", in the case of GM's A Support Reimbursement Agreement, is defined in Section 2.3 thereof. "National Vehicle" means an Eligible Vehicle acquired by National on or after the Lease Commencement Date. "NFC" means National Fleet Funding Corporation, a Delaware corporation. "NFC Agents" means those officers, employees and agents of NFC whose signatures and incumbency shall have been certified to the NFC Collateral Agent pursuant to clause (a) of Section 3.01 of the NFC Collateral Agreement or in such other certificates as may be delivered by NFC to the NFC Collateral Agent from time to time as duly authorized to act, and to give instructions and notices, on behalf of NFC, under the NFC Collateral Agreement. "NFC Agreements" means the Series 1996-2 Note, the Series 1996-2 Supplement, the Base Indenture, the Assignment Agreements, the Liquidity Agreement, the A Support Letter of Credit Agreements, the A Support Reimbursement Agreement, the B Letter of Credit Reimbursement Agreement, the B Support Letter of Credit Reimbursement Agreement and any other Related Document to which NFC is a party. 38 35 "NFC Collateral Account" means the "Collateral Account" as defined in Section 5.01 of the NFC Collateral Agreement. "NFC Collateral Agent" means Credit Suisse, in its capacity as collateral agent under the NFC Collateral Agreement, and any successor thereto. "NFC Collateral Agreement" means the Collateral Agreement, dated as of June 7, 1995, among NFC, the NFC Collateral Agent, the Liquidity Agent, the Depositary, the Placement Agents, the Dealers, the A Support Credit Enhancers and the B Support Credit Enhancer, as modified by the A Support Intercreditor Agreement, and as amended by the Supplement and Amendment to Collateral Agreement, dated as of December 20, 1996, and as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof and of the Liquidity Agreement. "NFC Collateral Sharing Agreement" means the Amended and Restated Collateral Sharing Agreement, dated as of December 20, 1996, among the NFC Collateral Agent, National, NFLP, NFC and the Series 1996-2 Support Credit Enhancers, as such agreement may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "NFC Collection Account" is defined in Section 4.1(a) of this Supplement. "NFC Event of Default Reimbursement Share", in the case of GM's A Support Reimbursement Agreement, is defined in Section 2.3 thereof. "NFC Incumbency Certificate" is defined in Section 3.01 of the NFC Collateral Agreement. "NFC Obligations" is defined in Section 2.01 of the NFC Collateral Agreement. "NFC Reimbursement Share" (a) with respect to GM's A Support Reimbursement Agreement, means, collectively, the NFC Event of Default Reimbursement Share and the NFC Termination Reimbursement Share, and (b) with respect to a Reduction Support Credit Enhancer's A Support Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement, is defined in Section 2.3(c) thereof. "NFC Secured Parties" means the "Secured Parties" as defined in Section 4.01 of the NFC Collateral Agreement. "NFC Termination Reimbursement Share", in the case of GM's A Support Reimbursement Agreement, is defined in Section 2.3 thereof. 39 36 "Notice of Conversion" means, as applicable, a notice substantially in the form of (i) Exhibit A to the A Support Reimbursement Agreements, (ii) Exhibit C to the A Support Letter of Credit Agreement and (iii) Exhibit B to the B Support Letter of Credit Reimbursement Agreement. "Obligations" means all obligations (monetary or otherwise, including fixed and contingent obligations) of NFC arising under or in connection with the Liquidity Agreement, the Liquidity Advance Notes, each other Liquidity Document, the A Support Reimbursement Agreements, the B Letter of Credit Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement. "Offering Memorandum" means the offering memorandum of NFC used by NFC, the Placement Agents or the Dealers from time to time in connection with the offering and sale of the Commercial Paper Notes, as the same may be amended, supplemented or modified. "Officer's Certificate" means a certificate signed by an Authorized Officer of NFC or National or NFLP, as appropriate. "Organic Document" means, with respect to any Person, its certificate or articles of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Outstanding" (a) with respect to Commercial Paper Notes, means all Commercial Paper Notes issued at any time under the Depositary Agreement, except (i) Commercial Paper Notes which have been paid through the Depositary, (ii) matured Commercial Paper Notes which have not been presented for payment but funds for the payment of which are on deposit in the Commercial Paper Account established with respect thereto and are available for payment of such Commercial Paper Notes or (iii) matured Commercial Paper Notes with respect to which a Borrowing Request has been honored but funds for the payment of which have not yet been deposited in the Commercial Paper Account; (b) with respect to Liquidity Advances and Support Liquidity Disbursements, means all Liquidity Advances or Support Liquidity Disbursements made or deemed made by the Agent or the Liquidity Lenders or the Series 1996-2 Support Credit Enhancers, as the case may be, pursuant to the Liquidity Agreement, the A Support Letter of Credit Agreements or the Series 1996-2 Support Letters of Credit and not repaid by NFC, except Liquidity Advances or Support Liquidity Disbursements to be repaid from the proceeds of Commercial Paper Notes being issued on the date of such repayment; and (c) with respect to any Note, has the meaning set forth in Schedule 1 to the Base Indenture. "Overall Percentage" means, relative to any Liquidity Lender or Series 1996-2 Fronting Credit Enhancer, a fraction (expressed as a percentage), the numerator of which is 40 37 the Liquidity Commitment or the Credit Enhancer Commitment, respectively, of such Person, and the denominator of which is the sum of the Aggregate Liquidity Commitment and the Series 1996-2 Fronting Letter of Credit Amount. "Percentage" means, relative to any Liquidity Lender, a fraction (expressed as a percentage) obtained by dividing (i) the Liquidity Commitment of such Liquidity Lender by (ii) the Aggregate Liquidity Commitment. "Placement Agency Agreement" means the Placement Agency Agreement, dated as of June 7, 1995, among the Placement Agents, National and NFC, substantially in the form of Exhibit N to the Liquidity Agreement, as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "Placement Agents" means any placement agent for Commercial Paper Notes engaged by NFC from time to time and who becomes a party to the Placement Agency Agreement, for so long as such Person is so engaged by NFC. "Potential Amortization Event" means any occurrence or event which, after notice or lapse of time or both, would constitute an Amortization Event. "Potential A Support Event of Default" means an event which, with the giving of notice or lapse of time or both, would constitute an A Support Event of Default under either A Support Reimbursement Agreement. "Potential Event of Default" means an event which, with the giving of notice or lapse of time or both would constitute an Event of Default under the B Support Letter of Credit Reimbursement Agreement. "Potential GM Event of Default" means an event which, with the giving of notice or lapse of time or both would constitute a GM Event of Default under the A Support Letter of Credit Agreement. "Potential Manufacturer Default" means an event which, with the giving of notice, the passage of time or both, would constitute a Manufacturer Default. "Potential Reduction A Support Event of Default" means an event which, with the giving of notice or lapse of time or both, would constitute a Reduction A Support Event of Default. "Program Size" means, as of any date of determination, the sum of (a) the Aggregate Liquidity Commitment on such date (or, if the Liquidity Commitments of the Liquidity Lenders shall have been terminated pursuant to Section 9.2 of the Liquidity 41 38 Agreement, the Aggregate Liquidity Commitment in effect immediately prior to such termination) plus (b) the stated amount of the Series 1996-2 Fronting Letters of Credit. "Rating Agencies" means, collectively, S&P, Moody's and any other nationally recognized rating agency approved by the Liquidity Agent, the B Support Credit Enhancer, National and the Required Liquidity Providers. "Rating Downgrade" means, with respect to any Person, that the rating assigned to such Person's short-term unsecured debt securities or short-term deposits by any Rating Agency shall be lower than the rating then assigned by such Rating Agency to the Commercial Paper Notes, or in any event, a rating lower than A-2 by S&P or P-2 by Moody's. "Reduction A Support Event of Default", with respect to any Reduction A Support Reimbursement Agreement, shall have the meaning specified in such Reduction A Support Reimbursement Agreement. "Reduction A Support Letter of Credit" means the Irrevocable Letter of Credit No. S00034356 issued on May 29, 1996 in favor of the A Credit Enhancer for the account of National and NFC by The Bank of New York, as amended by Amendment No. 1 to Reduction A Support Letter of Credit, dated December 20, 1996, and as the same may be further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, and any replacement thereof. "Reduction A Support Reimbursement Agreement" means (a) the Reduction A Support Reimbursement Agreement, dated as of May 29, 1996, among National, NFC and The Bank of New York, as amended by the Amendment to Reduction A Support Reimbursement Agreement, dated as of December 20, 1996, and as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, or (b) any agreement among any other Reduction Support Credit Enhancer, National and NFC pursuant to which National and NFC agree to reimburse such Reduction Support Credit Enhancer for amounts paid by such Reduction Support Credit Enhancer pursuant to a Reduction Support Agreement. "Reduction Amount Credit Support", in the case of GM, is defined in Section 2.1(c) of its A Support Reimbursement Agreement. "Reduction Amount Letter of Credit Agreement", in the case of GM, is defined in Section 2.1(c) of its A Support Reimbursement Agreement. "Reduction Date", in the case of GM, is defined in Section 2.1(c) of its A Support Reimbursement Agreement. 42 39 "Reduction Support Agreement" means the Reduction A Support Letter of Credit or any other Reduction Amount Letter of Credit Agreement or other agreement by a Reduction Support Credit Enhancer to provide Reduction Amount Credit Support. "Reduction Support Credit Enhancer" means The Bank of New York or any other party that has entered into a Reduction Amount Letter of Credit Agreement or otherwise agreed to provide Reduction Amount Credit Support. "Reference Lenders" means Citibank and Credit Suisse. "Refinanced Vehicle Collateral" means the Refinanced Vehicles and all Assigned Collateral relating thereto. "Refinanced Vehicles" means Eligible Vehicles owned by National prior to the Series 1996-2 Closing Date which are subject to the Lien of the NFC Collateral Agent and refinanced by NFLP under the Financing Lease. "Refunding Advance" is defined in Section 3.1.2 of the Liquidity Agreement. "Refunding Note" means, with respect to any Liquidity Lender, a promissory note issued to such Liquidity Lender by NFC, substantially in the form of Exhibit B to the Liquidity Agreement, evidencing the Refunding Advances by such Liquidity Lender to NFC, and all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Regulatory Change" means any Applicable Law, interpretation, directive, request or guideline (whether or not having the force of law), or any change therein or in the administration or enforcement hereof, that becomes effective or is implemented or first required or expected to be complied with after June 7, 1995, whether the same is (i) the result of an enactment by a government or any agency or political subdivision thereof, a determination of a court, regulatory authority or monetary authority, or any other action or (ii) enacted, adopted, issued or proposed before or after June 7, 1995, including any such that imposes, increases or modifies tax, reserve requirement, insurance charge, special deposit requirement, assessment or capital adequacy requirement but excluding any such that imposes, increases or modifies any income or franchise tax imposed upon any Series 1996-2 Fronting Credit Enhancer or the B Support Credit Enhancer by any jurisdiction (or any political subdivision thereof) in which such Series 1996-2 Enhancement Provider or any branch or office thereof which is providing credit or liquidity support to National or NFC or NFLP, as the case may be, is located. "Related Documents" means, collectively, the Series 1996-2 Note, the Series 1996-2 Supplement, the Base Indenture, the Liquidity Documents, the Series 1996-2 Fronting 43 40 Letters of Credit, the B Support Letter of Credit, the A Support Letter of Credit Agreement, the A Support Reimbursement Agreements, the B Letter of Credit Reimbursement Agreement, the B Support Letter of Credit Reimbursement Agreement, the NFC Collateral Sharing Agreement, the NFC Collateral Agreement, the Depositary Agreement, the Dealer Agreement, the Placement Agency Agreement, the Assignment Agreements, the Intercreditor Agreement, and the Fee Letter, and any other Related Documents under and as defined in the Base Indenture. "Repurchase Period" means, with respect to any Vehicle, the period during which such Vehicle may be turned in to the Manufacturer thereof for repurchase pursuant to the applicable Repurchase Program. "Repurchase Price", with respect to any Vehicle (i) subject to a Guaranteed Repurchase Program, means the price paid or payable by the Manufacturer thereof to repurchase such Vehicle pursuant to its Repurchase Program and (ii) subject to a Guaranteed Depreciation Program, means the amount which the Manufacturer thereof guarantees will be paid to National or NFLP as the seller of such vehicle by such Manufacturer and/or the related auction dealers upon the disposition of such Vehicle pursuant to its Repurchase Program. "Repurchase Program" means any Guaranteed Repurchase Program or Guaranteed Depreciation Program. "Required Liquidity Providers" means, at any time, Liquidity Lenders and the B Support Credit Enhancer holding, in the aggregate, Liquidity Commitments and Credit Enhancer Commitments, respectively, such that the aggregate amount of such commitments equals or exceeds 66-2/3% of the sum of the Aggregate Liquidity Commitment and the aggregate Credit Enhancer Commitments with respect to such B Support Credit Enhancer; provided, however, that any Liquidity Lender or B Support Credit Enhancer that has defaulted in making a Liquidity Advance or making a Support Disbursement (if at such time such default is continuing), shall be considered to have a Liquidity Commitment or Credit Enhancer Commitment equal to the unpaid or unreimbursed balance of its Liquidity Advances or Support Disbursements, as applicable; and provided further that the Liquidity Commitment or Credit Enhancer Commitment of any Liquidity Lender or Series 1996-2 Credit Enhancer whose commitment has been drawn, terminated and not repaid, shall equal the unpaid or unreimbursed balance of its Liquidity Advances or Support Disbursements, as applicable. "Revolving Advance" is defined in Section 3.1.1 of the Liquidity Agreement. 44 41 "Revolving Advance Commitment Termination Date" means the earlier to occur of (a) the Liquidity Commitment Termination Date; and (b) the Amortization Commencement Date. "Revolving Note" means, with respect to any Liquidity Lender, a promissory note issued to such Liquidity Lender by NFC, substantially in the form of Exhibit A to the Liquidity Agreement, evidencing the Revolving Advances by such Liquidity Lender to NFC, and all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw- Hill Companies, Inc., or any successor thereto. "Scheduled Amortization Event" means any Amortization Event set forth in Section 9.1.15 of the Liquidity Agreement. "Scheduled A Letter of Credit Expiration Date" is defined in the A Letter of Credit. "Scheduled A Support Letter of Credit Expiration Date" means (a) with respect to GM, the "GM Letter of Credit Expiration Date" as defined in Section 2.1 of its A Support Reimbursement Agreement, or (b) with respect to a Reduction Support Credit Enhancer, the "Scheduled Reduction A Support Letter of Credit Expiration Date" as defined in Section 2.1 of its A Support Reimbursement Agreement. "Scheduled B Letter of Credit Expiration Date" is defined in Section 2.1 of the B Letter of Credit Reimbursement Agreement. "Scheduled Liquidity Commitment Termination Date" means, for any Liquidity Lender, May 28, 1997, as such date may be extended from time to time pursuant to Section 3.5 of the Liquidity Agreement. "Scheduled Maturity Date" means (i) with respect to any Liquidity Advances except any Commitment Termination Date Liquidity Advance, the last day of the relevant Interest Period therefor, but in any event not later than the date that occurs eighteen (18) months after the applicable Scheduled Liquidity Commitment Termination Date; provided, however, that after the occurrence of an Amortization Event, the Scheduled Maturity 45 42 Date shall mean the date eighteen (18) months after the Amortization Commencement Date; and (ii) with respect to Commitment Termination Date Liquidity Advances, the date that occurs eighteen (18) months after the date on which such Commitment Termination Date Liquidity Advance is made. "Secured Party" is defined in Section 5.1(a) of this Supplement. "Series 1996-2 Account Surplus" means, as of any date of determination subsequent to the establishment and funding of any NFC Cash Collateral Account pursuant to Section 5.07 of the NFC Collateral Agreement, the amount, if any, by which the Series 1996-2 Fronting Letter of Credit Amount exceeds the Series 1996-2 Required Enhancement Amount. "Series 1996-2 Accrued Interest Account" is defined in Section 4.1(c) of this Supplement. "Series 1996-2 Advance" is defined in Section 3.1(a) of this Supplement. "Series 1996-2 Cash Collateral Accounts" means the Cash Collateral Account A and Cash Collateral Account B. "Series 1996-2 Closing Date" means December 20, 1996 or such later date, if any, as shall be agreed to by NFLP, the Trustee, the NFC Collateral Agent, the Liquidity Agent and the Series 1996-2 Support Credit Enhancers. "Series 1996-2 Closing Date Certificate" means a certificate, substantially in the form of Exhibit Q to the Liquidity Agreement, duly completed and executed by an Authorized Officer of NFC, addressed to the Liquidity Lenders, the Liquidity Agent and the B Support Credit Enhancer. "Series 1996-2 Collateral" means the Collateral. "Series 1996-2 Collection Account" is defined in Section 4.1(c) of this Supplement. "Series 1996-2 Deposit Date" is defined in Section 4.2 of this Supplement. "Series 1996-2 Distribution Account" is defined in Section 4.7(a) of this Supplement. 46 43 "Series 1996-2 Distribution Account Collateral" is defined in Section 5.1(a)(iii) of this Supplement. "Series 1996-2 Enhancement" means the Series 1996-2 Fronting Letters of Credit and the Series 1996-2 Cash Collateral Accounts. "Series 1996-2 Enhancement Agreement" means an A Support Reimbursement Agreement or the B Support Letter of Credit Reimbursement Agreement. "Series 1996-2 Enhancement Agreement Event of Default" means an A Support Event of Default or a B Support Event of Default. "Series 1996-2 Enhancement Deficiency" means, on any day, the amount by which the Series 1996-2 Fronting Letter of Credit Amount available for A LOC Credit Disbursements and B LOC Credit Disbursements plus the amount of Support Liquidity Disbursements available for Conversion to Support Credit Disbursements is less than the Series 1996-2 Required Enhancement Amount. "Series 1996-2 Enhancement Percentage" means, as of any date of determination, the percentage equivalent of a fraction, the numerator of which is the Series 1996-2 Required Enhancement Amount as of such date and the denominator of which is the Series 1996-2 Invested Amount as of such date. "Series 1996-2 Enhancement Provider" means a Series 1996-2 Fronting Credit Enhancer or a Series 1996-2 Support Credit Enhancer. "Series 1996-2 Fronting Credit Enhancers" means the A Credit Enhancer and the B Credit Enhancer. "Series 1996-2 Fronting Letter of Credit Amount" means an amount equal to the sum of the A Letter of Credit Amount and the B Letter of Credit Amount. "Series 1996-2 Fronting Letters of Credit" means the A Letter of Credit and the B Letter of Credit. "Series 1996-2 Initial Invested Amount" means the initial outstanding principal amount of the Series 1996-2 Note, which is $1,075,000,000. "Series 1996-2 Interest Period" means a period from, with respect to the initial Series 1996-2 Interest Period, the Series 1996-2 Closing Date to and including the last day of the calendar month in which the Series 1996-2 Closing Date occurs, and each calendar month 47 44 thereafter, provided, however, that the final Series 1996-2 Interest Period shall end on the date all amounts due under the Series 1996-2 Note shall be paid in full. "Series 1996-2 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Series 1996-2 Initial Invested Amount minus (b) the amount of principal payments made pursuant to Section 4.5 of this Agreement to the Series 1996-2 Noteholder on or prior to such date plus (c) any Increases pursuant to Section 3.1 minus (d) any Decreases pursuant to Section 3.2. "Series 1996-2 Invested Percentage" means, on any date of determination: (a) if and so long as the Series 1996-2 Note is the only Shared Collateral Series Note, 100%, and (b) if and so long as the Series 1996-2 Note is not the only Shared Collateral Series Note, (i) when used with respect to Principal Collections during the Series 1996-2 Revolving Period, the percentage equivalent of a fraction the numerator of which shall be equal to the Series 1996-2 Invested Amount for such day and the denominator of which is the sum of the numerators used to determine (1) Invested Percentages for allocations with respect to Principal Collections (for all Shared Collateral Series Notes and all classes of such Shared Collateral Series Notes) and (2) available subordinated amount percentages for allocations with respect to Principal Collections (for all Shared Collateral Series Notes that provide for credit enhancement in the form of overcollateralization) as of such day; (ii) when used with respect to Principal Collections during the Series 1996-2 Rapid Amortization Period, the percentage equivalent of a fraction the numerator of which shall be the Series 1996-2 Invested Amount as of the end of the Series 1996-2 Revolving Period and the denominator of which is the sum of the numerators used to determine (1) Invested Percentages for allocations with respect to Principal Collections (for all Shared Collateral Series Notes and all classes of such Shared Collateral Series Notes) and (2) available subordinated amount percentages for allocations with respect to Principal Collections (for all Shared Collateral Series Notes that provide for credit enhancement in the form of overcollateralization) as of such day; and (iii) when used with respect to Interest Collections, the percentage equivalent of a fraction the numerator of which shall be the Accrued Amounts with respect to the Series 1996-2 Note on such date of determination, and the 48 45 denominator of which is the aggregate Accrued Amounts with respect to all Shared Collateral Series Notes on such date of determination; provided, that in the case of each of clauses (i), (ii) and (iii) individually, the sum of the percentage equivalent set forth in such clause for the Series 1996-2 Note, plus the percentage equivalent set forth in the corresponding provision in each of the Supplements relating to the other Shared Collateral Series Notes, shall not exceed 100%. "Series 1996-2 Lease Payment Deficit" means, with respect to any Distribution Date, an amount equal to the deficit, if any, of the aggregate amount of Principal Collections and Interest Collections with respect to the applicable Related Month which were actually allocated by the Trustee in respect of the Series 1996-2 Note, and withdrawn and paid by the Trustee or the Paying Agent, in each case pursuant to Article 4 of this Supplement and other than to the extent payable to NFLP, National or any Affiliate (other than the Series 1996-2 Noteholder) thereof, in relation to the aggregate amount of Principal Collections and Interest Collections that would have been so allocated and, if applicable, withdrawn and paid with respect to the applicable Related Month in respect of the Series 1996-2 Note, if all payments required to be made under the Lease by the Lessee (and under Article 4 hereof with respect to such payments) with respect to the applicable Related Month were paid in full (exclusive of any amount payable by the Lessee pursuant to clause (ii)(a)(y) or (ii)(b)(2) of the definition of the term "Monthly Supplemental Payment" contained in Section 6 of Annex B to the Base Lease). "Series 1996-2 Limited Liquidation Event of Default" means, so long as such event or condition continues, any event or condition of the type specified in Section 6(a) of this Supplement or Section 9.1.8 or 9.1.9 of the Liquidity Agreement that continues for thirty (30) days or more (without double counting any cure periods provided for in Section 6(a) of this Supplement or Section 9.1.8 or 9.1.9 of the Liquidity Agreement); provided, however, that such event or condition shall not constitute a Series 1996-2 Limited Liquidation Event of Default if (i) within such thirty (30) day period, NFLP or National shall have cured such Amortization Event and (ii) each Rating Agency shall have notified NFLP, National, NFC and the Trustee in writing that after such cure of such Amortization Event is provided for, the Commercial Paper Notes will receive the same rating from the Rating Agencies as they received prior to the occurrence of such Amortization Event. "Series 1996-2 Maximum Invested Amount" means, as of any date, the Program Size less the aggregate discount on Commercial Paper Notes Outstanding on such date. "Series 1996-2 Monthly Interest" means, for any Series 1996-2 Interest Period and the Distribution Date immediately following the last day thereof, the aggregate of the 49 46 amounts described in clauses (i) through (iv) of the definition of the term "Series 1996-2 Note Rate" for such Series 1996-2 Interest Period. "Series 1996-2 Monthly Interest Shortfall" means, as of any Distribution Date, the excess, if any, of the Series 1996-2 Monthly Interest for such Distribution Date (and the preceding Series 1996-2 Interest Period) and any unpaid Deficiency Amounts (together with accrued interest on such unpaid Deficiency Amounts) over the amount withdrawn from the Series 1996-2 Accrued Interest Account and deposited in the Series 1996-2 Distribution Account on such Distribution Date pursuant to Section 4.2(a) of this Supplement. "Series 1996-2 Monthly Servicing Fee" means, on any Distribution Date, an amount equal to the product of 1/12th of 0.50% of the Series 1996-2 Invested Amount as of the first day of the Series 1996-2 Interest Period preceding such Distribution Date; provided, however, that if a Series 1996-2 Rapid Amortization Period shall occur and be continuing and if National is no longer the Servicer, the Series 1996-2 Monthly Servicing Fee shall equal the greater of (a) the product of (i) a fraction, the numerator of which is the Series 1996-2 Invested Amount as of the first day of the Series 1996-2 Interest Period preceding such Distribution Date and the denominator of which is the aggregate invested amounts for all outstanding Shared Collateral Series Notes as of the first day of such Series 1996-2 Interest Period, (ii) $20 and (iii) the number of Vehicles as of the first day of such Series 1996-2 Interest Period, and (b) the amount described in the first clause of this definition. "Series 1996-2 Monthly Supplemental Servicing Fee" means, on any Distribution Date, the product of the Supplemental Servicing Fee accrued during the preceding Series 1996-2 Interest Period times a fraction, the numerator of which is the Series 1996-2 Invested Amount as of the last day of such Series 1996-2 Interest Period and the denominator of which is the aggregate invested amounts for all outstanding Shared Collateral Series Notes as of the last day of such Series 1996-2 Interest Period. "Series 1996-2 Note" means the Series 1996-2 Floating Rate Rental Car Asset Backed Variable Funding Note, executed by NFLP and authenticated and delivered by or on behalf of the Trustee, substantially in the form of Exhibit A. "Series 1996-2 Note Rate" means, for any Series 1996-2 Interest Period, that interest rate per annum which will result in the interest on the average daily Series 1996-2 Invested Amount for such Series 1996-2 Interest Period being equal to the sum of (i) interest payable by NFC during such Series 1996-2 Interest Period on the Outstanding Commercial Paper Notes (based on the weighted-average commercial paper rate), Liquidity Advances, Support Liquidity Disbursements and other Obligations (including, in each case, any post- default interest with respect to such Obligations), plus (ii) the portion of the quarterly fees payable by NFC for such Series 1996-2 Interest Period pursuant to Section 4.5(a) of the Liquidity Agreement and the quarterly fees payable by NFC under Section 2.5 of the B Letter of Credit Reimbursement Agreement, Section 2.4 of the B Support Letter of Credit 50 47 Reimbursement Agreement and Section 2.11 of the Reduction A Support Reimbursement Agreement, plus (iii) the portion of all other operating expenses of NFC (other than amounts payable by National pursuant to Section 15 of the Lease) for such Series 1996-2 Interest Period, plus (iv) an amount equal to the late charge payable by National during such Series 1996-2 Interest Period under Section 5.4 of the Lease. The Series 1996-2 Note Rate shall be determined pursuant to Section 4.3(a)(i). "Series 1996-2 Noteholder" means the Person in whose name the Series 1996-2 Note is registered in the Note Register. "Series 1996-2 Principal Allocation" is defined in Section 4.2(a)(ii) of this Supplement. "Series 1996-2 Rapid Amortization Period" means the period beginning at the close of business on the Business Day immediately preceding the day on which an Amortization Event is deemed to have occurred and ending upon the date on which the Series 1996-2 Note is fully paid. "Series 1996-2 Required Enhancement Amount" shall mean, (i) on any day prior to the occurrence of an Amortization Event, 9.5% (or such other percentage as shall then be required by the Rating Agencies to maintain the then current rating (but not less than A-1 by S&P and not less than P-1 by Moody's) on the Commercial Paper Notes) of the Program Size in effect on such day, and (ii) on any day from and after the occurrence of an Amortization Event, the amount described in clause (i) that shall have been in effect on the day immediately preceding the occurrence of such Amortization Event. "Series 1996-2 Revolving Period" means the period from and including the Series 1996-2 Closing Date to the commencement of the Series 1996-2 Rapid Amortization Period. "Series 1996-2 Support Credit Enhancers" means the A Support Credit Enhancers and the B Support Credit Enhancer. "Series 1996-2 Termination Date" means the Scheduled Liquidity Commitment Termination Date. "Shared Collateral Series Notes" means the Series 1996-2 Note and any other Series of Notes the NFLP Obligations with respect to which are identified as being secured by the Series 1996-2 Collateral in the Supplement relating to such other Series of Notes. "Shortfall" means (a) if a Borrowing Request is submitted for Revolving Advances, the aggregate amount of the proposed Borrowing requested with respect thereto in 51 48 such Borrowing Request; provided, however, that such Shortfall shall not exceed the principal amount of the Series 1996-2 Advance to be made by NFC on the date such Borrowing is to be made, or (b) if a Borrowing Request is submitted for Refunding Advances, the aggregate amount of the proposed Borrowing requested with respect thereto in such Borrowing Request; provided, however, that such Shortfall shall not exceed the Commercial Paper Deficit on the date such Borrowing is to be made. "Support Credit Disbursements" means, collectively, the A Support Credit Disbursements and B Support LOC Credit Disbursements. "Support Disbursements" means, collectively, the Support Credit Disbursements, Support Liquidity Disbursements and Support Termination Disbursements. "Support Liquidity Disbursements" means, collectively, the A Support Liquidity Disbursements and B Support LOC Liquidity Disbursements. "Support Termination Disbursements" means, collectively, the A Support Termination Disbursement and B Support LOC Termination Disbursement. "Swing Line Advance" means any Refunding Advance made pursuant to Section 3.1.3 of the Liquidity Agreement by Citibank in its capacity as Swing Line Lender (or any successor thereto in such capacity). "Swing Line Lender" means Citibank in its capacity as swing line lender, or any successor thereto in such capacity. "Taxes" is defined (i) for the purposes of the Liquidity Agreement in Section 5.6 thereof, (ii) for purposes of the B Letter of Credit Reimbursement Agreement in Section 2.8 thereof, and (iii) for purposes of the B Support Letter of Credit Reimbursement Agreement in Section 2.7 thereof. "Termination Advance Account" is defined in Section 5.01 of the NFC Collateral Agreement. "Termination Demand" means a demand for a LOC Termination Disbursement under a Letter of Credit pursuant to a Certificate of Termination Demand. "Total Fixed Charges" means, for any period, the sum of (i) Total Net Interest of National and its Consolidated Subsidiaries, determined on a consolidated basis for such period, and (ii) capital expenditures for plant and equipment (excluding revenue-earning assets) of National and its Consolidated Subsidiaries, determined on a consolidated basis, for such period. 52 49 "Total Net Interest" means, for any period, the remainder of (i) all interest (including payments made during such period with respect to Capitalized Lease Obligations to the extent properly classifiable as interest and, in the case of the Lease for the Series 1996-2 Note, all Monthly Variable Rent, all Monthly Finance Rent, and all late charges payable by National under Section 5.4 of such Lease) paid or accrued on all Indebtedness and other liabilities of National and its Consolidated Subsidiaries, determined on a consolidated basis, for such period minus (ii) all interest income earned by National and its Consolidated Subsidiaries, determined on a consolidated basis, for such period. "Turnback Date" means, with respect to any Vehicle, the date on which such Vehicle is accepted for return by a Manufacturer or its agent pursuant to its Repurchase Program and the Depreciation Charges cease to accrue pursuant to its Repurchase Program. "type" means, relative to any Liquidity Advance under the Liquidity Agreement or any Disbursement under the Series 1996-2 Fronting Letters of Credit, the portion thereof, if any, being maintained as a Base Rate Advance or a LIBOR Advance. "Variable Funding Note" is defined in Section 7.1 of this Supplement. "Welfare Plan" means any "employee welfare benefit plan", as such term is defined in ERISA. ARTICLE 3 ISSUANCE OF SERIES 1996-2 NOTE AND INCREASES AND DECREASES Section 3.1. Procedure for Issuance of Series 1996-2 Note and Increasing the Series 1996-2 Invested Amount. (a) Subject to satisfaction of the conditions precedent set forth in subsection (b) of this Section 3.1, (i) on the Series 1996-2 Closing Date, NFLP may issue the Series 1996-2 Note having an initial principal amount outstanding thereunder, and NFC shall be deemed to make an advance to NFLP in such principal amount, equal to the aggregate principal amount of the Loans outstanding under and as defined in the Loan Agreement on the Series 1996-2 Closing Date (giving effect to the payment by National of all amounts payable by it on such date under the Loan Agreement), which Series 1996-2 Note shall be issued to NFC (and pledged to the NFC Collateral Agent pursuant to the NFC Collateral Agreement) in consideration for NFLP's leasing the Refinanced Vehicles to the Lessee under the Lease for the Series 1996-2 Note, commencing on the Series 1996-2 Closing Date, and the Master Collateral Agent redesignating its Lien on the Refinanced Vehicle Collateral from securing National's obligations arising under or in connection with the Loan Agreement or the Loan Note referred to therein to securing the Liabilities, and (ii) on any Business Day during the Series 1996-2 Revolving Period, NFLP may, upon request 53 50 by National under the Lease and upon receipt of confirmation from NFC of its ability to issue Commercial Paper Notes and/or, as applicable, obtain funds from Liquidity Advances pursuant to the Liquidity Agreement in an aggregate amount equal to such Increase (as defined below), increase the outstanding principal amount of the Series 1996-2 Note (each such increase in such outstanding principal amount being an "Increase") by making additional advances to NFLP evidenced by the Series 1996-2 Note (such deemed advance and each such additional advance being a "Series 1996-2 Advance"). Proceeds from any Increase shall be deposited into the NFC Collection Account and allocated in accordance with Article 4 hereof. Upon such issuance and each such Increase, the Trustee shall, or shall cause the Registrar to, indicate in the Note Register such Increase. (b) The Series 1996-2 Note may be issued on the Series 1996-2 Closing Date, and any Increase may occur on any Business Day during the Series 1996-2 Revolving Period, in each case pursuant to subsection (a) above, only upon satisfaction of each of the following conditions with respect to such issuance and each proposed Increase, respectively: (i) In the case of such issuance, on the date thereof the unpaid interest accrued through such date on the Loans outstanding under and as defined in the Loan Agreement shall have been paid by National to NFC; (ii) The amount of each of such issuance and such Increase, respectively, shall be equal to or greater than $100,000; (iii) After giving effect to each of such issuance and such Increase, respectively, the Series 1996-2 Invested Amount shall not exceed the Series 1996-2 Maximum Invested Amount; (iv) There does not exist, and neither such issuance nor such Increase shall result in the occurrence of, (1) an Amortization Event, a Liquidation Event of Default or a Series 1996-2 Limited Liquidation Event of Default, or (2) an event or occurrence, which, with the passing of time or the giving of notice thereof, or both, would become an Amortization Event, a Liquidation Event of Default or a Series 1996-2 Limited Liquidation Event of Default; (v) All conditions precedent (1) to the Lessor's making Vehicles available to the Lessee for lease under the Lease and (2) to the issuance of Commercial Paper Notes under the Depositary Agreement and the Liquidity Agreement and/or, as applicable, the making of Revolving Advances pursuant to the Liquidity Agreement have, in each case, been satisfied; 54 51 (vi) NFLP or National, as applicable, shall have good and marketable title to each Vehicle purchased or financed by NFLP with the proceeds from the issuance of the Series 1996-2 Note and Series 1996-2 Advances hereunder from time to time, free and clear of all Liens other than Permitted Liens; and each Repurchase Program shall be in full force and effect, and shall be enforceable against the related Manufacturer; (vii) National and NFLP shall have granted to the Trustee, for the benefit of the Series 1996-2 Noteholder, and to the NFC Collateral Agent, for the benefit of the NFC Secured Parties, a first priority security interest in all Vehicles now or hereafter purchased or financed by NFLP with the proceeds from the issuance of the Series 1996-2 Note and Series 1996-2 Advances hereunder from time to time and all other Master Collateral for the Series 1996-2 Note, and National, NFLP, the Master Collateral Agent and the Trustee shall have executed and delivered, and the Trustee shall have in its possession original counterparts of, Supplements to Amended and Restated Master Collateral Agency Agreement, in each case in substantially the form of Exhibit A to the Master Collateral Agency Agreement, designating NFLP and NFC, respectively, in each case in connection with this Supplement, as additional Financing Sources, and the Trustee, for the benefit of the Series 1996-2 Noteholder, and the NFC Collateral Agent, for the benefit of the NFC Secured Parties, respectively, as additional Beneficiaries; (viii) NFLP shall have granted to the Trustee, for the benefit of the Series 1996-2 Noteholder, a first priority security interest in its right, title and interest in and to the Lease and all other Collateral; (ix) NFC shall have granted to the NFC Collateral Agent, for the benefit of the NFC Secured Parties, a first priority security interest in its right, title and interest in and to the Assigned Collateral; (x) The Trustee shall have received executed counterparts of the Assignment Agreements related to the assignment of rights under each Repurchase Program relating to the Master Collateral for the Series 1996-2 Note, dated as of the Series 1996-2 Closing Date, duly executed thereby and by National, NFLP and each Eligible Manufacturer in connection with the Series 1996-2 Note; (xi) The Trustee shall have received from National a copy of each Repurchase Program under which Vehicles will be or have been purchased and are proposed to be included in the Aggregate Asset Amount on the date of such issuance or Increase, as applicable, and an Officer's Certificate, dated the 55 52 Series 1996-2 Closing Date (or, if later, the date on which such Repurchase Program becomes an Eligible Repurchase Program), and duly executed by an Authorized Officer of National, certifying that each such copy is true, correct and complete as of the Series 1996-2 Closing Date (or, if later, the date on which such Repurchase Program becomes an Eligible Repurchase Program); (xii) The Master Collateral Agent shall have received evidence (which, in the case of the filing of financing statements on form UCC-1, may be telephonic confirmation of such filing) that NFLP has caused or is causing the Master Collateral Agent's name to be noted on each Vehicle's Certificate of Title as a lienholder in accordance with the Lease and all filings (including filings of financing statements on form UCC-1) and recordings have been or are in the process of being accomplished as may be required by law and pursuant to the requirements of the Lease to establish, perfect, protect and preserve the rights, titles, interests, remedies, powers, privileges, licenses and security interest of the Master Collateral Agent in such Vehicles and other Collateral for the benefit of the Series 1996-2 Noteholder and the NFC Secured Parties; (xiii) Notice of such Increase shall have been delivered to the Trustee, the NFC Collateral Agent and the Liquidity Agent; (xiv) All representations and warranties set forth in Section 23 of the Lease, in Article VII of the Liquidity Agreement, in Article 7 of the Base Indenture, in Section 3.02 of the NFC Collateral Agreement, and in the applicable Sections of the other Related Documents to which National, NFLP and/or NFC is a party, respectively, shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms), before and after giving effect to each of such issuance and such Increase and to the application of the proceeds therefrom, as though made on and as of the date thereof except to the extent that they expressly relate to a date prior to such date; and (xv) On the Series 1996-2 Closing Date, National shall have delivered to the Trustee original Counterpart No. 1 of the Lease (as set forth on the cover page and signature page of the Lease). Section 3.2. Procedure for Decreasing the Series 1996-2 Invested Amount. On any Business Day NFLP may, upon request by National (a copy of which request shall have been delivered to the Trustee), reduce the outstanding principal amount of the Series 1996-2 Note (each such reduction in such outstanding principal amount being a "Decrease") by withdrawing from the Series 1996-2 Collection Account and depositing into the Series 1996-2 Distribution Account, and distributing to the Series 1996-2 Noteholder in respect of 56 53 principal on the Series 1996-2 Note, an amount equal to the amount of such Decrease in accordance with Section 4.5(b) hereof. Upon each Decrease, the Trustee shall, or shall cause the Registrar to, indicate in the Note Register such Decrease. The amount of any Decrease shall not exceed the amount on deposit in the Series 1996-2 Collection Account and available for distribution to the Series 1996-2 Noteholder in respect of principal on the Series 1996-2 Note. ARTICLE 4 SERIES 1996-2 ALLOCATIONS With respect to the Series 1996-2 Note only, the following shall apply: Section 4.1. Establishment of NFC Collection Account, Series 1996-2 Collection Account and Series 1996-2 Accrued Interest Account. (a) The Trustee shall establish and maintain in the name of the Trustee for the benefit of the Series 1996-2 Noteholder, or cause to be established and maintained, an account (the "NFC Collection Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 1996-2 Noteholder. The NFC Collection Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the NFC Collection Account (so long as such depositary institution or trust company has a credit rating for its unsecured long-term debt not lower than Baa3 by Moody's and not lower than investment grade by Standard & Poor's). If the NFC Collection Account is not maintained in accordance with the previous sentence, then within 10 Business Days after obtaining knowledge of such fact, the Trustee shall establish a new NFC Collection Account which complies with such sentence and transfer into the new NFC Collection Account all cash and investments from the non-qualifying NFC Collection Account. Initially, the NFC Collection Account will be established with the Trustee. (b) All Collections allocable to the Series 1996-2 Note shall be deposited to the NFC Collection Account (unless such Collections shall have been deposited directly to the Series 1996-2 Collection Account or the Series 1996-2 Accrued Interest Account, as applicable and as specified in Section 4.2 below). (c) The Trustee will create two administrative subaccounts within the NFC Collection Account for the benefit of the Series 1996-2 Noteholder: the Series 1996-2 Collection Account (such sub-account, the "Series 1996-2 Collection Account") and the 57 54 Series 1996-2 Accrued Interest Account (such sub-account, the "Series 1996-2 Accrued Interest Account"). Section 4.2. Allocations with Respect to the Series 1996-2 Note. The proceeds from the issuance of the Series 1996-2 Note and any Series 1996-2 Advance, respectively, will be deposited into the NFC Collection Account. On each Business Day on which proceeds from any Increase or Collections are deposited into the NFC Collection Account (each such date, a "Series 1996-2 Deposit Date") the Servicer will direct the Trustee in writing pursuant to the Lease to allocate all amounts deposited into the NFC Collection Account in accordance with the provisions of this Section 4.2. (a) Allocations During the Series 1996-2 Revolving Period. During the Series 1996-2 Revolving Period, the Servicer will direct the Trustee in writing pursuant to the Lease to allocate on each day, prior to 1:00 p.m. (New York City time) on each Series 1996-2 Deposit Date, all amounts deposited into the NFC Collection Account (including without limitation amounts deposited directly to the Series 1996-2 Collection Account or the Series 1996-2 Accrued Interest Account) as set forth below: (i) allocate to the Series 1996-2 Collection Account an amount equal to the Series 1996-2 Invested Percentage (as of such day) of the aggregate amount of Interest Collections on such day. All such amounts allocated to the Series 1996-2 Collection Account shall be further allocated to Series 1996-2 Accrued Interest Account; and (ii) allocate to the Series 1996-2 Collection Account an amount equal to the sum of (A) the Series 1996-2 Invested Percentage (as of such day) of the aggregate amount of Principal Collections on such day (for any such day, the "Series 1996-2 Principal Allocation") plus (B) the proceeds from any Increase, which may be used by NFLP to finance or acquire Vehicles pursuant to the Lease, to the extent Eligible Vehicles have been requested by the Lessee pursuant to the Lease and provided that the representations and warranties contained in Article 7 of the Base Indenture are true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) on and as of the date of such financing or acquisition with the same effect as though made on and as of such date and shall be deemed to be made by NFLP on such date. (b) Allocations During the Series 1996-2 Rapid Amortization Period. With respect to the Series 1996-2 Rapid Amortization Period, the Servicer will direct the Trustee in writing pursuant to the Lease to allocate, prior to 1:00 p.m. (New York City time) on any Deposit Date, all amounts deposited into the NFC Collection Account (including without limitation 58 55 amounts deposited directly to the Series 1996-2 Collection Account or the Series 1996-2 Accrued Interest Account) as set forth below: (i) allocate to the Series 1996-2 Collection Account an amount determined as set forth in Section 4.2(a)(i) above for such day, which amount shall be further allocated to the Series 1996-2 Accrued Interest Account; and (ii) allocate to the Series 1996-2 Collection Account an amount equal to the Series 1996-2 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Series 1996-2 Note until the Series 1996-2 Note has been paid in full. (c) Allocation Adjustments. Notwithstanding the foregoing provisions of this Section 4.2: (i) provided the Series 1996-2 Rapid Amortization Period has not commenced, amounts allocated to the Series 1996-2 Collection Account that are not required to make payments under the Series 1996-2 Note may, as and to the extent permitted in the related Supplements, be used to pay the principal amount of other Shared Collateral Series Notes, if any, that are then in amortization and, after such payment, any remaining funds shall be paid to NFLP and used to finance or acquire Vehicles pursuant to the Lease, to the extent Eligible Vehicles have been requested by the Lessee pursuant to the Lease and provided that the representations and warranties contained in Article 7 of the Base Indenture are true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) on and as of the date of such financing or acquisition with the same effect as though made on and as of such date and shall be deemed to be made by NFLP on such date; (ii) in the event that the Servicer is not National or an Affiliate of National, the Servicer shall not be entitled to withhold any amounts pursuant to Section 5.2(c) of the Base Indenture and the Trustee shall deposit amounts payable to National in the NFC Collection Account pursuant to the provisions of Section 5.2 of the Base Indenture on each Series 1996-2 Deposit Date; and (iii) any amounts withheld by the Servicer and not deposited in the NFC Collection Account pursuant to Section 5.2(c) of the Base Indenture shall be deemed to be deposited in the NFC Collection Account on the date such amounts are withheld for purposes of determining the amounts to be allocated pursuant to this Section 4.2. 59 56 Section 4.3. Monthly Payments. On each Determination Date, as provided below, the Servicer shall instruct the Paying Agent pursuant to the Lease to withdraw, and on the following Distribution Date the Paying Agent, acting in accordance with such instructions, shall withdraw, the amounts required to be withdrawn from the NFC Collection Account pursuant to Sections 4.3(a) and (b) below in respect of all funds available from Interest Collections processed since the preceding Distribution Date and allocated to the Series 1996-2 Noteholder. (a) Note Interest with respect to the Series 1996-2 Note. (i) On or before the Determination Date following each Series 1996-2 Interest Period, the Servicer shall notify the Series 1996-2 Noteholder and the NFC Collateral Agent of the interest rate that is the Series 1996-2 Note Rate for such Series 1996-2 Interest Period; provided that if the Servicer shall subsequently (by the Distribution Date following such Series 1996-2 Interest Period) determine, and notify the Series 1996-2 Noteholder and the NFC Collateral Agent, that such Series 1996-2 Note Rate is an interest rate other than that of which the Series 1996-2 Noteholder and the NFC Collateral Agent were previously notified for such Series 1996-2 Interest Period, the Series 1996-2 Note Rate for such Series 1996-2 Interest Period shall be such other rate and the Series 1996-2 Monthly Interest for such Series 1996-2 Interest Period shall be determined based on such other rate; and provided, further, however, that the Series 1996-2 Note Rate shall be calculated from time to time by the NFC Collateral Agent in accordance with the definition of the term "Series 1996-2 Note Rate", this clause (i) and the applicable provisions of the other Related Documents, which calculation shall be conclusive, absent demonstrable error, and in the event of any conflict between such calculation of the Series 1996-2 Note Rate and the applicable notification by the Servicer of the Series 1996-2 Note Rate to the Series 1996-2 Noteholder and the NFC Collateral Agent from time to time, the NFC Collateral Agent shall control the determination of such Series 1996-2 Note Rate provided that the NFC Collateral Agent shall have furnished the Servicer with a written notice setting forth such calculation. (ii) On or before each Distribution Date, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the amount to be withdrawn from the Series 1996-2 Accrued Interest Account to the extent funds will be available from Interest Collections allocable to the Series 1996-2 Note which will have been processed from but not including the preceding Distribution Date through the succeeding Distribution Date in respect of (x) first, an amount equal to the Series 1996-2 Monthly Interest for the Series 1996-2 Note for such Distribution Date, and (y) then, an amount equal to the amount of any unpaid Deficiency Amounts (as defined below) as of the preceding Distribution Date (together with any accrued 60 57 interest on such Deficiency Amounts). If the amounts described in this Section 4.3(a)(ii) are insufficient, after taking into account any portion of the Series 1996-2 Fronting Letter of Credit Amount applied pursuant to Section 5.05 of the NFC Collateral Agreement, to pay such interest on any Distribution Date, payments of interest to the Series 1996-2 Noteholder will be reduced by the amount of such deficiency. The amount, if any, of such deficiency on any Distribution Date shall be referred to as the "Deficiency Amount". Interest shall accrue on the Deficiency Amount at the Series 1996-2 Note Rate. On the related Distribution Date, the Trustee shall withdraw the accrued interest on the Series 1996-2 Note (as determined above) and the Deficiency Amount (together with accrued interest thereon) from the Series 1996-2 Accrued Interest Account and deposit such amount in the Series 1996-2 Distribution Account. (b) Servicing Fee. On each Distribution Date, the Servicer shall, after making all deposits to the Series 1996-2 Distribution Account required to be made pursuant to Section 4.3(a) or, in the event that on the related Determination Date National shall no longer be the Servicer, prior to such deposits being made, instruct the Trustee or the Paying Agent to withdraw from the Series 1996-2 Accrued Interest Account an amount (to the extent the Servicer has not withheld such amount pursuant to Section 5.2(c) of the Base Indenture) equal to the sum of (i) the Series 1996-2 Monthly Servicing Fee (and any Series 1996-2 Monthly Supplemental Servicing Fee) accrued during the preceding Series 1996-2 Interest Period plus (ii) all accrued and unpaid Series 1996-2 Monthly Servicing Fees (and any accrued and unpaid Series 1996-2 Monthly Supplemental Servicing Fees) in respect of previous periods. On each such Distribution Date, the Trustee or the Paying Agent shall withdraw such amount from the Series 1996-2 Accrued Interest Account and remit such amount to the Servicer. (c) Balance. On each Distribution Date, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease as to the balance (after making the deposits required in Section 4.3(a) and (b) of this Supplement), if any, of the Interest Collections allocated to the Series 1996-2 Noteholder since the preceding Distribution Date ("Excess Collections"). On such Distribution Date, the Paying Agent shall withdraw such balance from the NFC Collection Account and pay such balance to NFLP, to the extent that, after giving effect to such transfer, such payment will not cause an Asset Amount Deficiency or a Series 1996-2 Enhancement Deficiency to exist. Section 4.4. Payment of Note Interest from a Series 1996-2 Fronting Letter of Credit. On each Distribution Date, if amounts have been drawn on a Series 1996-2 Fronting Letter of Credit and deposited into the Series 1996-2 Collection Account pursuant to Section 5.05 of the NFC Collateral Agreement, the Servicer shall instruct the Trustee or the 61 58 Paying Agent to withdraw from the Series 1996-2 Collection Account on such Distribution Date the lesser of (i) the amount on deposit in the Series 1996-2 Collection Account representing such amount drawn on such Series 1996-2 Fronting Letter of Credit and (ii) the amount of the Series 1996-2 Monthly Interest Shortfall and deposit such amount in the Series 1996-2 Distribution Account to pay the Series 1996-2 Monthly Interest and unpaid Deficiency Amounts (together with accrued interest on all such unpaid Deficiency Amounts). On each Distribution Date, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the Series 1996-2 Noteholder from the Series 1996-2 Distribution Account the amount deposited in the Series 1996-2 Distribution Account for the payment of interest pursuant to Section 4.3(a) of this Supplement and this Section 4.4. Section 4.5. Payment of Note Principal. (a) Monthly Payments During Rapid Amortization Period. (i) Subject to subsection (b) below, commencing on the first Determination Date after the commencement of the Series 1996-2 Rapid Amortization Period, (A) the Trustee shall withdraw from the Series 1996-2 Collection Account the amount allocated thereto pursuant to Section 4.2(b)(ii) and (B) if amounts have been drawn on any Series 1996-2 Fronting Letter of Credit and deposited into the Series 1996-2 Collection Account pursuant to Section 5.05 of the NFC Collateral Agreement, the Servicer shall instruct the Trustee or the Paying Agent pursuant to the Lease to withdraw from the Series 1996-2 Collection Account on such Distribution Date the lesser of (x) the amount on deposit in the Series 1996-2 Collection Account representing such draw on such Series 1996-2 Fronting Letter of Credit (after application of any portion thereof pursuant to Section 4.4) and (y) the excess of the Series 1996-2 Invested Amount over the amount described in clause (A) and deposit such amount in the Series 1996-2 Distribution Account to be paid to the Series 1996-2 Noteholder. Commencing on the first Distribution Date after the commencement of the Series 1996-2 Rapid Amortization Period the Trustee shall withdraw such amount from the Series 1996-2 Collection Account and deposit such amount in the Series 1996-2 Distribution Account, to be paid to the Series 1996-2 Noteholder; provided, however, that on the final Distribution Date, the Trustee shall withdraw from the Series 1996-2 Collection Account, as provided above, an amount which is no greater than the Series 1996-2 Invested Amount as of such date. The entire principal amount of the Series 1996-2 Note shall be due and payable on the Series 1996-2 Termination Date. (ii) Subject to subsection (b) below, on each Distribution Date occurring on or after the date a withdrawal is made pursuant to Section 4.5(a) of this Supplement, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the Series 1996-2 Noteholder the amount deposited in the Series 1996-2 Distribution Account for the payment of principal pursuant to Section 4.5(a)(i) of this Supplement. 62 59 (b) Decreases. (i) On any Business Day during the Series 1996-2 Revolving Period on which a Decrease pursuant to Section 3.2 shall be declared, the Trustee shall withdraw from the Series 1996-2 Collection Account an amount equal to the lesser of (i) the sum of (A) all Series 1996-2 Principal Allocations plus (B) any other funds on deposit in the Series 1996-2 Collection Account (excluding any Interest Collections but including proceeds from any Increase) and (ii) the amount of such Decrease, and deposit such amount in the Series 1996-2 Distribution Account, to be paid to the Series 1996-2 Noteholder. (ii) On each Business Day occurring on or after the date a withdrawal is made pursuant to Section 4.5(b)(i) of this Supplement, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the Series 1996-2 Noteholder the amount deposited in the Series 1996-2 Distribution Account for the payment of principal pursuant to Section 4.5(b)(i) of this Supplement. Section 4.6. Servicer's Failure to Instruct the Trustee to Make a Deposit or Payment. If the Servicer fails to give notice or instructions to make any payment from or deposit into the NFC Collection Account required to be given by the Servicer, at the time specified in the Lease or any other Related Document (including applicable grace periods), and such failure is known by the Trustee, the Trustee shall make such payment or deposit into or from the NFC Collection Account without such notice or instruction from the Servicer. Pursuant to the Lease, the Servicer has agreed that it shall, upon request of the Trustee, promptly provide the Trustee with all information necessary to allow the Trustee to make such a payment or deposit. Section 4.7. Series 1996-2 Distribution Account. (a) Establishment of Series 1996-2 Distribution Account. The Trustee shall establish and maintain in the name of the Trustee for the benefit of the Series 1996-2 Noteholder, or cause to be established and maintained, an account (the "Series 1996-2 Distribution Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 1996-2 Noteholder. The Series 1996-2 Distribution Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 1996-2 Distribution Account (so long as such depositary institution or trust company has a credit rating for its unsecured long-term debt not lower than Baa3 by Moody's and not lower than investment grade by Standard & Poor's). If the Series 1996-2 Distribution Account is not maintained in accordance with the previous sentence, the Servicer shall 63 60 establish a new Distribution Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Trustee to transfer all cash and investments from the non-qualifying Series 1996-2 Distribution Account into the new Series 1996-2 Distribution Account. Initially, the Series 1996-2 Distribution Account will be established with the Trustee. (b) Administration of the Series 1996-2 Distribution Account. The Servicer shall instruct the institution maintaining the Series 1996-2 Distribution Account to invest funds on deposit in the Series 1996-2 Distribution Account at all times in Eligible Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Eligible Investment held in the Series 1996-2 Distribution Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date. The Trustee shall hold possession of or otherwise control, in such a manner that the security interest of the Trustee for the benefit of the Series 1996-2 Noteholder under Section 5.1 shall at all times be perfected under Article 8 or 9 of the UCC of the applicable jurisdiction, any instruments, securities (certificated or uncertificated), security entitlements or securities accounts evidencing the Eligible Investments from the time of purchase thereof until the time of maturity. (c) Earnings from Series 1996-2 Distribution Account. Subject to the restrictions set forth above, the Servicer shall have the authority to instruct the Trustee with respect to the investment of funds on deposit in the Series 1996-2 Distribution Account. All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 1996-2 Distribution Account shall be deemed to be on deposit and available for distribution. (d) Series 1996-2 Distribution Account Constitutes Additional Collateral for Series 1996-2 Note. The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Series 1996-2 Distribution Account and in all proceeds thereof. The Series 1996-2 Distribution Account Collateral shall be under the sole dominion and control of the Trustee for the benefit of the Series 1996-2 Noteholder. Section 4.8. Notice of Series 1996-2 Lease Payment Deficit. The Trustee shall notify the NFC Collateral Agent of any Series 1996-2 Lease Payment Deficit no later than one Business Day after obtaining knowledge thereof. 64 61 ARTICLE 5 SECURITY Section 5.1. Grant of Security Interest. (a) To secure the NFLP Obligations with respect to the Series 1996-2 Note, NFLP hereby pledges, assigns, conveys, delivers, transfers and sets over to the Trustee, for the benefit of the Series 1996-2 Noteholder (the "Secured Party") (but not for the benefit of any Holders of any other Notes, other than any other Shared Collateral Series Notes, if any, as contemplated by the Supplement relating thereto), and hereby grants to the Trustee, for the benefit of the Secured Party (but not for the benefit of any Holders of any other Notes, other than any other Shared Collateral Series Notes, if any, as contemplated by the Supplement relating thereto), a security interest in, all of the right, title and interest in, and to all of the following assets, property and interests in property of NFLP whether now owned or existing or hereafter acquired or created (all of such right, title and interest, together with the portion of the Master Collateral with respect to which the Trustee (on behalf of the Series 1996-2 Noteholder) and the NFC Collateral Agent (on behalf of the NFC Secured Parties), respectively, are named as Beneficiaries, being the "Collateral"): (i) all right, title and interest of NFLP in, to and under the NFLP Agreements, including, without limitation, all rights of NFLP arising thereunder in respect of the National Master Collateral, all monies due and to become due to NFLP from the Lessee or the Servicer under or in connection with NFLP Agreements, whether payable as rent, guaranty payments, supplemental payments, fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of NFLP Agreements or otherwise, and all rights, remedies, powers, privileges and claims of NFLP against any other party under or with respect to NFLP Agreements (whether arising pursuant to the terms of such NFLP Agreements or otherwise available to NFLP at law or in equity), the right to enforce any of the NFLP Agreements as provided herein and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with respect to NFLP Agreements or the obligations of any party thereunder; and (ii) (A) the NFC Collection Account (including the Series 1996-2 Collection Account, the Series 1996-2 Accrued Interest Account and any other accounts designated in this Supplement or otherwise as a subaccount of the NFC Collection Account), (B) all funds on deposit therein from time to time, (C) all certificates and instruments, if any, representing or evidencing any or all of the NFC Collection Account or any subaccount thereof or the funds on deposit therein from time to time, and (D) all instruments, securities (whether certificated or uncertificated), security entitlements, securities accounts and other investments 65 62 acquired at any time and from time to time with the moneys in the NFC Collection Account or any subaccount thereof (including income thereon); and (iii) (A) the Series 1996-2 Distribution Account; (B) all funds on deposit therein from time to time; (C) all certificates and instruments, if any, representing or evidencing any or all of the Series 1996-2 Distribution Account or the funds on deposit therein from time to time; (D) all instruments, securities (whether certificated or uncertificated), security entitlements, securities accounts and other investments acquired at any time and from time to time with monies in the Series 1996-2 Distribution Account; and (E) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (A) through (E) being, collectively, the "Series 1996-2 Distribution Account Collateral"); and (iv) all right, title and interest of NFLP in, to and under the Master Collateral Agency Agreement with respect to the portion of the Master Collateral for which NFLP and NFC, respectively, are designated as Financing Sources and the Trustee (on behalf of the Series 1996-2 Noteholder) and the NFC Collateral Agent (on behalf of the NFC Secured Parties), respectively, are designated as Beneficiaries thereunder; and (v) all additional property that may from time to time hereafter (pursuant to the terms of any Supplement or otherwise) be subjected to the grant and pledge hereof by NFLP or by anyone on its behalf; and (vi) all proceeds, products, rents or profits of any and all of the foregoing including, without limitation, payments under insurance (whether or not the Master Collateral Agent or the Trustee or the NFC Collateral Agent is the loss payee thereof) or Vehicle warranties and cash. No Noteholder other than the Series 1996-2 Noteholder and Holders of other Shared Collateral Series Notes, if any, as contemplated by the Supplement relating thereto, will be entitled to the benefit of any Collateral. (b) To secure the NFLP Obligations with respect to the Series 1996-2 Note, NFLP hereby confirms the grant, pledge, hypothecation, assignment, conveyance, delivery and transfer to the Master Collateral Agent under the Master Collateral Agency Agreement for the benefit of the Trustee (on behalf of the Series 1996-2 Noteholder) and the NFC Collateral Agent (on behalf of the NFC Secured Parties), respectively, of a continuing first priority perfected Lien on all right, title and interest of NFLP in, to and under all the NFLP Master Collateral. 66 63 (c) Notwithstanding anything to the contrary contained in (a) and (b) above, the Collateral shall not include any right, title or interest in the Fleet Finance Agreement or the NFLP Fleet Finance Agreement and payments thereunder. (d) The foregoing grant is made in trust to secure the NFLP Obligations with respect to the Series 1996-2 Note and to secure compliance with the provisions of the Base Indenture, this Supplement and any other Supplement relating to the Series 1996-2 Note, all as provided in the Base Indenture and this Supplement. The Trustee, as Trustee on behalf of the Series 1996-2 Noteholder, acknowledges such grant, accepts the trusts under this Supplement and the Base Indenture in accordance with the provisions of this Supplement and the Base Indenture and agrees to perform its duties required in this Supplement and the Base Indenture to the best of its abilities to the end that the interests of the Series 1996-2 Noteholder may be adequately and effectively protected. ARTICLE 6 AMORTIZATION EVENTS Section 6.1. In addition to the Amortization Events set forth in Section 9.1 of the Base Indenture and the Liquidity Agreement, respectively, the following shall be Amortization Events with respect to the Series 1996-2 Note (without notice or other action on the part of the Trustee or the Series 1996-2 Noteholder) and shall not be waived by the Trustee without the prior written consent of the Series 1996-2 Noteholder, the Liquidity Agent, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM: (a) from and after the funding of any Series 1996-2 Cash Collateral Account pursuant to Section 5.07 of the NFC Collateral Agreement, such Series 1996-2 Cash Collateral Account shall be subject to an injunction, estoppel or other stay or a Lien (other than Liens permitted under the Related Documents). ARTICLE 7 FORM OF SERIES 1996-2 NOTE Section 7.1. The Series 1996-2 Note will be issued in fully registered form without interest coupons (the "Variable Funding Note"), substantially in the form set forth in Exhibit A hereto, with such legend as may be applicable thereto as set forth in the Base Indenture, and will be issued initially to NFC and shall be duly executed by NFLP and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. 67 64 The Variable Funding Note is not permitted to be transferred, assigned, exchanged or otherwise pledged or conveyed except to the NFC Collateral Agent pursuant to the NFC Collateral Agreement or otherwise in compliance with the terms of the Base Indenture. The Variable Funding Note shall bear a face amount equal to the Series 1996-2 Maximum Invested Amount. The Trustee shall, or shall cause the Registrar to, record any Increases or Decreases from time to time and all payments from time to time to the Series 1996-2 Noteholder in respect of the principal amount of the Series 1996-2 Note such that the Note Register accurately reflects the Series 1996-2 Invested Amount (and the outstanding principal amount of the Series 1996-2 Note) from time to time. ARTICLE 8 GENERAL Section 8.1. Maintenance of Rating; Payment of Rating Agency Fees. NFLP agrees and covenants with the Trustee to use commercially reasonable efforts to maintain the initial rating of the Commercial Paper Notes issued by any Rating Agency. NFLP agrees and covenants with the Trustee to pay all reasonable fees and expenses of each Rating Agency and to promptly provide all documents and other information that each Rating Agency may reasonably request. Section 8.2. Exhibits. The following exhibits attached hereto supplement the exhibits included in the Indenture. Exhibit A: Form of Variable Funding Note Section 8.3. Ratification of Base Indenture. As supplemented by this Supplement, the Base Indenture is in all respects ratified and confirmed and the Base Indenture as so supplemented by this Series Supplement shall be read, taken, and construed as one and the same instrument. Section 8.4. Counterparts. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Section 8.5. Governing Law. This Supplement shall be construed in accordance with the law of the State of New York (without giving effect to the provisions thereof regarding conflicts of laws), and the obligations, rights and remedies of the parties hereto shall be determined in accordance with such law. 68 65 Section 8.6. Amendments. This Supplement may be modified or amended from time to time in accordance with the terms of the Base Indenture; provided, however, that no amendment or modification of any provision of this Supplement shall in any event be effective unless (i) the same shall be in writing and signed and delivered by NFLP and the Trustee and consented to in writing by the Liquidity Agent, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM and (ii) the Issuer shall have received in writing confirmation of each of the Rating Agencies that its then current rating of the Commercial Paper Notes will not be reduced or withdrawn as a result thereof; and, provided, further, however that if, pursuant to the terms of the Base Indenture, the consent of the Required Noteholders is required for an amendment or modification of this Supplement, such requirement shall be satisfied if such amendment or modification is consented to by the Series 1996-2 Noteholder, the Liquidity Agent, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM. Section 8.7. Discharge of Indenture. Notwithstanding anything to the contrary contained in the Base Indenture, no discharge of the Indenture pursuant to Section 11.1(b) of the Base Indenture will be effective as to the Series 1996-2 Note without the consent of the Series 1996-2 Noteholder, the Liquidity Agent, the NFC Collateral Agent and GM. Section 8.8. Inspection of Property, Books and Records. At the written request of the Series 1996-2 Noteholder (which request shall specify the matters to be investigated with reasonable specificity) or the NFC Collateral Agent, but in no event more than semi-annually, the Trustee shall investigate such matters as permitted under Section 8.8 of the Base Indenture. Section 8.9. Acknowledgment of Trustee. The Trustee hereby acknowledges and consents to NFC's assignment to the NFC Collateral Agent under the NFC Collateral Agreement for the benefit of the NFC Secured Parties of all of NFC's right, title and interest as the Series 1996-2 Noteholder in and to the Series 1996-2 Note, the Master Collateral for the Series 1996-2 Note and the Collateral from time to time. 69 66 IN WITNESS WHEREOF, NFLP and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ M.J. Becker ------------------------------- Name: M.J. Becker Title: Asst. Secretary and Treasurer THE BANK OF NEW YORK, as Trustee By: /s/ Cheryl L. Laser ------------------------------- Name: CHERYL L. LASER Title: Assistant Vice President EX-4.5 6 SECOND MASTER MOTOR VEHICLE LEASE 02/19/97 1 Exhibit 4.5 CONSENT AND AMENDMENT TO SERIES 1996-2 SUPPLEMENT AND SECOND MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT, dated as of February 19, 1997 (this "Amendment"), among NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership ("NFLP"), NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"), THE BANK OF NEW YORK, a New York banking corporation ("BONY"), as trustee (the "Trustee"), NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation (the "Series 1996-2 Noteholder"), CREDIT SUISSE FIRST BOSTON (formerly Credit Suisse), a Swiss banking corporation acting through its New York Branch, as collateral agent (the "NFC Collateral Agent"), CITIBANK , N.A., a national banking association, as liquidity agent (the "Liquidity Agent"), and DEUTSCHE BANK AG, a German banking corporation acting through its New York branch ("Deutsche Bank"), GENERAL MOTORS CORPORATION, a Delaware corporation ("GM"), BONY, and CAISSE NATIONALE DE CREDIT AGRICOLE, a French banking corporation acting through its Chicago Branch (collectively with Deutsche Bank, GM and BONY, being the "Series 1996-2 Enhancement Providers"). PRELIMINARY STATEMENTS WHEREAS, NFLP and the Trustee have entered into that certain Series 1996-2 Supplement, dated as of December 20, 1996 (the "Series 1996-2 Supplement"), to the Base Indenture, dated as of April 30, 1996 (said Base Indenture, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, and as supplemented by the Series 1996-2 Supplement, being the "Base Indenture"), creating the Floating Rate Rental Car Asset Backed Variable Funding Note, Series 1996-2 (the "Series 1996-2 Note"); and WHEREAS, NFLP and National have entered into that certain Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996 (the "Lease"), relating to the Series 1996-2 Note; WHEREAS, National and NFLP have requested that the other parties hereto consent to the amendment of Section 17.1.6 of the Lease made by amending the definition of the term "Change of Control", contained in Section 2.2 of the Series 1996-2 Supplement, to permit the acquisition by Republic Industries, Inc., a Delaware corporation, of the beneficial ownership of all of the issued and outstanding shares of common stock, par value $.01 per share, of National and all of the issued and outstanding shares of Series A Preferred Stock, 2 2 par value $.01 per share, of National; and such other parties are, on the terms and conditions set forth below, willing to grant such request; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. Capitalized terms used but not defined in this Amendment, including the preamble and the recitals (WHEREAS clauses) hereof, shall have the meanings assigned to such term in the Base Indenture. SECTION 2. Amendment to Series 1996-2 Supplement. NFLP and the Trustee agree that the Series 1996-2 Supplement is, effective as of the time, and subject to the satisfaction of the conditions precedent, set forth in Section 4 hereof, hereby amended by amending the definition of the term "Change of Control" contained in Section 2.2 to read as follows: "'Change of Control' means (i) a transaction or series of transactions whereby any Person or group within the meaning of Section 13(d)(3) of the Exchange Act and the rules and regulations promulgated thereunder (other than Republic Industries, Inc., a Delaware corporation ("Republic"), or an Affiliate of Republic) acquires beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of National (or other securities convertible into such securities) representing 40% of the combined voting power of all securities of National entitled to vote in the election of directors (a "Controlling Person") or (ii) at any time, a majority of National's directors are persons who were not (A) initially nominated by Republic or an Affiliate of Republic, or (B) successor directors whose nomination for election by the stockholders of National was approved by a vote of a majority of the directors then still in office. For this purpose, a Person shall not be a Controlling Person if such Person holds voting power in good faith and not for the purpose of circumventing the effect of the occurrence of a Change of Control as an agent, bank, broker, nominee, trustee, or holder of revocable proxies given in response to a solicitation pursuant to the Exchange Act, for one or more beneficial owners who do not individually, or, if they are a group acting in concert, as a group, have the voting power specified in the previous sentence." SECTION 3. Consent of NFLP, National, Trustee, Series 1996-2 Noteholder, NFC Collateral Agent, Liquidity Agent and Series 1996-2 Enhancement Providers to Amendment of Series 1996-2 Supplement and Lease. Effective as of the time, and subject to the satisfaction of the conditions precedent, set forth in Section 4 hereof, each of NFLP, National, the Trustee, the Series 1996-2 Noteholder, the NFC Collateral Agent, the Liquidity 3 3 Agent and the Series 1996-2 Enhancement Providers hereby consents to (i) the amendment of the Lease effected by the amendment of Section 2.2 of the Series 1996-2 Supplement effected by Section 2 hereof, and (ii) such amendment of the Series 1996-2 Supplement effected by Section 2 hereof. SECTION 4. Conditions of Effectiveness. This Amendment shall become effective simultaneously with the consummation of the Acquisition under and as defined in the Share Exchange Agreement dated as of January 5, 1997 among Republic Industries, Inc., National, Santa Anna Holdings, Inc. and Emerald Investors, L.L.C. when, and only when, the Trustee, the NFC Collateral Agent and the Liquidity Agent shall have received counterparts of this Amendment executed by NFLP, National, the Trustee, the NFC Collateral Agent, the Liquidity Agent, the Series 1996-2 Noteholder, and the Series 1996-2 Enhancement Providers, and counterparts of the Consent hereto executed by the Dealers and the Liquidity Lenders, and Sections 2 and 3 hereof shall become effective when, and only when, (I) such Acquisition shall have been consummated (it being understood and agreed by the parties hereto that Sections 2 and 3 hereof shall become effective simultaneously with such consummation) and (II) the Trustee, the NFC Collateral Agent and the Liquidity Agent shall have received all of the following documents, each document (unless otherwise indicated) being dated, or dated as of, the date hereof and in form and substance satisfactory to the Trustee, the NFC Collateral Agent and the Liquidity Agent: (i) The written consent of the Rating Agencies to this Amendment or, as to any Rating Agency, the written confirmation by such Rating Agency that, upon giving effect to this Amendment, the Rating Agency Condition will be met with respect to such Rating Agency; (ii) A certificate of the Secretary or an Assistant Secretary of each of the General Partner of NFLP, National and the Series 1996-2 Noteholder, certifying the names of the individual or individuals authorized to sign this Amendment, together with a sample of the true signature of each such individual; and (iii) An opinion of counsel for NFLP, which counsel is acceptable to the Trustee, stating that the amendment of the Lease and the Series 1996-2 Supplement made by this Amendment does not affect any Noteholder other than the Series 1996-2 Noteholder (which opinion may, to the extent the same is based on any factual matter, rely upon an Officer's Certificate as to the truth of such factual matter). SECTION 5. Reference to and Effect on the Related Documents. (a) Upon the effectiveness of this Amendment, including Sections 2 and 3 hereof, each reference in the Series 1996-2 Supplement or the Lease to "this Supplement" or "this Agreement" or "this Lease", "hereunder", "hereof" or words of like import referring to the Series 1996-2 Supplement or the Lease, respectively, and each reference in the Lease, the Series 1996-2 Supplement or the other Related Documents to "the Series 1996-2 Supplement" or "the 4 4 Lease", "thereunder", "thereof" or words of like import referring to the Series 1996-2 Supplement or the Lease, shall mean and be a reference to the Series 1996-2 Supplement, or the Lease, in each case as amended hereby. (b) Except as specifically amended above, the Base Indenture, the Series 1996-2 Supplement, the Lease and all other Related Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Base Indenture and all of the Collateral described therein do and shall continue to secure the payment of all NFLP Obligations to which such Collateral is applicable (giving effect to this Amendment). (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party thereto under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. SECTION 6. Costs and Expenses. NFLP agrees to pay on demand all reasonable costs and expenses of the Trustee, the Liquidity Agent and the NFC Collateral Agent in connection with the preparation, execution, delivery and administration of this Amendment and the other instruments and documents to be delivered under, or as contemplated by, Section 4 hereof, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Trustee, the Liquidity Agent and the NFC Collateral Agent with respect thereto and with respect to advising the Trustee, the Liquidity Agent and the NFC Collateral Agent as to their respective rights and responsibilities hereunder and thereunder. SECTION 7. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall constitute delivery of a manually executed counterpart of this Amendment. 5 5 SECTION 8. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ M.J. Becker ------------------------------ Name: M.J. BECKER Title: TREASURER NATIONAL CAR RENTAL SYSTEM, INC. By: /s/ E.A. Zintek ------------------------------ Name: E.A. ZINTEK Title: EVP THE BANK OF NEW YORK, as Trustee and as an A Support Credit Enhancer By: /s/ Richard Raffetto ------------------------------ Name: RICHARD A. RAFFETTO Title: ASSISTANT VICE PRESIDENT 6 6 NATIONAL FLEET FUNDING CORPORATION By /s/ M.J. Becker ------------------------------ Name: M.J. BECKER Title: TREASURER CREDIT SUISSE FIRST BOSTON (formerly Credit Suisse), NEW YORK BRANCH, as NFC Collateral Agent By /s/ Roger W. Saylor ------------------------------ Name: ROGER W. SAYLOR Title: ASSOCIATE By /s/ Thomas G. Muoio ------------------------------ Name: THOMAS G. MUOIO Title: ASSOCIATE CITIBANK, N.A., as Liquidity Agent By /s/ Annette M. Marsula ------------------------------ Name: ANNETTE M. MARSULA Title: SENIOR TRUST OFFICER DEUTSCHE BANK AG, as A Credit Enhancer and B Credit Enhancer By /s/ Hans-Josef Thiele ------------------------------ Name: Hans-Josef Thiele Title: Vice President By /s/ Belinda Wheeler ------------------------------ Name: Belinda Wheeler Title: Assistant Vice President 7 7 GENERAL MOTORS CORPORATION, as an A Support Credit Enhancer By /s/ Eric P. Plumb ------------------------------ Name: Eric P. Plumb Title: Attorney-in-fact CAISSE NATIONALE DE CREDIT AGRICOLE, as B Support Credit Enhancer By /s/ Katherine L. Abbott ------------------------------ Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT 8 CONSENT Dated as of February 19, 1997 Each of the undersigned, a Liquidity Lender under the Liquidity Agreement (as defined in the Series 1996-2 Supplement referred to in the foregoing Amendment) or a Dealer under the Dealer Agreement (as defined in said Series 1996-2 Supplement), as applicable, hereby consents to the foregoing Amendment, and hereby confirms and agrees that the Liquidity Agreement, the Dealer Agreement and each other Related Document to which it is a party, is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of, the said Amendment, each reference in the Liquidity Agreement, the Dealer Agreement or such other Related Document to the Series 1996-2 Supplement or the Lease, "thereunder", "thereof" or words of like import shall mean and be a reference to the Series 1996-2 Supplement or the Lease as amended by the said Amendment. Liquidity Lenders ABN AMRO BANK, N.V. By /s/ Christine E. Holmes ------------------------------ Name: CHRISTINE E. HOLMES Title: VICE PRESIDENT By /s/ Angela Reitz ------------------------------ Name: ANGELA REITZ Title: Vice President BANK AUSTRIA AKTIENGESELLSCHAFT By /s/ Jeanine Ball ------------------------------ Name: Jeanine Ball Title: Assistant Vice President Bank Austria By /s/ J. Anthony Seay ------------------------------ Name: J. Anthony Seay Title: Vice President Bank Austria 9 2 BANK BRUSSELS LAMBERT, NEW YORK BRANCH By /s/ John Kippax ------------------------------ Name: John Kippax Title: Vice President & Manager By /s/ Dominick H. J. Vangaever ------------------------------ Name: Dominick H. J. Vangaever Title: Senior Vice President Credit BANK OF IRELAND By /s/ Niamh O'Flynn ------------------------------ Name: NIAMH O'FLYNN Title: MANAGER By /s/ R.A. Wyer ------------------------------ Name: R.A. Wyer Title: BANK OF MONTREAL By /s/ Edward P. McGuire ------------------------------ Name: EDWARD P. MCGUIRE Title: DIRECTOR THE BANK OF NEW YORK By: /s/ Richard Raffetto ------------------------------ Name: Richard A. Raffetto Title: Assistant Vice President 10 3 THE BANK OF NOVA SCOTIA By /s/ F.C.H. Ashby ------------------------------ Name: F.C.H. Ashby Title: Senior Manager Loan Operations THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Jeffrey R. Arnold ------------------------------ Name: Jeffrey R. Arnold Title: Vice President BANQUE ET CAISSE D'EPARGNE DE L'ETAT By /s/ John Dhur ------------------------------ Name: John DHUR Title: Sous-Directeur By /s/ Carlo Matagne ------------------------------ Name: Carlo MATAGNE Title: Chof ______ Servico Correspondent Banking BANQUE NATIONALE DE PARIS, CHICAGO BRANCH By /s/ Arnaud Collin du Bocage ------------------------------ Name: ARNAUD COLLIN du BOCAGE Title: Executive Vice President and General Manager 11 4 BAYERISCHE HYPOTHEKEN-UND WECHSEL - BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH By /s/ R. Vogel ------------------------------ Name: R. Vogel Title: A.T. By /s/ R. G. Pankuch ------------------------------ Name: R. G. Pankuch Title: F&P CAISSE NATIONALE DE CREDIT AGRICOLE By /s/ Katherine L. Abbott ------------------------------ Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT CANADIAN IMPERIAL BANK OF COMMERCE By /s/ Kent Davis ------------------------------ Name: Kent Davis Title: Authorized Signatory CITIBANK, N.A. By /s/ Elizabeth A. Palermo ------------------------------ Name: Elizabeth A. Palermo Title: Attorney-In-Fact 12 5 COMMERZBANK AG, CHICAGO BRANCH By /s/ Paul Karlin ------------------------------ Name: PAUL KARLIN Title: Assistant Treasurer By /s/ Dr. Tollner ------------------------------ Name: Dr. HELMUT R. TOLLNER Title: Executive Vice President CREDIT SUISSE FIRST BOSTON (formerly Credit Suisse), NEW YORK BRANCH By /s/ Roger W. Saylor ------------------------------ Name: ROGER W. SAYLOR Title: ASSOCIATE By /s/ Thomas G. Muoio ------------------------------ Name: THOMAS G. MUOIO Title: ASSOCIATE 13 6 DEN DANSKE BANK AKTIESELSKAB, NEW YORK BRANCH By /s/ Stephen B. Shea ----------------------------- Name: Stephen B. Shea Title: Vice President By /s/ John A. O'Neill ------------------------------ Name: JOHN A. O'NEILL Title: VICE PRESIDENT DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By /s/ Christopher E. Sarisky ------------------------------ Name: CHRISTOPHER E. SARISKY Title: Assistant Treasurer By /s/ Thomas J. Nadramla ------------------------------ Name: Thomas J. Nadramla Title: Vice President FIRST BANK NATIONAL ASSOCIATION By /s/ Elliot J. Jaffee ------------------------------ Name: Elliot J. Jaffee Title: Vice President 14 7 THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO BRANCH By /s/ Hiroki Yamada ------------------------------ Name: Hiroki Yamada Title: General Manager ING BARING (U.S.) CAPITAL MARKETS, INC. By /s/ Michael Plunkett ------------------------------ Name: Michael Plunkett Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Richard A. Burke ------------------------------ Name: Richard A. Burke Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE By /s/ Stephen K. Hunter ------------------------------ Name: Stephen K. Hunter Title: Senior Vice President By /s/ Petra Frank-Witt ------------------------------ Name: Petra Frank-Witt Title: VP NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ ------------------------------ Name: Title: 15 8 PNC BANK, NATIONAL ASSOCIATION By /s/ Gregory T. Gaschler ------------------------------ Name: Gregory T. Gaschler Title: Vice President THE SANWA BANK, LIMITED CHICAGO BRANCH By /s/ Tomomi Omura ------------------------------ Name: Tomomi Omura Title: Assistant General Manager THE SUMITOMO BANK, LIMITED By /s/ H Iwami ------------------------------ Name: Hiroyuki Iwami Title: Joint General Manager SVENSKA HANDELSBANKEN, NEW YORK BRANCH By /s/ ------------------------------ Name: Title: By /s/ Ralph C. Dabisio ------------------------------ Name: Ralph C. Dabisio Title: Vice President 16 9 UNITED STATES NATIONAL BANK OF OREGON By /s/ Roger H. Weis ------------------------------ Name: Roger H. Weis Title: Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ Michael F. McWalters ------------------------------ Name: MICHAEL F. McWALTERS Title: MANAGING DIRECTOR By /s/ C.D. Rockey ------------------------------ Name: C.D. Rockey Title: Associate Dealers CREDIT SUISSE FIRST BOSTON CORPORATION (formerly CS First Boston Corporation), as a Dealer By /s/ Bruce T Miller ------------------------------ Name: Bruce T Miller Title: Director 17 10 GOLDMAN, SACHS & CO. (successor organization to Goldman Sachs Money Markets, L.P.), as a Dealer By: /s/ John P. Heanue ------------------------------ Name: John P. Heanue Title: Authorized Signatory CITICORP SECURITIES, INC., as a Dealer By /s/ J. Darrell Thomas ------------------------------ Name: J. Darrell Thomas Title: Vice President EX-4.6 7 2ND CONSENT AND AMENDTENT TO SERIES 1996-2 1 EXHIBIT 4.6 SECOND CONSENT AND AMENDMENT TO SERIES 1996-2 SUPPLEMENT, dated as of May 7, 1997 (this "AMENDMENT"), among NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership ("NFLP"), NATIONAL CAR RENTAL SYSTEMS, INC., a Delaware corporation ("NATIONAL"), THE BANK OF NEW YORK, a New York banking corporation ("BONY"), as trustee (the "TRUSTEE"), NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation (the "SERIES 1996-2 NOTEHOLDER"), CREDIT SUISSE FIRST BOSTON (formerly Credit Suisse), a Swiss banking corporation acting through its New York Branch, as collateral agent (the "NFC COLLATERAL AGENT"), CITIBANK, N.A., a national banking association, as liquidity agent (the "LIQUIDITY AGENT"), and DEUTSCHE BANK, AG, a German banking corporation acting through its New York branch ("DEUTSCHE BANK"), GENERAL MOTORS CORPORATION, a Delaware corporation ("GM"), BONY and CAISSE NATIONALE DE CREDIT AGRICOLE, a French banking corporation acting through its Chicago Branch (collectively with Deutsche Bank, GM and BONY being the "SERIES 1996-2 ENHANCEMENT PROVIDERS"). PRELIMINARY STATEMENTS WHEREAS, NFLP and the Trustee have entered into that certain Series 1996-2 Supplement, dated as of December 20, 1996, as amended by the Consent and Amendment to Series 1996-2 Supplement and Second Master Motor Vehicle Lease and Servicing Agreement, dated as of February 19, 1997 (said Series 1996-2 Supplement, as so amended, being the "SERIES 1996-2 SUPPLEMENT"), to the Base Indenture, dated as of April 30, 1996 (said Base Indenture, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, and as supplemented by the Series 1996-2 Supplement, being the "BASE INDENTURE"), creating the Floating Rate Rental Car Asset Backed Variable Funding Note, Series 1996-2 (the "SERIES 1996-2 NOTE"); WHEREAS, National and NFLP have requested that the other parties hereto consent to the amendment of the definition of the term "Scheduled Liquidity Commitment Termination Date" to extend such date to May 6, 1998; and such other parties are, on the terms and conditions set forth below, willing to grant such request; and WHEREAS, National, the Series 1996-2 Noteholder and GM have requested that the other parties hereto consent to the amendment of Section 2.1(c)(ii) of the A Support Reimbursement Agreement, dated as of June 7, 1995, as amended by the Amendment to A Support Reimbursement Agreement, dated as of April 30, 1996, and the 2nd Amendment to A Support Reimbursement Agreement, dated as of December 20, 1996, whereby National, the Series 1996-2 Noteholder and GM have agreed to waive the 30 day prior delivery requirement contained therein; and such other parties are, on the terms and conditions set forth below, willing to grant such request. NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree, upon the terms and subject to the conditions set forth below, as follows: 2 SECTION 1. DEFINED TERMS. Capitalized terms used but not defined in this Amendment, including the preamble and the recitals (WHEREAS clauses) hereof, shall have the meanings assigned to such term in the Base Indenture. SECTION 2. AMENDMENT TO SERIES 1996-2 SUPPLEMENT. NFLP and the Trustee agree that the Series 1996-2 Supplement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 4 hereof, hereby amended as follows: (a) "'SCHEDULED LIQUIDITY COMMITMENT TERMINATION DATE' means, for any Liquidity Lender, May 6, 1998, as such date may be extended from time to time pursuant to Section 3.5 of the Liquidity Agreement." SECTION 3. CONSENT OF NFLP, NATIONAL, TRUSTEE, SERIES 1996-2 NOTEHOLDER, NFC COLLATERAL AGENT, LIQUIDITY AGENT AND SERIES 1996-2 ENHANCEMENT PROVIDERS TO AMENDMENT OF SERIES 1996-2 SUPPLEMENT. Effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 4 hereof, each of NFLP, National, the Trustee, the Series 1996-2 Noteholder, the NFC Collateral Agent, the Liquidity Agent and the Series 1996-2 Enhancement Providers hereby consents to the amendment of the Series 1996-2 Supplement effected by Section 2 hereof. SECTION 4. WAIVER OF 30 DAY PRIOR DELIVERY REQUIREMENT. National, the Series 1996-2 Noteholder and GM agree to waive the 30 day prior delivery requirement imposed by Section 2.1(c)(ii) of the A Support Reimbursement Agreement, dated as of June 7, 1995, as amended by the Amendment to A Support Reimbursement Agreement, dated as of April 30, 1996, and the 2nd Amendment to A Support Reimbursement Agreement, dated as of December 20, 1996. SECTION 5. CONDITIONS AND EFFECTIVENESS. This Amendment shall become effective as of the date hereof when, and only when, the Trustee, the NFC Collateral Agent and the Liquidity Agent shall have received counterparts of this Amendment executed by NFLP, National, the Trustee, the NFC Collateral Agent, the Liquidity Agent, the Series 1996-2 Noteholder, and the Series 1996-2 Enhancement Providers, and counterparts of the Consent hereto executed by the Dealers and the Liquidity Lenders; and Sections 2 and 3 hereof shall become effective when, and only when, the Trustee, the NFC Collateral Agent and the Liquidity Agent shall have also received all of the following documents, each document (unless otherwise indicated) being dated, or dated as of, the date hereof and in form and substance satisfactory to the Trustee, the NFC Collateral Agent and the Liquidity Agent: (a) The written consent of the Rating Agencies to this Amendment or, as to any Rating Agency, the written confirmation by such Rating Agency that, upon giving effect to this Amendment, the Rating Agency Condition will be met with respect to such Rating Agency; (b) An executed copy of all those amendments to the other Related Documents that are to be entered into in connection with this Amendment, including, without limitation, the following amendments: 2 3 (i) Amendment No. 4 to the A Letter of Credit, in substantially the form of Exhibit A hereto; (ii) Amendment No. 3 to the B Letter of Credit, in substantially the form of Exhibit B hereto; (iii) Amendment No. 2 to the Reduction A Letter of Credit, in substantially the form of Exhibit C hereto; and (iv) Second Amendment to Reduction A Support Reimbursement Agreement, in substantially the form of Exhibit D hereto; (c) A Certificate of the Secretary or an Assistant Secretary of each of the General Partner of NFLP, National and the Series 1996-2 Noteholder, certifying the names of the individual or individuals authorized to sign this Amendment, together with a sample of the true signature of each such individual; (d) An opinion of counsel for NFLP, which counsel is acceptable to the Trustee, stating that the amendment of the Lease and the Series 1996-2 Supplement made by this Amendment does not affect any Noteholder other than the Series 1996-2 Noteholder (which opinion may, to the extent the same is based on any factual matter, rely upon an Officer's Certificate as to the truth of such factual matter). SECTION 6. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. National and NFLP each hereby represents and warrants that (i) the representations and warranties in Article 7 of the Base Indenture and Section 23 of the Series 1996-2 Lease, giving effect to this Amendment, are true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) on and as of the date hereof with the same effect as if made on and as of the date hereof (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) as of such earlier date), and (ii) on the date hereof, no Amortization Event or Potential Amortization Event has occurred and is continuing. SECTION 7. REFERENCE TO AND EFFECT ON THE RELATED DOCUMENTS. (a) Upon the effectiveness of this Amendment, including Sections 2 and 3 hereof, each reference in the Series 1996-2 Supplement to "this Supplement" or "this Agreement", "hereunder", "hereof" or words of like import referring to the Series 1996-2 Supplement, and each reference in the other Related Documents to "the Series 1996-2 Supplement", "thereunder", "thereof" or words of like import referring to the Series 1996-2 Supplement, shall mean and be a reference to the Series 1996-2 Supplement as amended hereby. (b) Except as specifically amended above, the Base Indenture, the Series 1996-2 Supplement and all other Related Documents are and shall continue to be in full force and effect and 3 4 are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Base Indenture and all of the Collateral described therein do and shall continue to secure the payment of all NFLP Obligations to which such Collateral is applicable (giving effect to this Amendment). (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party thereto under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. SECTION 8. COSTS AND EXPENSES. NFLP agrees to pay on demand all reasonable costs and expenses of the Trustee, the Liquidity Agent and the NFC Collateral Agent in connection with the preparation, execution, delivery and administration of this Amendment and the other instruments and documents to be delivered under, or as contemplated by, Section 5 hereof, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Trustee, the Liquidity Agent and the NFC Collateral Agent with respect thereto and with respect to advising the Trustee, the Liquidity Agent and the NFC Collateral Agent as to their respective rights and responsibilities hereunder and thereunder. SECTION 8.5 EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall constitute delivery of a mutually executed counterpart of this Amendment. 4 5 SECTION 9. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with the laws of the State of New York excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ ----------------------------- Name: Title: NATIONAL CAR RENTAL SYSTEM, INC. By: /s/ ------------------------------------- Name: Title: THE BANK OF NEW YORK, as Trustee By: /s/ Cheryl L. Laser ------------------------------------- Name: Cheryl L. Laser Title: Assistant Vice President 5 6 NATIONAL FLEET FUNDING CORPORATION By: /s/ ------------------------------------------------------ Name: Title: CREDIT SUISSE FIRST BOSTON (formerly Credit Suisse), NEW YORK BRANCH, as NFC Collateral Agent By: /s/ Roger W. Saylor ------------------------------------------------------ Name: Roger W. Saylor Title: Associate By: /s/ Matt Moser ------------------------------------------------------ Name: Matt Moser Title: Associate CITIBANK, N.A., as Liquidity Agent By: /s/ Annette Marsula ------------------------------------------------------ Name: Annette Marsula Title: Senior Trust Officer DEUTSCHE BANK AG, as A Credit Enchancer and B Credit Enhancer By: /s/ Hans-Josef Thiele /s/Belinda Wheeler ------------------------------------------------------ Name: Hans Josef-Thiele Belinda J. Wheeler Title: Director Vice President 6 7 GENERAL MOTORS CORPORATION, as an A Support Credit Enhancer By: /s/ David A. Robson ----------------------------------------- Name: David A. Robson Title: Attorney-in-fact CAISSE NATIONALE DE CREDIT AGRICOLE, as B Support Credit Enhancer By: /s/ Katherine L. Abbot ----------------------------------------- Name: Katherine L. Abbott Title: First Vice President 7 8 THE BANK OF NEW YORK, as an A Support Credit Enhancer By: /s/ Mark T. Familo ----------------------------------------- Name: Mark T. Familo Title: Assistant Vice President 8 EX-4.7 8 LIQUIDITY AGREEMENT DATED 06/07/95 1 Exhibit 4.7 EXECUTION COPY LIQUIDITY AGREEMENT, Dated as of June 7, 1995, among NATIONAL FLEET FUNDING CORPORATION. CERTAIN FINANCIAL INSTITUTIONS, as the Liquidity Lenders and CITIBANK, N.A., as the Liquidity Agent for the Liquidity Lenders 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Definitions ...................................... 2 SECTION 1.2. Cross-References.................................. 2 SECTION 1.3. Accounting and Financial Determinations; No Duplication................................... 2
ARTICLE II COMMERCIAL PAPER OPERATIONS SECTION 2.1. Issuance of Commercial Paper Notes................ 3 SECTION 2.2. Conditions to the Issuance of Commercial Paper Notes...................................... 4 SECTION 2.2.1. Representations and Warranties.................... 4 SECTION 2.2.2. No Amortization Event............................. 5 SECTION 2.2.3. Available Liquidity Commitment.................... 5 SECTION 2.2.4. No Borrowing Base Deficiency...................... 5 SECTION 2.2.5. Borrowing Base Certificate........................ 5 SECTION 2.2.6. Non-Prepayment of Loans........................... 5 SECTION 2.3. Commercial Paper Notes............................ 5 SECTION 2.4. Commercial Paper Account; Payment of Commercial Paper Notes...................................... 6
ARTICLE III LIQUIDITY COMMITMENTS, BORROWING PROCEDURES, LIQUIDITY ADVANCES AND NOTES SECTION 3.1. Liquidity Commitments............................. 6 SECTION 3.1.1. Revolving Advance Commitment...................... 7 SECTION 3.1.2. Refunding Advance Commitment...................... 7 SECTION 3.1.3. Swing Line Commitment............................. 7 SECTION 3.1.4. Use of Proceeds................................... 8 SECTION 3.2 Liquidity Lenders Not Required to Make Certain Liquidity Advances............................... 8 SECTION 3.2.1. Revolving Advances................................ 8 SECTION 3.2.2. Refunding and Swing Line Advances................. 8 SECTION 3.2.3. Failure to Fund................................... 8 SECTION 3.3. Termination and Reduction of the Liquidity Commitments...................................... 9 SECTION 3.4. Increase of the Aggregate Liquidity Commitment....................................... 10 SECTION 3.5. Extensions of Scheduled Liquidity Commitment Termination Date................................. 10
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SECTION 3.6. Borrowing Procedures.............................. 10 SECTION 3.6.1. Revolving Advances................................ 10 SECTION 3.6.2. Refunding Advances................................ 11 SECTION 3.6.3. Swing Line Advances............................... 12 SECTION 3.6.4. Commitment Termination Date Liquidity Advances.... 13 SECTION 3.6.5. Nature of Funding Obligations..................... 13 SECTION 3.6.6. Failure to Fund by Lender......................... 14 SECTION 3.7. Disbursement of Funds............................. 14 SECTION 3.8. Continuation and Conversion Elections............. 15 SECTION 3.9. LIBOR Funding..................................... 16 SECTION 3.10. Liquidity Advance Notes........................... 16
ARTICLE IV REPAYMENTS, PREPAYMENTS, INTEREST AND FEES, ETC.
SECTION 4.1. Repayments and Prepayments........................ 17 SECTION 4.1.1. Voluntary Prepayments............................. 17 SECTION 4.1.2. Mandatory Prepayments............................. 17 SECTION 4.2. Interest Provisions............................... 18 SECTION 4.2.1. Rates............................................. 18 SECTION 4.2.2. Post Default Rates................................ 19 SECTION 4.3. Payments of Interest.............................. 20 SECTION 4.4. Computation Basis................................. 20 SECTION 4.5. Fee............................................... 20
ARTICLE V CERTAIN LIBOR AND OTHER PROVISIONS SECTION 5.1. LIBOR Lending Unlawful............................ 21 SECTION 5.2. Deposits Unavailable.............................. 21 SECTION 5.3. Increased Costs, etc.............................. 22 SECTION 5.4. Funding Losses.................................... 22 SECTION 5.5. Increased Capital Costs........................... 23 SECTION 5.6. Taxes............................................. 24 SECTION 5.7. Payments, Computations, etc....................... 25 SECTION 5.8. Sharing of Payments............................... 26 SECTION 5.9. Replacement of Liquidity Lenders.................. 27 SECTION 5.10. Order and Priority................................ 28
ARTICLE VI
CONDITIONS PRECEDENT SECTION 6.1. Conditions to Effectiveness....................... 28 SECTION 6.1.1. Organic Documents, Resolutions.................... 28 SECTION 6.1.2. Liquidity Agreement............................... 29 SECTION 6.1.3. Liquidity Advance Notes........................... 29 SECTION 6.1.4. Master Collateral Agency Agreement; Collateral Sharing Agreement and Collateral Agreement....... 29
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SECTION 6.1.5. Loan Agreement.................................... 30 SECTION 6.1.6. Letter of Credit Agreements....................... 30 SECTION 6.1.7. Depositary Agreement.............................. 30 SECTION 6.1.8. Dealer Agreement; Placement Agency Agreement...... 31 SECTION 6.1.9. Closing Date Certificate.......................... 31 SECTION 6.1.10. Accounts.......................................... 31 SECTION 6.1.11. Rating Letters.................................... 31 SECTION 6.1.12. Vehicles, Repurchase Programs, etc................ 31 SECTION 6.1.13. Assignments....................................... 32 SECTION 6.1.14. Board of Directors................................ 32 SECTION 6.1.15. Solvency Certificates............................. 32 SECTION 6.1.16. Closing Fees and Expenses......................... 32 SECTION 6.1.17. Certified Copy of Repurchase Program.............. 32 SECTION 6.1.18. Opinions.......................................... 32 SECTION 6.1.19. Notation of Liens................................. 32 SECTION 6.1.20. Offering Materials................................ 33 SECTION 6.1.21. Satisfactory Legal Form........................... 33 SECTION 6.1.22. Credit Rating of Initial Liquidity Lenders........ 33 SECTION 6.1.23. Vehicle Title Nominee Agreement; GM Guaranty...... 33 SECTION 6.1.24. Assignment of GMAC Lien; Filing of UCC Termination Statements........................... 33 SECTION 6.2. Conditions to the Making of Each Revolving Advance.......................................... 34 SECTION 6.2.1. Representations and Warranties.................... 34 SECTION 6.2.2. No Amortization Event; Loan Event of Default...... 34 SECTION 6.2.3. No Borrowing Base Deficiency...................... 34 SECTION 6.2.4. Availability...................................... 34 SECTION 6.2.5. Attachments....................................... 35 SECTION 6.2.6. Receipt of Monthly Report......................... 35 SECTION 6.2.7. Borrowing Request................................. 35 SECTION 6.2.8. Borrowing Base Certificate........................ 35 SECTION 6.3. Conditions Precedent to the Making of Each Refunding Advance........................... 35 SECTION 6.3.1. No Bankruptcy..................................... 35 SECTION 6.3.2. Availability...................................... 36 SECTION 6.3.3. No Borrowing Base Deficiency...................... 36 SECTION 6.3.4. Borrowing Request................................. 36 SECTION 6.3.5. Borrowing Base Certificate........................ 36
ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 7.1. Existence and Power............................... 36 SECTION 7.2. Authorization..................................... 37 SECTION 7.3. Binding Effect.................................... 37 SECTION 7.4. Financial Information; Financial Condition........ 37 SECTION 7.5. Litigation........................................ 37 SECTION 7.6. No ERISA Plan..................................... 38 SECTION 7.7. Tax Filings and Expenses.......................... 38 SECTION 7.8. Disclosure........................................ 38
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SECTION 7.9. Investment Company Act; Securities Act............ 38 SECTION 7.10. Margin Regulations................................ 38 SECTION 7.11. No Consent........................................ 38 SECTION 7.12. No Violation of Laws, etc......................... 39 SECTION 7.13. Ownership; Subsidiaries........................... 39 SECTION 7.14. Solvency.......................................... 39 SECTION 7.15. No Security Interest.............................. 39 SECTION 7.16. Repurchase Programs............................... 40 SECTION 7.17. Other Representations............................. 40
ARTICLE VIII COVENANTS SECTION 8.1. Affirmative Covenants............................. 40 SECTION 8.1.1. Information....................................... 40 SECTION 8.1.2. Compliance with Covenants......................... 42 SECTION 8.1.3. Payment of Obligations............................ 42 SECTION 8.1.4. [Reserved]........................................ 42 SECTION 8.1.5. Maintenance of Existence.......................... 42 SECTION 8.1.6. Compliance with Laws.............................. 42 SECTION 8.1.7. Inspection of Property, Books and Records......... 42 SECTION 8.1.8. Absence of Certain Actions........................ 42 SECTION 8.1.9. Notice of Default................................. 43 SECTION 8.1.10. Notice of Material Proceedings.................... 43 SECTION 8.1.11. Further Requests.................................. 43 SECTION 8.1.12. [Reserved]........................................ 43 SECTION 8.1.13. Further Assurances................................ 43 SECTION 8.1.14. Repurchase Programs............................... 43 SECTION 8.1.15. Use of Proceeds of Commercial Paper Notes......... 44 SECTION 8.1.16. Vehicles.......................................... 44 SECTION 8.2. Negative Covenants................................ 44 SECTION 8.2.1. Liens............................................. 44 SECTION 8.2.2. Other Indebtedness................................ 44 SECTION 8.2.3. Consolidations and Mergers........................ 45 SECTION 8.2.4. Sales of Assets................................... 45 SECTION 8.2.5. Acquisition of Assets............................. 45 SECTION 8.2.6. Dividends, Officers' Compensation, etc............ 45 SECTION 8.2.7. Name; Chief Executive Office...................... 45 SECTION 8.2.8. Organic Documents................................. 45 SECTION 8.2.9. Investments....................................... 45 SECTION 8.2.10. No Other Agreements; Amendments to Related Documents........................................ 45 SECTION 8.2.11. Other Business.................................... 46 SECTION 8.2.12. Maintenance of Separate Existence................. 46 SECTION 8.2.13. Offering Document................................. 47
ARTICLE IX AMORTIZATION EVENTS -iv- 6
SECTION 9.1. Amortization Event................................ 48 SECTION 9.1.1. Non-Payment of Obligations........................ 48 SECTION 9.1.2. Breach of Warranty................................ 48 SECTION 9.1.3. Non-Performance of Other Covenants and Obligations...................................... 48 SECTION 9.1.4. Non-Performance of Other Covenants and Obligations...................................... 49 SECTION 9.1.5. [Reserved]........................................ 49 SECTION 9.1.6. Judgments........................................ 49 SECTION 9.1.7. Bankruptcy, Insolvency, etc....................... 49 SECTION 9.1.8. Letters of Credit................................. 49 SECTION 9.1.9. Insolvency of Fronting Credit Enhancers........... 49 SECTION 9.1.10. Independent Directors............................. 50 SECTION 9.1.11. Enforceability of or Default under Related Documents........................................ 50 SECTION 9.1.12. Investment Company................................ 50 SECTION 9.1.13. Termination of Loan Commitment.................... 50 SECTION 9.1.14. Program Downgrade................................. 50 SECTION 9.1.15. Termination of Liquidity Commitments or Reduction of Aggregate Liquidity Commitment...... 50 SECTION 9.2. Action if Amortization Event...................... 50 SECTION 9.3. Limited Amortization Events .........................51 SECTION 9.3.1. Ineligibility of Manufacturer or Repurchase Program............................... 52 SECTION 9.3.2. Termination of Liquidity Commitment............... 52 SECTION 9.3.3. Rating Downgrade of Liquidity Lender.............. 52 SECTION 9.4. Action Upon Limited Amortization Event............ 52
ARTICLE X THE LIQUIDITY AGENT SECTION 10.1. Actions........................................... 53 SECTION 10.2. Collateral Agreement.............................. 54 SECTION 10.3. Exculpation....................................... 54 SECTION 10.4. Successor......................................... 55 SECTION 10.5. Liquidity Advances by Citibank.................... 55 SECTION 10.6. Credit Decisions.................................. 56 SECTION 10.7. Copies, etc....................................... 56
ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments, etc.......................... 56 SECTION 11.2. Notices........................................... 58 SECTION 11.3. Payment of Costs and Expenses..................... 59 SECTION 11.4. Indemnification................................... 60 SECTION 11.5. Survival.......................................... 61 SECTION 11.6. Severability...................................... 61 SECTION 11.7. Headings.......................................... 61
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SECTION 11.8. Execution in Counterparts........................ 61 SECTION 11.9. Governing Law; Entire Agreement.................. 61 SECTION 11.10. Successors and Assigns........................... 61 SECTION 11.11. Sale and Transfer of Liquidity Advances and Notes; Participations in Loans and Notes.... 62 SECTION 11.11.1. Assignments..................................... 62 SECTION 11.11.2. Participations.................................. 64 SECTION 11.12. Other Transactions............................... 65 SECTION 11.13. Bankruptcy Petition Against NFC.................. 65 SECTION 11.14. Limited Recourse to NFC; No Recourse............. 66 SECTION 11.15. Survival of Representations and Warranties....... 66 SECTION 11.16. Confidentiality.................................. 66 SECTION 11.17. Jurisdiction; Consent to Service of Process...... 67 SECTION 11.18. Waiver of Jury Trial............................. 68 SECTION 11.19. Waiver of Set-Off................................ 68
EXHIBITS
EXHIBIT A - Form of Revolving Liquidity Advance Note EXHIBIT B - Form of Refunding Liquidity Advance Note EXHIBIT C - Form of Borrowing Request EXHIBIT D - Form of Continuation/Conversion Notice EXHIBIT E - [Reserved] EXHIBIT F - Form of Liquidity Lender Assignment Agreement EXHIBIT G - Form of Closing Date Certificate EXHIBIT H - Form of Loan Agreement EXHIBIT I-1 - [Reserved] EXHIBIT I-2 - Form of A Support Letter of Credit Agreement EXHIBIT I-3 - Form of A Support Reimbursement Agreement EXHIBIT I-4 - Form of B Letter of Credit Reimbursement Agreement EXHIBIT I-5 - Form of B Support Letter of Credit Reimbursement Agreement EXHIBIT J - Form of Collateral Agreement EXHIBIT K - Form of Depositary Agreement EXHIBIT L - Form of Dealer Agreement EXHIBIT M - Form of Liquidity Commitment Agreement EXHIBIT N - Form of Placement Agency Agreement ANNEXES ANNEX A - Definitions ANNEX B - Disclosure Materials
-vi- 8 LIQUIDITY AGREEMENT THIS LIQUIDITY AGREEMENT, dated as of June 7, 1995 (as amended, supplemented, restated or otherwise modified from time to time, this "Liquidity Agreements"), among NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), the financial institutions listed on the signature pages hereof under the heading "Liquidity Lenders (each such financial institution, together with each of the financial institutions that has become party hereto pursuant to Section 11.11.1, including any such financial institution acting in the capacity of Swing Line Lender, being a "Liquidity Lender" and, collectively, the "Liquidity Lenders") and CITIBANK, N.A., a national banking association ("Citibank"), as liquidity agent (in such capacity, together with any successors and assigns thereto, the "Liquidity Agent") for the Liquidity Lenders. WITNESSETH: WHEREAS, NFC proposes to make Loans (such capitalized term, together with all other capitalized terms used herein, shall have the meaning assigned thereto in Section 1.1) to National pursuant to the Loan Agreement, the proceeds of which are to be used by National to purchase Vehicles from authorized dealers of Manufacturers or to finance vehicles previously purchased by National; WHEREAS, National proposes to assign to the Master Collateral Agent for the benefit of NFC, with the acknowledgement of each Manufacturer, all of its right, title and interest in and to certain rights under Repurchase Programs of such Manufacturer as such Repurchase Programs relate to the Vehicles; WHEREAS, NFC proposes to issue and sell its Commercial Paper Notes in the commercial paper market and use the net proceeds thereof to, among other things, make Loans; WHEREAS, NFC desires to obtain Liquidity Commitments from the Liquidity Lenders to make Liquidity Advances in an aggregate principal amount not to exceed the Aggregate Liquidity Commitment at any one time outstanding to NFC from time to time prior to the Liquidity Commitment Termination Date; and WHEREAS, the Liquidity Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article VI), to provide such Liquidity Commitments and make such Liquidity Advances to NFC; 9 NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Definitions. Capitalized terms used but not defined herein (including the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Definitions List, dated as of June 7, 1995 and annexed hereto as Annex A, as such Definitions List may be amended or modified from time to time in accordance with the provisions hereof (the Definitions List" ) . SECTION 1.2. Cross-References. Unless otherwise specified, references in this Liquidity Agreement and in each other Related Document to any Article or Section are references to such Article or Section of this Liquidity Agreement or such other Related Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.3. Accounting and Financial Determinations; No Duplication. Unless otherwise specified, (i) all accounting terms used herein shall be interpreted, all accounting determinations and computations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in conformity with GAAP, and (ii) all accounting determinations and computations hereunder or under any other Related Documents shall be made without duplication; provided, that if any change in GAAP in itself materially affects any such determination, computation or financial statement, NFC may by notice to the Liquidity Agent and the Agent, or alternatively the Liquidity Agent or the Agent may by notice to NFC, require that any such determination, computation or financial statement thereafter be made in accordance with GAAP as in effect, and applied by NFC, immediately before such change in GAAP occurs. Each of the Liquidity Agent, NFC and the Agent agrees to enter into negotiations in good faith to modify the financial representations and covenants and other applicable provisions contained herein in a manner which reflects any such change in GAAP without adversely affecting the rights of the Liquidity Agent, the Liquidity Lenders and the Agent. -2- 10 ARTICLE II COMMERCIAL PAPER OPERATIONS SECTION 2.1. Issuance of Commercial Paper Notes. On the terms and subject to the provisions of this Liquidity Agreement and the other Related Documents, NFC may from time to time on or after the Closing Date and prior to the Liquidity Commitment Termination Date, issue and sell Commercial Paper Notes; provided, however, that NFC shall not issue and sell Commercial Paper Notes if (a) NFC and the Depositary have received instructions then in effect from the Liquidity Agent (copies of which will also be sent to the Placement Agents and the Dealers), given in accordance with this Section 2.1, not to issue or deliver Commercial Paper Notes because (i) the Liquidity Commitment Termination Date shall have occurred, or (ii) the Commercial Paper Account or any funds on deposit in, or otherwise to the credit of, the Commercial Paper Account shall be subject to any stay, writ, judgment, warrant of attachment, execution or similar process; provided, however, that if any such stay, writ, judgment, warrant of attachment, execution or similar process is removed or dismissed, NFC may recommence the issuance and sale of Commercial Paper Notes, (b) the issuance of Commercial Paper Notes is prohibited by Sections 2.1, 2.2, 9.2 or 9.4 hereof, Sections 3 or 10 of the Depositary Agreement or Section 5.01 of the Collateral Agreement, (c) after giving effect to such issuance and the use of proceeds thereof, Aggregate Outstandings would exceed the Borrowing Base, (d) after giving effect to such issuance and the use of proceeds thereof, the weighted average interest rate of the Outstanding Commercial Paper Notes, Liquidity Advances and Support Liquidity Disbursements would be in excess of 10% per annum, unless (i) NFC and the Liquidity Agent shall have given their written consent to a weighted average interest rate in excess of 10% per annum, (ii) the Fronting Letter of Credit Amount shall be increased if required by the Rating Agencies in connection therewith and (iii) the Rating Agencies shall have confirmed that such weighted average interest rate will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes; provided, however, that if the ratings of the Commercial Paper Notes by S&P and Moody's will be less than A-1 and P-1, respectively, after giving effect to such -3- 11 weighted average interest rate in excess of 10% per Annum, such Commercial Paper Notes will not be issued unless the Majority Banks shall have given their written consent thereto, or (e) NFC and the Depositary shall have received instructions then in effect from the Liquidity Agent not to issue or deliver Commercial Paper Notes because any of the conditions set forth in clauses (b) through (d) of this Section 2.1 shall be true. The Liquidity Agent shall have no obligation to deliver any instructions set forth in clause (a) or clause (e) of this Section 2.1 except upon the instructions of the Majority Banks and any delivery by the Liquidity Agent of any such instructions shall be subject to the provisions of Section 10.3 and the rights of the Liquidity Agent hereunder and shall not relieve NFC, the Agent or the Depositary of any of their respective obligations under any Related Document or with respect to the issuance of Commercial Paper Notes. Any instructions from the Liquidity Agent to NFC and the Depositary in accordance with clause (a) or clause (e) of this Section 2.1 shall specify the reason(s) to cease issuing and delivering Commercial Paper Notes. Without prior instruction as set forth above, the Liquidity Agent agrees that it shall only instruct NFC and the Depositary not to issue and sell Commercial Paper Notes if there shall have occurred an event described in subclause (i) of clause (a) of this Section 2.1. Concurrently with the giving of any such instructions to NFC and the Depositary, the Liquidity Agent shall give notice thereof to the Liquidity Lenders, the Agent, the Placement Agents, the Dealers, and the rating agency or agencies known to it to have provided investment ratings with respect to the Commercial Paper Notes, but failure to do so shall not impair the effect of such instructions and the giving of such notice shall be subject to Section 10.3. SECTION 2.2. Conditions to the Issuance of Commercial Paper Notes. The right of NFC to issue Commercial Paper Notes (whether such Commercial Paper Notes are to be issued to refinance Commercial Paper Notes maturing on the day such Commercial Paper Notes are to be issued or to increase the Aggregate Face Amount over that of the preceding day) is subject to the satisfaction of the following conditions: SECTION 2.2.1. Representations and Warranties. With respect to the issuance of any Commercial Paper Note and after giving effect thereto, the representations and warranties of NFC set forth in Article VII hereof, or in any other Related Document to which NFC is a party, shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their -4- 12 terms) with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) as of such earlier date). SECTION 2.2.2. No Amortization Event. (a) At the time of such issuance and after giving effect thereto, no Amortization Event (and no Potential Amortization Event with respect to NFC under Section 9.1.7 and, in the case of any increase in the Aggregate Face Amount over that of the day preceding the day of such issuance, no other Potential Amortization Event) shall have occurred and be continuing. (b) Such issuance of Commercial Paper Notes shall not be prohibited by Section 9.4. SECTION 2.2.3. Available Liquidity Commitment. At the time of the issuance of each Commercial Paper Note and after giving effect thereto and to the use of proceeds thereof on such day, the sum of the Aggregate Liquidity Commitment and the Fronting Letter of Credit Amount shall be equal to or greater than the sum of the Aggregate Outstanding CP and the aggregate principal amount of Liquidity Advances Outstanding net of any amounts on deposit at such time in the Collateral Account set aside for the repayment of the principal of Liquidity Advances. SECTION 2.2.4. No Borrowing Base Deficiency. With respect to the issuance of any Commercial Paper Note, a Borrowing Base Deficiency shall not exist and the issuance of such Commercial Paper Note, after giving effect to the repayment of any Commercial Paper Notes, Liquidity Advances and Support Liquidity Disbursements made with the proceeds thereof, would not result in a Borrowing Base Deficiency. SECTION 2.2.5. Borrowing Base Certificate. The Liquidity Agent shall have received an Officer's Certificate, dated the date of such issuance, duly executed and delivered by an Authorized Officer of NFC, certifying the amount of the Borrowing Base as of the close of business of the day immediately preceding such date. SECTION 2.2.6. Non-Payment of Loans. At the time of such issuance and after giving effect thereto, no Potential Loan Event of Default under Section 12.1.1 of the Loan Agreement shall have occurred and be continuing. SECTION 2.3. Commercial Paper Notes. NFC agrees that each promissory note constituting Commercial Paper Notes shall (a) be substantially in the form of Exhibit A to the Depositary -5- 13 Agreement or in the form of the Master Note attached to the Depositary Agreement, and be completed in accordance with this Liquidity Agreement and the Depositary Agreement (including any provisions for book-entry securities contained therein), (b) be dated the date of issuance thereof, (c) be made payable to the order of a named payee or bearer, (d) have a maturity date which shall not be later than the earlier of (i) three Business Days prior to the earliest of the Scheduled Liquidity Commitment Termination Date, the A Letter of Credit Expiration Date and the B Letter of Credit Expiration Date in effect on the date of issuance thereof and (ii) the date which is 58 days after the date of issuance thereof, (e) be in a face amount of at least $100,000 and an integral multiple of $1,000, and (f) be exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(3) thereof. Subject to the provisions of the Depositary Agreement, all Commercial Paper Notes shall be delivered and issued against payment therefor in immediately available funds on the date of issuance, and otherwise in accordance with the terms of this Liquidity Agreement and the Depositary Agreement. SECTION 2.4. Commercial Paper Account: Payment of Commercial Paper Notes. (a) Contemporaneously with the execution and delivery by NFC of the Depositary Agreement, and for the purposes of this Liquidity Agreement and the Depositary Agreement, NFC shall cause the Depositary to establish at its office at 120 Wall Street, 13th Floor, New York, New York 10043, a segregated trust account in its corporate trust department for the exclusive benefit of the Holders of the outstanding Commercial Paper Notes (the "Commercial Paper Accounts"), over which the Depositary shall have exclusive control and sole right of withdrawal. (b) Proceeds of the sale of Commercial Paper Notes shall be deposited in the Commercial Paper Account only to the extent necessary to pay matured and concurrently maturing Commercial Paper Notes, whether or not presented to the Depositary for payment; otherwise proceeds of the sale of Commercial Paper Notes shall be applied according to the terms of the Collateral Agreement. ARTICLE III LIQUIDITY COMMITMENTS, BORROWING PROCEDURES, LIQUIDITY ADVANCES AND NOTES SECTION 3.1. Liquidity Commitments. Subject to and in accordance with the terms and the conditions of this Liquidity Agreement (including Article VI), each Liquidity Lender severally and not jointly agrees to make Revolving Advances and Refunding -6- 14 Advances, and the Swing Line Lender agrees to make Swing Line Advances (relative to such Liquidity Lender, or to the Swing Line Lender, as the case may be, collectively, together with its Commitment Termination Date Liquidity Advance, its "Liquidity Advances"), to NFC pursuant to this Section 3.1. SECTION 3.1.1. Revolving Advance Commitment. Subject to and in accordance with the terms and conditions hereof (including, without limitation, the terms and conditions set forth in Section 6.2), each Liquidity Lender severally and not jointly agrees to make, from time to time, on or before the earlier to occur of such Liquidity Lender's Scheduled Liquidity Commitment Termination Date and the Revolving Advance Commitment Termination Date, advances for the purposes set forth in Section 3.1.4(a) (relative to such Liquidity Lender, its "Revolving Advances") to NFC equal to such Liquidity Lender's Percentage of the aggregate amount of the Borrowing of Revolving Advances requested by NFC to be made on such day. On the terms and subject to the conditions hereof, NFC may from time to time borrow, prepay and reborrow Revolving Advances. SECTION 3.1.2. Refunding Advance Commitment. Subject to and in accordance with the terms and conditions hereof (including, without limitation, the terms and conditions set forth in Section 6.3), each Liquidity Lender severally and not jointly agrees to make, from time to time, on or before such Liquidity Lender's Liquidity Commitment Termination Date, advances for the purposes set forth in Section 3.1.4(b) (relative to such Liquidity Lender (including its Commitment Termination Date Liquidity Advance), its "Refunding Advances") to NFC equal to (a) in the case of Refunding Advances (other than any Commitment Termination Date Liquidity Advance), such Liquidity Lender's Percentage of the aggregate amount of the Borrowing of Refunding Advances requested by NFC or the Agent, as attorney-in-fact for NFC, to be made on such day, and (b) in the case of Commitment Termination Date Liquidity Advances, such Liquidity Lender's Overall Percentage of the Aggregate Face Amount on the date of such Commitment Termination Date Liquidity Advance. On the terms and subject to the conditions hereof, NFC may from time to time borrow, prepay and reborrow Refunding Advances (other than Commitment Termination Date Liquidity Advances). SECTION 3.1.3. Swing Line Commitment. Subject to and in accordance with the terms and conditions hereof (including, without limitation, the terms and conditions set forth in Section 6.3), the Swing Line Lender agrees to make, from time to time, on or before such Liquidity Lender's Liquidity Commitment Termination Date, Swing Line Advances equal to the aggregate amount of the Borrowing of Swing Line Advances requested by NFC or the Agent, as attorney-in-fact for NFC, to be made on such day. On the terms and subject to the conditions hereof, NFC may -7- 15 from time to time borrow, prepay and reborrow Swing Line Advances. SECTION 3.1.4. Use of Proceeds. Proceeds from the Liquidity Advances shall be applied by NFC as follows: (a) Proceeds from each Revolving Advance shall be used by NFC to: (i) make Loans pursuant to the Loan Agreement or (ii) to repay matured Liquidity Advances (other than any Commitment Termination Date Liquidity Advance). (b) Proceeds of each Refunding Advance and each Swing Line Advance shall be deposited by NFC into the Commercial Paper Account and proceeds of each Commitment Termination Date Liquidity Advance shall be deposited by NFC into the Termination Advance Account, in each case, for the repayment of maturing Commercial Paper Notes. NFC shall not use the proceeds of any Liquidity Advance for any other purpose. SECTION 3.2. Liquidity Lenders Not Required to Make Certain Liquidity Advances. SECTION 3.2.1. Revolving Advances. No Liquidity Lender shall be required to make a Revolving Advance to the extent that if after giving effect to such Revolving Advance, (i) the aggregate principal amount of all Liquidity Advances (including any Swing Line Advances) Outstanding would exceed the Aggregate Liquidity Commitment, or (ii) the aggregate principal amount of such Liquidity Lender's Liquidity Advances (including, in the case of the Swing Line Lender, any Swing Line Advances) Outstanding would exceed such Liquidity Lender's Liquidity Commitment. SECTION 3.2.2. Refunding and Swing Line Advances. No Liquidity Lender shall be required to make a Refunding Advance (including, in the case of the Swing Line Lender, a Swing Line Advance) to the extent that if after giving effect to such Refunding Advance (or Swing Line Advance, as the case may be), (i) the aggregate principal amount of all Liquidity Advances (including any Swing Line Advances) Outstanding would exceed the Aggregate Liquidity Commitment or (ii) the aggregate principal amount of such Liquidity Lender's Liquidity Advances (including, in the case of the Swing Line Lender, any Swing Line Advances) Outstanding would exceed such Liquidity Lender's Liquidity Commitment. SECTION 3.2.3. Failure To Fund. The provisions of this Section 3.2.3 shall only be operative at any time when the number of Liquidity Lenders whose respective Liquidity Commitments have -8- 16 not expired or been terminated and the number of Fronting Credit Enhancers whose respective Credit Enhancer Commitments have not expired shall exceed 10 in the aggregate. Subject to Sections 3.2.1 and 3.2.2, in the event that one or more Liquidity Lenders fails to fund its or their Percentage of the Liquidity Advances to be provided by the Liquidity Lenders by 2:00 p.m., New York City time, on any Business Day (other than a Commitment Termination Date Liquidity Advance or a Revolving Advance the proceeds of which are to be used to repay maturing Liquidity Advances), the Liquidity Agent shall notify each of the other Liquidity Lenders not later than 3:00 p.m., New York City time, on such Business Day and each of the other Liquidity Lenders shall, before 5:00 p.m., New York City time, on such Business Day, make available to the Liquidity Agent at the Liquidity Agent's address specified for such purpose, in immediately available funds, a Liquidity Advance in a principal amount equal to such unfunded amount multiplied by a fraction, the numerator of which is the Liquidity Commitment of such Liquidity Lender and the denominator of which is the Aggregate Liquidity Commitment (less the Liquidity Commitments of the defaulting Liquidity Lenders). After the Liquidity Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article VI, the Liquidity Agent will make such funds available to NFC by 5:45 p.m., New York City time. Any Liquidity Advance made pursuant to this Section 3.2.3 shall be a Base Rate Advance subject to conversion in accordance with the provisions of Section 3.8 hereof. SECTION 3.3. Termination and Reduction of the Liquidity Commitments. (a) NFC may, upon at least three Business Days' prior written notice to the Liquidity Agent (who shall give prompt written notice thereof to each Liquidity Lender, the Dealers and the Depositary), irrevocably terminate or reduce ratably in part the Aggregate Liquidity Commitment; provided, however, that the Aggregate Liquidity Commitment shall not be reduced on any day in an amount such that the Aggregate Liquidity Commitment would be less than the sum of (i)(x) the Aggregate Outstanding CP on such day, less (y) the Fronting Letter of Credit Amount, plus (ii) the aggregate principal amount of all Liquidity Advances (including any Swing Line Advances) Outstanding (other than Commitment Termination Date Liquidity Advances) on such day net of any amounts on deposit on such day in the Collateral Account set aside for the repayment of the principal of Liquidity Advances; provided, further, that any partial reduction shall be at least $5,000,000 and in an integral multiple of $1,000,000. Any such reduction of the Aggregate Liquidity Commitment shall reduce ratably the Liquidity Commitment of each Liquidity Lender. -9- 17 (b) The Liquidity Agent shall give notice to the Placement Agents and the Dealers as to any change in the Aggregate Liquidity Commitment promptly after any reduction thereof. (c) No termination or reduction of the Aggregate Liquidity Commitment by NFC pursuant to this Section 3.3 shall be effective unless the Liquidity Agent or NFC shall have given notice to S&P and Moody's of such termination or reduction. SECTION 3.4. Increase of the Aggregate Liquidity Commitment. The Aggregate Liquidity Commitment may be increased from time to time to an amount greater than the amount of the Aggregate Liquidity Commitment on the Closing Date through the increase of a Liquidity Lender's Liquidity Commitment or the addition of one or more Eligible Liquidity Lenders as a party to this Liquidity Agreement; provided, however, that no such increase shall become effective unless all of the following conditions shall have been satisfied: (a) NFC and the Liquidity Agent shall have given their written consent thereto; (b) such Liquidity Lender or Eligible Liquidity Lender, as the case may be, and NFC shall have executed and delivered to the Liquidity Agent a Liquidity Commitment Agreement; (c) the Fronting Letter of Credit Amount shall be increased to the Required Enhancement Amount immediately after giving effect to the increase in the Aggregate Liquidity Commitment; and (d) the Rating Agencies confirm in writing that such increase in the Aggregate Liquidity Commitment will not result in the downgrading below A-1 by S&P and P-1 by Moody's or withdrawal of the ratings of the Commercial Paper Notes. SECTION 3.5. Extensions of Scheduled Liquidity Commitment Termination Date. Each Liquidity Lender's Scheduled Liquidity Commitment Termination Date may be extended from time to time by a written agreement among NFC, such Liquidity Lender and the Liquidity Agent. SECTION 3.6. Borrowing Procedures. Borrowings of Revolving Advances, Refunding Advances, Commitment Termination Date Liquidity Advances and Swing Line Advances shall be made in accordance with this Section 3.6. SECTION 3.6.1. Revolving Advances. By delivering a Borrowing Request to the Liquidity Agent for a borrowing -10- 18 consisting of Revolving Advances, which will be accompanied by telephonic notification, NFC may irrevocably request, (a) in the case of LIBOR Advances, not later than 11:15 a.m., New York City time, on not less than three nor more than five Business Days, prior notice, that a Borrowing be made in a minimum amount of $5,000,000 and an integral multiple of $1,000,000, or (b) in the case of Base Rate Advances, not later than 11:30 a.m., New York City time, on the date of such borrowing and, in any case, on not more than five Business Days' prior notice (which notice shall be given in writing), that a Borrowing be made in a minimum amount of $5,000,000 and an integral multiple of $1,000,000. On the terms and subject to the conditions of this Liquidity Agreement, each such Borrowing shall be comprised of Liquidity Advances of the same type (and, in the case of LIBOR Advances, shall have same Interest Period), and shall be made on the Business Day, specified in such Borrowing Request. SECTION 3.6.2. Refunding Advances. Upon receipt from the Depositary of notice (not later than 11:15 a.m., New York City time) pursuant to Section 5(b) of the Depositary Agreement that, on any Business Day that any Commercial Paper Notes mature, the amount required to pay in full all Commercial Paper Notes maturing on such Business Day will be more than the net amount obtained by the issuance of Commercial Paper Notes on such day plus the amount available for payment of such Commercial Paper Notes in the Commercial Paper Account (the amount of such excess, the "Commercial Paper Deficit"), the Agent shall, if such notice contains an instruction from the Depositary to the Agent to deliver a Borrowing Request, by delivering a Borrowing Request to the Liquidity Agent (who will notify the other Liquidity Lenders of such Borrowing Request not later than 12:00 noon, New York City time) for a Borrowing consisting of Refunding Advances, irrevocably request, not later than 11:30 a.m., New York City time, on the date of a proposed Borrowing, that a Borrowing be made in an aggregate principal amount equal to the excess of (i) the Commercial Paper Deficit over (ii) the sum of the aggregate amount, if any, applied or to be applied on such Business Day to the Commercial Paper Deficit from amounts available therefor in the Collateral Account and the Termination Advance Account that are allocated to the payment of maturing Commercial Paper Notes and from the proceeds of Swing Line Advances being made on such day. On the terms and subject to the conditions of this Liquidity Agreement, each such Borrowing shall be initially comprised of Base Rate Advances (subject to conversion in accordance with the provisions of Section 3.8) and shall be made on the Business Day specified in such Borrowing Request. For the purposes of this Section, Commercial Paper Notes maturing on any day which have been paid from an advance made by the Depositary shall nonetheless be deemed to be unpaid. -11- 19 SECTION 3.6.3. Swing Line Advances. If on any Business Day that NFC or the Agent, as the case may be, determines that there exists a Commercial Paper Deficit, and the excess of such Commercial Paper Deficit over the sum of the aggregate amount, if any, applied or to be applied on such Business Day to the Commercial Paper Deficit from amounts available therefor in the Collateral Account and the Termination Advance Account that are allocated to the payment of maturing Commercial Paper Notes is equal to or less than $5,000,000, NFC or the Agent, as the case may be, shall promptly (and in no case later than 10:30 a.m. on the date of such discovery) notify the Depositary of such Commercial Paper Deficit and NFC or the Agent, as attorney-infact for NFC, may, or the Agent, upon the instruction of the Depositary pursuant to Section 5(b) of the Depositary Agreement, shall by delivering a Borrowing Request to the Liquidity Agent for forwarding to the Swing Line Lender for a Borrowing consisting of a Swing Line Advance, irrevocably request, not later than 11:30 a.m., New York City time, on the date of a proposed Borrowing, that a Borrowing be made in an aggregate principal amount equal to the least of (a) $5,000,000 minus the aggregate principal amount of all Swing Line Advances then outstanding; (b) the excess, if any, of the Swing Line Lenders Liquidity Commitment as a Liquidity Lender over the aggregate principal amount of all of its Liquidity Advances Outstanding on the date of such proposed Borrowing (without giving effect to such proposed Borrowing); and (c) the excess of the Commercial Paper Deficit over the sum of the aggregate amount, if any, applied or to be applied on such Business Day to the Commercial Paper Deficit from amounts available therefor in the Collateral Account and the Termination Advance Account that are allocated to the payment of maturing Commercial Paper Notes. On the terms and subject to the conditions of this Liquidity Agreement, each such Borrowing shall be a Base Rate Advance (subject to conversion in accordance with the provisions of Section 3.8), and shall be made on the Business Day specified i such Borrowing Request. For the purposes of this Section, Commercial Paper Notes maturing on any day which have been paid from an advance made by the Depositary that has not been reimbursed shall nonetheless be deemed to be unpaid. If, after giving effect to any Swing Line Advance requested pursuant to this Section 3.6.3 (provided that the conditions thereto set forth in Section 6.3 are satisfied), (a) the aggregate principal amount of Swing Line Advances would be greater than $5,000,000, or (b) the aggregate principal amount of Swing Line Advances is less than or equal to $5,000,000 and such Swing Line Advances are -12- 20 not repaid within five Business Days or (c) the aggregate principal amount of all Liquidity Advances Outstanding made by the Swing Line Lender would exceed its Liquidity Commitment, then in any such case each Liquidity Lender shall immediately and unconditionally, upon written notice thereof by the Swing Line Lender, make Liquidity Advances to NFC, the proceeds of which will be applied to the repayment of Swing Line Advances made by the Swing Line Lender, in an amount equal to such Liquidity Lender's Percentage of the aggregate principal amount of the Swing Line Advances Outstanding. Notwithstanding Section 6.3, the obligation of the Liquidity Lenders to make Liquidity Advances under this Section 3.6.3 shall be unconditional. The Swing Line Advances and Liquidity Advances made pursuant to this Section 3.6.3 shall be comprised of Base Rate Advances, subject to conversion in accordance with the provisions of Section 3.8 hereof. SECTION 3.6.4. Commitment Termination Date Liquidity Advances. NFC may request each Liquidity Lender, on the Scheduled Liquidity Commitment Termination Date with respect to such Liquidity Lender's Liquidity Commitment, to make a Refunding Advance to NFC on the terms and subject to the conditions of this Liquidity Agreement. Any such Commitment Termination Date Liquidity Advance shall not exceed such Liquidity Lender's Overall Percentage of the Aggregate Face Amount on the date of such Commitment Termination Date Liquidity Advance and the aggregate amount of any previously made Liquidity Advances of such Liquidity Lender that are outstanding on such date shall be converted into, and for all purposes of this Agreement shall be treated as, a Commitment Termination Date Liquidity Advance. SECTION 3.6.5. Nature of Funding Obligations. The obligations of the Liquidity Lenders hereunder are several and not joint. All Liquidity Advances (other than Swing Line Advances and Commitment Termination Date Liquidity Advances) under this Liquidity Agreement shall be made by the Liquidity Lenders simultaneously and proportionately to their respective Percentages, it being understood that, subject to Section 3.2.3, no Liquidity Lender shall be responsible for any failure by any other Liquidity Lender to perform its obligation to make a Liquidity Advance hereunder and that the Liquidity Commitment of any Liquidity Lender shall not be increased or decreased as a result of the failure by any other Liquidity Lender to perform its obligation to make a Liquidity Advance. The failure of any Liquidity Lender to make available to the Liquidity Agent its ratable share of any Borrowing shall not relieve any other Liquidity Lender of its obligation hereunder to make available to the Liquidity Agent such other Liquidity Lender's pro rata share of such Borrowing on the date such funds are to be made available pursuant to the terms of this Liquidity Agreement. Notwithstanding the foregoing, each Liquidity Lender shall -13- 21 continue to be obligated to make Liquidity Advances upon a default by a Liquidity Lender as required by Section 3.2.3. SECTION 3.6.6. Failure to Fund by Lender. Unless the Liquidity Agent shall have been notified by any Liquidity Lender prior to 1:00 p.m., New York City time, on the date of any Borrowing in respect of any Liquidity Advances that such Liquidity Lender does not intend to make available to the Liquidity Agent such Liquidity Lender's Liquidity Advances on such date of Borrowing, the Liquidity Agent may assume that such Liquidity Lender has made such amount available to the Liquidity Agent on such date of Borrowing and the Liquidity Agent in its sole discretion may, but shall not be obligated to, make available to NFC a corresponding amount on such date of Borrowing. If such corresponding amount is not in fact made available to the Liquidity Agent by such Liquidity Lender on or prior to a date of Borrowing, such Liquidity Lender agrees to pay to the Liquidity Agent forthwith on demand such corresponding amount together with interest thereon, and NFC agrees to repay to the Liquidity Agent forthwith on the Business Day immediately following the date of demand therefor such corresponding amount together with interest thereon, for each day from the date such amount is made available to NFC until the date such amount is paid or repaid to the Liquidity Agent, at (a) in the case of such Liquidity Lender, the Federal Funds Rate for the first Business Day and thereafter at the Base Rate, and (b) in the case of NFC, the interest rate that would be applicable at the time to a Borrowing of Base Rate Advances made on such date of Borrowing. If such Liquidity Lender shall pay to the Liquidity Agent such corresponding amount, such amount so paid shall constitute such Liquidity Lender's Liquidity Advance, and if both such Liquidity Lender and NFC shall have paid and repaid, respectively, such corresponding amount, the Liquidity Agent shall promptly pay over to NFC such corresponding amount in same day funds, but NFC shall remain obligated for all interest thereon. To the extent any such amount due to the Liquidity Agent under this Section 3.6.6 has not been paid in full, the Liquidity Agent may make a demand on the Agent to pay such amount in accordance with Sections 2.01 and 5.02(b) of the Collateral Agreement. SECTION 3.7. Disbursement of Funds. (a) Upon receipt of each Borrowing Request for Refunding Advances or for Revolving Advances, the Liquidity Agent shall give to each Liquidity Lender prompt notice thereof and of such Liquidity Lender's share of the Borrowing requested thereby. On or before 1:30 p.m., New York City time, on the proposed Borrowing date, each Liquidity Lender shall deposit with the Liquidity Agent same day funds in an amount equal to such Liquidity Lender's Percentage of the requested Borrowing. Such deposit will be made to a segregated trust account (Account No. 102478) established by the Liquidity Agent or such other account which the Liquidity Agent shall -14- 22 specify from time to time by notice to the Liquidity Lenders. No Liquidity Lender's obligation to make any Revolving Advances or Refunding Advances, as the case may be, shall be diminished by any other Liquidity Lender's failure to make any Revolving Advances or Refunding Advances, as the case may be. (b) Upon receipt of a Borrowing Request for a Swing Line Advance, the Liquidity Agent shall give the Swing Line Lender prompt notice thereof and of the amount of the Borrowing requested thereby. On or before 1:30 p.m., New York City time, on the date of the proposed Borrowing, the Swing Line Lender shall deposit with the Liquidity Agent same day funds in an amount equal to the requested Borrowing. Such deposit shall be made to an account which the Liquidity Agent shall specify from time to time by notice to the Swing Line Lender. (c) Unless the Liquidity Agent determines that any condition specified in Section 6.2, in the case of Revolving Advances, or Section 6.3, in the case of Refunding Advances or Swing Line Advances, has not been satisfied, the Liquidity Agent will remit the aggregate of the amounts of (i) Refunding Advances or Swing Line Advances so made available by the Liquidity Lenders (or, in the case of any Swing Line Advance, the Swing Line Lender) to the Commercial Paper Account, (ii) Commitment Termination Date Liquidity Advances so made available by the Liquidity Lenders to the Termination Advance Account and (iii) Revolving Advances so made available by the Liquidity Lenders to the Collateral Account, in each case not later than 2:30 p.m., New York City time. SECTION 3.8. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Liquidity Agent (which will give prompt notice to the Liquidity Lenders) on or before 11:15 a.m., New York City time, on a Business Day, NFC may from time to time irrevocably elect that all or any portion in an aggregate minimum amount of $5,000,000 and an integral multiple of $1,000,000 of any Liquidity Advances be (a) in the case of Base Rate Advances, (i) on not less than three nor more than five Business Days' prior notice, converted into LIBOR Advances, or (ii) continued as Base Rate Advances; or (b) in the case of LIBOR Advances, (i) on prior notice given not less than three nor more than five Business Days prior to the end of the related Interest Period, continued as LIBOR Advances or (ii) converted into Base Rate Advances. In the absence of delivery of a Continuation/Conversion Notice at least three Business Days prior to the last day of the related Interest Period, in the case of any LIBOR Advance, such LIBOR -15- 23 Advance shall, on such last day, automatically convert to a Base Rate Advance. In the absence of delivery of a Continuation/Conversion Notice at least three Business Days prior to the last day of the related Interest Period, in the case of any Base Rate Advance, such Base Rate Advance shall automatically continue as a Base Rate Advance. No portion of the principal amount of any Liquidity Advances Outstanding may be continued as, or be converted into, LIBOR Advances when any Amortization Event or Potential Amortization Event has occurred and is continuing. SECTION 3.9. LIBOR Funding. (a) Bach Liquidity Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBOR Advances hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Liquidity Lender) to make or maintain such LIBOR Advance; provided, however, that such LIBOR Advance shall nonetheless be deemed to have been made and to be held by such Liquidity Lender, and the obligation of NFC to repay such LIBOR Advance shall nevertheless be to such Liquidity Lender for the account of such foreign branch, Affiliate or international banking facility. (b) NFC shall not be permitted to request, and the Liquidity Lenders shall not be required to maintain, any number of Interest Periods with respect to LIBOR Advances in effect at any time hereunder in excess of 20. SECTION 3.10. Liquidity Advance Notes. Each Liquidity Lender's Revolving Advances and Refunding Advances (including its Commitment Termination Date Liquidity Advance and, in the case of the Swing Line Lender, any Swing Line Advances) under its Liquidity Commitment shall be evidenced by a Revolving Note and a Refunding Note, respectively, each duly executed on behalf of NFC, and each payable to the order of such Liquidity Lender in a maximum principal amount equal in each case to such Liquidity Lender's original Liquidity Commitment. NFC hereby irrevocably authorizes each Liquidity Lender to make (or cause to be made) appropriate notations on the grid attached to such Liquidity Lender's Liquidity Advance Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Liquidity Advances evidenced thereby. Such notations shall be conclusive and binding on NFC absent manifest error; provided, however, that the failure of any Liquidity Lender to make any such notation or any error in any such notation shall not limit or otherwise affect any Obligations of NFC. -16- 24 ARTICLE IV REPAYMENTS, PREPAYMENTS, INTEREST AND FEES, ETC. SECTION 4.1. Repayments and Prepayments. NFC shall repay in full the unpaid principal amount of each Liquidity Advance on the earlier to occur of (i) the Scheduled Maturity Date and (ii) the date all Obligations are declared or otherwise become due and payable under Section 9.2. Prior thereto, NFC shall make repayments and prepayments in accordance with this Section 4.1. SECTION 4.1.1. Voluntary Prepayments. From time to time on any Business Day, NFC may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Liquidity Advance; provided, however, that (a) NFC shall, in the case of the voluntary prepayment of any LIBOR Advance, give the Liquidity Agent at least three but no more than five Business Days' prior written notice of its intent to prepay such LIBOR Advance and NFC shall specify in such prior written notice the amount of such prepayment; (b) all such voluntary prepayments which are partial prepayments shall be in a minimum aggregate principal amount equal to $1,000,000 and in an integral multiple of $100,000; (c) all such voluntary prepayments shall be applied, unless otherwise specified by NFC, to the payment of, first, pro rata among Base Rate Advances and then, pro rata among LIBOR Advances having the same Interest Period in the inverse order of their maturities; and (d) no such voluntary prepayment of any LIBOR Advance may be made on any day other than the last day of the Interest Period for such LIBOR Advance unless, as required by Section 5.4, breakage fees are paid in connection with such prepayment. SECTION 4.1.2. Mandatory Prepayments. (a) Concurrently with any partial reduction or termination of the Aggregate Liquidity Commitment pursuant to Section 3.3, all funds available on such day in the Collateral Account for the payment of Liquidity Advances, as provided in Section 2.01 or 5.02, as applicable, of the Collateral Agreement, shall be applied to repay as much of the Liquidity Advances (and interest accrued thereon) as shall be necessary so that the sum of the aggregate principal amount of Liquidity Advances Outstanding (other than Commitment Termination Date Liquidity Advances) plus the Aggregate Face Amount will not exceed the Aggregate Liquidity Commitment plus the Fronting Letter of Credit Amount after giving -17- 25 effect to such termination or reduction and, to the extent such funds are not sufficient to pay such excess (and interest accrued thereon), all funds subsequently deposited in the Collateral Account and allocated to the payment of Liquidity Advances in accordance with the priorities set forth in Section 2.01 or 5.02, as applicable, of the Collateral Agreement shall be applied to pay such excess (and interest accrued thereon) until so paid. (b) If, on any Business Day, a Borrowing Base Deficiency exists, all funds available for the payment of Commercial Paper Notes, Liquidity Advances or Support Liquidity Disbursements on such day in the Collateral Account, as provided in Section 2.01 or 5.02, as applicable, of the Collateral Agreement, shall be (i) first, deposited in the Commercial Paper Account for application to the payment of maturing Commercial Paper Notes (and, in the case of deposits made pursuant to Section 2.01 of the Collateral Agreement, unmatured Commercial Paper Notes) and (ii) second, applied to repay Liquidity Advances and Support Liquidity Disbursements (and interest accrued thereon) pro rata in accordance with their outstanding principal amount, in each case, as shall be necessary so that after giving effect to such application there shall be no such Borrowing Base Deficiency and, to the extent such funds or other amounts are not sufficient therefor, all funds subsequently deposited in the Collateral Account and allocated to the payment of Liquidity Advances and Support Liquidity Disbursements in accordance with the priorities set forth in Section 2.01 or 5.02, as applicable, of the Collateral Agreement shall be applied or set aside for the pro rata application to Liquidity Advances Outstanding and Support Liquidity Disbursements Outstanding until there shall be no such Borrowing Base Deficiency. (c) Each mandatory payment required by clause (a) (in the case of a reduction or termination pursuant to Section 3.3) or clause (b) above shall, for purposes of Section 9.1.1 and all other provisions of this Liquidity Agreement, be due and payable in full on the Business Day on which such reduction or termination or such Borrowing Bane Deficiency exists, whether or not sufficient funds are then available to make such payment. SECTION 4.2. Interest Provisions. Interest on the principal amount of Liquidity Advances Outstanding shall accrue and be payable in accordance with this Section 4.2. SECTION 4.2.1. Rates. (a) Pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, NFC may elect that Liquidity Advances comprising a Borrowing accrue interest at a rate per annum: -18- 26 (i) on that portion maintained from time to time as a Base Rate Advance, equal to the Base Rate from time to time in effect; or (ii) on that portion maintained as a LIBOR Advance, during each Interest Period applicable thereto, equal to the sum of the LIBOR for such Interest Period plus a margin of 0.75% per annum. (b) If any Liquidity Lender shall determine in good faith that reserves under Regulation D of the Board of Governors of the Federal Reserve System ("Regulation D") are required to be maintained by it in respect of, or that a portion of its costs of maintaining reserves under Regulation D is properly attributable to, one or more of its LIBOR Advances, NFC shall pay to such Liquidity Lender additional interest on the unpaid principal amount of each such LIBOR Advance from the date such reserves were required to be maintained until such principal amount is paid in full or converted into a Base Rate Advance, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) LIBOR for the Interest Period for such LIBOR Advance from (ii) the rate obtained by dividing such LIBOR by an amount equal to one minus the LIBOR Reserve Percentage (expressed as a decimal) of such Liquidity Lender for such LIBOR Interest Period. Any Liquidity Lender claiming any additional interest payable pursuant to this clause (b) shall provide a written certificate to the Liquidity Agent, NFC and the Rating Agencies setting forth the amount of such additional interest and reasonable detail as to the calculation thereof. NFC shall pay such Liquidity Lender the amount shown as due on any such certificate within 30 days following the date on which such certificate was delivered to NFC. SECTION 4.2.2. Post Default Rates. Without giving effect to Section 5.10 hereof, after the date on which any amount of any Liquidity Advance is due and payable (whether on the last day of an Interest Period, on the Scheduled Maturity Date, when a mandatory prepayment initially becomes due or upon acceleration or otherwise), or after any other monetary Obligation of NFC shall have become due and payable, NFC shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on the principal amount of Liquidity Advances then outstanding (whether or not the same shall then be due and payable) and each other monetary Obligation hereunder (but only if the same shall then be due and payable in accordance with the terms of this Liquidity Agreement) at a rate per annum equal to a margin of 1%t per annum plus (i) in the case of any Liquidity Advances then outstanding and in respect of which Interest Periods remain in effect, the respective interest rates then applicable to such Liquidity Advances, and (ii) in all other -19- 27 cases, a rate per annum equal to the rate per annum that would then be in effect with respect to a Ease Rate Advance. SECTION 4.3. Payments of Interest. Accrued interest in respect of each Liquidity Advance shall be payable in arrears (whether by acceleration, demand or otherwise) on each payment date set forth below: (a) with respect to any Base Rate Advance, on the third Business Day following the end of each calendar quarter, beginning with the first such date to occur after such Base Rate Advance is made; (b) with respect to any LIBOR Advance, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the three-month anniversary of the commencement of such Interest Period); (c) in the case of any payment or prepayment, in whole or in part, of principal outstanding on any Liquidity Advance, on the amount and on the date of such payment or prepayment; (d) with respect to any Base Rate Advance converted into a LIBOR Advance on a day when interest would not otherwise have been payable pursuant to clause (a), on the date of such conversion; and (e) on that portion of any Liquidity Advance which is accelerated pursuant to Section 9.2, immediately upon such acceleration. Interest accrued on Liquidity Advances or other monetary Obligations arising under this Liquidity Agreement or any other Related Document after the date such amount is due and payable shall be payable upon demand. SECTION 4.4. Computation Basis. Interest accruing based on the Base Rate shall be computed on the basis of the actual number of days elapsed and a 365 (or, if applicable, 366) day year. Interest accruing based on LIBOR shall be computed on the basis of the actual number of days elapsed and a 360 day year. SECTION 4.5. Fees. (a) Commitment Fee. NFC agrees to pay to the Liquidity Agent for the account of each Liquidity Lender an ongoing commitment fee (the "Commitment Fee") equal to 0.225% per annum of the average daily unused portion of each such Liquidity Lender's Liquidity Commitment, such fee to accrue from the Closing Date until the Liquidity Commitment Termination Date. The Commitment Fee shall be computed based on the actual number of days elapsed and a year of 365 days. The Commitment Fee shall -20- 28 be payable in arrears on the last Business Day of each calendar quarter occurring after the Closing Date and on the Liquidity Commitment Termination Date. (b) Upfront Fee. NFC agrees to pay to the Liquidity Agent for the account of each Liquidity Lender, as applicable, an upfront fee (the "Upfront Fee") equal to (i) 0.075% of the initial Liquidity Commitment of such Liquidity Lender if such initial Liquidity Commitment is equal to or greater than $75,000,000, (ii) 0.05% of the initial Liquidity Commitment of such Liquidity Lender if such initial Liquidity Commitment is equal to or greater than $50,000,000 and less than $75,000,000 and (iii) 0.03% of the initial Liquidity Commitment of such Liquidity Lender if such initial Liquidity Commitment is equal to or greater than $25,000,000 and less than $50,000,000, which shall be payable immediately upon the Closing Date. In the event that (i) a Liquidity Lender's short-term credit rating is reduced to below A-1 by S&P or below P-1 by Moody's prior to its Liquidity Commitment Termination Date, and (ii) NFC elects to replace such Liquidity Lender pursuant to the teems of this Agreement, then such Liquidity Lender shall reimburse NFC for an amount equal to the unearned portion of the Upfront Fee (based on the remaining period from the date of such replacement to such Liquidity Lender's Scheduled Commitment Termination Date). ARTICLE V CERTAIN LIBOR AND OTHER PROVISIONS SECTION 5.1. LIBOR Lending Unlawful. If any Liquidity Lender shall reasonably determine (which determination shall, upon notice thereof to NFC and the other Liquidity Lenders, be conclusive and binding on NFC) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for such Liquidity Lender to make, continue or maintain any Liquidity Advance as, or to convert any Liquidity Advance into, a LIBOR Advance, the obligation of such Liquidity Lender to make, continue or maintain or convert any such Liquidity Advance as a LIBOR Advance shall, upon such determination, forthwith be suspended until such Liquidity Lender shall notify the Liquidity Agent and NFC that the circumstances causing such suspension no longer exist, and NFC shall immediately convert (in the manner provided for in Section 3.8) all LIBOR Advances of such Liquidity Lender into Base Rate Advances at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 5.2. Deposits Unavailable. If the Liquidity Agent shall have reasonably determined that -21- 29 (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to all Reference Lenders in the relevant market; or (b) by reason of circumstances affecting all Reference Lenders' relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBOR Advances; or (c) the Majority Banks have notified the Liquidity Agent that, with respect to any interest rate otherwise applicable hereunder to any LIBOR Advances the Interest Period for which has not then commenced, such interest rate will not adequately reflect the cost to such Majority Banks of making, funding or maintaining their respective LIBOR Advances for such Interest Period. then, upon notice from the Liquidity Agent to NFC and the Liquidity Lenders, the obligations of all Liquidity Lenders under Section 3.6 and Section 3.8 to make or continue any Liquidity Advance as, or to convert any Liquidity Advances into, LIBOR Advances shall forthwith be suspended until the Liquidity Agent shall notify NFC and the Liquidity Lenders that the circumstances causing such suspension no longer exist. SECTION 5.3 . Increased Costs. etc. NFC agrees to reimburse each Liquidity Lender if any change in, or the introduction, adoption, interpretation or reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other Governmental Authority of competent jurisdiction increases or would increase the cost to such Liquidity Lender of, or reduces or would reduce the amount of any sum receivable by such Liquidity Lender in respect of, making, continuing or maintaining (or its obligation to make, continue or maintain) any Liquidity Advance as, or of converting (or of its obligation to convert) any Liquidity Advance into, a LIBOR Advance and such amount is not otherwise recoverable by such Liquidity Lender under Section 4.2.1.(b) hereof. Such Liquidity Lender shall promptly notify the Liquidity Agent, NFC and the Rating Agencies in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Liquidity Lender for such increased costs or reduced amount. Such additional amounts shall be payable by NFC directly to such Liquidity Lender within five days of its receipt of such notice and such notice shall, in the absence of demonstrable error, be conclusive and binding on NFC. SECTION 5.4. Funding Losses. In the event any Liquidity Lender shall incur any loss or expense (including any loss or -22- 30 expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Liquidity Lender to make, continue or maintain any portion of the principal amount of any Liquidity Advance as, or to convert any portion of the principal amount of any Liquidity Advance into, a LIBOR Advance) as a result of (a) any conversion or repayment or prepayment (for any reason, including, without limitation, as a result of the acceleration of the maturity of a LIBOR Advance or the assignment of a LIBOR Advance pursuant to Section 5.9 hereof) of the principal amount of any LIBOR Advance on a date other than the scheduled last day of the Interest Period applicable thereto; (b) any Liquidity Advance not being made as a LIBOR Advance in accordance with the Borrowing Request therefor; or (c) any Liquidity Advance not being continued as, or converted into, a LIBOR Advance in accordance with the Continuation/Conversion Notice therefor, then, after notice by such Liquidity Lender of such loss or expense to NFC (with a copy to the Liquidity Agent and the Rating Agencies), NFC shall, within five Business Days of its receipt thereof, pay directly to such Liquidity Lender such amount as will (in the reasonable determination of such Liquidity Lender) reimburse such Liquidity Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of demonstrable error, be conclusive and binding on NFC. SECTION 5.5. Increased Capital Costs. If any change in, or the introduction, adoption, interpretation or reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other Governmental Authority of competent jurisdiction affects or would affect the amount of capital required or reasonably expected to be maintained by any Liquidity Lender or any Person directly or indirectly controlling such Liquidity Lender, and such Liquidity Lender reasonably determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Liquidity Commitment or the Liquidity Advances made by such Liquidity Lender is reduced to a level below that which such Liquidity Lender or such controlling Person would have achieved but for the occurrence of any such circumstance, then, in any such case after notice from time to time by such Liquidity Lender to NFC and the Rating Agencies, NFC shall pay within five Business Days of demand -23- 31 directly to such Liquidity Lender or to such controlling Person additional amounts sufficient to compensate such Liquidity Lender or such controlling Person for such reduction in rate of return. A statement of such Liquidity Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail), shall, in the absence of demonstrable error, be conclusive and binding on NFC. In determining such amount, such Liquidity Lender may use any method of averaging and attribution that it (in its reasonable discretion) shall deem applicable. SECTION 5.6. Taxes. All payments by NFC of principal of, and interest on, the Liquidity Advances and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise and other taxes imposed on or measured by any Liquidity Lender's net income by the United States of America or any jurisdiction under the laws of which such Liquidity Lender is organized or maintains an office (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by NFC hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then NFC will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Liquidity Agent an official receipt or other documentation satisfactory to the Liquidity Agent evidencing such payment to such authority; and (c) pay to the Liquidity Agent for the account of the Liquidity Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Liquidity Lender will equal the full amount such Liquidity Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Liquidity Agent or any Liquidity Lender with respect to any payment received by the Liquidity Agent or such Liquidity Lender hereunder, the Liquidity Agent or such Liquidity Lender may pay such Taxes and NFC will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. -24- 32 If NFC fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Liquidity Agent, for the account of the respective Liquidity Lenders, the required receipts or other required documentary evidence, NFC shall indemnify the Liquidity Lenders and the Liquidity Agent for any incremental Taxes, interest or penalties that may become payable by any Liquidity Lender or the Liquidity Agent as a result of any such failure. For purposes of this Section 5.6, a distribution hereunder by the Liquidity Agent or any Liquidity Lender to or for the account of any Liquidity Lender shall be deemed a payment by NFC. Each Liquidity Lender that is organized under the laws of a jurisdiction other than the United States shall, prior to the initial due date of any payments hereunder and (to the extent permissible under then current law) on or about the first scheduled payment date in each calendar year thereafter, execute and deliver to NFC and the Liquidity Agent, one or more (as NFC or the Liquidity Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Liquidity Lender is exempt from withholding or deduction of Taxes. NFC shall not, however, be required to pay any increased amount under this Section 5.6 to any Liquidity Lender that is organized under the laws of a jurisdiction other than the United States if such Liquidity Lender fails to comply with the requirements set forth in this paragraph. SECTION 5.7. Payments, Computations, etc. Unless otherwise expressly provided, all payments by NFC pursuant to this Liquidity Agreement, the Liquidity Advance Notes and any other Liquidity Document shall be made by NFC to the Liquidity Agent for the pro rata account, on the basis of Liquidity Advances Outstanding, or if no Liquidity Advances are outstanding, on the basis of Liquidity Commitments, of the Liquidity Lenders entitled to receive such payment. All such payments required to be made to the Liquidity Agent by NFC shall be made, without setoff, deduction or counterclaim on the date due, in same day or immediately available funds, to the account established pursuant to Section 3.7(a) or such other account as the Liquidity Agent shall specify from time to time by notice to NFC. The Liquidity Agent shall promptly upon receipt thereof remit in same day funds to each Liquidity Lender its share, if any, of such funds received by the Liquidity Agent for the account of such Liquidity Lender. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by the second proviso of the definition of the term "Interest Period" with respect to LIBOR Advances) be made on the next succeeding Business Day and such extension of -25- 33 time shall be included in computing interest in connection with such payment. SECTION 5.8. Sharing of Payments. If any Liquidity Lender shall obtain any payment or other recovery (whether voluntary or involuntary) on account of any Liquidity Advance (other than pursuant to the terms of Sections 5.3, 5.4, 5.5 and 5.6) in excess of its pro rata share of payments, on the basis of Liquidity Advances Outstanding, or if no Liquidity Advances are outstanding, on the basis of Liquidity Commitments, then or therewith obtained by all Liquidity Lenders, such Liquidity Lender shall purchase from the other Liquidity Lenders such participation in Liquidity Advances made by them as shall be necessary to cause such purchasing Liquidity Lender to share the excess payment or other recovery with each of them on a Pro rata basis, computed on the basis of each Liquidity Lender's Liquidity Advances Outstanding or Liquidity Commitment, as the case may be, on the date of such computation; Provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Liquidity Lender, the purchase shall be rescinded and each Liquidity Lender which has sold a participation to the purchasing Liquidity Lender shall repay to the purchasing Liquidity Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Liquidity Lender's ratable share (according to the proportion of (a) the amount of such selling Liquidity Lenders required repayment to the purchasing Liquidity Lender to (b) the total amount so recovered from the purchasing Liquidity Lender) of any interest or other amount paid or payable by the purchasing Liquidity Lender in respect of the total amount so recovered. NFC agrees that any Liquidity Lender so purchasing a participation from another Liquidity Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Liquidity Lender were the direct creditor of NFC in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Liquidity Lender receives a secured claim to which this Section applies, such Liquidity Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Liquidity Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. -26- 34 SECTION 5.9. Replacement of Liquidity Lenders. (a) If at any time the credit rating assigned to the short-term obligations of any Liquidity Lender (an "Affected Liquidity Lender") is withdrawn or downgraded below the rating then assigned by S&P or Moody's, respectively, to the Commercial Paper Notes, NFC may, upon five Business Days' prior written notice given to the Liquidity Agent and such Affected Liquidity Lender, replace such Affected Liquidity Lender with an Eligible Liquidity Lender or a Liquidity Lender already party to this Liquidity Agreement and such replacement shall be made in accordance with clause (a) of Section 11.11.1 and the proviso of clause (b) of this Section 5.9; provided, however, that no such replacement pursuant to this clause (a) shall be effective unless S&P and Moody's shall have confirmed in writing to NFC and the Liquidity Agent that such replacement (i) would not result in a withdrawal or reduction of the rating by S&P or Moody's of the Commercial Paper Notes below the rating then assigned by such Rating Agency to the Commercial Paper Notes or (ii) if the Commercial Paper Notes are then rated less than A-1 by S&P or P-1 by Moody's, would result in an upgrade of the rating by S&P or Moody's of the Commercial Paper Notes over the rating then assigned by such Rating Agency to the Commercial Paper Notes. (b) In the event that (i) any Liquidity Lender shall have notified the Liquidity Agent or NFC (and shall not have retracted such notification) that its compliance with any of its obligations hereunder would be unlawful, (ii) any Liquidity Lender fails to extend its Liquidity Commitment upon request, (iii) NFC is required pursuant to Section 4.2.1(b) or Sections 5.3 through 5.6 to make any payment to or on behalf of any Liquidity Lender (or would be so required on or prior to the next following date on which a payment hereunder (other than pursuant to Section 5.6) is required to be made to or for any such Liquidity Lender) or (iv) any Liquidity Lender shall have failed to fund any Liquidity Advance when required hereunder, then NFC shall have the right, at its own expense, upon notice to such Liquidity Lender and the Liquidity Agent, to require such Liquidity Lender, and such Liquidity Lender hereby agrees, to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 11.11) all the interests, rights and obligations of such Liquidity Lender to an Eligible Liquidity Lender provided by NFC; provided, however, that (w) no such assignment shall conflict with any law, rule, regulation or order of any Governmental Authority, (x) such assignment shall be without recourse, representation and warranty and shall be on terms and conditions reasonably satisfactory to such replaced Liquidity Lender and such replacement Eligible Liquidity Lender, (y) the purchase price paid by such replacement Eligible Liquidity Lender shall be in an amount equal to the aggregate amount of all Liquidity Advances owed to such replaced Liquidity Lender, and (z) NFC or such Eligible Liquidity Lender, -27- 35 as the case may be, shall pay to such replaced Liquidity Lender in same day funds on the date of such assignment the principal of and interest accrued to the date of payment on the Liquidity Advances made by such replaced Liquidity Lender hereunder and all other amounts accrued for such replaced Liquidity Lender's account or owed to it hereunder, including those amounts owed pursuant to Section 4.2.l(b) and Sections 5.3 through 5.6. SECTION 5.10. Order and Priority. Notwithstanding any other provision of this Liquidity Agreement (other than Section 4.2.2.), the Liquidity Agent and the Liquidity Lenders agree that the Obligations of NFC to the Liquidity Agent and the Liquidity Lenders hereunder shall be payable in the order and priority net forth in Section 2.01 and 5.02(b), as applicable, of the Collateral Agreement. The Liquidity Agent and the Liquidity Lenders agree that, during any period prior to the 18 month anniversary of the Amortization Commencement Date that Commercial Paper Notes shall be outstanding (any such period being a "Specified Period"), the Obligations shall be due and payable only to the extent that NFC's assets and the Fronting Letter of Credit Amount are sufficient to pay the same. If, during any Specified Period, the Liquidity Lenders shall exercise their rights, pursuant to Section 9.2(ii), to accelerate the Obligations, such acceleration shall have the limited effect of (i) causing the interest rates contemplated in Section 4.2.2 to become effective with respect to the outstanding Obligations and (ii) allowing the Liquidity Lenders, in any determination of the Liquidity Lenders' allocative share of any disbursement to be made to Secured Parties under the Collateral Agreement or otherwise among creditors of NFC, to treat all of the Obligations as then being due and payable. No claims of the Liquidity Lenders arising under or in connection with this Liquidity Agreement are intended to be impaired or waived by this Section 5.10. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.1 Conditions to Effectiveness. This Liquidity Agreement shall become effective on the date (the "Closing Date") when all of the conditions set forth in Section 6.1 have been satisfied (and each Liquidity Lender's signature hereto evidences that such conditions have been satisfied with respect to such Liquidity Lender). SECTION 6.1.1 Organic Documents, Resolutions. The Liquidity Agent shall have received: (1) a copy of NFC's certificate of incorporation, including all amendments thereto, certified as a recent date by the Secretary of State of the -28- 36 State of Delaware, and a certified copy of all other Organic Documents of NFC, and such certificate, articles or Organic Documents shall be in form and substance satisfactory to the Liquidity Agent and its counsel, and a certificate as to the good standing of NFC as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of NFC dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the Bylaws of NFC as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions in form and substance satisfactory to the Liquidity Agent and its counsel and duly adopted by the Board of Directors of NFC authorizing the execution, delivery and performance of this Liquidity Agreement and each of the other Related Documents to which NFC is a party and the transactions contemplated hereby and thereby, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate of incorporation of NFC has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing this Liquidity Agreement and each of the other Related Documents to which NFC is a party or any other document delivered in connection herewith or therewith on behalf of NFC; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above; and (iv) such other documents as the Liquidity Agent may reasonably request. SECTION 6.1.2. Liquidity Agreement. The Liquidity Agent shall have received executed counterparts of this Liquidity Agreement, duly executed by NFC, the Liquidity Agent, and each Liquidity Lender. SECTION 6.1.3. Liquidity Advance Notes. The Liquidity Agent shall have received, for the account of each Liquidity Lender, such Liquidity Lender's Liquidity Advance Notes duly executed and delivered by NFC. SECTION 6.1.4. Master Collateral Agency Agreement; Collateral Sharing Agreement and Collateral Agreement. (a) The Liquidity Agent shall have received executed counterparts of the Collateral Agreement, dated as of the Closing Date, duly executed by NFC, the Agent, the Liquidity Agent, the Depositary, the Placement Agent, the Dealer, the A Support Credit Enhancer and the B Support Credit Enhancers. (b) The Liquidity Agent shall have received executed counterparts of the Collateral Sharing Agreement, dated as of the -29- 37 Closing Date, duly executed by the Agent and the B Support Credit Enhancers. (c) The Liquidity Agent shall have received executed counterparts of the Master Collateral Agency Agreement, dated as of the Closing Date, duly executed by NFC, National, the Agent and the Master Collateral Agent, in the form of Exhibit D to the Loan Agreement, designating NFC as a "Financing Source" and the Agent as a "Beneficiary thereunder with respect to Vehicles financed with the proceeds of Loans pursuant to the Loan Agreement and the Supplement thereto, dated as of the Closing Date, duly executed by NFC, National, the Master Collateral Agent and the B Support Credit Enhancers designating the B Support Credit Enhancers as a "Beneficiary" of NFC. SECTION 6.1.5. Loan Agreement. The Liquidity Agent shall have received executed counterparts of the Loan Agreement, dated as of the Closing Date, duly executed by NFC and National, and copies of all documents and opinions required to be delivered to NFC thereunder, and all conditions to the effectiveness thereof set forth therein shall have been satisfied in all respects. SECTION 6.1.6. Letter of Credit Agreements. The Liquidity Agent shall have received executed counterparts of (i) the A Letter of Credit Issuance Agreement, dated as of the Closing Date, duly executed by NFC, National and the A Credit Enhancer, (ii) the A Support Letter of Credit Agreement dated as of the A Closing Date, duly executed by the A Credit Enhancer Support Credit Enhancer, (iii) the A Support Reimbursement Agreement, dated as of the Closing Date, duly executed by NFC, National and the A Support Credit Enhancer, (iv) the B Letter of Credit Reimbursement Agreement, dated as of the Closing Date, duly executed by NFC, National and the B Credit Enhancer and (v) the B Support Letter of Credit Reimbursement Agreement, dated as of the Closing Date, duly executed by NFC, National and the B Support Credit Enhancers, and, in each case, all conditions to the effectiveness thereof set forth therein shall have been satisfied in all respects. The A Letter of Credit in an amount equal to $85,000,000 shall have been delivered to the Agent and shall be in full force and effect, and the A Credit Enhancer shall not have a short-term rating lower than A-1 from S&P and P-1 from Moody's. The B Letter of Credit in an amount equal to $60,000,000 shall have been delivered to the Agent and shall be in full force and effect, and the B Credit Enhancer shall not have a short-term rating lower than A-1 from S&P and P-1 from Moody's. SECTION 6.1.7. Depositary Agreement. The Liquidity Agent shall have received executed counterparts of the Depositary Agreement, dated as of the Closing Date, duly executed by NFC and the Depositary, and all of the conditions to the effectiveness -30- 38 thereof set forth therein shall have been satisfied in all respects. SECTION 6.1.8. Dealer Agreement; Placement Agency Agreement. The Liquidity Agent shall have received executed counterparts of the Dealer Agreement, dated as of the Closing Date, duly executed by NFC and each Dealer, and all of the conditions to the effectiveness thereof set forth therein shall have been satisfied in all respects. The Liquidity Agent shall have received executed counterparts of the Placement Agency Agreement, dated as of the Closing Date, duly executed by NFC and each Placement Agent, and all of the conditions to the effectiveness thereof set forth therein shall have been satisfied in all respects. SECTION 6.1.9. Closing Date Certificate. The Liquidity Agent shall have received a Closing Date Certificate, dated the Closing Date, duly executed and delivered by an Authorized Officer of NFC, in which NFC shall have represented and warranted that the representations and warranties of NFC in the Related Documents are true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) as of the Closing Date and that no Amortization Event, Limited Amortization Event, Loan Event of Default or, to the best of such Authorized Officer's knowledge, Potential Amortization Event or Potential Loan Event of Default has occurred and is continuing, and, at the time such certificate is delivered, the Liquidity Agent shall be satisfied that such statements are in fact true and correct (in all material respects to the extent that any such statements do not incorporate a materiality limitation in their terms). SECTION 6.1.10. Accounts. The Commercial Paper Account, the Master Collateral Account, the Termination Advance Account, the Cash Reserve Account and the Collateral Account shall have been established and shall be in full force and effect. SECTION 6.1.11. Rating Letters. The Liquidity Agent shall have received as of the Closing Date a confirmation letter from each of S&P and Moody's to the effect that the Commercial Paper Notes shall have been given a rating of at least A-1 by S&P and P-1 by Moody's, which ratings shall be in full force and effect. SECTION 6.1.12. Vehicles; Repurchase Programs. etc. National shall have good and marketable title to each Vehicle purchased or financed by it with the proceeds of the Loans, free and clear of all Liens and encumbrances, other than any Permitted Liens. Each Repurchase Program shall be in full force and effect, and shall be enforceable against the related Manufacturer. -31- 39 SECTION 6.1.13. Assignments. (a) National shall have granted to the Master Collateral Agent, for the benefit of NFC and the Agent on behalf of the Secured Parties, a first priority security interest in all Vehicles now or hereafter purchased by National with the proceeds of Loans. (b) NFC shall have granted to the Agent a first priority security interest in its right, title and interest in and to the Assigned Collateral. (c) The Liquidity Agent shall have received executed counterparts of the Assignment Agreements related to the assignment of rights under each Repurchase Program, dated as of the Closing Date, duly executed by NFC, National, the Master Collateral Agent and each Eligible Manufacturer. SECTION 6.1.14. Board of Directors. The Liquidity Agent shall consent to the composition of NFC's Board of Directors (including the independent directors), which consent shall not be unreasonably withheld. SECTION 6.1.15. Solvency Certificate. The Liquidity Agent shall have received a certificate, dated the Closing Date, and duly executed by a Financial Officer of NFC, in scope and substance satisfactory to the Liquidity Agent, to the effect that NFC will be solvent after giving effect to the transactions contemplated by this Liquidity Agreement, each of the other Related Documents and the issuance and sale of the Commercial Paper Notes. SECTION 6.1.16. Closing Fees and Expenses. The Liquidity Agent shall have received for its own account and for the account of the Liquidity Lenders any fees and expenses due and payable pursuant to Sections 4.5 and 11.3 and any fees and expenses due and payable pursuant to any fee letters or commitment letters entered into with any Liquidity Lender and/or the Liquidity Agent. SECTION 6.1.17. Certified Copy of Repurchase Program. The Liquidity Agent shall have received from NFC a copy of the materials delivered to NFC by National pursuant to Section ll.l(p) of the Loan Agreement. SECTION 6.1.18. Opinions. The Liquidity Agent shall have received opinions of counsel, addressed to the Liquidity Agent and the Liquidity Lenders hereto, reasonably satisfactory in form and substance to the Liquidity Agent and the Liquidity Lenders. SECTION 6.1.19. Notation of Liens. The Liquidity Agent shall have received evidence (which, in the case of the filing of financing statements on form UCC-1, may be telephonic -32- 40 confirmation of such filing) that all filings (including filings of financing statements on form UCC-1) and recordings have been accomplished as may be required by law to establish, perfect, protect and preserve the rights, titles, interests, remedies, powers, privileges, licenses and security interest of (a) the Master Collateral Agent in the Loan Collateral and (b) the Agent in the Assigned Collateral for the benefit of the Secured Parties. SECTION 6.1.20. Offering Materials. Each offering circular, offering memorandum (including, without limitation, the Offering Memorandum) or information circular to be used by NFC, the Placement Agents or the Dealers in connection with the offer or sale of Commercial Paper Notes, insofar as it describes or refers to the Liquidity Agent or any Liquidity Lender, shall be reasonably satisfactory to the Liquidity Agent or such Liquidity Lender, respectively. SECTION 6.1.21. Savory Legal Form. This Liquidity Agreement, each of the other Related Documents and all other documents executed or submitted pursuant hereto or thereto by or on behalf of NFC shall be satisfactory in form and substance to the Liquidity Agent and its counsel; and the Liquidity Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Liquidity Agent or its counsel may have reasonably requested not later than 3 Business Days prior to the Closing Date. SECTION 6.1.22. Credit Rating of Initial Liquidity Lenders. As of the Closing Date, each initial Liquidity Lender shall have a credit rating assigned to its short-term obligations of at least A-1 by S&P and P-1 by Moody's. SECTION 6.1.23. Vehicle Title Nominee Agreement; GM Guaranty. The Liquidity Agent shall have received an executed copy of the Vehicle Title Nominee Agreement substantially in the form of Exhibit F to the Loan Agreement. The Liquidity Agent shall have received an executed copy of the GM Guaranty substantially in the form of Exhibit G to the Loan Agreement. SECTION 6.1.24. Assignment of GMAC Lien: Filing of UCC Termination Statements. The Liquidity Agent shall have received: (a) an executed copy of an assignment agreement, pursuant to which GMAC has assigned its Lien with respect to the Initial Vehicles to the Master Collateral Agent; and (b) evidence (which may be telephonic) of the filing of proper financing statements (form UCC-3) necessary to release all security interests and other rights of GMAC in the Initial Vehicles previously granted by Old National to GMAC. -33- 41 SECTION 6.2. Conditions to the Making of Each Revolving Advance. The obligation of any Liquidity Lender to make any Revolving Advance (including any continuation or conversion thereof pursuant to Section 3.8 except as otherwise specified below) hereunder is subject to the satisfaction of the following conditions: SECTION 6.2.1. Representations and Warranties. On the date of the making of such Revolving Advance (other than any continuation or conversion thereof pursuant to Section 3.8) and after giving effect thereto, the representations and warranties of NFC set forth in Article VII hereof, or in any other Related Document to which NFC in a party, shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) as of such earlier date). SECTION 6.2.2. No Amortization Event; Loan Event of Default. (a) On the date of the making of such Revolving Advance, continuation or conversion, and after giving effect thereto, no Amortization Event or Loan Event of Default shall have occurred and be continuing. (b) On the date of the making of such Revolving Advance (other than any continuation or conversion thereof pursuant to Section 3.8), and after giving effect thereto, no Potential Amortization Event or Potential Loan Event of Default shall have occurred and be continuing. SECTION 6.2.3. No Borrowing Base Deficiency. A Borrowing Base Deficiency shall not exist after giving effect to the application of funds in accordance with Section 5.2 of the Collateral Agreement and the making of such Revolving Advance, continuation or conversion would not result in a Borrowing Base Deficiency. SECTION 6.2.4. Availability. (a) The amount available to be drawn under the Fronting Letters of Credit or on deposit in the Cash Collateral Accounts shall not have been reduced to zero. (b) The aggregate amount of all Borrowings of Liquidity Advances requested by NFC to be made on such day shall not exceed the lesser of (i) the Aggregate Liquidity Commitment minus Outstanding Liquidity Advances (other than Commitment Termination Date Liquidity Advances) net of any amounts on deposit on such day in the Collateral Account set aside for the repayment of the -34- 42 principal of, or interest on, Liquidity Advances, and (ii) the Borrowing Base (after giving effect to the use of the proceeds of such Liquidity Advances) minus the sum of (A) the aggregate Support Liquidity Disbursements Outstanding plus (B) the Aggregate Outstanding CP plus (c) the Outstanding Liquidity Advances net of any amounts on deposit on such day in the Collateral Account set aside for the repayment of the principal of, or interest on, Liquidity Advances or Support Liquidity Disbursements. SECTION 6.2.5. Attachments. Anything herein to the contrary notwithstanding, NFC shall not request (and the Agent on its behalf shall not be permitted to request) Revolving Advances after NFC has received notice that any of the Accounts, the Master Collateral Account, the Commercial Paper Account or the Cash Collateral Accounts or any funds on deposit in, or otherwise to the credit of any thereof aggregating $100,000 or more are or have become subject to any stay, writ, judgment, warrant of attachment, execution or similar process; provided, however, that if any such stay, writ, judgment, warrant of attachment, execution or similar process is removed or dismissed, NFC may recommence the requesting of Revolving Advances. SECTION 6.2.6. Receipt of Monthly Report. The Liquidity Agent shall have received, on or prior to the twentieth day of each month (or if not a Business Day, on the next succeeding Business Day), a Monthly Report relating to the Assigned Collateral as of the last Business Day of the immediately preceding month occurring on or immediately preceding such date. SECTION 6.2.7. Borrowing Request. The Liquidity Agent shall have received a Borrowing Request for such Borrowing. SECTION 6.2.8. Borrowing Base Certificate. The Liquidity Agent shall have received an Officer's Certificate, dated the date of the making of such Revolving Advance, duly executed and delivered by an Authorized Officer of NFC, certifying the amount of the Borrowing Base as of the close of business on the day immediately preceding such date. SECTION 6.3. Conditions Precedent to the Making of Each Refunding Advance. The obligation of any Liquidity Lender to make any Refunding Advance (including any Commitment Termination Date Liquidity Advance) and of the Swing Line Lender to make any Swing Line Advance shall be subject to the satisfaction of the following conditions at the time of making of such Refunding Advance or Swing Line Advance: SECTION 6.3.1. No Bankruptcy. (i) No Event of Bankruptcy of the type described in clauses (a) or (b) of the definition thereof with respect to NFC shall have occurred and be continuing -35- 43 and (ii) no Event of Bankruptcy of the type described in clauses (a) or (b) of the definition thereof with respect to (1) the A Credit Enhancer shall have occurred and be continuing at any time prior to the funding in full of the Cash Collateral Account A and (2) the B Credit Enhancer shall have occurred and be continuing at any time prior to the funding in full of the Cash Collateral Account B and the Cash Collateral Account C. SECTION 6.3.2. Availability. The sum of (a) the amount available to be drawn under the Fronting Letters of Credit for LOC Credit Disbursements plus the amount of Support Liquidity Disbursements available for Conversion to Support Credit Disbursements and (b) the amount on deposit in the Cash Collateral Accounts for LOC Credit Disbursements, shall not have been reduced to zero. SECTION 6.3.3. No Borrowing Base Deficiency. A Borrowing Base Deficiency shall not exist after giving effect to the application of such Refunding Advance or Swing Line Advance; provided, however, that this provision shall not release the Liquidity Lenders from the obligation (upon receipt of a Borrowing Request in the appropriate amount) to make Refunding Advances or Swing Line Advances up to the amount of the then current Borrowing Base that would not cause a Borrowing Base Deficiency to exist. SECTION 6.3.4. Borrowing Request. The Liquidity Agent shall have received a Borrowing Request for such Borrowing. SECTION 6.3.5. Borrowing Base Certificate. The Liquidity Agent shall have received an Officer's Certificate, dated the date of the making of such Refunding Advance or Swing Line Advance, duly executed and delivered by an Authorized Officer of NFC, certifying the amount of the Borrowing Base as of the close of business on the day immediately preceding such date. ARTICLE VII REPRESENTATIONS AND WARRANTIES To induce the Liquidity Lenders and the Liquidity Agent to enter into this Liquidity Agreement and to make Liquidity Advances hereunder, NFC represents and warrants to the Liquidity Agent and each Liquidity Lender as set forth in this Article VII. SECTION 7.1. Existence and Power. NFC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business as a foreign corporation and in good standing under the laws of each jurisdiction where the character of its property, -36- 44 the nature of its business or the performance of its obligations make such qualification necessary, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. There have been no amendments to the Organic Documents of NFC since the respective dates of the certified copies furnished to the Liquidity Agent pursuant to Section 6.1.1, other than amendments, if any, not prohibited by this Liquidity Agreement (copies of which have been furnished to the Liquidity Agent). SECTION 7.2. Authorization. The execution, delivery and performance by NFC of this Liquidity Agreement and each of the other Related Documents to which it is a party are within NFC's corporate powers and have been duly authorized by all necessary corporate action. This Liquidity Agreement and each other Related Document to which NFC is a party have been duly executed and delivered by NFC. SECTION 7.3. Binding Effect. This Liquidity Agreement and each other Related Document to which NFC is a party constitutes a legal, valid and binding obligation of NFC enforceable against NFC in accordance with its respective terms (except as may be limited by bankruptcy, moratorium or other laws affecting creditors' rights generally and subject to limitations imposed by equitable principles). SECTION 7.4. Financial Information: Financial Condition. All balance sheets, all statements of operations, of shareholders' equity and of cash flow, and other financial data (other than projections) which have been or shall hereafter be furnished by NFC to Liquidity Lenders pursuant to Section 8.1.1 have been and will be Prepared in accordance with GAAP (to the extent applicable) and do and will present fairly the financial condition of the entities involved as of the dates thereof and the results of their operations for the periods covered thereby, subject, in the case of all unaudited statements, to normal year-end adjustments and lack of footnotes and presentation items. SECTION 7.5. Litigation. There is no action, suit or proceeding pending against or, to the knowledge of NFC, threatened against NFC before any court or arbitrator or any Governmental Authority in which there is a reasonable possibility of an adverse decision that could materially adversely affect the consolidated financial position, consolidated results of operations, business, properties, performance, prospects or condition (financial or otherwise) of NFC or which in any manner draws into question the validity or enforceability of this Liquidity Agreement or any other Related Document or the ability of NFC to comply with any of the respective terms thereunder. -37- 45 SECTION 7.6. No ERISA Plan. NFC has not established and does not maintain or contribute to any employee benefit plan that is covered by Title IV of ERISA, and will not do so, so long as the Liquidity Commitment Termination Date has not occurred, or any amount is owing to a Liquidity Lender hereunder. SECTION 7.7. Tax Filings and Expenses. NFC has filed all federal, state and local tax returns and all other tax returns which, to the knowledge of NFC, are required to be filed (whether informational returns or not), and has paid all taxes due, if any, pursuant to said returns or pursuant to any assessment received by NFC, except such taxes, if any, as are being contested in good faith and for which adequate reserves have been set aside on its books. NFC has paid all fees and expenses required to be paid by it in connection with the conduct of its business, the maintenance of its corporate existence and its qualification as a foreign corporation authorized to do business in each State in which it is required to so qualify, except where the failure to pay any such fees and expenses is not reasonably likely to have a Material Adverse Effect. SECTION 7.8. Disclosure. The materials listed on Annex B hereto and furnished to the Liquidity Agent or any Liquidity Lender in connection with this Liquidity Agreement were at the time the same were so furnished, complete and correct in all material respects. SECTION 7.9. Investment Company Act; Securities Act. NFC is not controlled by an "investment company" and is not required to register as an "investment company" under the Investment Company Act. The Commercial Paper Notes are exempt from registration under Section 3(a)(3) of the Securities Act of 1933, as amended. It is not necessary in connection with the issuance of the Commercial Paper Notes under the circumstances contemplated by this Liquidity Agreement and the other Related Documents to qualify any indenture under the Trust Indenture Act of 1939, as amended. SECTION 7.10. Margin Regulations. No proceeds of any Liquidity Advance or the sale of any Commercial Paper Note will be used to purchase or carry any "as "margin stock" (as defined or used in Regulation G, T, U or X of the F.R.S. Board or any successor thereto) or to extend credit to others for such purpose. NFC is not engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock. SECTION 7.11. No Consent. No consent, action by or in respect of, approval or other authorization of, or registration, declaration or filing with, any Governmental Authority or other Person is required for the valid execution and delivery and performance of this Liquidity Agreement or any other Related -38- 46 Document by NFC for the payment of any amounts by NFC hereunder or thereunder or for the performance of any of NFC's obligations hereunder or thereunder other the" such consents, approvals, authorizations, registrations, declarations or filings as shall have been obtained by NFC prior to the Closing Date. SECTION 7.12. No Violation of Laws, etc. The execution and delivery of this Liquidity Agreement and each of the other Related Documents, compliance with the provisions hereof and thereof and the consummation of the transactions contemplated herein and therein will not result in (a) a breach or violation of, and do not contravene, or constitute a default under, (i) any law or governmental rule or regulation applicable to NFC now in effect, (ii) any provision of any Organic Document of NFC, (iii) any judgment, injunction, order or decree of any Governmental Authority against NFC or any of its assets, or (iv) any agreement, contract or instrument to which NFC is a party or by which it or any of its assets is bound, (b) the acceleration of any obligations of NFC, or (c) the creation or imposition of any Lien on any assets of NFC other than in favor of the Agent or the Master Collateral Agent or as permitted by the Related Documents. SECTION 7.13. Ownership; Subsidiaries. As of the Closing Date, 100% of the common stock of NFC is owned by National. As of the Closing Date, NFC has no Subsidiaries and owns no capital stock of, or other interest in, any other Person. SECTION 7.14. Solvency. Both before and after giving effect to the transactions contemplated by this Liquidity Agreement and the other Related Documents, NFC is solvent and NFC is not the subject of any voluntary or involuntary case or proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy or insolvency law, or of any other event of the type described in Section 9.1.7 hereof. SECTION 7.15. No Security Interest. (A) There is no effective financing statement listing NFC as debtor (other than any which may have been filed on behalf of the Agent) covering any of the Assigned Collateral that is on file in any public office; (B) at the date of each deposit of Deposited Funds in the Commercial Paper Account there are no Liens on the Deposited Funds or the Commercial Paper Account, except the assignment made pursuant to the Collateral Agreement in favor of the Agent; and (C) NFC is and will be the lawful owner of (with good and marketable title to), and has and will have beneficial ownership of (or the benefit, through the Master Collateral Agent, of a first priority perfected security interest, in the case of the Vehicles and the Repurchase Programs), all Assigned Collateral, free and clear of all Liens except Permitted Liens. -39- 47 SECTION 7.16. Repurchase Programs. On the date of each Borrowing, each Manufacturer and each Repurchase Program in respect of which any portion of the Borrowing Base is calculated (including any portion of the Borrowing Base comprising the value of any Loans used to purchase Vehicles from such Manufacturer or finance Vehicles of such Manufacturer) shall be an Eligible Manufacturer and Eligible Repurchase Program, respectively. SECTION 7.17. Other Representations. All representations and warranties of NFC made in each Related Document to which it is a party are true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) and are repeated herein as though fully set forth herein. ARTICLE VIII COVENANTS SECTION 8.1. Affirmative Covenants. NFC covenants and agrees with the Liquidity Agent and each Liquidity Lender that, until all Liquidity Commitments have terminated and all Obligations have been paid or performed in full, unless the Majority Banks shall otherwise consent in writing, NFC will perform the covenants set forth in this Section 8.1. SECTION 8.1.1. Information. NFC will deliver to the Liquidity Agent, each Rating Agency, the Placement Agents and the Dealers: (a) promptly upon the delivery by National to NFC, a copy of the financial information and other materials required to be delivered by National to NFC and the Agent pursuant to Section 9.7(i) of the Loan Agreement; (b) promptly upon the delivery by National to NFC, copies of the financial information and other materials required to be delivered by National to NFC and the Agent pursuant to Section 9.7(ii) of the Loan Agreement; (c) from time to time such additional information regarding the financial position, results of operations or business of National and its Subsidiaries as the Liquidity Agent may reasonably request to the extent that National delivers such information to NFC pursuant to Section 9.7(vi) of the Loan Agreement; (d) at the time of delivery of the items described in clauses (a) and (b) above, a consolidating balance sheet and statement of earnings in respect of National and its -40- 48 Subsidiaries as of such date or for the year to date period ending on such date; (e) at the time of delivery of the items described in clauses (a) and (b) above, a certificate of an officer of NFC that, except as provided in any certificate delivered in accordance with Section 8.1.9, no Amortization Event, Loan Event of Default or (to the best of such officer's knowledge) Potential Amortization Event or Potential Loan Event of Default has occurred or is continuing during such fiscal quarter; (f) on or prior to June 30 of each year, a certificate of the chief financial officer of NFC certifying that (i) the ratings assigned by the Rating Agencies in respect of the commercial paper issued by NFC have not been withdrawn or downgraded below A-1 by S&P or P-1 by Moody's since the date of thin Liquidity Agreement, (ii) no Rating Agency has determined that the face amount of either of the Fronting Letters of Credit must be increased, (iii) no change in the Repurchase Program of any Manufacturer in respect of any new model year shall have given rise to any request on the part of the Rating Agencies that any modification be made to the Loan Agreement or any other Related Document, and (iv) NFC has apprised the Rating Agencies of all material changes in the Repurchase Programs occurring since the date of this Liquidity Agreement; (g) promptly following the introduction of any prospective change in any Repurchase Program or the introduction of any new Repurchase Program by an existing Manufacturer, notice and a copy of the same; (h) on or prior to the twentieth day of each month (or if such day is not a Business Day, on the next succeeding Business Day), a copy of the Monthly Report relating to the Assigned Collateral as of the last Business Day of the immediately preceding month received by NFC from National pursuant to Section 9.7(iv) of the Loan Agreement; and (i) on each Business Day when any Liquidity Advance is outstanding NFC shall cause the Agent to provide to the Liquidity Agent a statement setting forth (A) the maturity date and face amount of each outstanding Commercial Paper Note and (B) the aggregate principal amount of outstanding Liquidity Advances (or, at NFC's option, a statement updating any statement previously provided by NFC to the Liquidity Agent which contained such information as of a prior date); -41- 49 SECTION 8.1.2. Compliance with Covenants. NFC will comply with all covenants made by it and contained in each Related Document to which it is a party (subject to the grace periods set forth therein). SECTION 8.1.3. Payment of Obligations. NFC will pay and discharge, at or before maturity, all of its respective obligations and liabilities, including, without limitation, tax liabilities and other governmental claims, except where the same may be contested in good faith by appropriate proceedings, and will maintain, in accordance with GAAP, reserves as appropriate for the accrual of any of the same. SECTION 8.1.4. [Reserved]. SECTION 8.1.5. Maintenance of Existence. NFC will maintain its existence as a corporation validly existing and in good standing under the laws of the State of Delaware and duly qualified as a foreign corporation licensed under the laws of each state in which the failure to 80 qualify would have a material adverse effect on the business and operations of NFC. SECTION 8.1.6. Compliance with Laws. NFC will comply with all applicable laws, ordinances, rules, regulations, and requirements of Governmental Authorities (including, without limitation, ERISA and the rules and regulations thereunder) except where the failure to comply therewith is not reasonably likely to have a material adverse effect on the business and operations of NFC. SECTION 8.1.7. Inspection of Property, Books and Records. NFC will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its Assets, business and activities in accordance with GAAP; and will permit representatives of the Liquidity Agent and, if an Amortization Event shall have occurred and is continuing, representatives of any Liquidity Lender, at NFC's expense, to visit and inspect any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, directors, employees and independent public accountants, all at such reasonable times and as often as the Liquidity Agent or such Liquidity Lender may reasonably deem appropriate (but not more often than once a month in the case (i) of any Liquidity Lender and (ii) of the Liquidity Agent prior to the occurrence of an Amortization Event). SECTION 8.1.8. Absence of Certain Actions. NFC will not take any action which would permit National to have the right to refuse to perform any of its obligations under the Loan Agreement. -42- 50 SECTION 8.1.9. Notice of Default. Promptly upon becoming aware of any Potential Amortization Event, Potential Loan Event of Default, Loan Event of Default or Amortization Event, NFC shall give the Liquidity Agent, the Dealers and each Rating Agency notice thereof, together with a certificate of the President, vice President or the principal financial officer of NFC setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by NFC. SECTION 8.1.10. Notice of Material Proceedings. Promptly upon becoming aware thereof, NFC shall give the Liquidity Agent, the Dealers and each Rating Agency written notice of the commencement or existence of any proceeding by or before any Governmental Authority against or affecting NFC which is reasonably likely to have a material adverse effect on the business, condition (financial or otherwise), results of operations, properties or performance of NFC or the ability of NFC to perform its obligations under this Liquidity Agreement or under any other Related Document to which it is a party. SECTION 8.1.ll. Further Requests. NFC will promptly furnish to the Liquidity Agent and each Rating Agency such other information as, and in such form as, the Liquidity Agent or any Rating Agency may reasonably request. SECTION 8.1.12. [Reserved]. SECTION B.1.13. Further Assurances. NFC agrees to do such further acts and things, and to execute and deliver to the Liquidity Agent such additional assignments, agreements, powers and instruments, as the Liquidity Agent reasonably determines to be necessary to carry into effect the purposes of this Liquidity Agreement or to better assure and confirm unto the Liquidity Agent its rights, powers and remedies hereunder. SECTION 8.1.14. Repurchase Programs. NFC agrees that it will (i) provide the Liquidity Agent, the Dealers and each Rating Agency with at least 30 days' prior written notice of its intention to make Loans to National under the Loan Agreement for the purchase or financing of Vehicles manufactured by any new Manufacturer, (ii) provide the Liquidity Agent, the Dealers and each Rating Agency with a copy of the draft Repurchase Program of such Manufacturer as it then exists at the time of such notice and a copy of the final Repurchase Program promptly upon its being available and (iii) certify to the Liquidity Agent and the Liquidity Lenders that such new Manufacturer is an Eligible Manufacturer and that such Repurchase Program is an Eligible Repurchase Program at such time. In no event shall NFC agree, to the extent any consent of NFC is solicited or required by the Manufacturer or any assignor of such Repurchase Program, to any change in any Repurchase Program that is reasonably likely to -43- 51 materially adversely affect its rights or the rights of the Secured Parties with respect to any Vehicle previously purchased under such Repurchase Program. SECTION 8.1.15. Use of Proceeds of Commercial Paper Notes. NFC shall use the proceeds of the Commercial Paper Notes solely for one or more of the following purposes: (a) to pay matured Commercial Paper Notes when due, in accordance with the Depositary Agreement; (b) to fund Loaner and (c) to pay principal of, or interest on, any Liquidity Advance or any other amount payable by NFC under this Liquidity Agreement or to reimburse the Support Credit Enhancers or the Cash Reserve Account for any Support Liquidity Disbursement and any interest thereon or the Cash Collateral Accounts for any LOC Liquidity Disbursement and any interest thereon. Notwithstanding any provision of this Liquidity Agreement, on any day when any Liquidity Advance is outstanding, NFC shall not use the net proceeds of the issuance of Commercial Paper Notes to fund Loans. SECTION 8.1.16. Vehicles. NFC shall use commercially reasonable efforts to cause National to maintain good, legal and marketable title to the Vehicles purchased with proceeds of Loans, free and clear of all Liens except for Permitted Liens. SECTION 8.2. Negative Covenants. NFC covenants and agrees with the Liquidity Agent and each Liquidity Lender that until all Liquidity Commitments have been terminated and all Obligations have been paid or performed in full, unless the Majority Banks otherwise consent in writing, NFC will perform the obligations set forth in this Section 8.2. SECTION 8.2.1. Liens. NFC will not create, incur, assume or permit to exist any Lien upon any of its Assets (including the Assigned Collateral), the Accounts, the Commercial Paper Account, the Cash Collateral Accounts or the Deposited Funds, other than Liens created by or permitted under the Related Documents. SECTION 8.2.2. Other Indebtedness. Without (a) the prior written consent of the Majority Banks and (b) the prior receipt of written confirmation of the Rating Agencies that any such action will not result in the downgrading or withdrawal of the then current rating. of the Commercial Paper Notes by the Rating Agencies, NPC will not create, assume, incur, suffer to exist or otherwise become or remain liable in respect of any Indebtedness other than Indebtedness under this Liquidity Agreement, Indebtedness evidenced by the Commercial Paper Notes and Indebtedness under or permitted under any other Related Document. -44- 52 SECTION 8.2.3. Consolidations and Mergers . NFC will not, except as may be permitted by the express written approval of the Majority Banks and upon the receipt of written confirmation of the Rating Agencies that such action will not result in the downgrading on withdrawal of the then current ratings on the Commercial Paper Notes of the Rating Agencies, merge with or into, enter into any joint venture or other association with, or consolidate with, any other Person. SECTION 8.2.4. Sales of Assets. NFC will not sell, lease, transfer, liquidate or otherwise dispose of any Assets, except as contemplated by the Related Documents and provided that the proceeds thereof are paid directly to the Collateral Account. SECTION 8.2.5. Acquisition of Assets. NFC will not acquire, by long-term or operating lease or otherwise, any Assets, except pursuant to the terms of the Related Documents. SECTION 8.2.6. Dividends, Officers' Compensation. etc. NFC will not declare or pay any dividends on any shares of its capital stock or make any other distribution on, or any purchase, redemption or other acquisition of, any shares of its capital stock, or pay any wages or salaries or other compensation to officers, directors, employees or others except out of earnings computed in accordance with GAAP. SECTION 8.2.7. Name; Chief Executive Office. NFC will neither (i) change the location of its chief executive office (within the meaning of the UCC) without sixty (60) days' prior notice to the Agent, the Liquidity Agent and each Rating Agency nor (ii) change its name without prior notice to the Agent, the Liquidity Agent and each Rating Agency sufficient to allow the Agent to make all filings (including filings of financing statements on form UCC-1) and recordings necessary to perfect the interest of the Agent in the Assigned Collateral pursuant to the Collateral Agreement. SECTION 8.2.8. Organic Documents. NFC will not amend any of its Organic Documents without the written consent of the Majority Banks and each of the Rating Agencies. SECTION 8.2.9. Investments. NFC will not make, incur, or suffer to exist any loan, advance, extension of credit to, or other investment in, any Person other than pursuant to the Loan Agreement and with respect to Eligible Investments. SECTION 8.2.10. No Other Agreements; Amendments to Related Documents. NFC will not, without the prior written consent of the Majority Banks and GM, (i) enter into or be a party to any material agreement or instrument other than any Related Document or documents and agreements incidental thereto or (ii) amend, -45- 53 modify, waive or give any approval, consent or permission under, any provision of any Related Document to which it is a party other than, in the case of the Loan Agreement, A Support Reimbursement Agreement, B Letter of Credit Reimbursement Agreement, B Support Letter of Credit Reimbursement Agreement or the Depositary Agreement, such amendments that relate to minor administrative matters that do not amend or modify (A) the amount or timing of any payments (or priorities for payments) to be made under the Related Documents, (B) any rights in the Assigned Collateral (or any priorities or rights or restrictions on encumbrances with respect thereto), or (C) any prohibition or restriction on the incurrence of any Indebtedness under the Related Documents. Notwithstanding the foregoing provisions of this Section 8.2.10, NFC may, at any time and from time to time, without the consent of the Majority Banks, enter into any amendment, supplement or other modification to any Related Document, in form and substance satisfactory to the Liquidity Agent, to cure any apparent ambiguity or to correct or supplement any inconsistent provisions therein; provided, however, that (i) any such action shall not have a materially adverse effect on the interests of the Liquidity Lenders and (ii) a copy of such amendment, supplement or other modification is furnished to the Liquidity Lenders and each of the Rating Agencies in accordance with the notice provisions hereof not later than ten days prior to the execution thereof. SECTION 8.2.11. Other Business. NFC will not engage in any business or enterprise or enter into any transaction other than the making of Loans to National under the Loan Agreement, the related exercise of its rights as a secured creditor, the issuance of Commercial Paper Notes, the incurrence of Indebtedness under thin Liquidity Agreement, the A Support Reimbursement Agreement, the B Letter of Credit Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement, the incurrence and payment of ordinary course operating expenses and as otherwise contemplated by the Related Documents. SECTION 8.2.12. Maintenance of Separate Existence. NFC will do all things necessary to maintain its corporate existence separate and apart from that of National and Affiliates of National including, without limitation, (i) practicing and adhering to corporate formalities, such as maintaining appropriate corporate books and records; (ii) maintaining at least two corporate directors who are Independent Directors; (iii) owning or leasing (including through shared arrangements with Affiliates) all office furniture and equipment necessary to operate its business; (iv) not (A) guaranteeing or otherwise becoming liable for any obligations of any of its Affiliates, (B) having obligations guaranteed by any of its Affiliates, (C) holding itself out as responsible for debts of any of its -46- 54 Affiliates or for decisions or actions with respect to the affairs of any of its Affiliates and (D) being directly or indirectly named as a direct or contingent beneficiary or loss payee on any insurance policy of any Affiliate other than as required by the Related Documents with respect to insurance on the Vehicles; (v) other than as provided in the Related Documents, maintaining its deposit and other bank accounts and all of its assets separate from those of any other Person; (vi) maintaining its financial records separate and apart from those of any other Person; (vii) compensating all its employees, officers, consultants and agents for services provided to it by such Persons, or reimbursing any of its Affiliates in respect of services provided to it by employees, officers, consultants and agents of such Affiliate, out of its own funds; (viii) maintaining office space separate and apart from that of any of its Affiliates (even if such office space is subleased from or is on or near premises occupied by any of its Affiliates) and a telephone number separate and apart from that of any of its Affiliates; (ix) accounting for and managing all of its liabilities separately from those of any of its Affiliates; (x) allocating, on an arm's-length basis, all shared corporate operating services, leases and expenses, including, without limitation, those associated with the services of shared consultants and agents and shared computer and other office equipment and software; (xi) refraining from filing or otherwise initiating or supporting the filing of a motion in any bankruptcy or other insolvency proceeding involving NFC, National or any Affiliate of National, to substantively consolidate NFC with National or any Affiliate; (xii) remaining solvent and (xiii) conducting all of its business (whether written or oral) solely in its own name. NFC acknowledges its receipt of a copy of that certain opinion letter issued by Mayer, Brown & Platt dated June 7, 1995 and addressing the issue of substantive consolidation as it may relate to National, each Affiliate of National and NFC. NFC hereby agrees to maintain in place all policies and procedures, and take and continue to take all action, described in the factual assumptions set forth in such opinion letter and relating to NFC. SECTION 8.2.13. Offering Document. NFC will not include in any offering document for the Commercial Paper Notes any information regarding any Liquidity Lender which was not approved or furnished by such Liquidity Lender. -47- 55 ARTICLE IX AMORTIZATION EVENTS SECTION 9.1. Amortization Event. Each of the following events or occurrences described in this Section 9.1 shall constitute an "Amortization Event". SECTION 9.1.1. Non-Payment of Obligations. NFC shall (a) fail to repay maturing Commercial Paper Notes when due; (b) fail to make a payment within two Business Days of the Scheduled Maturity Date or prepayment (as a result of a mandatory prepayment requirement under Section 4.1.2) of principal of any Liquidity Advance within two Business Days of the date on which such payment is due; or (c) fail to make a payment of any interest on any Liquidity Advance, any fees or any other amounts payable hereunder within five Business Days of the date on which such payment is due. SECTION 9.1.2. Breach of Warranty. Any representation or warranty made by NFC herein or in any other Related Document to which it is a party shall have been incorrect in any material respect (to the extent that any such representation or warranty does not incorporate a materiality limitation in its terms) as of the date such representation or warranty is made and, which continues to be incorrect in any material respect (to the extent that any such representation or warranty does not incorporate a materiality limitation in its terms) for a period of 30 days after the earlier of (i) the date on which written notice thereof shall have been given to NFC by the Liquidity Agent or any Liquidity Lender and (ii) the date on which NFC obtains actual knowledge thereof, or any certificate, financial statement or any other material writing furnished by NFC pursuant to this Liquidity Agreement or any such other Related Document shall have been incorrect in any material respect when made (or deemed made) and, which continues to be incorrect in any material respect for a period of 10 days (other than with respect to any Officer's Certificate delivered with respect to the Borrowing Base, for which such period is one Business Day) after the earlier of (a) the date on which written notice thereof shall have been given to NFC by the Liquidity Agent or any Liquidity Lender and (b) the date on which NFC obtains actual knowledge thereof. SECTION 9.1.3. Non-Performance of Certain Covenants and Obligations. NFC shall default in the due performance and observance of any of its obligations under Section 8.2 and such default shall continue unremedied for a period of ten days after the earlier of (i) the date on which written notice thereof shall have been given to NFC by the Liquidity Agent or any Liquidity Lender and (ii) the date on which NFC obtains actual knowledge thereof. -48- 56 SECTION 9.1.4. Non-Performance of Other Covenants and Obligations. NFC shall default in the due performance and observance of any covenant or agreement contained herein or in any other Related Document to which it is a party (other than those specified in Sections 9.1.1, 9 1.2 and 9.1.3), and, in the case of defaults other than with respect to Section 8.1.8 or 8.1.9, such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to NFC by the Liquidity Agent or any Liquidity Lender or, in the case of Section 8.1.8 or 8.1.9, such default shall continue unremedied for a period of 30 days after NFC initially becomes aware of such failure to perform or comply with such covenant. SECTION 9.1.5. [Reserved]. SECTION 9.1.6. Judgments. Any final and unappealable (or, if capable of appeal, such appeal is not being diligently pursued or enforcement thereof has not been stayed) judgment or order for the payment of money in excess of $100,000, shall be rendered against NFC and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days. SECTION 9.1.7. Bankruptcy. Insolvency. etc. The occurrence of any Event of Bankruptcy with respect to NFC or National. SECTION 9.1.8. Letters of Credit. Any of the following shall occur: (a) the A Letter of Credit or the B Letter of Credit shall not be in full force or effect unless the aggregate amount on deposit in the Cash Collateral Accounts is equal to the amount described in clause (c)(i) or (ii) below, as applicable; (b) (1) the A Letter of Credit Expiration Date shall have occurred without renewal or extension, an A LOC Termination Disbursement has not been made and no cash collateral account or other substitute enhancement has been provided or (2) the B Letter of Credit Expiration Date shall have occurred without renewal or extension, a B LOC Termination Disbursement has not been made and no cash collateral account or other substitute enhancement has been provided; or (c) the Fronting Letter of Credit Amount available for A LOC Credit Disbursements and B LOC Credit Disbursements plus the amount of Support Liquidity Disbursements available for Conversion to Support Credit Disbursements is, for a period of one business day, less than (i) the Required Enhancement Amount in effect on such day or (ii) from and after the occurrence of an Amortization Event, the amount described in clause (c)(i) that shall have been in effect on the day immediately preceding the occurrence of such Amortization Event. SECTION 9.1.9. Insolvency of Fronting Credit Enhancers. (a) Unless the Cash Collateral Account A shall theretofore have been funded to the full extent required under the terms of the -49- 57 Collateral Agreement upon an A Termination Demand, an Event of Bankruptcy shall have occurred with respect to the A Credit Enhancer or the A Credit Enhancer shall have repudiated the A Letter of Credit or shall have refused to honor a proper draw thereon or (b) unless the Cash Collateral Account B and the Cash Collateral Account C shall theretofore have been funded to the full extent required under the terms of the Collateral Agreement upon a B Termination Demand, an Event of Bankruptcy shall have occurred with respect to the B Credit Enhancer or the B Credit Enhancer shall have repudiated the B Letter of Credit or shall have refused to honor a proper draw thereon. SECTION 9.1.10. Independent Directors. NFC shall fail to have two or more Independent Directors on its board and such failure shall have continued for a period of 30 days. SECTION 9.1.11. Enforceability of or Default under Related Documents. (a) Any of the Related Documents or any portion thereof shall not be in full force and effect, enforceable in accordance with its terms or NFC, National or any Manufacturer shall so assert in writing or (b) any Loan Event of Default or Event of Default shall occur. SECTION 9.1.12. Investment Company. NFC shall have become an "investment company" or shall have become under the "control" of an "investment company" under the Investment Company Act. SECTION 9.1.13. Termination of Loan Commitment. The Loan Commitment Termination Date shall have occurred. SECTION 9.1.14. Program Downgrade. The rating on the Commercial Paper Notes shall have been downgraded to A-2 by S&P or P-2 by Moody's, or less, or withdrawn and all of the Liquidity Lenders shall have a rating of A-1, or better, by S&P and P-1 by Moody's. SECTION 9.1.15. Termination of Liquidity Commitments or Reduction of Aggregate Liquidity Commitment. The Liquidity Commitment Termination Date with respect to all Liquidity Lenders shall have occurred or the Aggregate Liquidity Commitment is reduced due to the failure of certain Liquidity Lenders to renew their Liquidity Commitments on any date to 50% or less than the Aggregate Liquidity Commitment in effect immediately prior to such reduction. SECTION 9.2. Action if Amortization Event. If any Amortization Event set forth in Sections 9.1.1, 9.1.6, 9.1.8, 9.1.9, 9.1.10, 9 1.12, 9.1.13, 9.1.14 or 9.1.15 shall have occurred and be continuing, the Agent, upon having actual knowledge thereof, without the request or consent of the Liquidity Agent or the Majority Banks, in every such event and at -50- 58 any time thereafter during the continuance of such event, shall, and if any Amortization Event has occurred, the Agent, at the request or with the consent of the Majority Banks conveyed through the Liquidity Agent, shall, in every such event and at any time thereafter during the continuance of such event, by notice to NFC and National, at the same or different times, notify the Depositary, the Placement Agents and the Dealers of the occurrence of such Amortization Event, and instruct NFC and the Depositary to cease issuing Commercial Paper Notes and the right of NFC to issue Commercial Paper Notes shall automatically terminate. If any Amortization Event occurs under Section 9.1.7, without giving effect to any grace periods included in the definition of Event of Bankruptcy, the Liquidity Agent will instruct the Depositary and NFC to cease issuing Commercial Paper Notes. In addition, the Liquidity Agent may, (i) upon the occurrence of any Amortization Event, terminate the Liquidity Commitments hereunder if such Amortization Event is pursuant to Section 9.1.7 with respect to NFC or Section 9.1.8(a) (unless another form of Credit Enhancement is available); (ii) upon the occurrence of any event specified in Sections 9.1.1 through 9.1.12 or 9.1.14 at the request, or with the consent, of Liquidity Lenders then holding, in the aggregate, Liquidity Commitments in excess of 50% of the Aggregate Liquidity Commitment (or, if the Aggregate Liquidity Commitment shall have been terminated, Liquidity Lenders then holding, in the aggregate in excess of 50% of the principal amount of Liquidity Advances then outstanding), by notice to NFC, declare the aggregate principal amount of any Liquidity Advances then outstanding, together with accrued interest and all fees and other Obligations hereunder, immediately due and payable whereupon all such principal, accrued interest, fees and other Obligations hereunder shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by NFC; provided, however, that in the case of any Amortization Event under Section 9.1.7 with respect to NFC, (A) the Liquidity Commitment of each Liquidity Lender shall automatically be terminated and (B) all such principal, interest, fees and other Obligations shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by NFC; (iii) instruct NFC to terminate the Loan Commitment and cease funding the purchase or financing of Vehicles under the Loan Agreement; and (iv) pursue any other right or remedy under this Liquidity Agreement and the other Related Documents or under applicable law or otherwise. SECTION 9.3. Limited Amortization Events. Each of the following events or occurrences described in this Section 9.3 shall constitute a "Limited Amortization Event". -51- 59 SECTION 9.3.1. Ineligibility of Manufacturer or Repurchase Program. (a) Any Manufacturer or any Repurchase Program shall cease to be an Eligible Manufacturer or an Eligible Repurchase Program, respectively, (b) a Manufacturer whose Repurchase Program is a Guaranteed Depreciation Program and/or any related auction dealers, or any other Manufacturer, shall fail to pay an aggregate amount in excess of the lesser of $25 million and the aggregate amount of repurchase obligations of such Manufacturer under its Repurchase Program in respect of Vehicles that are subject to Loans (or such other amount as shall have been agreed to for this purpose by NFC and the Majority Banks at the time that NFC proposes such Manufacturer for consideration as an "Eligible Manufacturer under the Related Documents), in each case, owed by it in respect of any Vehicles turned back in accordance with the terms of the related Repurchase Program and such failure shall continue for 90 days after the respective Turnback Dates for such Vehicles or (c) any Event of Bankruptcy shall have occurred with respect to any Manufacturer. SECTION 9.3.2. Termination of Liquidity Commitment. The Liquidity Commitment of any Liquidity Lender shall have been terminated and NFC shall have failed to replace any such Liquidity Lender. SECTION 9.3.3. Rating Downgrade of Liquidity Lender. A Rating Downgrade below A-2 by S&P or P-2 by Moody's shall occur and be continuing for 60 days (or such other period permitted by the Rating Agencies) with respect to any Liquidity Lender and such Liquidity Lender shall not have been replaced pursuant to Section 5.9 hereof. SECTION 9.4. Action Upon Limited Amortization Event. (a) If any Limited Amortization Event set forth in Section 9.3.1 shall have occurred and be continuing with respect to any Manufacturer, NFC shall not make any further Loans under the Loan Agreement to fund the purchase or financing of Vehicles of such Manufacturer, no Commercial Paper Notes shall be issued to finance any such purchase or financing and no Liquidity Lender shall be required to make any Revolving Advance or Swing Line Advance with respect to any such purchase or financing. (b) If any Limited Amortization Event set forth in Section 9.3.2 shall have occurred and be continuing, then NFC shall not issue Commercial Paper Notes to the extent that after giving effect to such issuance (and the use of proceeds thereof), the Aggregate Face Amount shall exceed the Program Size (reduced by the aggregate Liquidity -52- 60 Commitments of the Liquidity Lenders that have been terminated). (c) If any Limited Amortization Event set forth in Section 9.3.3 shall have occurred and be continuing, then NFC shall not issue Commercial Paper Notes to the extent that after giving effect to such issuance (and the use of proceeds thereof), the Aggregate Face Amount shall exceed the Program Size (reduced by the aggregate Liquidity Commitments of the Affected Liquidity Lenders). ARTICLE X THE LIQUIDITY AGENT SECTION 10.1. Actions. Each Liquidity Lender hereby appoints Citibank as its Liquidity Agent under and for purposes of this Liquidity Agreement, the Liquidity Advance Notes and each other Related Document. Each Liquidity Lender hereby authorizes the Liquidity Agent to act on behalf of such Liquidity Lender under this Liquidity Agreement, the Liquidity Advance Notes and each other Related Document and, in the absence of other written instructions from the Majority Banks received from time to time by the Liquidity Agent (with respect to which the Liquidity Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Liquidity Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Liquidity Lender hereby indemnifies (which indemnity shall survive any termination of this Liquidity Agreement) the Liquidity Agent, pro rata according to such Liquidity Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Liquidity Agent in any way relating to or arising out of this Liquidity Agreement, the Liquidity Advance Notes and any other Related Document, including reasonable attorneys' fees (including the allocated costs of in-house counsel), and as to which the Liquidity Agent is not reimbursed by NFC; provided, however, that no Liquidity Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Liquidity Agent's gross negligence or wilful misconduct. The Liquidity Agent shall not be required to take any action hereunder, under the Liquidity Advance Notes or under any other Related Document, or to prosecute or defend any suit in respect of this Liquidity Agreement, the Liquidity Advance Notes or any -53- 61 other Related Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Liquidity Agent shall be or become, in the Liquidity Agent's determination, inadequate, the Liquidity Agent may call for additional indemnification from the Liquidity Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 10.2. Collateral Agreement. Without limiting the authorizations otherwise set forth in this Article X, each Liquidity Lender hereby authorizes the Liquidity Agent to execute and deliver the Collateral Agreement and each of the other Related Documents as Liquidity Agent and on behalf of such Liquidity Lender, with the same effect as if such Liquidity Lender had executed the Collateral Agreement or such Related Document in its own name. Each Liquidity Lender acknowledges that the Collateral Agreement contains certain provisions, including, without limitation, Section 7.02 thereof, which give rise to indemnification obligations in respect of the Agent on the part of such Liquidity Lender and such Liquidity Lender hereby agrees to be bound by such provisions, as the same may from time to time be modified in accordance with the terms of the Collateral Agreement and this Liquidity Agreement. SECTION 10.3. Exculpation. Neither the Liquidity Agent nor any of its directors, officers, employees or agents shall be liable to any Liquidity Lender for any action taken or omitted to be taken by it under this Liquidity Agreement or any other Related Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Liquidity Agreement or any other Related Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Related Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by NFC of its obligations hereunder or under any other Related Document. Any such inquiry which may be made by the Liquidity Agent shall not obligate it to make any further inquiry or to take any action. The Liquidity Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Liquidity Agent believes to be genuine and to have been presented by a proper Person. As to any matters not expressly provided for in this Liquidity Agreement or any other Related Document, the Liquidity Agent shall not be required to exercise any discretion or take any action, but shall be required to act or refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks. -54- 62 SECTION 10.4. Successor. The Liquidity Agent may resign as such at any time upon at least 30 days' prior written notice to NFC and all Liquidity Lenders, and the Liquidity Agent may be removed at any time with cause by the Majority Banks. If the Liquidity Agent at any time shall resign or be removed, the Majority Banks may appoint (with, if no Potential Amortization Event or Amortization Event (other than a Scheduled Amortization Event) then exists, the consent of NFC, which consent shall not be unreasonably withheld or delayed) another Liquidity Lender as a successor Liquidity Agent which shall thereupon become the Liquidity Agent hereunder. If no successor Liquidity Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 days after the retiring Liquidity Agent's giving notice of resignation or the Majority Banks' removal of the retiring Liquidity Agent, then the retiring Liquidity Agent may, on behalf of the Liquidity Lenders, appoint a successor Liquidity Agent, which shall be one of the Liquidity Lenders or an Eligible Liquidity Lender. The resignation or removal of the Liquidity Agent shall not become effective until a successor Liquidity Agent has been appointed and shall have accepted such appointment. Upon the acceptance of any appointment as Liquidity Agent hereunder by a successor Liquidity Agent, such successor Liquidity Agent shall be entitled to receive from the retiring Liquidity Agent such documents of transfer and assignment as such successor Liquidity Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Liquidity Agent, and the retiring Liquidity Agent shall be discharged from its duties and obligations under this Liquidity Agreement and all other Related Documents. After any retiring Liquidity Agent's resignation or removal hereunder as the Liquidity Agent, the provisions of (a) this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Liquidity Agent under this Liquidity Agreement; and (b) Section 11.3 and Section 11.4 shall continue to inure to its benefit. SECTION 10.5. Liquidity Advances by Citibank. Citibank (and any successor thereto in its capacity as Liquidity Agent, that is also a Liquidity Lender) shall have the same rights and powers with respect to (x) the Liquidity Advances made by it or any of its Affiliates, and (y) the Liquidity Advance Notes held by it or any of its Affiliates as any other Liquidity Lender and may exercise the same as if it were not the Liquidity Agent. Citibank (and such successor) and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with NFC or any Affiliate of NFC as if Citibank (and such successor) were not the Liquidity Agent hereunder. -55- 63 SECTION 10.6. Credit Decisions. Each Liquidity Lender acknowledges that it has, independently of the Liquidity Agent and each other Liquidity Lender, and based on such Liquidity Lender's review of the financial information of NFC and National, this Liquidity Agreement, the other Related Documents (the terms and provisions of which being satisfactory to such Liquidity Lender) and such other documents, information and investigations as such Liquidity Lender has deemed appropriate, made its own credit decision to extend its Liquidity Commitment. Each Liquidity Lender also acknowledges that it will, independently of the Liquidity Agent and each other Liquidity Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Liquidity Agreement or any other Related Document. SECTION 10.7. Copies, etc. The Liquidity Agent shall give prompt notice to each Liquidity Lender of each notice or request required or permitted to be given to the Liquidity Agent by NFC pursuant to the terms of this Liquidity Agreement (unless concurrently delivered to the Liquidity Lenders by NFC). The Liquidity Agent will distribute to each Liquidity Lender each document or instrument received for its account and copies of all other communications received by the Liquidity Agent from NFC for distribution to the Liquidity Lenders by the Liquidity Agent in accordance with the terms of this Liquidity Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1. Waivers, Amendments, etc. The provisions of this Liquidity Agreement and each other Related Document to which NFC is a party may from time to time be amended, modified or waived, if (i) prior written notice of such amendment, modification or waiver is given to each of the Rating Agencies, the Placement Agents and the Dealers, (ii) subject to Section 8.2.10 hereof as it relates to amendments of the Related Documents other than the Liquidity Agreement, such amendment, modification or waiver is in writing and consented to in writing by NFC, GM and the Majority Banks and (iii) such amendment, modification or waiver shall not, as evidenced by written confirmation of the Rating Agencies, result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies; provided, however, that such written confirmation will not be required in connection with the extension of a Liquidity Lender's Scheduled Liquidity Commitment Termination Date pursuant to Section 3.5; provided further, however, that any modification of Section 6.3 or this Section -56- 64 11.1, any requirement hereunder that any particular action be taken by all the Liquidity Lenders or by the Majority Banks or any change in the definition of the term "Required Liquidity Providers", "Borrowing Base Deficiency", "Eligible Manufacturers", "Eligible Repurchase Program", "Event of Bankruptcy" or "Majority Banks" or any defined term used for the purpose of any such definition shall require the consent of each Liquidity Lender and the B Support Credit Enhancers; and further provided that any amendment, waiver or other modification that would (a) increase the Liquidity Commitment or the Percentage of any Liquidity Lender or reduce any fees described in Article IV payable to any Liquidity Lender shall require the consent of such Liquidity Lender; (b) amend the definition of the Scheduled Maturity Date, the Scheduled Liquidity Commitment Termination Date, or the Liquidity Commitment Termination Date shall require the consent of each Liquidity Lender affected thereby; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on any Liquidity Advance of any Liquidity Lender (or reduce the principal amount of or rate of interest on any Liquidity Advance of any Liquidity Lender) shall require the consent of each Liquidity Lender affected thereby; (d) modify or waive the conditions precedent to the effectiveness of this Liquidity Agreement set forth in Article VI shall require the consent of each Liquidity Lender; (e) approve the assignment or transfer by NFC of any of its rights or obligations hereunder or under any other Related Document to which it is a party except pursuant to the express terms hereof or thereof shall require the consent of each Liquidity Lender; (f) release any of the Assigned Collateral from the Lien under the Collateral Agreement or the Master Collateral Agency Agreement, or release any obligor under any Related Document to which it in a party except pursuant to the express terms of such Related Document shall require the consent of each Liquidity Lender, provided, however, that the Agent or the Master Collateral Agent may release liens on Vehicles in accordance with the Master Collateral Agency Agreement or the Collateral Agreement; (g) affect adversely the interests, rights or obligations of any Liquidity Lender individually in -57- 65 comparison to other Liquidity Lenders shall require the consent of such Liquidity Lender; (h) affect adversely the interests, rights or obligations of either the Liquidity Agent or the Agent in its capacity as such shall require the consent of the Liquidity Agent or the Agent, as the case may be; (i) amend or otherwise modify any Amortization Event shall require the consent of each Liquidity Lender; and (j) amend or waive any condition precedent to the issuance of the Commercial Paper Notes set forth in Section 2.2 shall require written confirmation from each of S&P and Moody's that such amendment or waiver will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by each of S&P and Moody's. Notwithstanding the foregoing provisions of this Section 11.1, NFC and the Liquidity Agent may, at any time and from time to time, without the consent of the Liquidity Lenders, enter into any amendment, supplement or other modification to this Agreement to cure any apparent ambiguity or to correct or supplement any provision in this Agreement that may be inconsistent with any other provision herein; provided, however, that (i) any such action shall not have a materially adverse effect on the interests of the Liquidity Lenders and (ii) a copy of such amendment, supplement or other modification is furnished to each Liquidity Lender and each Rating Agency in accordance with the notice provisions hereof not later than ten days prior to the execution thereof by NFC and the Liquidity Agent. No failure or delay on the part of the Liquidity Agent, any Liquidity Lender or the holder of any Liquidity Advance Note in exercising any power or right under this Liquidity Agreement or any other Related Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on NFC in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Liquidity Agent, any Liquidity Lender or the holder of any Liquidity Advance Note under this Liquidity Agreement or any other Related Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2. Notices. All notices, amendments, waivers, consents and other communications provided to and party hereto -58- 66 under this Liquidity Agreement or any other Related Document shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or set forth in the Liquidity Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted upon receipt of electronic confirmation of transmission. SECTION 11.3. Payment of Costs and Expenses. NFC agrees to pay on demand all reasonable expenses of the Liquidity Agent (including the reasonable fees and out-of-pocket expenses of counsel to the Liquidity Agent and of local counsel, if any, who may be retained by counsel to the Liquidity Agent) in connection with (a) the negotiation, preparation, execution, delivery and administration of this Liquidity Agreement and of each other Related Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Liquidity Agreement or any other Related Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby or thereby are consummated, (b) the filing, recording, refiling or rerecording of the Collateral Agreement or the Master Collateral Agency Agreement and/or any UCC financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of the Collateral Agreement or the Master Collateral Agency Agreement, (c) the preparation and review of the form of any document or instrument relevant to this Liquidity Agreement or any other Related Document, (d) the transactions contemplated by this Liquidity Agreement and any of the other Related Documents, and (e) the preparation and negotiation of the legal opinions of counsel to each Liquidity Lender up to $1500 per Liquidity Lender. NFC further agrees to pay, and to save the Liquidity Agent and the Liquidity Lenders harmless from all liability for (i) any -59- 67 breach by NFC of any of its obligations under this Liquidity Agreement, (ii) all reasonable costs incurred by the Liquidity Agent or the Liquidity Lenders in enforcing this Liquidity Agreement and (iii) any stamp, documentary or other taxes which may be payable in connection with the execution or delivery of this Liquidity Agreement, any Borrowing hereunder, or the issuance of the Liquidity Advance Notes or any other Related Documents. NFC also agrees to reimburse the Liquidity Agent or such Liquidity Lender upon demand for all reasonable out-of-pocket expenses incurred by the Liquidity Agent or such Liquidity Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 11.4. Indemnification. In consideration of the execution and delivery of this Liquidity Agreement by each Liquidity Lender and the extension of the Liquidity Commitments, NFC hereby indemnifies and holds the Liquidity Agent and each Liquidity Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and reasonable expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought and including, without limitation, any liability in connection with the offering and sale of the Commercial Paper Notes), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Liquidity Advance; or (b) the entering into and performance of this Liquidity Agreement and any other Related Document by any of the Indemnified Parties, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct and provided that NFC hereby indemnifies the Indemnified Parties, in connection with prosecuting or defending any such claims, for reasonable attorneys' fees and expenses. If and to the extent that the foregoing undertaking may be unenforceable for any reason, NFC hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnity set forth in this Section 11.4 shall in no event include indemnification for any Taxes (which -60- 68 indemnification is provided in Section 5.6). NFC shall give notice to the Rating Agencies of any claim for Indemnified Liabilities made under this Section. SECTION 11.5. Survival. The obligations of NFC under Sections 5.3, 5.4, 5.5, 5.6, 11.3 and ll.4, and the obligations of the Liquidity Lenders under Sections 10.1 and 10.2, shall in each case survive any termination of this Liquidity Agreement, the payment in full of all the Obligations and the termination of all Liquidity Commitments. SECTION 11.6. Severability. Any provision of this Liquidity Agreement or any other Related Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Liquidity Agreement or such Related Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.7. Headings. The various headings of this Liquidity Agreement and of each other Related Document are inserted for convenience only and shall not affect the meaning or interpretation of this Liquidity Agreement or such other Related Document or any provisions hereof or thereof. SECTION 11.8. Execution in Counterparts. This Liquidity Agreement may be executed by the parties hereto in several counterparts, each of which shall be executed by NFC and the Liquidity Agent and be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 11.9. Governing Law: Entire Agreement. THIS LIQUIDITY AGREEMENT AND EACH OTHER RELATED DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Liquidity Agreement, the Liquidity Advance Notes and the other Related Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 11.10. Successors and Assigns. This Liquidity Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) NFC may not assign or transfer its rights or obligations hereunder, other than pursuant to the Collateral Agreement, without (i) the prior written consent of the Liquidity Agent and all Liquidity Lenders and (ii) written -61- 69 confirmation from each of the Rating Agencies that its then current rating of the Commercial Paper Notes will not be reduced or withdrawn as a result thereof; and (b) the rights of sale, assignment and transfer of the Liquidity Lenders are subject to Section 11.11. SECTION 11.11. Sale and Transfer of Liquidity Advances and Notes; Participations in Loans and Notes. Each Liquidity Lender may assign, or sell participations in, its Liquidity Advances and Liquidity Commitment to one or more other Persons in accordance with this Section 11.11. SECTION 11.11.1. Assignments. (a) Any Liquidity Lender, (i) with notice to the Rating Agencies and the Dealers and the written consent of NFC (which consent shall not be unreasonably withheld) and the Liquidity Agent may at any time assign and delegate to an Eligible Liquidity Lender, and (ii) with ten days' prior notice to the Rating Agencies, NFC, the Liquidity Agent, the Placement Agents and the Dealers, may assign and delegate to any of its Affiliates with a credit rating assigned to its short-term obligations by each Rating Agency that is not lower than the rating then assigned by such Rating Agency to the Commercial Paper Notes, and with the written consent of NFC (which consent shall not be unreasonably withheld) may at any time assign and delegate to any other Liquidity Lender (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Liquidity Lender's total Liquidity Advances and Liquidity Commitment (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Liquidity Lender's Liquidity Advances and Liquidity Commitment) in a minimum aggregate amount of $10,000,000; provided, however, that (x) any such Assignee Lender will comply, if applicable, with the provisions contained in the last paragraph of Section 5.6 and (y) the minimum aggregate amount of total Liquidity Commitment and Liquidity Advances, if any, retained by such Liquidity Lender shall be $10,000,000; provided, further, however, that, NFC and the Liquidity Agent shall be entitled to continue to deal solely and directly with such Liquidity Lender in connection with the interests so assigned and delegated to an Assignee Lender until -62- 70 (A) such Assignee Lender shall have executed and delivered to NFC and the Liquidity Agent a Liquidity Lender Assignment Agreement, accepted by the Liquidity Agent; (B) the processing fees described below shall have been paid; and (C) such Assignee Lender shall have delivered an opinion of counsel acceptable to the Rating Agencies regarding the enforceability of such Assignee Lender's Liquidity Commitment. From and after the date that the Liquidity Agent accepts such Liquidity Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Liquidity Lender Assignment Agreement, shall have the rights and obligations of a Liquidity Lender hereunder and under the other Related Documents, and (y) the assignor Liquidity Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Liquidity Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Related Documents. Within five Business Days after its receipt of notice that the Liquidity Agent has received an executed Liquidity Lender Assignment Agreement, NFC shall, upon receipt of the Liquidity Advance Notes evidencing such assignor Liquidity Lender's Liguidity Advance and Liquidity Commitment, execute and deliver to the Liquidity Agent (for delivery to the relevant Assignee Lender) new Liquidity Advance Notes evidencing such Assignee Lender's assigned Liquidity Advances and Liquidity Commitment and, if the assignor Liquidity Lender has retained a portion of its Liquidity Advances and Liquidity Commitment hereunder, replacement Liquidity Advance Notes in the principal amount of the Liquidity Advances and Liquidity Commitment so retained by the assignor Liquidity Lender hereunder (such Liquidity Advance Notes to be in exchange for, but not in payment of, those Liquidity Advance Notes then held by such assignor Liquidity Lender). Each such Liquidity Advance Note shall be dated the date of the predecessor Liquidity Advance Notes. The assignor Liquidity Lender shall mark the predecessor Liquidity Advance Notes "exchanged" and deliver them to NFC. Accrued interest on that part of the predecessor Liquidity Advance Notes evidenced by the new Liquidity Advance Notes, and accrued fees, shall be paid as provided in the Liquidity Lender Assignment Agreement. Accrued interest on that part of the predecessor Liquidity Advance Notes evidenced by the replacement Liquidity Advance Notes shall be paid to the assignor Liquidity Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Liquidity Advance Notes and -63- 71 in this Liquidity Agreement. Such assignor Liquidity Lender or such Assignee Lender must also pay a processing fee to the Liquidity Agent upon delivery of any Liquidity Lender Assignment Agreement in the amount of $2,500. Such assignor Liquidity Lender and such Assignee Lender (and not NFC) shall pay any legal expenses incurred by the Liquidity Agent in the review, documentation and closing of such assignment. Any attempted assignment and delegation not made in accordance with this Section 11.11.1 shall be null and void. (b) Notwithstanding any other provision set forth in this Liquidity Agreement, any Liquidity Lender may at any time create a security interest in all or any portion of its rights under this Liquidity Agreement (including, without limitation, the Liquidity Advances owing to it and the Note held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 11.11.2. Participations. Any Liquidity Lender may at any time sell to one or more commercial banks or other financial institutions (each of such commercial banks and financial institutions being herein called a "Liquidity Participant") participating interests in any of the Liquidity Advances, Liquidity Commitment, or other interests of such Liquidity Lender hereunder; provided, however, that (a) no participation contemplated in thin Section 11.11.2 shall relieve such Liquidity Lender from its Liquidity Commitment or its other obligations hereunder or under any other Related Document to which such Liquidity Lender is a party; (b) each participation shall be in a minimum aggregate amount of $10,000,000 or a smaller amount as may be agreed to by NFC; (c) such Liquidity Lender shall remain solely responsible for the performance of its Liquidity Commitment and such other obligations; (d) NFC and the Liquidity Agent shall continue to deal solely and directly with such Liquidity Lender in connection with such Liquidity Lender's rights and obligations under this Liquidity Agreement and each of the other Related Documents to which such Liquidity Lender is a party; (e) no Liquidity Participant, unless such Liquidity Participant is an Affiliate of such Liquidity Lender, or is itself a Liquidity Lender, shall be entitled to require such Liquidity Lender to take or refrain from taking any action hereunder or under any other Related Document, except that -64- 72 such Liquidity Lender may agree with any Liquidity Participant that such Liquidity Lender will not, without such Liquidity Participant's consent, take any actions of the type described in the first proviso of Section 11.1 or clauses (a) through (g) and clauses (i) and (j) of Section 11.1; and (f) NFC shall not be required to pay any amount under this Liquidity Agreement that is greater than the amount which it would have been required to pay had no participating interest been sold. NFC acknowledges and agrees that, to the extent permitted by applicable law, each Liquidity Participant, subject to clauses (d) and (f) above, for purposes of Sections 5.3, 5.4, 5.5, 5.6, 5.8, 11.3, 11.4, 11.13 and 11.16 shall be considered a Liquidity Lender. No Liquidity Participant shall have direct rights against NFC. SECTION 11.12. Other Transactions. Nothing contained herein shall preclude the Liquidity Agent or any other Liquidity Lender from engaging in any transaction, in addition to those contemplated by this Liquidity Agreement or any other Related Document, with NFC or any of its Affiliates in which NFC or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 11.13. Bankruptcy Petition Against NFC. The Liquidity Agent and each Liquidity Lender hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all Commercial Paper Notes Outstanding, it will not institute against, or join any other Person in instituting against, NFC, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. In the event that any Liquidity Lender takes action in violation of this Section 11.13, NFC agrees, for the benefit of the Holders, that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by the Liquidity Lender against NFC or the commencement of such action and raise the defense that such Liquidity Lender has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert; and such Liquidity Lender acting in violation of this Section 11.13 shall be liable for and pay the costs and expenses of NFC incurred in connection therewith. The provisions of this Section 11.13 shall survive the termination of this Liquidity Agreement, and, with respect to the Liquidity Agent, the resignation or removal of the Liquidity Agent and, with -65- 73 respect to any Liquidity Lender, the replacement of such Liquidity Lender. SECTION 11.14. Limited Recourse to NFC; No Recourse. (a) The Liquidity Agent and each Liquidity Lender agree that the Obligations of NFC to the Liquidity Agent and such Liquidity Lender hereunder shall be payable in the order and priority set forth in Section 2.01 and 5.02(b), as applicable, of the Collateral Agreement. Such obligations shall be due and payable only to the extent that NFC's assets and the Fronting Letter of Credit Amount are sufficient to pay such obligations. No claims of the Liquidity Agent or any Liquidity Lender arising under or in connection with the Collateral Agreement are intended to be impaired or waived by this Section 11.14 (a). (b) Without limitation to the obligations of NFC hereunder, no recourse shall be had for the payment of any amount owing in respect of Liquidity Advances or for the payment of any fee hereunder or any other obligation or claim arising out of or based upon this Liquidity Agreement, the Liquidity Advance Notes or any other Related Document against any stockholder, employee, officer, director, affiliate or incorporator of NFC based on their status as such or their actions in connection therewith. The provisions of this Section 11.14 shall survive the termination of this Liquidity Agreement, and with respect to the Liquidity Agent the resignation or removal of the Liquidity Agent and with respect to any Liquidity Lender the replacement of such Liquidity Lender. SECTION 11.15. Survival of Representations and Warranties. All covenants, agreements, representations and warranties made by NFC herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Liquidity Agreement or any other Related Document shall be considered to have been relied upon by the Liquidity Lenders and shall survive the execution and delivery of this Liquidity Agreement and the making by the Liquidity Lenders of the Liquidity Advances, and the execution and delivery to the Liquidity Lenders of the Liquidity Advance Notes evidencing such Liquidity Advances, regardless of any investigation made by the Liquidity Lenders or on their behalf and shall continue so long as and until such time as all Obligations hereunder and all Indebtedness under the Commercial Paper Notes shall have been paid in full and the Liquidity Lenders no longer have any Liquidity Commitments hereunder. SECTION 11.16. Confidentiality. Each Liquidity Lender agrees that it shall not disclose any Confidential Information to any Person without the prior written consent of NFC or National, other than (a) to the Liquidity Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual -66- 74 or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process of which NFC or National, as the case may be, has knowledge; provided that a Liquidity Lender may disclose Confidential Information as required by any law, rule or regulation or judicial process of which NFC or National, as the case may be, does not have knowledge if such Liquidity Lender is prohibited by law from disclosing such requirement to NFC or National, as the case may be, or (c) in the course of litigation with NFC or National, the Liquidity Agent or any other Liquidity Lender. "Confidential Information" means information that NFC or National furnishes to a Liquidity Lender on a confidential basis, but does not include any such information that is or becomes generally available to the public other than as a result of a disclosure by any Liquidity Lender or other Person to which a Liquidity Lender delivered such information or that is or becomes available to such Liquidity Lender from a source other than NFC or National, provided that such source is not (1) known to such Liquidity Lender to be bound by a confidentiality agreement with NFC or National, as the case may be, or (2) known to such Liquidity Lender to be otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation. SECTION 11.17. Jurisdiction; Consent to Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST NFC OR ANY LIQUIDITY LENDER WITH RESPECT TO THIS LIQUIDITY AGREEMENT OR ANY OTHER RELATED DOCUMENT MAY BE BROUGHT IN ANY STATE OR (TO EXTENT PERMITTED BY LAW) FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS LIQUIDITY AGREEMENT NFC AND EACH LIQUIDITY LENDER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGEMENT RENDERED THEREBY IN CONNECTION WITH THIS LIQUIDITY AGREEMENT. NFC DESIGNATES AND APPOINTS, AND EACH LIQUIDITY LENDER DESIGNATES AND APPOINTS, CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK 10019, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY NFC OR SUCH LIQUIDITY LENDER IRREVOCABLY AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY NFC AND EACH LIQUIDITY LENDER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO NFC OR SUCH LIQUIDITY LENDER SO SERVED AT ITS ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO, EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY NFC OR SUCH LIQUIDITY LENDER REFUSES TO ACCEPT SERVICE, NFC AND EACH LIQUIDITY LENDER HEREBY AGREES THAT SERVICE -67- 75 UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY LIQUIDITY LENDER OR THE AGENT TO BRING PROCEEDINGS AGAINST NFC IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 11.18. Waiver Of Jury Trial. THE LIQUIDITY AGENT, THE LIQUIDITY LENDERS AND NFC HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JULY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS LIQUIDITY AGREEMENT OR ANY OTHER RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LIQUIDITY LENDERS OR NFC IN CONNECTION HEREWITH OR THEREWITH. NFC ACKNOWLEDGES AND AGREES THAT IT WAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LIQUIDITY AGENT AND THE LIQUIDITY LENDERS ENTERING INTO THIS LIQUIDITY AGREEMENT AND EACH SUCH OTHER RELATED DOCUMENT. SECTION 11.19. Waiver of Set-Off. Each Liquidity Lender hereby waives and relinquishes any right that it has or may have to set-off or to exercise any banker's lien or any right of attachment or garnishment with respect to any funds at any time and from time to time on deposit in, or otherwise to the credit of, any account and any claims of NFC therein or with respect to any right to payment from NFC, it being understood, however, that nothing contained in this Section 11.19 shall, or is intended to, derogate from the assignment and security interest granted to the Agent under the Collateral Agreement or to the Master Collateral Agent under the Master Collateral Agency Agreement or impair any rights of the Liquidity Lenders, the Liquidity Agent, the Agent or the Master Collateral Agent thereunder. -68- 76 IN WITNESS WHEREOF, the parties hereto have caused this Liquidity Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. NATIONAL FLEET FUNDING CORPORATION By: /s/ M.J. Becker ------------------------------------ Name: M.J. Becker Title: Address: 7700 France Avenue South Minneapolis, Minnesota 54435 Attention: Facsimile No.: Telephone No.: CITIBANK, N.A. as Liquidity Agent By: /s/ Tara J. Coffey ------------------------------------ Name: Tara J. Coffey Title: Senior Trust Officer Address: 120 Wall Street, 13th Floor New York, New York 10043 Attention: Structured Finance Group Facsimile No.: (212) 480-1615 Telephone No.: (212) 412-6230 77
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $75,000,000 ABN AMRO BANK N.V. By: /s/ Bernard J. McGuigan Robert J. Graff --------------------------------------------- Name: Bernard J. McGuigan Robert J. Graff Title:Group Vice President Vice President District Office: 135 South Lasalle Street Suite 425 Chicago, IL 60674-9135 Attention: Barney McGuigan Facsimile No.: (312) 606-8425 Telephone No.: (312) 904-2662 LIBOR Office: 135 South LaSalle Street Suite 425 Chicago, IL 60674-9135 Attention: Barney McGuigan Facsimile No.: (312) 606-8425 Telephone No.: (312) 904-2662
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $15,000,000 BANK OF IRELAND By: /s/ R.H. Wyer (1541) K. Rockett (3068) --------------------------------------- Name: R.H. Wyer K. Rockett Title: Domestic Office: 640 5th Avenue New York, NY 10019 Attention: Carmel Queenan Facsimile No.: (212) 586-7552 Telephone No.: (212) 397-1758 LIBOR Office: La Touche House International Financial Services Center Custom House Docks Dublin 1 IRELAND Attention: Niamh O'Flynn Facsimile No.: 011-353-18290129 Telephone No.: 011-353-16700600
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $50,000,000 BANK OF MONTREAL By: /s/ Lynn A. Durning --------------------------------------- Name: LYNN A. DURNING Title: DIRECTOR Domestic Office: 115 South LaSalle Street Chicago, IL 60603 Attention: Debra Sandt Facsimile No.: (312) 750-4344 Telephone No.: (312) 750-4312 LIBOR Office: 115 South LaSalle Street Chicago, IL 60603 Attention: Debra Sandt Facsimile No.: (312) 750-4344 Telephone No.: (312) 750-4312
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $75,000,000 THE BANK OF NEW YORK By: /s/ Richard A. Raffetto --------------------------------------- Name: RICHARD A. RAFFETTO Title: ASSISTANT VICE PRESIDENT Domestic Office: One Wall Street New York, NY 10286 Attention: Yvonne Forbes Facsimile No.: (212) 635-1208 Telephone No.: (212) 635-6691 LIBOR Office: One Wall Street New York, NY 10286 Attention: Yvonne Forbes Facsimile No.: (212) 635-1208 Telephone No.: (212) 635-6691
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $75,000,000 THE BANK OF NOVA SCOTIA By: /s/ F. C. H. Ashby --------------------------------------- Name: F. C. H. Ashby Title: Sr. Manager Loan Operation Domestic Office: 600 Peachtree Street, N.E. Suite 2700 Atlanta, GA 30308 Attention: F.C.H. Ashby Facsimile No.: (404) 888-8998 Telephone No.: (404) 877-1500 LIBOR Office: 600 Peachtree Street, N.E. Suite 2700 Atlanta, GA 30308 Attention: F.C.H. Ashby Facsimile No.: (404) 888-8998 Telephone No.: (404) 877-1500
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $25,000,000 THE BANK OF TOKYO, LTD, NEW YORK AGENCY By: /s/ Joseph P. Devoe --------------------------------------- Name: Joseph P. Devoe Title: Attorney-in-Fact Domestic Office: 1251 Avenue of the Americas New York, NY 10116 Attention: Wink Mora Facsimile No.: (212) 782-6440 Telephone No.: (212) 782-4321 LIBOR Office: 1251 Avenue of the Americas New York, NY 10116 Attention: Wink Mora Facsimile No.: (212) 782-6440 Telephone No.: (212) 782-4321
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- BANQUE ET CAISSE D'EPARGNE DE L'ETAT, $10,000,000 LUXEMBOURG By: /s/John DHUR Rene REIFF ------------------------------------------------- Name: John DHUR Rene REIFF Title: Sous-Directeur Inspecteur de Direction Domestic Office: 1 Place de Metz L-1930 Luxembourg Grand Duchy of Lexembourg Attention: Pina Girardi Facsimile No.: 011-352-4015-4284 Telephone No.: 011-352-4015-4284 LIBOR Office: 1 Place de Metz L-1930 Lexembourg Grand Duchy of Lexembourg Attention: Pina Girardi Facsimile No.: 011-352-4015-4284 Telephone No.: 011-352-4015-4349
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $15,000,000 BANQUE NATIONAL DE PARIS - CHICAGO BRANCH By:/s/ ARNAUD COLLIN du BOCAGE --------------------------------------- Name: ARNAUD COLLIN du BOCAGE Title: Executive Vice President and General Manager Domestic Office: 209 South LaSalle Street Chicago, IL 60604 Attention: Christine Howatt Facsimile No.: (312) 977-1380 Telephone No.: (312) 977-1383 LIBOR Office: 209 South LaSalle Street Chicago, IL 60604 Attention: Christine Howatt Facsimile No.: (312) 977-1380 Telephone No.: (312) 977-1383
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $25,000,000 BAYERISCHE HYPOTHEKEN-UND WECHSEL - BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH By: /s/ Constance Madden --------------------------------------- Name: Constance Madden Title: A.V.P. By: /s/ R.G. Pankuch --------------------------------------- Name: R.G. Pankuch Title: FVP Domestic Office: Financial Square 32nd Floor New York, NY 10005 Attention: Constance Madden Facsimile No.: (212) 440-0741 Telephone No.: (212) 440-0750 LIBOR Office: Financial Square 32nd Floor New York, NY 10005 Attention: Constance Madden Facsimile No.: (212) 440-0741 Telephone No.: (212) 440-0750
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $75,000,000 CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ Kent Davis --------------------------------------- Kent Davis Authorized Signatory Domestic Office: Two Paces West 2727 Paces Ferry Road Suite 1200 Atlanta, GA 30339 Attention: Junior Williams Facsimile No.: (404) 319-4950 Telephone No.: (404) 319-4820 LIBOR Office: Two Paces West 2727 Paces Ferry Road Suite 1200 Atlanta, GA 30339 Attention: Junior Williams Facsimile No.: (404) 319-4950 Telephone No.: (404) 319-4820
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $50,000,000 CAISSE NATIONALE DE CREDIT AGRICOLE By:/s/ Katherine L. Abbott --------------------------------------- Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT Domestic Address: 55 East Monroe Chicago, IL 60603 Attention: Kimberly Wilp Facsimile No.: (312) 372-4421 Telephone No.: (312) 917-7450 LIBOR Office: 55 East Monroe Chicago, IL 60603 Attention: Kimberly Wilp Facsimile No.: (312) 372-4421 Telephone No.: (312) 917-7450
88
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $132,500,000 CITIBANK, N.A. By:/s/ Kyle L. Miller --------------------------------------- Name: Kyle L. Miller Title: Vice President Domestic Office: 399 Park Avenue 6th Floor, Zone 3 New York, NY 10043 Attention: Kyle L. Miller Facsimile No.: (212) 793-3728 Telephone No.: (212) 559-7492 LIBOR Office: 399 Park Avenue 6th Floor, Zone 3 New York, NY 10043 Attention: Kyle L. Miller Facsimile No.: (212) 793-3728 Telephone No.: (212) 559-7492
89
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $75,000,000 COMMERZBANK AG, CHICAGO BRANCH By:/s/ WB Peterson --------------------------------------- Name: WILLIAM BRENT PETERSON Title: Assistant Vice President By:/s/ Dr. Tollner --------------------------------------- Name: DR. HELMUT R. TOLLNER Title: Executive Vice President Domestic Office: 2 World Financial Center New York, NY 10281 Attention: Christine Scaffidi Facsimile No.: (212) 266-7235 Telephone No.: (212) 266-7235 LIBOR Office: 2 World Financial Center New York, NY 10281 Attention: Christine Scaffidi Facsimile No.: (212) 266-7235 Telephone No.: (212) 266-7235
90
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $132,500,000 CREDIT SUISSE By:/s/ Carl Jackson --------------------------------------- Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT By:/s/ Roger Saylor --------------------------------------- Name: Roger Saylor Title: Associate Domestic Office: 12 East 49th Street 42nd Floor New York, NY 10017 Attention: Carl Jackson Roger Saylor Facsimile No.: (212) 238-5332 Telephone No.: (212) 238-5370 LIBOR Office: 12 East 49th Street 42nd Floor New York, NY 10017 Attention: Carl Jackson Roger Saylor Facsimile No.: (212) 238-5332 Telephone No.: (212) 238-5370
91
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $25,000,000 DEN DANSKE BANK AKTIESELSKAB, NEW YORK BRANCH By:/s/ /s/Stephen B. Shea --------------------------------------- Name: Stephen B. Shea Title:Vice President Vice President Domestic Office: 280 Park Avenue New York, NY 10017 Attention: Miguel Montalvo Facsimile No.: (212) 370-9239 Telephone No.: (212) 984-8430 LIBOR Office: 280 Park Avenue New York, NY 10017 Attention: Miguel Montalvo Facsimile No.: (212) 370-9239 Telephone No.: (212) 984-8430
92
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $50,000,000 DRESDNER BANK AG CHICAGO BRANCH AND GRAND CAYMAN BRANCH By:/s/ H. Garabedian --------------------------------------- Name: Haig C. Garabedian Title: Vice President By:/s/ Ronald Holder --------------------------------------- Name: E. Ronald Holder Title: Senior Vice President Domestic Office: 75 Wall Street New York, NY 10005 Attention: Feixiao Dai Facsimile No.: (212) 574-0130 Telephone No.: (212) 574-0130 LIBOR Office: 75 Wall Street New York, NY 10005 Attention: Feixiao Dai Facsimile No.: (212) 574-0130 Telephone No.: (212) 574-0269
93
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $25,000,000 FIRST BANK NATIONAL ASSOCIATION By:/s/ Terese A. Radford --------------------------------------- Name: Terese A. Radford Title: Commercial Banking Officer Domestic Office: 601 Second Avenue South Minneapolis, MN 55402-4302 Attention: Yvonne Brenne Facsimile No.: (612) 973-0825 Telephone No.: (612) 973-0537 LIBOR Office: 601 Second Avenue South Minneapolis, MN 55402-4302 Attention: Yvonne Brenne Facsimile No.: (612) 973-0825 Telephone No.: (612) 973-0537
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- THE INDUSTRIAL BANK OF JAPAN, LIMITED CHICAGO BRANCH By:/s/ H. Yamada --------------------------------------- Name: Hiroki Yamada Title: General Manager Domestic Address: 227 West Monroe Suite 2600 Chicago, IL 60606 Attention: Mary Osako Facsimile No.: (312) 855-8200 Telephone No.: (312) 855-8261 LIBOR Office: 227 West Monroe Suite 2600 Chicago, IL 60606 Attention: Stephanie Matsura Facsimile No.: (312) 855-8200 Telephone No.: (312) 855-8446
95
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- INTERNATIONALE NEDERLANDEN (U.S.) $150,000,000 CAPITAL MARKET, INC. By:/s/ Michael Plunkett --------------------------------------- Name: Michael Plunkett Title: Domestic Office: 135 East 57th Street New York, NY 10022 Attention: Laurel Choate Facsimile No.: (212) 593-3362 Telephone No.: (212) 446-0967 LIBOR Office: 135 East 57th Street New York, NY 10022 Attention: Laurel Choate Facsimile No.: (212) 593-3362 Telephone No.: (212) 446-0967
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $50,000,000 J.P. MORGAN DELAWARE By:/s/ Robert J. Henchey --------------------------------------- Name: Robert J. Henchey Title: Vice President Domestic Office: 500 Stanton-Christiana Road Newark, DE 19713-2107 Attention: Loan Department Facsimile No.: 302-634-1091 Telephone No.: 302-634-1923 LIBOR Office: 5500 Stanton-Christiana Road Newark, Delaware 19713-2107 Attention: Loan Department Facsimile No.: 302-634-1091 Telephone No.: 302-634-1923
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- MITSUBISHI BANK, LIMITED, CHICAGO $50,000,000 BRANCH By:/s/ Noboru Kobayashi --------------------------------------- Name: NOBORU KOBAYASHI Title: JOINT GENERAL MANAGER Domestic Office: 115 S. LaSalle Street Suite 2100 Chicago, IL 60603 Attention: Marcela Melendez Facsimile No.: (312) 263-2555 Telephone No.: (312) 269-0747 LIBOR Office: 115 S. LaSalle Street Suite 2100 Chicago, IL 60603 Attention: Marcela Melendez Facsimile No.: (312) 263-2555 Telephone No.: (312) 269-0747
98
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $25,000,000 PNC BANK, NATIONAL ASSOCIATION By:/s/ James N. DeVries --------------------------------------- Name: James N. DeVries Title: Vice President Domestic Office: 500 West Madison Avenue Suite 3140 Chicago, IL 60661 Attention: Tammy Dunn Facsimile No.: (312) 906-3420 Telephone No.: (312) 906-3403 LIBOR Office: 55 West Madison Avenue Suite 3140 Chicago, IL 60661 Attention: Tammy Dunn Facsimile No.: (312) 906-3420 Telephone No.: (312) 906-3403
99
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $50,000,000 THE SANWA BANK, LIMITED, CHICAGO BRANCH By:/s/ Takashi Nobuto --------------------------------------- Name: Takashi Nobuto Title: Deputy General Manager Domestic Office: 10 South Wacker Drive Suite 3115 Chicago, Il 60606 Attention: Jeff Orr Facsimile No.: (312) 346-6677 Telephone No.: (312) 368-3088 LIBOR Office: 10 South Wacker Drive Suite 3115 Chicago, IL 60606 Attention: Jeff Orr Facsimile No.: (312) 346-6677 Telephone No.: (312) 9368-3088
100
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- 25,000,000 THE SUMITOMO BANK, LIMITED By:/s/ H. Iwami --------------------------------------- Name: HIROYUKI IWAMI Title: JOINT GENERAL MANAGER Domestic Office: 233 South Wacker Drive Suite 4800 Chicago, IL 606063 Attention: Hitoshi Minami Facsimile No.: (312) 876-6436 Telephone No.: (312) 876-7799 LIBOR Office: 233 South Wacker Drive Suite 4800 Chicago, IL 60606 Attention: John Byrd Facsimile No.: (312) 876-1490 Telephone No.: (312) 876-2460
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LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $10,000,000 SVENSKA HANDELSBANKEN By:/s/ Ralph C. Daloisio Geoffrey Walker ------------------------------------------------ Name: Ralph C. Daloisio Senior Vice President Title: AVP Domestic Office: 153 East 53rd Street 37th Floor New York, NY 10022 Attention: Ralph Trombetta Facsimile No.: (212) 326-5147 Telephone No.: (212) 326-5196 LIBOR Office: 153 East 53rd Street 37th Floor New York, NY 10022 Attention: Ralph Trombetta Facsimile No.: (212) 326-5147 Telephone No.: (212) 326-5196
102
LIQUIDITY COMMITMENT LIQUIDITY LENDER - -------------------- ---------------- $15,000,000 UNITED STATES NATIONAL BANK OF OREGON By: /s/ Aaron J. Gordon --------------------------------------- Name: Aaron J. Gordon Title: Assistant Relationship Manager Domestic Office: 555 S.W. Oak Street Suite 400 Portland, OR 97204 Attention: Virginia Cochran Facsimile No.: (503) 275-5428 Telephone No.: (503) 275-4667 LIBOR Office: 55 S.W. Oak Street Suite 400 Portland, OR 97204 Attention: Virginia Cochran Facsimile No.: (503) 275-5428 Telephone No.: (503) 274-4667
EX-4.8 9 CONSENT & AMDT. TO LIQUIDITY AGREEMENT 12/15/95 1 Exhibit 4.8 CONSENT AND AMENDMENT TO LIQUIDITY AGREEMENT THIS CONSENT AND AMENDMENT TO LIQUIDITY AGREEMENT (this "Consent and Amendment") is dated as of December 15, 1995 among NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), the Liquidity Lenders, as such term is defined in the Liquidity Agreement (defined herein) and CITIBANK, N.A., a national banking association ("Citibank"), as liquidity agent (in such capacity, together with any successors and assigns thereto, the "Liquidity Agent") for the Liquidity Lenders. WITNESSETH: WHEREAS, NFC, the Liquidity Lenders and the Liquidity Agent are parties to that certain Liquidity Agreement, dated as of June 7, 1995, among NFC, certain financial institutions that are or may become party thereto and the Liquidity Agent (the "Liquidity Agreement"); and WHEREAS, NFC desires (i) to include Chrysler Corporation as an Eligible Manufacturer and (ii) to amend the Liquidity Agreement to, among other things, modify the conditions for the issuance of Commercial Paper Notes and provide for the making of Refunding Advances in the event that the weighted average interest rate of the Outstanding Commercial Paper Notes, Outstanding Liquidity Advances and Outstanding Support Liquidity Disbursements at any time exceeds 10% per annum and certain conditions (including the provision of increased credit enhancement, if required by the Rating Agencies) are not satisfied; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. Capitalized terms used but not defined herein (including in the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Definitions List, dated as of June 7, 1995 and annexed to the Liquidity Agreement as Annex A, as such Definitions List may be amended or modified from time to time in accordance with the provisions of the Liquidity Agreement (the "Definitions List"). SECTION 2. Inclusion of Chrysler Corporation as an Eligible Manufacturer. Each Liquidity Lender, by its execution of this Consent and Amendment, hereby consents to the inclusion of Chrysler Corporation as an Eligible Manufacturer. 2 SECTION 3. Amendments to the Liquidity Agreement. (a) Section 2.1(d) of the Liquidity Agreement is hereby amended and restated in its entirety to read as follows: "(d) after giving effect to such issuance and the use of proceeds thereof, the weighted average interest rate of the Outstanding Commercial Paper Notes, Liquidity Advances and Support Liquidity Disbursements would be in excess of 10% per annum, unless (i) NFC shall have given its written consent to a weighted average interest rate in excess of 10% per annum, (ii) if required by the Rating Agencies in connection therewith, the Fronting Letter of Credit Amount shall be increased and/or a letter of credit on terms substantially similar to the Fronting Letters of Credit shall be provided by an Eligible Credit Enhancer and/or an additional cash collateral account shall be funded, and (iii) the Rating Agencies shall have confirmed that such weighted average interest rate will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes. Notwithstanding anything to the contrary contained in this Agreement (other than in the proviso to this sentence) NFC shall not be required to obtain the consent of any Liquidity Lender or the Liquidity Agent to any such (1) increase in the Fronting Letter of Credit Amount pursuant to this Section 2.1(d), (2) provision of a letter of credit pursuant to this Section 2.1(d) or (3) funding of an additional cash collateral account pursuant to this Section 2.1(d); provided, however, that if the ratings of the Commercial Paper Notes by S&P or Moody's will be less than A-1 or P-1, respectively, after giving effect to such weighted average interest rate in excess of 10% per annum and such increase in the Fronting Letter of Credit Amount, provision of a letter of credit and/or funding of an additional cash collateral account, such Commercial Paper Notes will not be issued unless the Majority Banks shall have given their written consent thereto. NFC shall notify the Liquidity Agent and the Agent in writing no later than 11:00 a.m. (New York City time) on any Business Day on which the weighted average interest rate of the Outstanding Commercial Paper Notes, Liquidity Advances and Support Liquidity Disbursements exceeds 10% per annum, or". (b) Section 3.6.2 of the Liquidity Agreement is hereby amended and restated in its entirety to read as follows: -2- 3 "SECTION 3.6.2. Refunding Advances. (a) Upon receipt from the Depositary of notice (not later than 11:15 a.m., New York City time) pursuant to Section 5(b) of the Depositary Agreement that, on any Business Day that any Commercial Paper Notes mature, the amount required to pay in full all Commercial Paper Notes maturing on such Business Day will be more than the net amount obtained by the issuance of Commercial Paper Notes on such day plus the amount available for payment of such Commercial Paper Notes in the Commercial Paper Account (the amount of such excess, the "Commercial Paper Deficit"), the Agent shall, if such notice contains an instruction from the Depositary to the Agent to deliver a Borrowing Request, by delivering a Borrowing Request to the Liquidity Agent (who will notify the other Liquidity Lenders of such Borrowing Request not later than 12:00 noon, New York City time) for a Borrowing consisting of Refunding Advances, irrevocably request, not later than 11:30 a.m., New York City time, on the date of a proposed Borrowing, that a Borrowing be made in an aggregate principal amount equal to the excess of (i) the Commercial Paper Deficit over (ii) the sum of the aggregate amount, if any, applied or to be applied on such Business Day to the Commercial Paper Deficit from amounts available therefor in the Collateral Account and the Termination Advance Account that are allocated to the payment of maturing Commercial Paper Notes and from the proceeds of Swing Line Advances being made on such day. (b) If on any Business Day in a Related Month the weighted average interest rate of the Outstanding Commercial Paper Notes, Outstanding Liquidity Advances and Outstanding Support Liquidity Disbursements exceeds 10% per annum, then, unless the requirements for the continued issuance of Commercial Paper Notes set forth in Section 2.1(d) shall have been complied with not later than 11:00 a.m. (New York City time) on the last Business Day before the Payment Date with respect to such Related Month, the Agent (provided NFC shall have delivered the notice required pursuant to the last sentence of Section 2.1(d)) shall, by delivering a Borrowing Request to the Liquidity Agent (who will notify the other Liquidity Lenders of such Borrowing Request not later than 12:00 noon, New York City time) for a Borrowing consisting of Refunding Advances, irrevocably request, not later than 11:30 a.m., New York City time, on such last Business Day before such Payment Date, that such Borrowing be made in an aggregate principal amount equal to the lesser of -3- 4 (i) the Aggregate Liquidity Commitment on such date minus the aggregate principal amount of all Liquidity Advances (including any Swing Line Advances) outstanding on such date as determined immediately prior to such Borrowing Request and (ii) the Aggregate Outstanding CP on such date. (c) On the terms and subject to the conditions of this Liquidity Agreement, each Borrowing under this Section shall be initially comprised of Base Rate Advances (subject to conversion in accordance with the provisions of Section 3.8) and shall be made on the Business Day specified in such Borrowing Request. For the purposes of this Section, Commercial Paper Notes maturing on any day which have been paid from an advance made by the Depositary shall nonetheless be deemed to be unpaid. SECTION 4. Conditions of Effectiveness. The following constitute conditions precedent to the effectiveness of this Consent and Amendment: (a) NFC shall have delivered prior written notice of this Consent and Amendment to each Rating Agency, each Placement Agent and each Dealer; (b) Each of NFC and the Liquidity Agent shall have received a copy of each Rating Agency's written confirmation that this Consent and Amendment will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes; (c) This Consent and Amendment shall have been consented to by GM, the Majority Banks, the Agent and each B Support Credit Enhancer as evidenced by their respective delivery of executed counterparts of this Consent and Amendment to the Liquidity Agent; (d) This Consent and Amendment shall have been duly executed and delivered by NFC and the Liquidity Agent; and (e) The Liquidity Agent shall have received from NFC (i) a copy of the resolutions of its Board of Directors, certified as of the date hereof by the Secretary thereof, authorizing the execution, delivery and performance of this Consent and Amendment and (ii) an incumbency certificate thereof with respect to its officers, agents or other representatives authorized to execute this Consent and Amendment. -4- 5 SECTION 5. Reference to and Effect on the Related Documents; Ratification. (a) Upon the effectiveness hereof, on and after the date hereof each reference in the Liquidity Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Liquidity Agreement, and each reference in any other Related Document to "the Liquidity Agreement", "thereunder", "thereof" or words of like import referring to the Liquidity Agreement, shall mean and be a reference to the Liquidity Agreement as amended hereby. (b) Except as specifically amended above, the Liquidity Agreement is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Consent and Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party hereto under the Liquidity Agreement, nor constitute a waiver of any provision of any of the Related Documents. SECTION 6. Execution in Counterparts. This Consent and Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Consent and Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Consent and Amendment. SECTION 7. Governing Law. THIS CONSENT AND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Consent and Amendment to be executed by their respective officers thereunto duly authorized. as of the date first above written. NATIONAL FLEET FUNDING CORPORATION By: /s/ M.J. Becker -------------------------------- Name: M.J. Becker Title: Treasurer CITIBANK, N.A. as Liquidity Agent By: /s/ Tara Coffey -------------------------------- Name: Tara Coffey Title: Senior Trust Officer ACKNOWLEDGED AND AGREED: GENERAL MOTORS CORPORATION By: /s/ G.R. Frink --------------------------- Name: G.R. Frink Title: Executive Director, NAO Fleet Operations CREDIT SUISSE, NEW YORK BRANCH, as Agent and B Support Credit Enhancer By: /s/ ROGER W. SAYLOR --------------------------- Name: ROGER W. SAYLOR Title: Associate By: /s/ Ann F. Lopez --------------------------- Name: Ann F. Lopez Title: Member of Senior Management CITIBANK, N.A., as B Support Credit Enhancer By: /s/ William G. McKnight --------------------------- Name: William G. McKnight Title: Vice President -6- 7
LIQUIDITY COMMITMENT LIQUIDITY LENDER $60,000,000 ABN AMRO BANK N.Y. By:/s/ Bernard J. McGulgan ----------------------------------- Name: Bernard J. McGulgan Title: Group Vice President By:/s/ Christine E. Holmes ----------------------------------- Name: Christine E. Holmes Title: Vice President $15,000,000 BANK AUSTRIA AKTIENGESELLSCHAFT By:/s/ Jeanine Ball ----------------------------------- Name: Jeanine Ball Title: AVP By:/s/ J.A. Seay ----------------------------------- Name: J.A. Seay Title: VP $50,000,000 BANK BRUSSELS LAMBERT - NEW YORK BRANCH By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title:
-7- 8 $15,000,000 BANK OF IRELAND By: /s/ N.O. Flynn ----------------------------------- Name: N.O. Flynn Title: Manager By: /s/ ----------------------------------- Name: Title: $50,000,000 BANK OF MONTREAL By:/s/ LYNN A. DURNING ----------------------------------- Name: LYNN A. DURNING Title: DIRECTOR $75,000,000 THE BANK OF NEW YORK By:/s/ Richard A. Raffetto ----------------------------------- Name: Richard A. Raffetto Title: Assistant Vice President $75,000,000 THE BANK OF NOVA SCOTIA By:/s/ F.C.H. Ashby ----------------------------------- Name: F.C.H. Ashby Title: Senior Manager Loan Operations $25,000,000 THE BANK OF TOKYO, LTD., NEW YORK AGENCY By: ----------------------------------- Name: Title:
-8- 9 $10,000,000 BANQUE ET CAISSE D'EPARGENE DE L'ETAT, LUXEMBOURG By: /s/ ----------------------------------- Name: Title: By: /s/ John Dhur ----------------------------------- Name: John Dhur Title: Directeur $15,000,000 BANQUE NATIONALE DE PARIS - CHICAGO BRANCH By: /s/ ARNAUD COLLIN DU BOCAGE ----------------------------------- Name: ARNAUD COLLIN DU BOCAGE Title: Executive Vice President and General Manager $25,000,000 BAYERISCHE HYPOTHEKEN-UND WECHSEL - BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH By: /s/ R.G. Pankuch ----------------------------------- Name: R.G. Pankuch Title: FVP By:/s/ Constance Madden ----------------------------------- Name: Constance Madden Title: V.P.
-9- 10 $50,000,000 CAISSE NATIONALE DE CREDIT AGRICOLE By:/s/ KATHERINE L. ABBOTT ----------------------------------- Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT $75,000,000 CANADIAN IMPERIAL BANK OF COMMERCE By:/s/ ----------------------------------- Name: KENT S. DAVIS Title: Authorized Signatory $82,500,000 CITIBANK, N.A. By:/s/ William G. McKnight ----------------------------------- Name: William G. McKnight Title: Vice President $75,000,000 COMMERZBANK AG, CHICAGO BRANCH By:/s/ WILLIAM BRENT PETERSON ----------------------------------- Name: WILLIAM BRENT PETERSON Title: Assistant Vice President By:/s/ MARK MONSON ----------------------------------- Name: MARK MONSON Title: Vice President
-10- 11 $82,500,000 CREDIT SUISSE, NEW YORK BRANCH By:/s/ ROGER W. SAYLOR ----------------------------------- Name: ROGER W. SAYLOR Title: Associate By:/s/ Ann F. Lopez ----------------------------------- Name: Ann F. Lopez Title: Member of Senior Management $25,000,000 DEN DANSKE BANK AKTIESELSKAB, NEW YORK BRANCH By:/s/ Stephen B. Shea ----------------------------------- Name: Stephen B. Shea Title: Vice President By:/s/ ----------------------------------- Name: Title: V.P. $50,000,000 DRESDNER BANK AG CHICAGO BRANCH AND GRAND CAYMAN BRANCH By:/s/ Haig C. Garabedian ----------------------------------- Name: Haig C. Garabedian Title: Vice President By:/s/ William J. Murray ----------------------------------- Name: William J. Murray Title: Vice President
-11- 12 $25,000,000 FIRST BANK NATIONAL ASSOCIATION By:/s/ Terese A. Radford ----------------------------------- Name: Terese A. Radford Title: Commercial Banking Officer $75,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED CHICAGO BRANCH By:/s/ Hiroki Yamada ----------------------------------- Name: Hiroki Yamada Title: General Manager $150,000,000 INTERNATIONAL NEDERLANDEN (U.S.) CAPITAL MARKET, INC. By:/s/ Michael Plunkett ----------------------------------- Name: Michael Plunkett Title: Vice President $50,000,000 J.P. MORGAN DELAWARE By: ----------------------------------- Name: Title: $50,000,000 MITSUBISHI BANK, LIMITED, CHICAGO BRANCH By:/s/ Jeffrey R. Arnold ----------------------------------- Name: Jeffrey R. Arnold Title: Vice President
-12- 13 $25,000,000 PNC BANK, NATIONAL ASSOCIATION By:/s/ Charles Shoemake ----------------------------------- Name: Charles Shoemake Title: Vice President $50,000,000 THE SANWA BANK, LIMITED, CHICAGO BRACH By: ----------------------------------- Name: Title: $25,000,000 THE SUMITOMO BANK, LIMITED By:/s/ KATSUYASU IWASAWA ----------------------------------- Name: KATSUYASU IWASAWA Title: JOINT GENERAL MANAGER $10,000,000 SVENSKA HANDELSBANKEN By:/s/ Geoffrey Walker ----------------------------------- Name: Geoffrey Walker Title: Senior Vice President By:/s/ Ralph C. Daloisio ----------------------------------- Name: Ralph C. Daloisio Title: AVP
-13- 14 $15,000,000 UNITED STATES NATIONAL BANK OF OREGON By: ----------------------------------- Name: Title: $50,000,000 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND CAYMAN ISLANDS BRANCH By:/s/ S. Gattinelli ----------------------------------- Name: S. Gattinelli Title: V.P. By:/s/ C.D. ROCKEY ----------------------------------- Name: C.D. ROCKEY Title: ASSOCIATE
-14- EX-4.9 10 AMEND. TO LIQUIDITY AGREEMENT 05/29/96 1 Exhibit 4.9 EXECUTION COPY AMENDMENT TO LIQUIDITY AGREEMENT THIS AMENDMENT TO LIQUIDITY AGREEMENT (this "Amendment") is dated as of May 29, 1996 among NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC") and CITIBANK, N.A., as the Liquidity Agent for the Liquidity Lenders (the "Liquidity Agent"). WITNESSETH: WHEREAS, NFC and the Liquidity Agent are parties to that certain Liquidity Agreement dated as of June 7, 1995 (the "Liquidity Agreement"); WHEREAS, NFC and the Liquidity Agent desire to amend certain defined terms set forth in the Definitions List attached as Annex A to the Liquidity Agreement; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereby agree, upon the terms and subject to the conditions set forth below, as follows: Section 1. Defined Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth for such terms in the Definitions List dated as of June 7, 1995 and annexed to the Liquidity Agreement as Annex A, as such Definitions List may be further amended, supplemented, restated or otherwise modified from time to time (the "Definitions List"). Section 2. Amendments to the Definitions List. (a) The definition of each of the terms set forth below is amended and restated in its entirety as set forth below: "A Support Credit Disbursement" means an amount paid under an A Support Letter of Credit Agreement pursuant to a Certificate of A Support Credit Demand. "A Support Credit Enhancer" means GM, and any successor thereto or replacement thereof or addition thereto pursuant to the A Support Letter of Credit Agreement and any Reduction Support Credit Enhancer. 2 "A Support Event of Default" shall, with respect to GM, have the meaning specified in Section 2.9 of the A Support Reimbursement Agreement with GM and, with respect to any Reduction Support Credit Enhancer, shall have the meaning specified in the applicable Reduction Support Agreement. "A Support Event of Default Disbursement" means an amount paid under an A Support Letter of Credit Agreement as a result of an Event of Default by the A Support Credit Enhancer as defined in such A Support Letter of Credit Agreement. "A Support Letter of Credit Agreement" means the Letter of Credit Agreement, dated as of June 7, 1995, between GM and the A Credit Enhancer, providing for the reimbursement of the A Credit Enhancer for draws under the A Letter of Credit and any Reduction Support Agreement. "A Support Liquidity Disbursement" means an amount paid under an A Support Letter of Credit Agreement pursuant to a Certificate of A Support Liquidity Demand. "A Support Reimbursement Agreement" means (a) the A Support Reimbursement Agreement, dated as of June 7, 1995, among National, NFC and GM, substantially in the form of Exhibit I-3 to the Liquidity Agreement and (b) any Reduction Support Reimbursement Agreement, in each case, as such agreement referred to in (a) or (b) may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "A Support Termination Disbursement" means an amount paid under an A Support Letter of Credit Agreement pursuant to a Certificate of A Support Termination Demand. "Certificate of A Support Credit Demand" means a certificate in the form of Annex A to the applicable A Support Letter of Credit Agreement. "Certificate of A Support Liquidity Demand" means a certificate in the form of Annex B to the applicable A Support Letter of Credit Agreement. "Certificate of A Support Reduction Demand" means a certificate in the form of Annex D to the A Support Letter of Credit Agreement with GM. "Certificate of A Support Termination Demand" means a certificate in the form of Annex C to the applicable A Support Letter of Credit Agreement. -2- 3 (b) The following terms are hereby added to the Definitions List: "A Support Commitment" means as of any day (a) with respect to GM, the GM Letter of Credit Commitment, and (b) with respect to any Reduction Support Credit Enhancer, the amount of credit support such Reduction Support Credit Enhancer has agreed to provide to the A Credit Enhancer pursuant to its Reduction Support Agreement. "Aggregate A Support Commitment" as of any day means the aggregate of all A Support Commitments as of such day. "Certificate of Reduction A Support Event of Default Demand" means a certificate in the form of Annex D to any Reduction Support Agreement. "Potential Reduction A Support Event of Default" means an event which, with the giving of notice or lapse of time or both would constitute a Reduction A Support Event of Default. "Reduction Support Agreement" means a Reduction Amount Letter of Credit Agreement or other agreement by a Reduction Support Credit Enhancer to provide Reduction Amount Credit Support. "Reduction Support Credit Enhancer" means a party that has entered into a Reduction Amount Letter of Credit Agreement or otherwise agreed to provide Reduction Amount Credit Support. "Reduction A Support Event of Default" with respect to any Reduction Support Reimbursement Agreement, shall have the meaning specified in such Reduction Support Reimbursement Agreement. "Reduction Support Reimbursement Agreement" means an agreement among a Reduction Support Credit Enhancer, National and NFC pursuant to which National and NFC agree to reimburse such Reduction Support Credit Enhancer for amounts paid by such Reduction Support Credit Enhancer pursuant to a Reduction Support Agreement. Section 3. Conditions of Effectiveness. The following constitute conditions precedent to the effectiveness of this Amendment: (a) The Liquidity Agent, NFC and National shall have received as of the date hereof a copy of the written confirmation delivered to NFC by each of S&P and Moody's to the effect that this Amendment will not result in the -3- 4 downgrading or withdrawal of the then current ratings of the Commercial Paper Notes; (b) The Liquidity Agent shall have received from NFC (i) a copy of the resolutions of its Board of Directors, certified as of the date hereof by the Secretary thereof, authorizing the execution, delivery and performance of this Amendment and (ii) an incumbency certificate thereof with respect to its officers, agents or other representatives authorized to execute this Amendment; (c) GM shall have delivered written consent to this Amendment; (d) The Majority Banks shall have delivered written consent to this Amendment; (e) NFC shall have delivered written notice of this Amendment to each Placement Agent and each Dealer; (f) The Liquidity Agent shall have received an Opinion of Counsel NFC to the effect that (i) this Amendment has been duly authorized, executed and delivered and is the legal, valid and binding obligation of NFC, enforceable against each of them in accordance with its terms, subject to the exceptions set forth therein; Section 4. Reference to and Effect on the Related Documents; Ratification. (a) Upon the effectiveness hereof, on and after the date hereof each reference in the Related Documents and any other document to the "Definitions List" or words of like import referring to the Definitions List shall mean and be a reference to the Definitions List as amended hereby and each reference to any of the defined terms referred to in this Amendment shall mean and refer to such defined terms as amended hereby. (b) Except as specifically amended above, the Definitions List is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. Section 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. -4- 5 Section 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers "hereunto duly authorized, as of the date first above written. NATIONAL FLEET FUNDING CORPORATION By: /s/ Michael J. Becker ------------------------------- Name: Michael J. Becker Title: CITIBANK, N.A., as Liquidity Agent By: /s/ Annette M. Marsula ------------------------------- Name: Annette M. Marsula Title: Senior Trust Officer ACKNOWLEDGED AND AGREED: GENERAL MOTORS CORPORATION By: /s/ Mark Newman ----------------------- Name: Mark Newman Title: Attorney-in-Fact CREDIT SUISSE, A SWISS BANKING CORPORATION ACTING THROUGH ITS NEW YORK BRANCH, As Agent By:/s/ ROGER W. SAYLOR ----------------------- Name: ROGER W. SAYLOR Title: ASSOCIATE By:/s/ CARL JACKSON ----------------------- Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT EX-4.10 11 EXTENSION OF SCHEDULE LIQUIDITY COMMITMENT 1 Exhibit 4.10 EXTENSION OF SCHEDULED LIQUIDITY COMMITMENT TERMINATION DATE THIS AGREEMENT, dated as of May 29, 1996 is entered into among National Fleet Funding Corporation ("NFC"), the undersigned financial institutions (the "Liquidity Lenders"), and Citibank, N.A., as Liquidity Agent. WITNESSETH: WHEREAS, the undersigned are parties to that certain Liquidity Agreement dated as of June 7, 1995 (the "Liquidity Agreement") among NFC, the Liquidity Lenders and Citibank, N.A., as Liquidity Agent; WHEREAS, the undersigned desire to extend the Scheduled Liquidity Termination Date from June 7, 1996 to May 28, 1997; NOW, THEREFORE, the parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Definitions List dated as of June 7, 1995 and annexed to the Liquidity Agreement as Annex A, as such Definitions List may be amended or modified from time to time in accordance with the provisions of the Liquidity Agreement. Section 2. Extension. Pursuant to Section 3.5 of the Liquidity Commitment, the Scheduled Liquidity Commitment Termination Date is hereby extended until May 28, 1997. 2 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized. NATIONAL FLEET FUNDING CORPORATION By: /s/ Mike Becker ------------------------------------ Name: Mike Becker Title: CITIBANK, N.A. as Liquidity Agent By: /s/ Annette M. Marsula ------------------------------------ Name: Annette M. Marsula Title: Senior Trust Officer LIQUIDITY COMMITMENT LIQUIDITY LENDER $28,521,739 ABN AMRO BANK N.V. By: /s/ CHRISTINE E. HOLMES ------------------------------------ Name: CHRISTINE E. HOLMES Title: VICE PRESIDENT By: /s/ ANGELA REITZ ------------------------------------ Name: ANGELA REITZ Title: Assistant Vice President
3 $7,130,435 BANK AUSTRIA AKTIENGESELLSCHAFT By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: $23,768,116 BANK OF BRUSSELS LAMBERT - NEW YORK BRANCH By: /s/ Dominick H.J. Vangaever ------------------------------------ Name: Dominick H.J. Vangaever Title: Vice President Credit Department By: /s/ John Kippax ------------------------------------ Name: John Kippax Title: Vice President $7,130,435 BANK OF IRELAND By: /s/ Niamh O'Flynn ------------------------------------ Name: Niamh O'Flynn Title: Manager By: /s/ KIERAN ROCKETT ------------------------------------ Name: KIERAN ROCKETT Title: SENIOR EXECUTIVE
4 $23,768,116 BANK OF MONTREAL By: /s/ MICHAEL P. JOYCE ------------------------------------ Name: MICHAEL P. JOYCE Title: DIRECTOR $62,294,174 THE BANK OF NEW YORK By: /s/ RICHARD A. RAFFETTO ------------------------------------ Name: RICHARD A. RAFFETTO Title: ASST. VICE PRESIDENT $62,294,174 THE BANK OF NOVA SCOTIA By: /s/ F.C.H. Ashby ------------------------------------ Name: F.C.H. Ashby Title: Senior Manager Loan Operations $11,884,058 THE BANK OF TOKYO, LTD., NEW YORK AGENCY By: ------------------------------------ Name: Title:
5 $4,753,623 BANQUE ET CAISSE D'EPARGNE DEL L'ETAT, LUXEMBOURG By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: $7,130,435 BANQUE NATIONALE DE PARIS - CHICAGO BRANCH By: /s/ ARNAUD COLLIN du BOCAGE ------------------------------------ Name: ARNAUD COLLIN du BOCAGE Title: Executive Vice President and General Manager $11,884,058 BAYERISCHE HYPOTHEKEN-UND WECHSEL - BANK AKTIENGESSELLSCHAFT, NEW YORK BRANCH By: /s/ R.G. Pankuch ------------------------------------ Name: R.G. Pankuch Title: FVP By: /s/ R. Vogel ------------------------------------ Name: R. Vogel Title: Banking Officer
6 $23,768,116 CAISSE NATIONALE DE CREDIT AGRICOLE By: /s/ KATHERINE L. ABBOTT ------------------------------------ Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT $35,652,174 CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ KENT DAVIS ------------------------------------ Name: KENT DAVIS Title: Authorized Signatory $39,217,391 CITIBANK, N.A. By: /s/ SUZANNE E. MACCAGNAN ------------------------------------ Name: SUZANNE E. MACCAGNAN Title: V.P. $35,652,174 COMMERZBANK AG, CHICAGO BRANCH By: /s/ ROGER TODEBUSH ------------------------------------ Name: ROGER TODEBUSH Title: Assistant Cashier By: /s/ MARK MONSON ------------------------------------ Name: MARK MONSON Title: Vice President
7 $68,524,391 CREDIT SUISSE, NEW YORK BRANCH By: /s/ ROGER W. SAYLOR ------------------------------------ Name: ROGER W. SAYLOR Title: ASSOCIATE By: /s/ CARL JACKSON ------------------------------------ Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT $11,884,058 DEN DANSKE BANK AKTIESELSKAB, NEW YORK BRANCH By: /s/ MOGENS SONDERGAARD ------------------------------------ Name: MOGENS SONDERGAARD Title: VICE PRESIDENT By: /s/ JOHN A. O'NEILL ------------------------------------ Name: JOHN A. O'NEILL Title: VICE PRESIDENT $23,768,116 DRESDNER BANK AG CHICAGO BRANCH AND GRAND CANYON BRANCH By: /s/ Thomas Nadramia ------------------------------------ Name: Thomas Nadramia Title: Vice President By: /s/ JOHN W. SWEENEY ------------------------------------ Name: JOHN W. SWEENEY Title: ASSISTANT VICE PRESIDENT
8 $11,884,058 FIRST BANK NATIONAL ASSOCIATION By: /s/ Elliot J. Jaffee ------------------------------------ Name: Elliot J. Jaffee Title: Vice President $35,652,174 THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO BRANCH By: /s/ Hiroki Yamada ------------------------------------ Name: Hiroki Yamada Title: General Manager $124,588,348 INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL MARKET, INC. By: /s/ Michael G. Plunkett ------------------------------------ Name: Michael G. Plunkett Title: Vice President $23,768,116 J.P. MORGAN DELAWARE By: /s/ Richard A. Burke ------------------------------------ Name: Richard A. Burke Title: Associate $23,768,116 MITSUBISHI BANK, LIMITED, CHICAGO BRANCH By: ------------------------------------ Name: Title:
9 $11,884,058 PCN BANK, NATIONAL ASSOCIATION By: /s/ ------------------------------------ Name: Title: Vice President $23,768,116 THE SANWA BANK, LIMITED, CHICAGO BRANCH By: /s/ Seiji Daito ------------------------------------ Name: Seiji Daito Title: Vice President and Manager $11,884,058 THE SUMITOMO BANK, LIMITED By: /s/ HIROYUKI IWAMI ------------------------------------ Name: HIROYUKI IWAMI Title: JOINT GENERAL MANAGER $4,753,623 SVENSKA HANDELSBANKEN By: /s/ Geoffrey Walker ------------------------------------ Name: Geoffrey Walker Title: Senior Vice President By: /s/ Ralph C. Daloisio ------------------------------------ Name: Ralph C. Daloisio Title: VP
10 $35,652,174 THE BANK OF TOKYO-MISUBISHI, LTD., CHICAGO BRANCH By: /s/ Jeffrey R. Arnold ------------------------------------ Name: Jeffrey R. Arnold Title: Vice President
11 $7,130,435 UNITED STATES NATIONAL BANK OF OREGON By: /s/ Chris J. Karlin ------------------------------------ Name: CHRIS J. KARLIN Title: VICE PRESIDENT $23,768,116 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND CAYMAN ISLANDS BRANCH By: /s/ Salvatore Battinelli ------------------------------------ Name: Salvatore Battinelli Title: Vice President Credit Department By: /s/ C.D. Rockey ------------------------------------ Name: C.D. Rockey Title: Associate
EX-4.11 12 2ND AMDT. TO LIQUIDITY AGREEMENT 12/20/96 1 Exhibit 4.11 SECOND AMENDMENT TO LIQUIDITY AGREEMENT THIS SECOND AMENDMENT TO LIQUIDITY AGREEMENT, dated as of December 20, 1996 (this "Amendment"), among NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), the financial institutions listed on the signature pages hereof under the heading "Liquidity Lenders" (collectively the "Liquidity Lenders" and individually a "Liquidity Lender") and CITIBANK, N.A., a national banking association ("Citibank"), as liquidity agent (in such capacity, the "Liquidity Agent") for the Liquidity Lenders. W I T N E S S E T H : WHEREAS, NFC, the Liquidity Lenders and the Liquidity Agent have entered into the Liquidity Agreement, dated as of June 7, 1995, as amended or modified by Consent and Amendment to Liquidity Agreement, dated as of December 15, 1995, Amendment to Liquidity Agreement, dated as of May 29, 1996, Consent of Liquidity Lenders (to change the Liquidity Commitments reflected in the respective Revolving Notes, and Refunding Notes, dated as of May 29, 1996), and Extension of Scheduled Liquidity Commitment Termination Date, dated as of May 29, 1996 (such Liquidity Agreement as so amended or modified being the "Liquidity Agreement"); WHEREAS, NFC proposes (i) to enable National Car Rental Financing Limited Partnership, a special purpose Delaware limited partnership ("NFLP"), to refinance the Refinanced Vehicles on the Series 1996-2 Closing Date by (A) accepting the Series 1996-2 Floating Rate Rental Car Asset Backed Variable Funding Note (the "Series 1996-2 Note") to be issued to NFC by NFLP in the initial principal amount of the then outstanding principal amount of the Loan Note under and as defined in the Loan Agreement and to be authenticated and delivered by or on behalf of The Bank of New York, a New York banking corporation, as trustee (the "Trustee") under the Base Indenture, dated as of April 30, 1996, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996 (such Base Indenture as so amended being the "Base Indenture," and such Supplement and Amendment to Base Indenture being the "Supplement and Amendment to Base Indenture"), and as supplemented by the Series 1996-2 Supplement, dated as of December 20, 1996 (the "Series 1996-2 Supplement," and together with the Base Indenture, the "Indenture"), between NFLP and the Trustee, and (B) cancelling, upon the payment to NFC by National of the unpaid accrued interest on the Loan Note and upon the satisfaction of the other conditions precedent set forth in Section 4 hereof, the Loan Note, and (ii) thereafter to make further Series 1996-2 Advances to NFLP from time to time, the Indebtedness arising from which is to be evidenced by the Series 1996-2 Note, to enable NFLP to acquire Acquired Vehicles, and to finance the acquisition by National of National Vehicles, from certain Eligible Manufacturers; 2 2 WHEREAS, contemporaneously with the execution and delivery of this Amendment, NFLP as lessor and National as lessee are entering into the Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996 (the "Lease"), pursuant to which NFLP will refinance the Refinanced Vehicles, and will acquire Acquired Vehicles, and will finance the acquisition of National Vehicles, in each case for leasing to National for use in National's domestic daily rental business; and to secure the NFLP Obligations with respect to the Series 1996-2 Note, NFLP will, under the Series 1996-2 Supplement, grant to the Trustee, for the benefit of the Series 1996-2 Noteholder, a first priority perfected security interest in all of NFLP's right, title and interest in, among other things, the Lease; WHEREAS, contemporaneously with the execution and delivery of this Amendment, NFC and the NFC Collateral Agent are entering into a Supplement dated as of the date hereof (the "Master Collateral Agency Agreement Supplement") to the Master Collateral Agency Agreement, pursuant to which (i) as security for the payment of the respective obligations from time to time owing by National to NFLP and other Financing Sources (or any Beneficiary as assignee thereof) under the Lease and other related Financing Documents (as defined therein), National will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Refinanced Vehicles and National Vehicles and the other National Master Collateral for the Series 1996-2 Note, and (ii) as security for the payment of the respective obligations from time to time owing by NFLP to the Trustee for the benefit of the Series 1996-2 Noteholder (or any Beneficiary as assignee thereof) under the Series 1996-2 Note and other related Financing Documents, NFLP will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Acquired Vehicles and the other NFLP Master Collateral for the Series 1996-2 Note; WHEREAS, contemporaneously with the execution and delivery of this Amendment, NFC, the Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary and the NFC Collateral Agent are entering into a Supplement and Amendment to Collateral Agreement dated as of the date hereof (the "NFC Collateral Agreement Amendment"), pursuant to which, as security for the payment of the NFC Obligations, NFC will grant to the NFC Collateral Agent for the benefit of the NFC Secured Parties a security interest in the Series 1996-2 Note as well as the other Assigned Collateral; and WHEREAS, National, NFLP and NFC have requested that the Liquidity Lenders agree to amend the Liquidity Agreement to permit the Revolving Advances to be used by NFC to make Series 1996-2 Advances pursuant to the Series 1996-2 Supplement and otherwise to implement the proposed refinancing described above; and the Liquidity Lenders are, on the terms and conditions set forth below, willing to grant such request; 3 3 NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. Capitalized terms used but not defined in this Amendment, including the recitals (WHEREAS clauses) hereof, shall have the meanings assigned to such terms in the Indenture. SECTION 2. Amendments to Liquidity Agreement. The Liquidity Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 5 hereof, hereby amended as follows: (a) The recitals (WHEREAS clauses) are amended in full to read: "WHEREAS, NFC will (i) enable National Car Rental Financing Limited Partnership, a special purpose Delaware limited partnership ("NFLP"), to refinance the Refinanced Vehicles (such capitalized term, together with each other capitalized term used herein and not otherwise defined herein, shall have the meanings assigned thereto in Section 1.1) on the Series 1996-2 Closing Date by (A) accepting the Series 1996-2 Note to be issued to NFC by NFLP under the Series 1996-2 Supplement in the initial principal amount of the then outstanding principal amount of the Loan Note under and as defined in the Loan Agreement and (B) cancelling, upon the payment to NFC by National of the unpaid accrued interest on the Loan Note and upon the satisfaction of certain other conditions, the Loan Note, and (ii) thereafter make further Series 1996-2 Advances to NFLP from time to time, the Indebtedness arising from which will be evidenced by the Series 1996-2 Note, to enable NFLP to acquire Acquired Vehicles, and to finance the acquisition by National of National Vehicles, from Eligible Manufacturers; "WHEREAS, NFLP as lessor and National as lessee are entering into the Lease, pursuant to which NFLP will refinance the Refinanced Vehicles, and will acquire Acquired Vehicles, and will finance the acquisition of National Vehicles, in each case for leasing to National for use in National's domestic daily rental business; and to secure the NFLP Obligations with respect to the Series 1996-2 Note, NFLP will, under the Series 1996-2 Supplement, grant to the Trustee, for the benefit of the Series 1996-2 Noteholder, a first priority perfected security interest in all of NFLP's right, title and interest in, among other things, the Lease; "WHEREAS, NFC and the NFC Collateral Agent are entering into a Supplement dated as of December 20, 1996 to the Master Collateral Agency Agreement, pursuant to which (i) as security for the payment of the respective obligations from time to time owing by National to NFLP and other Financing Sources (or any Beneficiary as assignee thereof) under the Lease and other related Financing Documents (as defined therein), 4 4 National will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Refinanced Vehicles and National Vehicles and the other National Master Collateral for the Series 1996-2 Note, and (ii) as security for the payment of the respective obligations from time to time owing by NFLP to the Trustee for the benefit of the Series 1996-2 Noteholder (or any Beneficiary as assignee thereof) under the Series 1996-2 Note and other related Financing Documents, NFLP will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Acquired Vehicles and the other NFLP Master Collateral for the Series 1996-2 Note; "WHEREAS, NFC, the Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary and the NFC Collateral Agent are entering into a Supplement and Amendment to Collateral Agreement, dated as of December 20, 1996, amending the NFC Collateral Agreement, pursuant to which, as security for the payment of the NFC Obligations (including, without limitation, obligations of NFC under this Liquidity Agreement, the Revolving Notes, and the Refunding Notes), NFC will grant to the NFC Collateral Agent for the benefit of the NFC Secured Parties (including, without limitation, the Liquidity Lenders and the Liquidity Agent) a security interest in the Series 1996-2 Note as well as the other Assigned Collateral; "WHEREAS, NFC will issue and sell its Commercial Paper Notes in the commercial paper market and use the net proceeds thereof to, among other things, make Series 1996-2 Advances; "WHEREAS, NFC desires to obtain Liquidity Commitments from the Liquidity Lenders to make Liquidity Advances in an aggregate principal amount not to exceed the Aggregate Liquidity Commitment at any one time outstanding to NFC from time to time prior to the Liquidity Commitment Termination Date; and "WHEREAS, the Liquidity Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article VI), to provide such Liquidity Commitments and make such Liquidity Advances to NFC;" (b) Section 1.1. is amended in full to read: "SECTION 1.1. Definitions. Capitalized terms used but not defined herein (including the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Base Indenture, dated as of April 30, 1996, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, and as supplemented by the Series 1996-2 Supplement, dated as of December 20, 1996, between National Car Rental Financing Limited Partnership, a special purpose Delaware limited partnership ("NFLP"), and The Bank of New York, a New York banking corporation, 5 5 as trustee (together with its successors in trust thereunder as provided in such Base Indenture, the "Trustee"), as the same may be further amended, supplemented or otherwise modified from time to time in accordance with the provisions thereof (the "Base Indenture" or the "Series 1996-2 Supplement"). The definitions of such terms in the Base Indenture or the Series 1996-2 Supplement shall be referred to herein and in all other Related Documents as the "Definitions List"." and Annex A to the Liquidity Agreement (Definitions List dated as of June 7, 1995) is deleted in its entirety. (c) The terms used in the Liquidity Agreement set forth below shall be changed to the terms, respectively, set opposite such terms below:
TERMS USED IN THE LIQUIDITY AGREEMENT CHANGED TO ------------------------------------- ---------- Agent NFC Collateral Agent Cash Collateral Accounts Series 1996-2 Cash Collateral Accounts Collateral Account NFC Collateral Account Collateral Agreement NFC Collateral Agreement Collateral Sharing Agreement NFC Collateral Sharing Agreement Credit Enhancer Series 1996-2 Enhancement Provider Fronting Credit Enhancers Series 1996-2 Fronting Credit Enhancers Fronting Letter of Credit Amount Series 1996-2 Fronting Letter of Credit Amount Fronting Letters of Credit Series 1996-2 Fronting Letters of Credit
6 6
TERMS USED IN THE LIQUIDITY AGREEMENT CHANGED TO ------------------------------------- ---------- Interest Period Series 1996-2 Interest Period Loan Agreement Series 1996-2 Supplement and/or the Lease, as applicable Obligations NFC Obligations Required Enhancement Amount Series 1996-2 Required Enhancement Amount Secured Parties NFC Secured Parties Support Credit Enhancers Series 1996-2 Support Credit Enhancers
(d) All references to "Loan Event of Default" and "Potential Loan Event of Event of Default" throughout the Liquidity Agreement are deleted. (e) Section 2.2.1 is amended in full to read: "SECTION 2.2.1. Representations and Warranties. With respect to the issuance of any Commercial Paper Note and after giving effect thereto, the representations and warranties of NFC set forth in Article VII hereof, or in any other Related Document to which NFC is a party, and the representations and warranties of NFLP set forth in Article 7 of the Base Indenture, or in any other Related Document to which NFLP is a party, shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materially limitation in their terms) as of such earlier date)." (f) Section 2.2.6 is amended in full to read: "SECTION 2.2.6. Non-Payment of Series 1996-2 Note. At the time of such issuance and after giving effect thereto, no Potential Amortization Event under 7 7 Section 9.1(a) or (b) of the Base Indenture or under Section 17.1.1 (i) or (ii) of the Lease shall have occurred and be continuing." (g) Section 3.1.4 is amended in full to read: "SECTION 3.1.4. Use of Proceeds. Proceeds from the Liquidity Advances shall be applied by NFC as follows: (a) Proceeds from each Revolving Advance shall be used by NFC to: (i) make Series 1996-2 Advances pursuant to the Series 1996-2 Supplement or (ii) to repay matured Liquidity Advances (other than any Commitment Termination Date Liquidity Advance). (b) Proceeds of each Refunding Advance and each Swing Line Advance shall be deposited by NFC into the Commercial Paper Account and proceeds of each Commitment Termination Date Liquidity Advance shall be deposited by NFC into the Termination Advance Account, in each case, for the repayment of maturing Commercial Paper Notes. NFC shall not use the proceeds of any Liquidity Advance for any other purpose." (h) Section 4.4 is amended by adding thereto a new sentence that reads: "The Liquidity Agent will give notice promptly to NFC, the Series 1996-2 Support Credit Enhancers and the NFC Collateral Agent of changes in LIBOR." (i) Section 6.2.1 is amended in full to read: "SECTION 6.2.1. Representations and Warranties. On the date of the making of such Revolving Advance (other than any continuation or conversion thereof pursuant to Section 3.8) and after giving effect thereto, the representations and warranties of NFC set forth in Article VII hereof, or in any other Related Document to which NFC is a party, and the representations and warranties of NFLP set forth in Article 7 of the Base Indenture, or in any other Related Document to which NFLP is a party, shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct (in all material respects to the extent any such representations and warranties do not incorporate a materiality limitation in their terms) as of such earlier date)." 8 8 (j) Section 6.3.1 is amended by deleting from the end thereof the words "and the Cash Collateral Account C". (k) Section 7.16 is amended in full to read: "SECTION 7.16. Repurchase Programs. On the date of each Borrowing, each Manufacturer and each Repurchase Program in respect of which any portion of the Borrowing Base is calculated (including any portion of the Borrowing Base comprising the amount of the Series 1996-2 Invested Amount used to refinance, finance or purchase Vehicles of or from such Manufacturer) shall be an Eligible Manufacturer and Eligible Repurchase Program, respectively." (l) Clauses (a) through (h) of Section 8.1.1 are amended in full to read: "(a) promptly upon the delivery by National to NFC, copies of the financial information and other materials required to be delivered by National to NFC pursuant to Section 24.7(i) of the Lease; (b) promptly upon the delivery by National to NFC, copies of the financial information and other materials required to be delivered by National to NFC pursuant to Section 24.7(ii) of the Lease; (c) [reserved]; (d) from time to time such additional information regarding the condition, financial or otherwise, or operations of National as the Liquidity Agent may reasonably request to the extent that National delivers such information to NFC pursuant to Section 24.7(xi) of the Lease; (e) at the time of delivery of the items described in clauses (a) and (b) above, a certificate of an officer of NFC that, except as provided in any certificate delivered in accordance with Section 8.1.9, no Amortization Event or (to the best of such officer's knowledge) Potential Amortization Event has occurred or is continuing during such fiscal quarter; (f) on or prior to June 30 of each year, a certificate of the chief financial officer of NFC certifying that (i) the ratings assigned by the Rating Agencies in respect of the commercial paper issued by NFC have not been withdrawn or downgraded below A-1 by S&P or P-1 by Moody's since the date of this Liquidity 9 9 Agreement, (ii) the face amount of each Series 1996-2 Fronting Letter of Credit satisfies the requirements of each Rating Agency, (iii) no change in the Repurchase Program of any Manufacturer in respect of any new model year shall have given rise to any request on the part of the Rating Agencies that any modification be made to the Series 1996-2 Note, the Series 1996-2 Supplement, the Lease or any other Related Document, and (iv) NFC has apprised the Rating Agencies of all material changes in the Repurchase Programs occurring since the date of this Liquidity Agreement; (g) promptly following the introduction of any prospective change in any Repurchase Program or the introduction of any new Repurchase Program by an existing Manufacturer, notice and a copy of the same; (h) on or prior to each Distribution Date, a copy of the Monthly Certificate as of the last Business Day of the immediately preceding month received by NFC from National pursuant to Section 24.7(vi) of the Lease;" (m) Section 8.1.8 is amended in full to read: "SECTION 8.1.8. Absence of Certain Actions. NFC will not take any action which would permit National to have the right to refuse to perform any of its obligations under the Lease or permit NFLP to have the right to refuse to perform any of its obligations under the Series 1996-2 Note or the Series 1996-2 Supplement." (n) Sections 8.1.14, 8.1.15 and 8.1.16 are amended in full to read, respectively: "SECTION 8.1.14. Repurchase Programs. NFC agrees that it will (i) provide the Liquidity Agent, the Dealers and each Rating Agency with at least 30 days' prior written notice of its intention to make Series 1996-2 Advances to NFLP under the Series 1996-2 Supplement for the purchase or financing of Vehicles manufactured by any new Manufacturer, (ii) provide the Liquidity Agent, the Dealers and each Rating Agency with a copy of the draft Repurchase Program of such Manufacturer as it then exists at the time of such notice and a copy of the final Repurchase Program promptly upon its being available and (iii) certify to the Liquidity Agent and the Liquidity Lenders that such new Manufacturer is an Eligible Manufacturer and that such Repurchase Program is an Eligible Repurchase Program at such time. In no event shall NFC agree, to the extent any consent of NFC is solicited or required by the Manufacturer or any assignor of such Repurchase Program, to any change in any Repurchase Program that is reasonably likely to materially adversely affect its rights or the rights of the NFC Secured Parties with 10 10 respect to any Vehicles (except for an immaterial number of Vehicles) previously purchased under such Repurchase Program. "SECTION 8.1.15. Use of Proceeds of Commercial Paper Notes. NFC shall use the proceeds of the Commercial Paper Notes solely for one or more of the following purposes: (a) to pay matured Commercial Paper Notes when due, in accordance with the Depositary Agreement; (b) to fund Series 1996-2 Advances; and (c) to pay principal of, or interest on, any Liquidity Advance or any other amount payable by NFC under this Liquidity Agreement or to reimburse the Series 1996-2 Support Credit Enhancers for any Support Liquidity Disbursement and any interest thereon or the Series 1996-2 Cash Collateral Accounts for any LOC Liquidity Disbursement and any interest thereon. "Notwithstanding any provision of this Liquidity Agreement, at any time when any Liquidity Advance is outstanding, NFC shall not use the net proceeds of the issuance of Commercial Paper Notes to fund further Series 1996-2 Advances. "SECTION 8.1.16. Vehicles. NFC shall use commercially reasonable efforts to cause (i) National to maintain good, legal and marketable title to the Refinanced Vehicles, and to the National Vehicles purchased with the proceeds of Series 1996-2 Advances, free and clear of all Liens except for Permitted Liens and (ii) NFLP to maintain good, legal and marketable title to the Acquired Vehicles purchased with the proceeds of the Series 1996-2 Advances, free and clear of all Liens except for Permitted Liens." (o) Section 8.2.10 (No Other Agreements; Amendments to Related Documents) is amended by changing the phrase "without the prior written consent of the Majority Banks and GM" contained in the first sentence thereof to read: "without the prior written consent of the Majority Banks, GM and National". (p) Section 8.2.11 is amended in full to read: "SECTION 8.2.11. Other Business. NFC will not engage in any business or enterprise or enter into any transaction other than the making of Series 1996-2 Advances to NFLP under the Series 1996-2 Supplement, the related exercise of its rights as a secured creditor, the issuance of Commercial Paper Notes, the incurrence of Indebtedness under this Liquidity Agreement, the A Support Reimbursement Agreements, the B Letter of Credit Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement, the incurrence and payment of ordinary course operating expenses and as otherwise contemplated by the Related Documents." 11 11 (q) Section 9.1.7 is amended in full to read: "SECTION 9.1.7. Bankruptcy, Insolvency, etc. The occurrence of any Event of Bankruptcy with respect to NFC or National or NFLP or the General Partner." (r) Clause (b) of Section 9.1.9 is amended to delete the words "and the Cash Collateral Account C" therein. (s) Section 9.1.11 is amended in full to read: "SECTION 9.1.11. Enforceability of or Default under Related Documents. (a) Any of the Related Documents or any portion thereof shall not be in full force and effect, enforceable in accordance with its terms or NFC, National, NFLP or any Manufacturer shall so assert in writing or (b) any Event of Default shall occur or (c) any "Amortization Event" as defined in 9.1 of the Base Indenture shall occur." (t) Section 9.1.13 is amended in full to read: "SECTION 9.1.13. Termination under the Series 1996-2 Note. The Series 1996-2 Termination Date shall have occurred." (u) Clause (iii) of Section 9.2 is amended in full to read: "(iii) instruct NFC to terminate making Series 1996-2 Advances and cease funding the purchase or financing of Vehicles under the Series 1996-2 Supplement and the Lease;" (v) Clause (b) of Section 9.3.1 is amended in full to read: "(b) a Manufacturer whose Repurchase Program is a Guaranteed Depreciation Program and/or any related auction dealers, or any other Manufacturer, shall fail to pay an aggregate amount in excess of $25 million under its Repurchase Program in respect of Vehicles that constitute Master Collateral for the Series 1996-2 Note (or such other amount as shall have been agreed to for this purpose by NFC and the Majority Banks at the time that NFC proposes such Manufacturer for consideration as an "Eligible Manufacturer" under the Related Documents), in each case, owed by it in respect of any such Vehicles turned back in accordance with the terms of the related Repurchase Program and such failure shall continue for 90 days after such aggregate amount shall have become due and payable or" (w) Subsection (a) of Section 9.4 is amended in full to read: 12 12 "(a) If any Limited Amortization Event set forth in Section 9.3.1 shall have occurred and be continuing with respect to any Manufacturer, NFC shall not make any further Series 1996-2 Advances under the Series 1996-2 Supplement to fund the purchase or financing of Vehicles of such Manufacturer, no Commercial Paper Notes shall be issued to finance any such purchase or financing and no Liquidity Lender shall be required to make any Revolving Advance or Swing Line Advance with respect to any such purchase or financing." (x) Exhibit G (Form of Closing Date Certificate) is amended in full to read in the form of Exhibit G hereto. SECTION 3. Amendment to Notes. Each of the Refunding Notes and of the Revolving Notes is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 5 hereof, hereby amended by changing the reference "the Definitions List annexed as Annex A to the Liquidity Agreement" contained in the last sentence of the first paragraph thereof to the reference "the Definitions List as defined and referred to in the Liquidity Agreement." SECTION 4. Consent of Liquidity Lenders and the Liquidity Agent to Amendments of Other Related Documents. Effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 5 hereof, the Liquidity Lenders and the Liquidity Agent hereby consent to the Series 1996-2 Supplement, the Lease (including, without limitation, the termination of the Loan Agreement pursuant to Section 6 of the Lease), and the amendments of other Related Documents referred to in subsection (e) of Section 5 hereof. SECTION 5. Conditions of Effectiveness. This Amendment shall become effective when, and only when, the Liquidity Agent shall have received counterparts of this Amendment executed by NFC and the Liquidity Lenders and counterparts of the Consent hereto executed by GM, and Sections 2, 3 and 4 hereof shall become effective when, and only when, (I) NFC shall have received from National all unpaid interest accrued through the Series 1996-2 Closing Date on the Loan Note under and as defined in the Loan Agreement and (II) the Liquidity Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated, or dated as of, the Series 1996-2 Closing Date and in form and substance, satisfactory to the Liquidity Agent: (a) Evidence of the delivery of notice of this Amendment to each of the Rating Agencies and the Dealers. 13 13 (b) Written confirmation of the Rating Agencies that this Amendment and the amendment of the other Related Documents referred to in subsection (e) below will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies. (c) An executed copy of (i) the Lease and (ii) the Series 1996-2 Supplement. (d) An executed copy of all documents required to be furnished both (i) pursuant to Section 35 of the Lease so as to make effective the Lease pursuant to said Section 35 and (ii) pursuant to Section 3 of the Supplement and Amendment to Base Indenture so as to make effective the Supplement and Amendment to Base Indenture pursuant to said Section 3. (e) An executed copy of all those amendments to the other Related Documents that are required to implement the refinancing contemplated by the Series 1996-2 Supplement -- namely, the following amendments: (i) the Supplement and Amendment to Base Indenture, in substantially the form of Exhibit A hereto; (ii) the Master Collateral Agency Agreement Amendment, in substantially the form of Exhibit B hereto; (iii) the NFC Collateral Agreement Amendment, in substantially the form of Exhibit C hereto; (iv) Amendment No. 3 to the A Letter of Credit, in substantially the form of Exhibit D hereto; (v) Amendment No. 2 to the B Letter of Credit, in substantially the form of Exhibit E hereto; (vi) Amendment No. 1 to the Reduction A Support Letter of Credit, in substantially the form of Exhibit F hereto; (vii) Second Amendment to A Support Reimbursement Agreement, in substantially the form of Exhibit G hereto; (viii) Amendment to Reduction A Support Reimbursement Agreement, in substantially the form of Exhibit H hereto; 14 14 (ix) Amendment to A Support Intercreditor Agreement, in substantially the form of Exhibit I hereto; (x) Second Amendment to B Letter of Credit Reimbursement Agreement, in substantially the form of Exhibit J hereto; (xi) Third Amendment to B Support Letter of Credit Reimbursement Agreement, in substantially the form of Exhibit K hereto; (xii) Supplement and Amendment to Intercreditor and Subordination Agreement, in substantially the form of Exhibit L hereto; (xiii) Amended and Restated Collateral Sharing Agreement, in substantially the form of Exhibit M hereto; (xiv) Amendment to Depositary Agreement, in substantially the form of Exhibit N hereto; and (xv) Amendment to Dealer Agreement, in substantially the form of Exhibit O hereto. (f) Evidence that (i) the conditions precedent set forth in Section 3.1(b) of the Series 1996-2 Supplement for the issuance of the Series 1996-2 Note have been satisfied, (ii) NFLP has issued the Series 1996-2 Note to NFC pursuant to Section 3.1 of the Series 1996-2 Supplement in an initial principal amount equal to the outstanding principal amount of the Loan Note (under and as defined in the Loan Agreement) on the Series 1996-2 Closing Date, giving effect to any payment made by National in respect of such principal amount on the Series 1996-2 Closing Date, and (iii) NFC has delivered to the NFC Collateral Agent the executed and authenticated Series 1996-2 Note registered in the name of NFC, together with a blank undated written instrument of transfer (covering the Series 1996-2 Note) duly executed by NFC. (g) Evidence that all filings have been made, and all other steps have been taken, to perfect the security interest of the NFC Collateral Agent in the Assigned Collateral under the NFC Collateral Agreement, including, without limitation: (i) executed Form UCC-1 and Form UCC-3 (amendment) financing statements, naming NFC as "debtor" and the NFC Collateral Agent as "secured party", covering the rights of NFC in and to the Series 1996-2 Note now owned and hereafter acquired, the Series 1996-2 Supplement and the Lease and the other 15 15 Assigned Collateral and to be filed under the UCC of the State of Minnesota and the UCC of each other jurisdiction that the Liquidity Agent or the NFC Collateral Agent may reasonably deem necessary in order to perfect such security interest; and (ii) copies of completed requests for UCC information (or a UCC search report certified by any Person reasonably acceptable to the Liquidity Agent), dated a date reasonably near to the Series 1996-2 Closing Date, listing all effective UCC financing statements which name NFC as debtor and which are filed in the jurisdiction in which filings are and are to be made pursuant to subclause (i) above, together with copies of such financing statements (none of which shall cover any Assigned Collateral now or hereafter existing). (h) A certificate of the Secretary or Assistant Secretary of NFC certifying, and attaching a copy of, (i) the resolutions of the Board of Directors of NFC authorizing the execution, delivery and performance of this Amendment and the amendments of the other Related Documents referred to in subsection (e) above and (ii) the names and the signatures of officers of NFC authorized to execute this Amendment and the amendments of such other Related Documents. (i) A favorable opinion of Faegre & Benson LLP, counsel to NFC, in substantially the form of Exhibit P hereto. (j) Series 1996-2 Closing Certificate, in substantially the form of Exhibit Q hereto, executed by an Authorized officer of NFC. SECTION 6. Reference to and Effect on the Related Documents. (a) Upon the effectiveness of this Amendment, including Sections 2, 3 and 4 hereof, (i) the Loans then outstanding under and as defined in the Loan Agreement will be deemed paid in full by National to NFC, (ii) the Loan Note as defined in, and issued by National under, the Loan Agreement will be deemed cancelled and of no force or effect, and (iii) the Loan Agreement will terminate and be of no force or effect. (b) Upon the effectiveness of this Amendment, including Sections 2, 3 and 4 hereof, on and after the date hereof each reference in the Liquidity Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Liquidity Agreement, and each reference in the other Related Documents to "the Liquidity Agreement", "thereunder", "thereof" or words of like import referring to the Liquidity Agreement, shall mean and be a reference to the Liquidity Agreement as amended hereby. 16 16 (c) Except as specifically amended above or as contemplated by Section 5(e) hereof, the Liquidity Agreement and all other Related Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the NFC Collateral Agreement and all of the Assigned Collateral described therein do and shall continue to secure the payment of all NFC Obligations. (d) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Liquidity Lender or the Liquidity Agent under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. SECTION 7. Costs and Expenses. NFC agrees to pay on demand all costs and expenses of the Liquidity Agent in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered under, or as contemplated to be delivered by, Section 5 hereof, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Liquidity Agent with respect thereto and with respect to advising the Liquidity Agent as to its rights and responsibilities hereunder and thereunder. SECTION 8. Limited Recourse to NFC; No Recourse. (a) The Liquidity Agent and each Liquidity Lender agree that the obligations of NFC to the Liquidity Agent and such Liquidity Lender hereunder shall be payable in the order and priority set forth in Section 2.01 and 5.02(b), as applicable, of the NFC Collateral Agreement. Such obligations shall be due and payable only to the extent that NFC's assets and the Series 1996-2 Fronting Letter of Credit Amount are sufficient to pay such obligations. No claims of the Liquidity Agent or any Liquidity Lender arising under or in connection with the NFC Collateral Agreement are intended to be impaired or waived by this Section 8. (b) Without limitation to the obligations of NFC hereunder, no recourse shall be had for the payment of any fee hereunder or any other obligation or claim arising out of or based upon this Amendment or any amendment to any other Related Document against any stockholder, employee, officer, director, affiliate or incorporator of NFC based on their status as such or their actions in connection therewith. The provisions of this Section 8 shall survive the termination of this Amendment. SECTION 9. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart 17 17 of a signature page to this Amendment by telefacsimile shall constitute delivery of a manually executed counterpart of this Amendment. SECTION 10. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. 18 18 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL FLEET FUNDING CORPORATION By /s/ M.J. Baker ----------------------------- Name: M.J. Baker Title: CITIBANK, N.A., as Liquidity Agent By /s/ Annette Marsula ----------------------------- Name: Annette Marsula Title: Senior Trust Officer Liquidity Lenders ABN AMRO BANK, N.V. By /s/ Christine E. Holmes ----------------------------- Name: Christine E. Holmes Title: Vice President By /s/ David C. Sagers ----------------------------- Name: David C. Sagers Title: Vice President 19 19 BANK AUSTRIA AKTIENGESELLSCHAFT By /s/ J. Anthony Seay ------------------------------ Name: J. Anthony Seay Title: Vice President BANK AUSTRIA /s/ Jeanine Ball ------------------------------ Assistant Vice President BANK AUSTRIA BANK BRUSSELS LAMBERT, NEW YORK BRANCH By /s/ John Kippix ------------------------------ Name: John Kippix Title: Vice President By /s/ Dominick H.J. Vangaever ------------------------------ Name: Dominick H.J. Vangaever Title: Senior Vice President Credit BANK OF IRELAND By /s/ Nibanks O'Flynn ------------------------------ Name: Nibanks O'Flynn 1365 Title: Manager By /s/ R.H. Wyer ------------------------------ Name: R.H. Wyer (1541) Title: 20 20 BANK OF MONTREAL By /s/ Edward P. McGuire ---------------------------- Name: Edward P. McGuire Title: Director THE BANK OF NEW YORK By /s/ Richard A. Raffetto ---------------------------- Name: Richard A. Raffetto Title: Assistant Vice President THE BANK OF NOVA SCOTIA By /s/ A.S. Norsworthy ---------------------------- Name: A.S. Norsworthy Title: Sr. Team Leader-Loan Operations THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Jeffrey R. Arnold ---------------------------- Name: Jeffrey R. Arnold Title: Vice President BANQUE ET CAISSE D'EPARGNE DE L'ETAT By /s/ Paul Guillaume ---------------------------- Name: Paul Guillaume Title: Consellor de Director By /s/ Guy Queude ---------------------------- Name: Guy Queude Title: Chief du Service Correspondent 21 21 BANQUE NATIONALE DE PARIS, CHICAGO BRANCH By /s/ Arnaud Collin de Bocage ------------------------------ Name: Arnaud Collin de Bocage Title: Executive Vice President and General Manager BAYERISCHE HYPOTHEKEN-UND WECHSEL - BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH By /s/ Constance Madden ------------------------------ Name: Constance Madden Title: Vice President By /s/ ------------------------------ Name: Title: First Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By /s/ Katherine L. Abbott ------------------------------ Name: Katherine L. Abbott Title: First First President 22 22 CANADIAN IMPERIAL BANK OF COMMERCE By /s/ Kent S. Davis ------------------------------ Name: Kent S. Davis Title: As Agent CITIBANK, N.A. By /s/ Elizabeth A. Palermo ------------------------------ Name: Elizabeth A. Palermo Title: Attorney-in-fact COMMERZBANK AG, CHICAGO BRANCH By /s/ William Brent Peterson ------------------------------ Name: William Brent Peterson Title: Assistant Vice President By /s/ Dr. Helmut R. Tollner ------------------------------ Name: Dr. Helmut R. Tollner Title: Executive Vice President 23 23 CREDIT SUISSE, NEW YORK BRANCH By /s/ Roger W. Saylor ------------------------------ Name: Roger W. Saylor Title: Associate By /s/ Carl Jackson ------------------------------ Name: Carl Jackson Title: Member of Senior Management DEN DANSKE BANK AKTIESELSKAB, NEW YORK BRANCH By /s/ Stephen B. Shea ------------------------------ Name: Stephen B. Shea Title: Vice President By /s/ John A. O'Neil ------------------------------ Name: John A. O'Neil Title: Vice President DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By /s/ Thomas J. Nadramia ------------------------------ Name: Thomas J. Nadramia Title: Vice President By /s/ John S. Runnion ------------------------------ Name: John S. Runnion Title: Vice President 24 24 FIRST BANK NATIONAL ASSOCIATION By /s/ Elliot Jaffee ------------------------------ Name: Elliot Jaffee Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO BRANCH By /s/ Hiroki Yamada ------------------------------ Name: Hiroki Yamada Title: General Manager ING BARING (U.S.) CAPITAL MARKETS, INC. By /s/ Michael G. Plunkett ------------------------------ Name: Michael G. Plunkett Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Richard P. Burke ------------------------------ Name: Richard P. Burke Title: Vice President 25 25 NORDDEUTSCHE LANDESBANK GIROZENTRALE By /s/ Stephen K. Hunter ------------------------------ Name: Stephen K. Hunter Title: Senior Vice President By /s/ Stephanie IIoever ------------------------------ Name: Stephanie IIoever Title: Vice President NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Bradley E. Carson ------------------------------ Name: Bradley E. Carson Title: Corporate Banking Officer PNC BANK, NATIONAL ASSOCIATION By /s/ Gregory T. Gaschler ------------------------------ Name: Gregory T. Gaschler Title: Vice President THE SANWA BANK, LIMITED CHICAGO BRANCH By /s/ Seiji Daito ------------------------------ Name: Seiji Daito Title: Vice President & Manager 26 26 THE SUMITOMO BANK, LIMITED By /s/ Hiroyuki Iwami ------------------------------ Name: Hiroyuki Iwami Title: Joint General Manager SVENSKA HANDELSBANKEN, NEW YORK BRANCH By /s/ Geoffrey Walker ------------------------------ Name: Geoffrey Walker Title: Senior Vice President By /s/ H.N. Bacon ------------------------------ Name: H.N. Bacon Title: Vice President UNITED STATES NATIONAL BANK OF OREGON By /s/ Roger H. Weis ------------------------------ Name: Roger H. Weis Title: Vice President 27 27 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ S. Battinelli ---------------------- Name: Salavatore Batinelli Title: Vice President Credit Department By /s/ C.D. Rockey ---------------------- Name: C.D. Rockey Title: Associate 28 CONSENT Dated as of December 20, 1996 The undersigned, GENERAL MOTORS CORPORATION, a Delaware corporation, as an A Support Credit Enhancer under the A Support Letter of Credit Agreement (as defined in Series 1996-2 Supplement referred to in the foregoing Amendment) and hereby consents to the foregoing Amendment and hereby confirms and agrees that the A Support Letter of Credit Agreement, as amended, is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of, the said Amendment, each reference in the A Support Letter of Credit Agreement to the Liquidity Agreement, "thereunder", "thereof" or words of like import shall mean and be a reference to the Liquidity Agreement as amended by the said Amendment. GENERAL MOTORS CORPORATION By /s/ David A. Robson ---------------------------- Name: David A. Robson Title: Attorney-in-fact EX-4.12 13 COLLATERAL AGREEMENT 06/07/95 1 Exhibit 4.12 EXECUTION COPY COLLATERAL AGREEMENT dated as of June 7, 1995 among NATIONAL FLEET FUNDING CORPORATION, GENERAL MOTORS CORPORATION, as A Support Credit Enhancer, CITIBANK, N.A. and CREDIT SUISSE, NEW YORK BRANCH, as B Support Credit Enhancers CITIBANK, N.A., as Liquidity Agent, Placement Agent and Depositary CREDIT SUISSE, NEW YORK BRANCH, as Agent and CS FIRST BOSTON CORPORATION, as Dealer 2 TABLE OF CONTENTS
PAGE ARTICLE I. DEFINITIONS SECTION 1.01. Definitions.......................................... 4 ARTICLE II. OBLIGATIONS COLLATERALIZED SECTION 2.01. Obligations Collateralized Hereby.................... 4 ARTICLE III. AGENTS; REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 3.01. NFC and Other Agents................................. 7 SECTION 3.02. Representations and Warranties of NFC................ 8 SECTION 3.03. Additional Representations, Warranties and Covenants of NFC..................................... 9 SECTION 3.04. Representations and Warranties of the Agent.......... 10 ARTICLE IV. ASSIGNMENT SECTION 4.01. Assignment............................................. 11 SECTION 4.02. Application of Assigned Collateral and Deposited Funds................................................ 13 SECTION 4.03. Performance of Agreement............................... 14 SECTION 4.04. Amendments; Waivers; Declaration of Default............ 16 SECTION 4.05. Notice of Default...................................... 17 ARTICLE V. COLLATERAL ACCOUNT, LIQUIDITY LENDER ACCOUNT, AND CREDIT ENHANCER ACCOUNT SECTION 5.01. Establishment of Collateral Account, etc............. 17 SECTION 5.02. Assignment of Accounts, etc.......................... 19 SECTION 5.03. Application of Deposited Funds and Assigned Collateral......................................... 24 SECTION 5.04. Eligible Investments................................. 25 SECTION 5.05. Credit Demand........................................ 26 SECTION 5.06. Liquidity Demand; Commitment Termination Demand; Reductions......................................... 27 SECTION 5.07. Termination Demand................................... 29 SECTION 5.08. Conversion........................................... 31
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PAGE SECTION 5.09. The Cash Collateral Accounts......................... 32 ARTICLE VI. DEFAULT SECTION 6.01. Rights of the Agent upon Amortization Event, Loan Event of Default and Event of Default......... 35 SECTION 6.02. Special Provisions Concerning Remedies and Sale If Manufacturer Default or Inability to Turn Back under Repurchase Program........................ 36 ARTICLE VII. THE AGENT, THE LIQUIDITY LENDERS, THE SUPPORT CREDIT ENHANCERS AND THE HOLDERS OF COMMERCIAL PAPER NOTES SECTION 7.01. Appointment and Powers of Agent...................... 38 SECTION 7.02. Agents and Employees of the Agent.................... 40 SECTION 7.03. Waiver of Jury Trial................................. 42 SECTION 7.04. Successor Agent...................................... 43 SECTION 7.05. Qualifications of Agent.............................. 44 SECTION 7.06. Instructions of the Required Liquidity Providers and Other Parties.................................. 44 ARTICLE VIII. AMENDMENTS, MODIFICATIONS, WAIVERS AND CONSENTS SECTION 8.01. Execution of Amendments, etc......................... 45 ARTICLE IX. MISCELLANEOUS SECTION 9.01. Further Assurances................................... 46 SECTION 9.02. No Waiver; Cumulative Remedies....................... 46 SECTION 9.03. Notice of Amendments; Waivers; Notice of LIBOR....... 46 SECTION 9.04. Notices, etc......................................... 46 SECTION 9.05. Fee, Costs and Expenses, etc......................... 49 SECTION 9.06. Agent Appointed Attorney-in-Fact..................... 50 SECTION 9.07. Termination; Assigned Collateral..................... 50 SECTION 9.08. Governing Law; Binding Character; Assignment......... 51 SECTION 9.09. Severability of Provisions........................... 51 SECTION 9.10. No Bankruptcy Petition Against NFC................... 51 SECTION 9.11. No Recourse.......................................... 52 SECTION 9.12. Confidentiality...................................... 52 SECTION 9.13. Headings............................................. 53 -ii-
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PAGE SECTION 9.14. Execution in Counterparts............................ 53 SECTION 9.15. Limited Recourse to NFC.............................. 53 SECTION 9.16. Waiver of Set-Off With Respect to NFC................ 53
-iii- 5 Master Collateral Agent are entering into the Master Collateral Agency Agreement and National, the Agent, the Master Collateral Agent, NFC and the Support Credit Enhancers are entering into a supplement thereto, providing for, among other things, (i) the grant by National to the Master Collateral Agent for the benefit of various Financing Sources and Beneficiaries named thereunder of a first priority security interest in the Vehicles owned by National, certain rights under the Repurchase Programs and other documents, including warranties and insurance policies, as they relate to such Vehicles, its rights under the Vehicle Title Nominee Agreement as they relate to such Vehicles and its rights under the GM Guaranty and (ii) the designation of NFC and the Support Credit Enhancers as "Financing Sources" and the Agent, the A Support Credit Enhancer and the B Support Credit Enhancers as "Beneficiaries" thereunder (in the case of the Agent, to secure the NFC Obligations, in the case of the A Support Credit Enhancer, to secure the obligations of National to the A Support Credit Enhancer under the A Support Reimbursement Agreement and, in the case of the B Support Credit Enhancers, to secure the obligations of National to the B Support Credit Enhancers under the B Support Letter of Credit Reimbursement Agreement) with respect to (a) Vehicles owned by National and financed with Loans made under the Loan Agreement, (b) the Repurchase Programs and other documents, including warranties and insurance policies, as they relate to such Vehicles, (c) amounts received under the Vehicle Title Nominee Agreement with respect to such Vehicles and (d) amounts received under the GM Guaranty with respect to such Vehicles. 4. Contemporaneously with the execution and delivery of this Collateral Agreement, National, NFC and the Support Credit Enhancers are entering into the Collateral Sharing Agreement dated as of June 7, 1995, (as it may be amended or otherwise modified from time to time, the "Collateral Sharing Agreement"), pursuant to which the Support Credit Enhancers will agree that their interest as Financing Sources in the collateral described in paragraph 3 above is subject and subordinate to the interest therein of NFC as a Financing Source and the A Support Credit Enhancer will agree that its interest as a Financing Source in such collateral is subject and subordinate to the interest therein of the B Support Credit Enhancers as Financing Sources. 5. Contemporaneously with the execution and delivery of this COLLATERAL AGREEMENT, NFC, the Liquidity Agent and the Liquidity Lenders are entering into the Liquidity Agreement dated as of June 7, 1995 (as it may be amended or otherwise modified from time to time, the "Liquidity Agreement"), providing for, among other things, the Liquidity Commitments of the Liquidity Lenders to make Liquidity Advances on behalf of NFC from time to time. -2- 6 Agreement, pursuant to which National assigns to the Master Collateral Agent for the benefit of NFC and the Agent certain of Nationals rights under the Repurchase Program offered by such Eligible Manufacturer. 13. NFC is entering into this Collateral Agreement with Support Credit Enhancers, the Liquidity Agent, the Depositary, the Agent, the Placement Agents and the Dealers for the purpose of, among other things, providing for the repayment or payment of all amounts at any time and from time to time owing by NFC to the Liquidity Lenders or the Liquidity Agent under or in connection with the Liquidity Agreement or this Collateral Agreement and all amounts owing at any time and from time to time by NFC to the A Support Credit Enhancer under or in connection with the A Support Reimbursement Agreement or this Collateral Agreement or owing by NFC to the B support Credit Enhancers under or in connection with the B Support Letter of Credit Reimbursement Agreement or this Collateral Agreement or owing by NFC to the Cash Reserve Account under or in connection with the L Letter of Credit Reimbursement Agreement or this Collateral Agreement or owing by NFC to the Holders of the Commercial Paper Notes or the Depositary or owing to the Agent hereunder or owing to the Dealers under the Dealer Agreement or owing to the Placement Agents under the Placement Agency Agreement. NOW, THEREFORE, in consideration of the premises and agreements herein contained, each of NFC, the Support Credit Enhancers, the Liquidity Agent, the Depositary, the Agent, the Placement Agents and the Dealers agrees as follows: ARTICLE I. DEFINITIONS SECTION 1.01. Definitions. As used in this Collateral Agreement and unless the context requires a different meaning, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions List, dated as of June 7, 1995 (the "Definitions Lists), attached as Annex A to the Liquidity Agreement, as such Definitions List may be amended or modified in accordance with the terms thereof. ARTICLE II. OBLIGATIONS COLLATERALIZED SECTION 2.01. Obligations Collateralized Hereby. This Collateral Agreement is made to provide for repayment and payment of the following Indebtedness and liabilities of NFC (such -4- 7 Indebtedness and liabilities being herein called the "NFC Obligations"). Upon the occurrence, and during the continuance, of an Amortization Event or a Loan Event of Default, the NFC Obligations will be paid in the order of priority indicated below: First, the repayment of all amounts advanced or expended by the Agent, in its capacity as Agent, for the account of NFC hereunder and the payment of all reasonable out-of-pocket costs and expenses at any time and from time to time payable hereunder to the Agent, in its capacity as such, in connection with the administration or enforcement of this Collateral Agreement or any Related Document (including, without limitation, the reasonable fees and out-of-pocket expenses of counsel employed by the Agent in connection therewith) and the payment of all indemnities at any time and from time to time due by NFC hereunder to the Agent in its capacity as such up to an aggregate amount equal to $25,000 per annum; Second, subject to the last sentence of Section 5.02(f), THE PAYMENT OF ALL INDEBTEDNESS, AT any time and from time to time, due from NFC on the Outstanding Commercial Paper Notes issued pursuant to and in accordance with the Depositary Agreement; Third, the payment of all (a) operating and ordinary course expenses of NFC up to an aggregate amount equal to $250,000 per annum and (b) fees and expenses at any time and from time to time due to the Depositary pursuant to Section 9(a) of the Depositary Agreement; Fourth, the payment of all amounts at any time and from time to time due to the Liquidity Agent as notified to the Agent pursuant to Section 3.6.6 of the Liquidity Agreement; Fifth, first, the payment, pro rata, of all principal Indebtedness (including Commitment Termination Date Liquidity Advances), at any time and from time to time, due (in the case of a Commitment Termination Date Liquidity Advance, such Advance will be deemed to be due for purposes of this clause Fifth on the date such Advance is made) from NFC (a) to the Liquidity Lenders in connection with the Liquidity Advances made pursuant to the Liquidity Agreement, (b) to the A Support Credit Enhancer in connection with A Support Liquidity Disbursements made pursuant to the A Support Letter of Credit Agreement, (c) to the Cash Reserve Account in connection with Cash Reserve Support Liquidity Disbursements made pursuant to the B Letter of Credit Reimbursement Agreement, (d) to the B Support Credit Enhancers in connection with B Support LOC Liquidity -5- 8 Disbursements made under the B Support Letters of Credit and, (e) if applicable, to the Cash Collateral Accounts in connection with moneys withdrawn from such Accounts to fund any LOC Liquidity Disbursements, together with all amounts payable in respect of interest on any of the foregoing; and second, the payment, pro rata, of the NFC Reimbursement Share of any A Support Termination Disbursement, A Support Event of Default Disbursement or B Support LOC Termination Disbursements, together with all amounts payable in respect of interest on any of the foregoing; Sixth, the payment, pro rata, of all other Indebtedness (including, but not limited to fees, reimbursements, funding indemnities, taxes and increased costs, but excluding amounts referenced in clause Eighth below), at any time and from time to time, due to the Liquidity Lenders, the Liquidity Agent, the A Support Credit Enhancer (solely with respect to amounts due from NFC under the A Support Reimbursement Agreement) and the B Support Credit Enhancers (solely with respect to amounts due from NFC under the B Support Letter of Credit Reimbursement Agreement), pro rata, for the payment of any other amounts (excluding those referenced in clause Eighth below) at any time and from time to time due from NFC to any of them under or in respect of the Liquidity Agreement, the A Support Reimbursement Agreement, the B Support Letters of Credit or the B Support Letter of Credit Reimbursement Agreement, as the case may be, together with all amounts due from NFC in respect of interest thereon, and the payment, pro rata, of all indemnities at any time and from time to time due from NFC hereunder to the Liquidity Lenders and the Support Credit Enhancers, it being understood that amounts payable under this clause Sixth shall relate exclusively to costs and expenses incurred in or in connection with the procurement and handling of funds and the making of such funds available to or for the account or benefit of NFC and shall not include amounts payable in connection with general indemnity to the use by NFC , the A Credit Enhancer or the B Credit Enhancers of the proceeds of such financial accommodations (other than, in the event such actions give rise to breakage costs, any action in the nature of a prepayment by NFC) or actions taken or omitted to be taken by NFC under the Related Documents and not directly related to the procurement of funds, all of which shall be covered by clause Eighth below; Seventh, the repayment of reasonable amounts owing to the Agent referred to in clause First above in excess of $25,000 per annum; -6- 9 Eighth, the repayment, pro rata, of all reasonable amounts advanced or expended by any Liquidity Lender or any Support Credit Enhancer under this Collateral Agreement or under the Liquidity Agreement, the A Support Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), the B Support Letters of Credit or the B Support Letter of Credit Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), as the case may be, and any other amounts and reasonable out-of-pocket costs and expenses due from NFC to any party under in connection with the Liquidity Agreement, the A Support Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), the B Support Letters of Credit, the B Support Letter of Credit Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), the Depositary Agreement, the Placement Agency Agreement, the Dealer Agreement or any other Related Document whether in respect of indemnities thereunder or otherwise; and Ninth, the payment of all other expenses of NFC referred to in clause Third above in excess of $250,000 per annum. ARTICLE III. AGENTS; REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 3.01. NFC and Other Agents. (a) With the delivery of this Collateral Agreement, NFC is furnishing to the Agent, and from time to time thereafter may furnish to the Agent, a certificate (the "NFC Incumbency Certificates) certifying the incumbency and specimen signatures of officers, employees, agents or representatives of NFC (the "NFC Agents") authorized to act, and to give instructions and notices, on behalf of NFC hereunder. Until the Agent receives a subsequent NFC Incumbency Certificate, the Agent shall be entitled to rely on the last such NFC Incumbency Certificate delivered to it for purposes of determining the authorized NFC Agents. (b) With the delivery of this Collateral Agreement, NFC shall cause the Depositary to furnish to the Agent, and from time to time thereafter may cause the Depositary to furnish to the Agent, a certificate (the "Depositary Incumbency Certificates) certifying as to the incumbency and specimen signatures of officers of the Depositary (the "Depositary Agents") authorized to act, and to give instructions and notices, on behalf of the Depositary hereunder. Until the Agent receives a subsequent Depositary Incumbency Certificate, the Agent shall be entitled to rely on the last such Depositary Incumbency Certificate delivered -7- 10 to it for purposes of determining the authorized Depositary Agents. (c) With the delivery of this Collateral Agreement and from time to time thereafter, each of the 3 Support Credit Enhancers shall furnish to the Agent a certificate (each, a "B Support Credit Enhancer Incumbency Certificate") certifying as to the incumbency and specimen signatures of officers of each such Support Credit Enhancer (in each case, the "13 Support Credit Enhancer Agents") authorized to act, and to give instructions and notices, on behalf of each such B Support Credit Enhancer hereunder. Until the Agent receives a subsequent B Support Credit Enhancer Incumbency Certificate from a ~ Support Credit Enhancer, the Agent shall be entitled to rely on the last such B Support Credit Enhancer Incumbency Certificate delivered to it from such ~ Support Credit Enhancer for purposes of determining the AUTHORIZED B Support Credit Enhancer Agents for such B Support Credit Enhancer. (d) With the delivery of this Collateral Agreement and from time to time thereafter, the A Support Credit Enhancer shall furnish to the Agent a certificate (the "A Support Credit Enhancer Incumbency Certificate") certifying as to the incumbency and specimen signatures of officers of the A Support Credit Enhancer (the "A Support Credit Enhancer Agents") authorized to act, and to give instructions and notices, on behalf of the A Support Credit Enhancer hereunder. Until the Agent receives a subsequent A Support Credit Enhancer Incumbency Certificate, the Agent shall be entitled to rely on the last such A Support Credit Enhancer Incumbency Certificate delivered to it for purposes of determining the authorized A Support Credit Enhancer Agents. (e) With the delivery of this Collateral Agreement and from time to time thereafter, the Liquidity Agent shall furnish to the Agent a certificate (the "Liquidity Agent Incumbency Certificate") certifying as to the incumbency and specimen signatures of officers of the Liquidity Agent (the "L.A. Agents") authorized to act, and to give instructions and notices, on behalf of the Liquidity Agent hereunder. Until the Agent receives a subsequent Liquidity Agent Incumbency Certificate, the Agent shall be entitled to rely on the last such Liquidity Agent Incumbency CERTIFICATE delivered to it for purposes of determining the authorized L.A. Agents. SECTION 3.02. Representation and Warranties of NFC. NFC reaffirms and repeats its representations and warranties contained in the Liquidity Agreement, the A Support Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement and agrees that the Secured Parties may rely on such representations and warranties as though set forth herein in full. -8- 11 SECTION 3.03. Additional Representations. Warranties and Covenants of NFC. NFC hereby makes the following representations, warranties and covenants to the Agent, the Depositary, the Liquidity Agent, the Support Credit Enhancers, the Holders, the Liquidity Lenders, the Placement Agents and the Dealers: (a) All action necessary Concluding one filing of UCC-1 financing statements, the assignment of certain rights under the Repurchase Programs, the Vehicle Title Nominee Agreement and the GM Guaranty to the Master Collateral Agent, the execution and delivery of an assignment agreement, pursuant to which GMAC has assigned its Lien with respect to the Initial Vehicles to the Master Collateral Agent and the notation on the Vehicle certificates of title of the Master Collateral Agent's lien or the assignment of an existing lien) to protect and perfect the agent's security interest on behalf of the Secured Parties in the Assigned Collateral now in existence and hereafter acquired or created, the Cash Collateral Accounts and the Deposited Funds has been duly and effectively taken. (b) No security agreement, financing statement, equivalent security or lien instrument or continuation statement listing NFC as debtor covering all or any part of the Assigned Collateral is on file or of record in any jurisdiction, except such as may have been filed, recorded or made by NFC in favor of the Agent pursuant to this Collateral Agreement. (c) This Collateral Agreement creates a valid and continuing Lien on the Assigned Collateral in favor of the Agent on behalf of the Secured Parties, which Lien is prior to all other Liens, except for Permitted Liens, and is enforceable as such as against creditors of and purchasers from NFC. All action necessary or desirable to protect and perfect such prior security interest has been duly taken. (d) NFC's principal place of business and chief executive office shall be at: 7700 France Avenue South, Minneapolis, Minnesota 55435 and the place where its records concerning the Assigned Collateral are kept is at 7700 France Avenue South, Minneapolis, Minnesota 55435. NFC will not change its name or such principal place of business or chief executive office or remove such records without 60 days prior written notice to the Agent. (e) At any time and from time to time, upon the written request of the Agent, and at the sole expense of NFC, NFC will promptly and duly execute and deliver any and all such further instruments and documents and take such - 9- 12 further action as the Agent may reasonably deem necessary in obtaining the full benefits of this Collateral Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the liens and security interests granted hereby. NFC also hereby authorizes the Agent to file any such financing or continuation statement without the signature of NFC to the extent permitted by applicable law. If any amount payable under or in connection with any of the Assigned Collateral shall be or become evidenced by any promissory note, chattel paper or other instrument, such note, chattel paper or instrument shall be deemed to be held in trust and immediately pledged (i) if subject to the Master Collateral Agency Agreement, to the Master Collateral Agent or (ii) if not subject to the Master Collateral Agency Agreement, to the agent hereunder, and shall, subject to the rights of any Person in whose favor a prior Lien has been perfected, be duly endorsed in a manner satisfactory to the Master Collateral Agent or Agent, as applicable, and delivered to the Master Collateral Agent or Agent, as applicable, promptly. (f) NFC will warrant and defend the Agent's right, title and interest in and to the Assigned Collateral and the income, distributions and proceeds thereof, for the benefit of the Secured Parties against the claims and demands of all Persons whomsoever. (g) All authorizations in this Collateral Agreement for the Agent to endorse checks, instruments and securities and to execute financing statements, continuation statements, security agreements and other instruments with respect to the Assigned Collateral are powers coupled with an interest and are irrevocable. SECTION 3.04. Representations and warranties of the Agent. The Agent hereby represents, warrants and covenants to the Secured Parties that this Collateral Agreement has been duly authorized, executed and delivered by the Agent and constitutes a legal, valid and binding obligation of the Agent, enforceable against the Agent in accordance with its terms, except as such enforceability may be subject to bankruptcy or insolvency laws, creditors' rights generally and general principles of equity. -10- 13 ARTICLE IV. ASSIGNMENT SECTION 4.01. Assignment. (a) In order to Secure and provide for the payment and repayment of the NFC Obligations, NFC hereby pledges, assigns, conveys, delivers, transfers and sets over to the Agent, for the ratable benefit of the Agent, the Liquidity Lenders, the Liquidity Agent, the Support Credit Enhancers, the Depositary, the Placement Agents, the Dealers and the Holders of the Commercial Paper Notes (the foregoing being referred to as the "Secured Parties") as their respective interests appear, and hereby grants to the Agent, for the benefit of the Secured Parties, a security interest in all of NFC's right, title and interest in and to all assets, property and interests in property (other than as specified below) whether now owned or hereafter acquired or created (all of the foregoing being referred to as the "Assigned Collateral" ), including without limitation, all of the following property and interests in property: (i) the NFC Agreements, including, without limitation, all monies due and to become due to NFC from National under or in connection with the NFC Agreements, whether payable as principal, interest, fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of the NFC Agreements or otherwise, and all rights, remedies, powers, privileges and claims of NFC against any other party under or with respect to the NFC Agreements (whether arising pursuant to the terms of such NFC Agreements or otherwise available to NFC at law or in equity), the right to enforce any of the NFC Agreements as provided herein and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with. respect to the NFC Agreements or the obligations of any party thereunder; and (ii) all right, title and interest of NFC in, to and under any Repurchase Programs as they relate to Vehicles financed with the proceeds of Loans and all monies due and to become due in respect of such Vehicles from the Manufacturers under or in connection with the Repurchase Programs (other than Excluded Payments) whether payable as Vehicle repurchase prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Repurchase Programs or otherwise and all rights to compel performance and otherwise exercise remedies thereunder; and -11- 14 (iii) all right, title and interest of NFC in, to and under the Vehicle Title Nominee Agreement as it relates to vehicles financed with the proceeds of Loans; and (iv) all right, title and interest of NFC in, to and under the GM Guaranty as it relates to Vehicles financed with the proceeds of Loans; and (v) all other right, title and interest of NFC in, to and under the Master Collateral Agency Agreement, including, without limitation, the portion of the Master Collateral for which NFC is designated as a Financing Source and the Agent is designated as a Beneficiary thereunder; and (vi) all additional property that may from time to time hereafter be subjected to the grant and pledge hereof by NFC or by anyone on its behalf; and (vii) all property assigned to the Agent pursuant to Section 5.02 hereof, including the Accounts, the Cash Collateral Accounts and the Deposited Funds; and (viii) all proceeds of any and all of the foregoing including, without limitation, payments under insurance (whether or not the Master Collateral Agent or the Agent is the loss payee thereof) or Vehicle warranties and cash; Provided that in no event shall any of the foregoing include any right, title or interest in the Fleet Finance Agreement and payments thereunder. Notwithstanding the foregoing, upon the disbursement by the Agent of any amount distributable to NFC in accordance with the terms of Section 2.01 or 5.02(b) for the payment of NFC's operating and ordinary course expenses, the security interest in such amount granted in favor of the Agent shall be released. (b) Notwithstanding the assignment and security interest so granted to the Agent, NFC shall nevertheless be permitted, subject to the Agent's right to revoke such permission in the event of an Amortization Event (other than a Scheduled Amortization Event) or a Liquidation Event of Default and the provisions of Section 4.03 hereof, to give all consents, requests, notices, directions, approvals, extensions or waivers, if any, which are required to be given in the normal course of business (which does not include waivers of defaults under any of the NFC Agreements or revocation of powers of attorney to National) to National by NFC by the specific terms of the Loan Agreement or to any other obliger under the Assigned Collateral, and the assignment of the Assigned Collateral to the Agent shall not (i) relieve NFC from the performance of any term, covenant, condition or agreement on NFC's part to be performed or observed -12- 15 under or in connection with any of the NFC Agreements or from any liability to National, the Master Collateral Agent or the Manufacturers, as the case may be, or (ii) impose any obligation on any of the Secured Parties to perform or observe any such term, covenant, condition or agreement on NFC's part to be so performed or observed or impose any liability on any of the Secured Parties for any act or omission on the part of NFC or from any breach of any representation or warranty on the part of NFC. NFC hereby agrees to indemnify and hold harmless each Secured Party from and against any and all losses, liabilities (including liabilities for penalties), claims, demands, actions, suits, judgments, reasonable out-of-pocket costs and expenses arising out of or resulting from the assignment granted hereby by virtue of any act or omission on the part of NFC including, without limitation, the reasonable out-of-pocket costs, expenses, and disbursements (including reasonable attorneys' fees and expenses) incurred by any of the secured parties in enforcing this Collateral Agreement or preserving any of their respective rights to, or realizing upon, any of the Assigned Collateral. SECTION 4.02. Application of Assigned Collateral and Deposited Funds. NFC hereby acknowledges and agrees that, until this Collateral Agreement is terminated, NFC shall, and the Agent is authorized to, cause (i) all monies, instruments, cash and other proceeds due and to become due to NFC or the Agent under or in connection with the Master Collateral for which NFC and the Support Credit Enhancers are designated as Financing Sources and the Agent, Support Credit Enhancers are designated as Beneficiaries under the Master Collateral Agency Agreement (including, without limitation, amounts due from Manufacturers under their Repurchase Programs but excluding amounts representing the proceeds from sales of Vehicles by National at auction to third parties other than the Manufacturers, warranty payments and insurance proceeds) to be paid directly to the Master Collateral Agent for deposit into the Master Collateral Account; (ii) amounts representing the proceeds from sales of Vehicles by National at auction to third parties other than the Manufacturers to be deposited by National within two Business Days of its receipt thereof into the Master Collateral Account; and (iii) all Loan payments made by National under the Loan Agreement to be made directly to the Agent for deposit into the Collateral Account (and, in each case, NFC represents to the Secured Parties that it has instructed National and the Manufacturers, as applicable, to so remit such amounts). Upon the occurrence and during the continuance of an Amortization Event or Potential Amortization Event, insurance proceeds will be deposited in the Master Collateral Account within two Business Days of their receipt by National; provided, however, upon the delivery of an Officer's Certificate of National to the Agent (upon which it may conclusively rely) certifying (i) that a Vehicle for which insurance proceeds have been received in the -13- 16 Collateral Account has been repaired and (ii) as to the dollar amount of such repairs, the Agent shall release to National insurance proceeds in such dollar amount (to the extent not previously applied hereunder). NFC agrees that if any such monies, instruments, cash or other proceeds shall be received by NFC in an account other than the Master Collateral Account or the Collateral Account or in any other manner, such monies, instruments, cash and other proceeds will not be commingled by NFC with any of its other funds or property, if any, but will be held separate and apart therefrom and shall be held in trust by NFC for, and immediately paid over to, but in any event within two Business Days from receipt, the Agent or the Master Collateral Agent, as applicable, with any necessary endorsement. Provided that the Collateral Account or any funds on deposit in, or otherwise to the credit of, the Collateral Account are not then subject to any writ, order, judgment, warrant of attachment, execution OR similar process, all monies, instruments, cash and other proceeds received by the Agent pursuant to this Article IV shall be immediately deposited in the Collateral Account, and, unless and until an amortization event or loan event of Default shall have occurred and be continuing, shall be applied as provided in Section 5.02(b) hereof. All monies, instruments, cash and other proceeds held or deposited in the Collateral Account after the occurrence and during the continuance of an Amortization Event or Loan Event of Default, and all monies, instruments, cash and other proceeds received by the Agent pursuant to this Article IV while the Collateral Account or any funds on deposit in, or otherwise to the credit of, the Collateral Account are subject to any writ, order, judgment, warrant of attachment, execution or similar process, shall be applied by the Agent (to the extent permitted by law) to the payment or repayment in full of all outstanding NFC Obligations, in the appropriate order of priority specified in Section 2.01 of this Collateral Agreement. Notwithstanding the foregoing, to the extent that the aggregate amount of proceeds relating to any Vehicle it received in the Collateral Account exceeds the Termination Value of such Vehicle, the Collateral Agent shall, upon the written direction of NFC (on which it may conclusively rely), release such excess (to the extent not previously applied hereunder) to National within two Business Days after the receipt of written instructions from the Servicer referred to in Section 2.5(b) of the Master Collateral Agency Agreement. SECTION 4.03. Performance of Agreement. (a) Upon the occurrence of a Liquidation Event of Default, promptly following a request from the Agent to do so and at NFC's own expense, NFC agrees to take all such lawful action and as permitted under this Collateral Agreement as the Agent may reasonably request to compel or secure the performance and observance by National or by any other party to any NFC Agreement or any other Related Document of its obligations to NFC in accordance with the -14- 17 applicable terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to NFC to the extent and in the manner reasonably directed by the Agent, including, without limitation, the transmission of notices of default and the giving of directions, or the institution of legal or administrative actions or proceedings to compel or secure performance by National (or such party to any NFC Agreement or any other Related Document), of their respective obligations thereunder; provided, however, that if NFC shall have failed, within 15 Business Days of receiving the direction by the Agent, to accomplish such directions of the Agent, the Agent may, but shall not be obligated to, take such previously directed action (and any related action as permitted under this Collateral Agreement thereafter determined by the Agent to be appropriate without the need under this provision or any other provision hereunder to direct NFC to take such action) on behalf of NFC and the secured parties. Upon the occurrence of a liquidation event of Default, the Agent may, and upon written direction from the Required Liquidity Providers shall, take all lawful action at NFC's expense (for reasonable costs and expenses), to exercise any and all rights, remedies, powers and privileges lawfully available to the Agent to the extent and in the manner directed by the Required Liquidity Providers or, in the absence of such direction, by the Agent itself, including, without limitation, the transmission of notices of default and the institution of legal or administrative actions or proceedings to compel or secure performance by National, NFC or any obliger with respect to the Assigned Collateral (including, without limitation, any Manufacturer under a Repurchase Program), including, without limitation, the giving of directions to the Master Collateral Agent to exercise rights and remedies under the Master Collateral Agency Agreement with respect to the Master Collateral for which the Agent and the Support Credit Enhancers are designated as Beneficiaries and to exercise any other remedies available to a secured party. Subject to Section 4.01(b), NFC further agrees that it will not, without the prior written consent of the Agent, exercise any right, remedy, power or privilege available to it with respect to any obligor under the Assigned Collateral (other than Old National or the A Support Credit Enhancer under the Vehicle Title Nominee Agreement or the GM Guaranty, respectively), take any action to compel or secure performance or observance by any obligor of its obligations to NFC (other than Old National or the A Support Credit Enhancer under the Vehicle Title Nominee Agreement or the GM Guaranty, respectively), or give any consent, request, notice, direction, approval, extension or waiver with respect to any obligor (other than Old National or the A Support Credit Enhancer under the Vehicle Title Nominee Agreement or the GM Guaranty, respectively). -15- 18 In the event of a Liquidation Event of Default, the Required Liquidity Providers shall be deemed to have directed that the Agent, NFC, the Master Collateral Agent and National return each Vehicle to the related Manufacturer under the related Repurchase Program at the end of the minimum holding period (if any) for such Vehicle under the related Repurchase Program, unless the Required Liquidity Providers specifically waive such direction in writing. (b) Unless otherwise specifically directed by the Required Liquidity Providers in writing, in the event that there has occurred a Manufacturer Default, and the Agent shall have received written notice thereof from any Secured Party, the Agent agrees at NFC's expense to direct the Master Collateral Agent to sell any and all Vehicles covered by the related Repurchase Program of such Manufacturer for the highest purchase price offered at a PUBLIC OR PRIVATE SALE AND, PROMPTLY UPON RECEIPT, to deposit the proceeds of such sale into the Collateral Account for application in accordance with Section 5.02(b) or 2.01, as applicable. SECTION 4.04. Amendments; Waivers; Declaration of Default. Without intending in any manner to derogate from the absolute nature of the assignment granted to the Agent by this Collateral Agreement or the rights of the Agent hereunder, NFC agrees that it will not, without giving prior written notice to the Rating Agencies, the Placement Agents and the Dealers and without the prior written consent of the Required Liquidity Providers and the Agent (to the extent the rights or duties of the Agent are affected thereby), amend, modify, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination or surrender of, the terms of any Assigned Collateral, or waive timely performance or observance by any obligor of its obligations under the Assigned Collateral, or any default on the part of any obliger under the Assigned Collateral; provided, however, that NFC may amend the terms of any Assigned Collateral if such amendment is effected only to cure any ambiguity, to correct or supplement any provision therein which may be inconsistent with any other provision therein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under such Assigned Collateral which shall not be inconsistent with the provisions of such Assigned Collateral; provided, such action pursuant to this clause shall not adversely affect the interests of a Secured Party in any material respect. NFC will not agree to any such amendment, waiver or other change (with respect to a Repurchase Program, only to the extent any consent of NFC is solicited or required by the Manufacturer or any assignor of such Repurchase Program), (i) if such amendment, waiver or other change would materially adversely affect the rights of the Holders of the Commercial Paper Notes or (ii) if the Agent shall not have -16- 19 received written confirmation of the Rating Agencies that such amendment, waiver or other change will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies. If any such amendment, modification, supplement or waiver shall be so consented to by the Agent (to the extent required), the Required Liquidity Providers, NFC agrees, promptly following a request by the Agent or the Liquidity Agent to do so, to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as any of them may deem necessary or appropriate in the circumstances. No consent by the Agent or any other Secured Party to any such amendment, modification, supplement or waiver shall be deemed to be a determination by the Agent that such amendment, modification, supplement or waiver will not adversely affect the rights of any Holder of Commercial Paper Notes. Upon the occurrence of a Loan Event of Default, the Agent, upon direction by the Required Liquidity Providers, shall direct NFC to declare that the Loan Commitments are terminated and, if no Commercial Paper Notes are then outstanding, the Loan Note immediately due and payable. SECTION 4.05. Notice of Default. Promptly upon becoming aware thereof, NFC agrees to give the Liquidity Agent, the Liquidity Lenders, the Support Credit Enhancers, the Depositary, the Placement Agents, the Dealers, the Agent, the Master Collateral Agent and each Rating Agency prompt written notice (and in no case more the-. two days after NFC has actual knowledge thereof) of each default on the part of National of its obligations under the Loan Agreement or of any Manufacturer under any Repurchase Program that comes to NFC's attention. ARTICLE V. COLLATERAL ACCOUNT, LIQUIDITY LENDER ACCOUNT, AND CREDIT ENHANCER ACCOUNT SECTION 5.01. Establishment of Collateral Account. etc. For purposes of the Liquidity Agreement, the A Support Reimbursement Agreement, the B Support Letter of Credit Reimbursement Agreement and the Depositary Agreement, the Agent shall at all times during the term of this Collateral Agreement maintain at a U.S. branch or agency of Credit Suisse (i) a demand deposit account for the benefit of the Secured Parties (said account being herein called the "Collateral Accounts and being identified as Account No. 360821-03), (ii) a demand deposit account for the benefit of the Secured Parties (said account being herein called the "Termination Advance Account" and being identified as Account No. 360821-05) and (iii) a demand deposit -17- 20 account for the Liquidity Lenders and the Liquidity Agent (said account being herein called the "Liquidity Lender Account" and being identified as Account No. 36-0821-02), the operation of each of which shall be governed by this Article V (the Collateral Account, the Termination Advance Account and the Liquidity Lender Account are collectively referred to herein as the "Accounts" ); provided, however, if at any time the short-term credit rating of the Agent from S&P and Moody's shall be reduced below A-1 or P-1, respectively, the Agent shall, within 30 days of such reduction, convert each of the Accounts to a segregated trust account in the corporate trust department of a financial institution. It is understood and agreed by NFC and the Secured Parties that on any Business Day there shall be deposited in the Collateral Account the following monies, instruments, cash and proceeds received by the Agent or NFC at any time and from time to time: (a) from the Depositary from the sale of Commercial Paper Notes, (b) from the Master Collateral Agent pursuant to the Master Collateral Agency Agreement, (c) from National under the Loan Agreement, (d) from the sale of Vehicles in accordance with Section 4.03(b) hereof, (e) any other proceeds of the Assigned Collateral, (f) from the Fronting Credit Enhancers as LOC Liquidity Disbursements, (g) from the Fronting Credit Enhancers as LOC Credit Disbursements, (h) from the Cash Collateral Accounts pursuant to Section 5.09 and (i) any and all monies at any time and from time to time received on behalf of NFC, and required by the terms of this Collateral Agreement, the Loan Agreement, the Master Collateral Agency Agreement, the Repurchase Programs or any other Related Document to be deposited in the Collateral Account. It is further understood and agreed by NFC and the Secured Parties that there shall be deposited in the Termination Advance Account the monies, instruments, cash and proceeds received by the Agent or NFC at any time and from time to time from any Liquidity Lender pursuant to Section 3.6.4 of the Liquidity Agreement. It is further understood and agreed by NFC and the Secured Parties that there shall be deposited in the Liquidity Lender Account or the Commercial Paper Account the following monies, instruments, cash and proceeds received by the Agent or NFC at any time and from time to time: (a) from any Liquidity Lender pursuant to Section 3.6.1, 3.6.2 or 3.6.3 of the Liquidity Agreement and (b) any and all monies at any time and from time to time received on behalf of NFC, and required by the terms of this Collateral Agreement, the Liquidity Agreement or any other Related Document to be deposited in the Liquidity Lender Account or the Commercial Paper Account. -18- 21 All monies, instruments, cash and proceeds deposited at any time and from time to time in any and all of the Accounts and the Cash Collateral Accounts (other than amounts on deposit in the Cash Collateral Accounts constituting earnings on investments or interest on withdrawals and any amounts in excess of the Required Enhancement Amount that are to be released pursuant to Section 5.09(b)) are referred to as "Deposited Funds"; provided that Deposited Funds in the Cash Collateral Accounts may only be used for the purposes provided in Section 5.09 and the Deposited Funds in the Termination Advance Account may only be used to make payments pursuant to clause Second of Section 2.01 or Section 5.02(b)(i) hereof. Subject to Section 5.09, Deposited Funds may, at NFC's discretion upon NFC's written direction and at NFC's expense, be invested in Eligible Investments; provided that if an Amortization Event (other than a Scheduled Amortization Event) or Loan Event of Default shall have occurred and be continuing or any NFC Obligations then due shall be unpaid, NFC's rights to invest shall terminate and the Agent shall have the right (but not the obligation) to invest funds at NFC's expense in Eligible Investments. In addition, NFC agrees that it will not, and will not permit any Person on behalf of NFC to, issue Commercial Paper Notes after NFC has received notice that any of the Accounts, the Cash Collateral Accounts or the Commercial Paper Account is subject to any stay, writ, judgment, warrant of attachment, execution or other similar process; provided that if any such writ, order, judgment, warrant of attachment, execution or other similar process is removed or dismissed, NFC may recommence issuing, and permitting any Person on behalf of NFC to issue, Commercial Paper Notes. SECTION 5.02. Assignment of Accounts. etc. (a) In order to secure and provide for the repayment and payment of the NFC Obligations, NFC hereby assigns, pledges, grants, transfers and sets over to the Agent, for the benefit of the Secured Parties, all of NFC's right, title and interest in and to the following (whether now or hereafter existing and whether now owned or hereafter acquired): (I) THE ACCOUNTS AND the Cash Collateral Accounts and all claims of NFC in and to the Accounts and the Cash Collateral Accounts, (ii) the Deposited Funds and all claims of NFC in and to the Deposited Funds, (iii) all certificates and instruments, if any, representing or evidencing any or all of the Accounts or the Cash Collateral Accounts, (iv) all interest, dividends, cash, instruments and other property from time to time, received, receivable or otherwise distributed in respect of or in exchange for any or all of the Accounts or the Cash Collateral Accounts, the Deposited Funds or the Eligible Investments and all claims of NFC therein and thereto, (v) all Eligible Investments made at any time and from time to time with the moneys in any and all of the Accounts or the Cash Collateral -19- 22 Accounts and all claims of NFC therein and thereto and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash. Throughout the term of this Collateral Agreement, the Agent shall be a pledges in possession of the Deposited Funds and shall have the sole and exclusive right to withdraw or order a transfer of Deposited Funds from the Accounts or the Cash Collateral Accounts subject to the provisions of the next succeeding paragraph, and NFC hereby appoints the Agent the true and lawful attorney of NFC, with full power of substitution, for the purpose of making any such withdrawal or ordering any such transfer of Deposited Funds from any of the Accounts and from the Cash Collateral Accounts, which appointment is coupled with an interest and is irrevocable. (b) So long as no Amortization Event or Loan Event of Default shall have occurred and then be continuing, NFC, with respect to clauses (ii) and (iv) through (viii) below, and the Depositary with respect to clause (i) below, and the Liquidity Agent, on behalf of the Liquidity Lenders, with respect to clause (iii) below, shall have the right to instruct the Agent to withdraw or allocate and retain, or order the transfer of, Deposited Funds from any of the Accounts (subject to the penultimate paragraph of Section 5.01 with respect to the Termination Advance Account), from time to time as necessary, for the following purposes in the following priority: (i) the payment of all Indebtedness, at any time and from time to time due from NFC to the Holders of the Outstanding Commercial Paper Notes issued pursuant to and in accordance with the Depositary Agreement; (ii) the payment of all (a) operating and ordinary course expenses of NFC up to an aggregate amount equal to $250,000 per annum and (b) fees and expenses at any time and from time to time due to the Depositary pursuant to Section 8(a) of the Depositary Agreement or due to the Agent hereunder to the extent no Borrowing Base Deficiency results; (iii) the payment of all amounts at any time and from time to time notified by the Liquidity Agent to the Agent pursuant to Section 3.6.6 of the Liquidity Agreement; (iv) first, the payment, pro rata, of all principal Indebtedness (including Commitment Termination Date Liquidity Advances) at any time and from time to time due (in the case of a Commitment Termination Date Liquidity Advance, such Advance will be deemed to be due for purposes of this Section 5.02(b)(iv) on the date such Advance is made) from NFC (a) to the Liquidity Lenders in connection with the Liquidity Advances made pursuant to the Liquidity -20- 23 Agreement, (b) to the A Support Credit Enhancer in connection with A Support Liquidity Disbursements made pursuant to the A Letter of Credit Reimbursement Agreement, (c) to the Cash Reserve Account in connection with Cash Reserve Support Liquidity Disbursements made pursuant to the B Letter of Credit Reimbursement Agreement, (d) to the B Support Credit Enhancers in connection with B Support LOC Liquidity Disbursements made under the B Support Letters of Credit and, (e) if applicable, to the Cash Collateral Accounts in connection with moneys withdrawn from such Accounts to fund any LOC Liquidity Disbursements, together with all amounts payable in respect of interest on any of the foregoing; and second, the payment, pro rata, of the NFC Reimbursement Share of any A Support Termination Disbursement, A Support Event of Default Disbursement or B Support LOC Termination Disbursement, together with all amounts payable in respect of interest on any of the foregoing; (v) to the extent no Borrowing Base Deficiency results therefrom, the payment, pro rata, of all other Indebtedness (including, but not limited to, fees, reimbursements, indemnities, taxes and increased costs, but excluding amounts referenced in clause (vi) below) at any time and from time to time due and owing to the Liquidity Lenders, the Liquidity Agent, the A Support Credit Enhancer (solely with respect to amounts due from NFC under the A Support Reimbursement Agreement), the B Support Credit Enhancers (solely with respect to amounts due from NFC under the B Support Letter of Credit Reimbursement Agreement) and the Agent and for the payment, pro rata, of any other amounts (excluding those referenced in clause (vi) below) at any time and from time to time due from NFC to any of them under or in respect of the Liquidity Agreement, the A Support Reimbursement Agreement, the B Support Letters of Credit, the B Support Letter of Credit Reimbursement Agreement and this Collateral Agreement, together with all amounts due from NFC in respect of interest thereon, and the payment, pro rata, of all indemnities at any time and from time to time due from NFC hereunder to the liquidity Lenders and the Support Credit Enhancers, it being understood that amounts payable under this clause (v) shall relate exclusively to costs and expenses incurred in or in connection with this Collateral Agreement, the procurement and handling of funds and the making of such funds available to or for the account or benefit of NFC and shall not include amounts payable in connection with general indemnity claims relating to the use by NFC, the A Credit Enhancer or the B Credit Enhancers of the proceeds of such financial accommodations (other than, in the event such actions give rise to breakage costs, any action in the nature of a prepayment by NFC) or actions -21- 24 taken or omitted to be taken by NFC under the Related Documents and not directly related to the procurement of funds, all of which shall be covered by clause (vi) below; (vi) to the extent no Borrowing Base Deficiency results therefrom, the repayment, pro rata, of all reasonable amounts advanced or expended by the Agent, the Liquidity Agent, any Liquidity Lender or the Support Credit Enhancers hereunder or in connection with the Liquidity Agreement, the A Support Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), the B Support Letters of Credit or the B Support Letter of Credit Reimbursement Agreement (solely with respect to amounts due from NFC under the B Support Letter of Credit Reimbursement Agreement), as the case may be, and any other amounts and reasonable out-of-pocket costs and expenses due from NFC to any Secured Party under or in connection with this Collateral Agreement, the Liquidity Agreement, the A Support Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), the B Support Letters of Credit, the B Support Letter of Credit Reimbursement Agreement (solely with respect to amounts due from NFC thereunder), the Depositary Agreement, the Placement Agency Agreement or the Dealer Agreement whether in respect of indemnities thereunder or otherwise; (vii) to the extent no Borrowing Base Deficiency results therefrom, the payment of all other expenses of NFC in excess of the amounts paid under clause (ii) above; (viii) the making of new Loans by NFC under the Loan Agreement for the purchase or financing by National of additional Vehicles of the Manufacturers; and (ix) the balance of such Deposited Funds shall be retained in the appropriate Account and invested pursuant to Section 5.04 in Eligible Investments. (c) The Agent shall apply moneys as provided in Section 5.02(b) promptly upon receipt of written or telephonic instructions from an NFC Agent or, with respect to clause (b)(i) above, a Depositary Agent, or with respect to clause (b)(iii) above, the Liquidity Agent. Any telephonic instructions shall be promptly confirmed in writing. The Agent shall make the required withdrawals and transfers on the same day provided that it shall have received instructions prior to 3:00 p.m. (New York City time) on such day. Absent manifest error, the Agent shall have no responsibility for verifying that moneys being transferred pursuant to this Section 5.02 are in the proper amounts or that any conditions to such transfers are complied with. All instructions furnished to the Agent pursuant to this Section -22- 25 5.02(c) or 5.03 shall specify the account to which moneys are to be transferred; provided that moneys payable to any Liquidity Lender shall be transferred to the Liquidity Agent for distribution to such Liquidity Lender. (d) The Agent shall, with the cooperation of the Depositary, the Liquidity Agent and the Support Credit Enhancers monitor the amount of Commercial Paper Notes Outstanding, Liquidity Advances Outstanding, Support LOC Liquidity Disbursements Outstanding and the current Borrowing Base, and determine whether or not a Borrowing Base Deficiency exists on any Business Day. In this regard, NFC hereby agrees to provide the Agent, on the twentieth day of each month, a statement reflecting the Borrowing Base (as of the close of business on the last day of the immediately preceding Related Month), which statement shall be certified by the chief financial officer of NFC. NFC shall provide copies of such monthly statement to each Rating Agency, the Placement Agents and the Dealers. Upon each occasion that NFC delivers a Borrowing Base Certificate to the Liquidity Agent in accordance with the Liquidity Agreement, NFC shall provide a copy of such Certificate to the Agent hereunder. The Agent may conclusively rely on such certified statement or certificate at all times from and after the issuance thereof until issuance of a new such certified statement or certificate, without any obligation on the part of the Agent to confirm the truth, accuracy or completeness of such certified statement or certificate and without any obligation on the part of the Agent to undertake any other inquiry with respect thereto. The Agent may at any time request that NFC, and NFC thereafter shall, provide the Agent with a statement as to the Borrowing Base upon each LOC Liquidity Disbursement. Upon each occasion that NFC delivers information relating to the Borrowing Base to the Depositary in accordance with Section 3(a) of the Depositary Agreement, NFC shall provide a copy of the notice containing such information to the Agent hereunder. NFC agrees to notify the Agent promptly, and in any event within one Business Day, upon its obtaining knowledge of the existence of any Borrowing Base Deficiency. (e) The Agent shall from time to time, but at least monthly, provide NFC with statements of account relating to the Accounts and the Cash Collateral Accounts in accordance with the Agent's customary practices and in a form reasonably satisfactory to the Agent and NFC. (f) Upon the occurrence and during the continuance of an Amortization Event or a Loan Event of Default, all rights of NFC to request the Agent to withdraw or order the transfer of Deposited Funds from the Accounts or the Cash Collateral Accounts shall cease, and the Agent, at the direction (which direction shall be in writing or by telephone (confirmed in writing -23- 26 promptly thereafter)) of the Required Liquidity Providers shall (subject to Section 7.01 hereof), at any time and from time to time, to appropriate and apply the Deposited Funds then, or at any time thereafter, on deposit in the Accounts or the Cash Collateral Accounts to the payment or prepayment in full of all outstanding NFC Obligations, whether or not then due, in the order of priority specified in Section 2.01 hereof (or in the case of the Cash Collateral Accounts, in accordance with Section 5.09). The Agent shall make all payments with respect to Commercial Paper Notes Outstanding pursuant to clause Second of Section 2.01 to the Depositary for application to the pro rata payment, in accordance with their terms and subject to the provisions of the Depositary Agreement, of the face amount of matured and unmatured Commercial Paper Notes, whether or not such Commercial Paper Notes have been presented to the Depositary for payment. SECTION 5.03. Application of Deposited Funds and Assigned Collateral. For purposes of determining the payment to be made to any Person of any Assigned Collateral and Deposited Funds pursuant to Sections 2.01 and 5.02 hereof, the Agent may rely on certificates or statements furnished to or by it in accordance with the provisions of this Section 5.03; Provided, however, to the extent that the Agent has previously received telephonic or written instructions with respect to determining the payment to be made to any Person of any Assigned Collateral and Deposited Funds pursuant to Section 5.02(c), the Agent may conclusively rely on such previously received instructions. For purposes of determining the application to be made of Deposited Funds and any Assigned Collateral to any Holder pursuant to clause Second of Section 2.01 and clause (i) of Section 5,02(b) or to the Depositary pursuant to subclause (b) of clause Third, clause Eighth of Section 2.01 or Section 5.02 (b)(ii)(b), the Agent may rely exclusively upon a certificate or other statement (a copy of which shall at the same time also be provided to NFC) of the Depositary as to the amount then owing to such Holder. For purposes of determining the application to be made of Deposited Funds and any assigned collateral to any Liquidity Lender, the Liquidity Agent, the A Support Credit Enhancer or the L Support Credit Enhancers, as the case may be, pursuant to clause Fourth, Fifth, Sixth or Eighth of Section 2.01 hereof (and the corresponding provisions under Section 5.02(b)), the Agent may rely exclusively upon a certificate or other statement (a copy of which shall at the same time also be provided to NFC) of the Liquidity Agent (with respect to amounts owing to it or any Liquidity Lender), an A Support Credit Enhancer Agent or a Support Credit Enhancer Agent, as the case may be, as to the amount then owing to any such Liquidity Lender, the Liquidity Agent, or Support Credit Enhancer, as the case may be. Any application to be made of Deposited Funds and Assigned Collateral to the Agent pursuant to clause First or Seventh of Section 2.01 -24- 27 hereof (and the corresponding provisions under Section 5.02(b)) may be made upon the Agent's own certificate or statement delivered to NFC, the Liquidity Agent and the Support Credit Enhancers, setting forth in reasonable detail the nature of the Agent's claim and the amount owing to the Agent on account thereof. For purposes of determining the application to be made of Deposited Funds and Assigned Collateral to NFC pursuant to clause Third or Ninth of Section 2.01 or the corresponding provisions under Section 5.02(b) hereof or to any Placement Agent, Dealer or any other Person (other than any party hereto or any Liquidity Lender) pursuant to clause Eight of Section 2.01 or the corresponding provisions under Section 5.02(b) hereof, the Agent may rely conclusively upon a certificate or other statement of NFC as to the amount then owing to NFC or such other party. The Agent SHALL NOT be liable for any application of the Deposited Funds in accordance with any certificate or direction delivered pursuant to this Section 5.03 or 5.02(c); provided, however, that no application of the Deposited Funds and Assigned Collateral in accordance with any certificate or statement delivered pursuant to this Section 5.03 or 5.02(c) shall be deemed to restrict or limit the right of the Agent, NFC, the Support Credit Enhancers, the Liquidity Agent, the Depositary, any Liquidity Lender, any Placement Agent of any Dealer to contest with the purported obligee its respective rights in respect of the amount set forth in such certificate or statement. SECTION 5.04. Eligible Investments. So long as no Amortization Event (other than a Scheduled Amortization Event) or Loan Event of Default shall have occurred and be continuing and all NFC Obligations due and owing by NFC have been paid, monies held in the Accounts shall be invested daily, and the proceeds of investments shall be reinvested daily, by the Agent in overnight Eligible Investments pursuant to the written direction of NFC and, in all other cases, such monies and proceeds shall be invested daily and reinvested daily by the Agent in accordance with the direction of the Liquidity Agent. The Agent shall direct the investment of monies held in the Cash Collateral Accounts in overnight Eligible Investments (or, Eligible Investments having longer maturities if (i) the A Support Credit Enhancer has consented thereto in the case of the Cash Collateral Account A (or National has consented, if the A Support Credit Enhancer has been fully reimbursed), (ii) the B Support Credit Enhancers have consented thereto in the case of the Cash Collateral Account B (or National has consented, if the B Support Credit Enhancers have been fully reimbursed), (iii) National has consented thereto in the case of the Cash Collateral Account C and (iv) the Agent shall have received written confirmation of the Rating Agencies that Eligible Investments having such longer -25- 28 maturities will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies) at the direction of the A Support Credit Enhancer with respect to the Cash Collateral Account A (or National, to the extent of any funds on deposit therein not attributable to an unreimbursed A Support Termination Disbursement or an unreimbursed A Support Event of Default Disbursement), the B Support Credit Enhancers with respect to the Cash Collateral Account B (or National, to the extent of any funds on deposit therein not attributable to an unreimbursed 8 Support Termination Disbursement) or National with respect to the Cash Collateral Account C; Provided, however, that so long as an Amortization Event (other than a Scheduled Amortization Event) or a Loan Event of Default shall have occurred and be continuing, the Agent shall direct the investment of such monies (other than monies as to which the applicable Support Credit Enhancer (or National, if such Support Credit Enhancer has been fully reimbursed) directs investment pursuant to Section 2 3 of the A Support Reimbursement Agreement or the B SUPPORT Letter of Credit Reimbursement Agreement, as applicable) only in accordance with the direction of the Liquidity Agent. The Agent shall not be responsible or liable for any loss resulting from the investment performance of any investment or reinvestment of monies held in the Accounts, the Cash Collateral Accounts or any other account maintained by the Agent for the purposes of this Collateral Agreement or in Eligible Investments or from the sale or liquidation of any Eligible Investments in accordance with this Collateral Agreement. All Eligible Investments shall be made in the name of, and shall be payable to, the Agent, and all investment costs and expenses shall be reimbursed to the Agent by NFC. SECTION 5.05. Credit Demand. (a) On or prior to the Business Day preceding each Payment Date, NFC shall provide the Agent with a copy of the monthly statement provided to NFC by National pursuant to Section 9.7(iv) of the Loan Agreement. The Agent shall be entitled to rely on such monthly statement as evidence of the amount of payments with respect to Loans due on such Payment Date. The Agent shall calculate as of 11:00 a.m. (New York City time) on each Payment Date the Credit Payment Deficit, if any, on such Payment Date. (b) So long as the A Letter of Credit shall not have been terminated on any Business Day that a Credit Payment Deficit exists, the Agent shall, by 12:00 noon (New York City time) on the same Business Day, draw on the A Letter of Credit in an amount equal TO THE LESSER OF (i) such Credit Payment Deficit and (ii) the full amount available to be drawn under the A Letter of Credit on such Business Day by presenting a draft accompanied by a Certificate of A Credit Demand in the form of Annex A to the A Letter of Credit. The Agent shall promptly notify each Rating -26- 29 Agency in writing of the occurrence of any such draw on the A Letter of Credit. (c) To the extent the Credit Payment Deficit exceeds the A Letter of Credit Amount and A Liquidity Disbursements are Outstanding, the Agent shall effect an A Conversion in accordance with the provisions of Section 5.09. (d) If and only if, on any such Business Day that a Credit Payment Deficit exists, the amount available to be drawn under the A Letter of Credit and the amount of an A Conversion is less than such Credit Payment Deficit (such deficiency is referred to as a "B Credit Draw Amount") and the B Letter of Credit shall not have been terminated, the Agent shall, by 12:00 noon (New York City time) on the same Business Day, draw on the B Letter of Credit in an amount equal to the lesser of (i) such B Credit Draw Amount and (ii) the full amount available to be drawn under the B Letter of Credit on such Business Day by presenting a draft accompanied by a Certificate of B Credit Demand in the form of Annex A to the B Letter of Credit. The Agent shall promptly notify each Rating Agency in writing of the occurrence of any such draw on the B Letter of Credit. SECTION 5.06. Liquidity Demand: Commitment Termination Demand: Reductions. (a) Upon receipt by the Agent on or prior to 11:15 a.m. (New York City time) of a written notice from the Depositary notifying the Agent of the existence and amount of a Commercial Paper Deficit and instructing the Agent to deliver a Borrowing Request, the Agent shall, by 11:30 a.m. (New York City time) on the date of such notice (or, in the case of any notice given to the Agent after 11:15 a.m. (New York City time), by 11:30 a.m. (New York City time) on the next following Business Day), deliver a Borrowing Request in the form of Exhibit C to the Liquidity Agreement to the Liquidity Agent for a Borrowing in the aggregate in the amount of such Commercial Paper Deficit; provided that if on the date any Borrowing Request is to be delivered by the Agent, Deposited Funds are available in the Termination Advance Account, the Agent shall immediately transfer to the Commercial Paper Account such Deposited Funds (up to the amount of the relevant Commercial Paper Deficit) and reduce the amount demanded in the Borrowing Request by the amount of the Deposited Funds so transferred. (b) So long as the A Letter of Credit shall not have been terminated, upon receipt by the Agent on or prior to 11:30 a.m. (New York City time) of a written notice from the Depositary notifying the Agent of the existence and amount of an A Liquidity Deficiency and directing the Agent to make a draw under the A Letter of Credit, the Agent shall, by 12:00 noon (New York City time) on the date of such notice (or, in the case of any notice given to the Agent after 11:30 a.m. (New York City time), by -27- 30 12:00 noon (New York City time) on the next following Business Day), draw on the A Letter of Credit in an amount equal to the lesser of (i) such A Liquidity Deficiency and (ii) the full amount available to be drawn under the A Letter of Credit on such date by presenting a draft accompanied by a Certificate of A Liquidity Demand in the form of Annex B to the A Letter of Credit. No such draw under the A Letter of Credit shall be made unless as of the date of such draw and after giving effect to all Liquidity Advances made on such date under the Liquidity Agreement, the Liquidity Agent shall notify the Agent by telephone (promptly confirmed in writing) that the Aggregate Liquidity Commitment is fully drawn under the Liquidity Agreement or is not available for reasons other than a failure to meet conditions precedent. (c) If and only if, upon receipt by the Agent on any date of the notice of the existence and amount of an A Liquidity Deficiency as set forth in Section 5.06(b) above, the amount available to be drawn under the A Letter of Credit is less than such A Liquidity Deficiency (such deficiency is referred to as a "B Liquidity Draw Amount") and the B Letter of Credit shall not have been terminated, the Agent shall, by 11:30 a.m. (New York City time) on such date (or, in the case of any notice given to the Agent after 11:30 a.m. (New York City time) on the next following Business Day), draw on the B Letter of Credit in an amount equal to the lesser of (i) such B Liquidity Draw Amount and (ii) the full amount available to be drawn under the B Letter of Credit on such date by presenting a draft accompanied by a Certificate of B Liquidity Demand in the form of Annex B to the B Letter of Credit. No such draw under the B Letter of Credit shall be made unless as of the date of such draw and after giving all Liquidity Advances made on such date under the Agreement, the Liquidity Agent shall notify the Agent by telephone (promptly confirmed in writing) that the Aggregate Liquidity Commitment is fully drawn under the Liquidity Agreement or is not available for reasons other than a failure to meet conditions precedent. (d) Upon receipt by the Agent on or prior to 11:15 a.m. (New York City time) of a written notice from NFC directing the Agent to request a Commitment Termination Date Liquidity Advance from a particular Liquidity Lender, the Agent shall by 11:30 a.m. (New York City time) on the date of such notice (or, in the case of any notice given to the Agent after 11:15 a.m. (New York City time), by 11:30 a.m. (New York City time) on the next following Business Day), deliver a Borrowing Request in the form of Exhibit C to the Liquidity Agreement to the Liquidity Agent for a Borrowing in the aggregate in the amount of such Commitment Termination Date Liquidity Advance. NFC agrees to give the Agent notice of such direction so the Agent's Borrowing Request will be delivered to the Liquidity Agent not less than three nor more -28- 31 than five Business Days' before such Liquidity Lender's Scheduled Liquidity Commitment Termination Date. (e) To the extent National and NFC are unable to deliver (or cause the delivery of) a Reduction Amount Letter of Credit or otherwise provide Reduction Amount Credit Support in accordance with Section 2.1(c)(ii) of the A Support Reimbursement Agreement with respect to any Reduction Date, the Agent shall deliver to the A Credit Enhancer a Certificate of A Reduction Demand two Business Days prior to such Reduction Date and thereby draw on the A Letter of Credit in an amount equal to the A Support Reduction Amount and, upon receipt of an A LOC Reduction Disbursement from the A Credit Enhancer, deposit the proceeds of such A LOC Reduction Disbursement in the Cash Collateral Account A. SECTION 5.07. Termination Demand. (a) If prior to the date which is 30 days prior to the then Scheduled A Letter of Credit Expiration Date, (1) there shall not have been appointed a successor institution to act as A Credit Enhancer or, in the alternative, (2) the Loan payments to be made by National shall not have otherwise been credit enhanced with (A) the funding of the Cash Collateral Account A with cash in the amount of the A Letter of Credit Amount, (B) other cash collateral accounts, overcollateralization or subordinated securities or (C) with the consent of the Majority Banks, a surety bond or other similar arrangements; provided, however, that (x) any such successor institution or other form of substitute credit enhancement referred to in the foregoing clauses (1) and (2) shall be approved by the Rating Agencies and (y) any such successor institution or other form of substitute credit enhancement referred to in the foregoing CLAUSES (1) OR (2)(B) shall, if the ratings with respect to such substitute credit enhancement, if applicable, are less than A-1 or the equivalent from S&P and P-1 or the equivalent from Moody's, be approved by the Majority Banks; then the Agent has the right to make an A Termination Demand under the A Letter of Credit, one Business Day prior to such Scheduled A Letter of Credit Expiration Date in an amount equal to the A Letter of Credit Amount. Upon receipt by the Agent of written notice from a National Agent or NFC Agent on or prior to 11:30 a.m. (New York City time) to make an A Termination Demand -29- 32 under the A Letter of Credit, the Agent shall (or, if the Agent shall independently determine the existence of the relevant facts that would have given rise to the right to making an A Termination Demand, the Agent may, but shall not be required to), by 12:00 noon (New York City time) on the date of such notice (or, in the case of any notice given to the Agent after 11:30 a.m. (New York City time), by 12:00 noon (New York City time) on the next following Business Day), draw on the A Letter of Credit by presenting a draft accompanied by an A Certificate of Termination Demand in the form of Annex C to the A Letter of Credit and shall deposit the proceeds of the A LOC Termination Disbursement resulting therefrom in a demand deposit account established and maintained by the Agent with a U.S. branch or agency of Credit Suisse (the "Cash Collateral Account A"); provided, however, if at any time the short-term credit rating of the Agent from S&P and Moody's shall be reduced below A-1 or P-1, respectively, the Agent shall, within 30 days of such reduction, convert the Cash Collateral Account A to a segregated trust account. The Agent shall promptly notify each Rating Agency in writing of the occurrence of any such draw on the A Letter of Credit. (b) Upon receipt by the Agent of written notice from a National Agent or NFC Agent on or prior to 11:30 a.m. (New York City time) pursuant to Section 2.1(e) or 2.1(f) of the B Letter of Credit Reimbursement Agreement directing the Agent to make a draw under the B Letter of Credit, the Agent shall (or, if the Agent shall independently determine the existence of the relevant facts that would have given rise to the right to make such B Termination Demand, the Agent may, but shall not be required to), by 12:00 noon (New York City time) on the date of such notice (or, in the case of any notice given to the Agent after 11:30 a.m. (New York City time), by 12:00 noon (New York City time) on the next following Business Day), draw on the B Letter of Credit by presenting a draft accompanied by a B Certificate of Termination Demand in the form of Annex C to the B Letter of Credit and shall deposit the proceeds of the B LOC Termination Disbursement resulting therefrom (i) into a demand deposit account established and maintained by the Agent with a U.S. branch or agency of Credit Suisse (the "Cash Collateral Account B") to the extent that such B LOC Termination Disbursement of the B Credit Enhancer is reimbursable by draws under the B Support Letters of Credit and (ii) into a demand deposit account established and maintained by the Agent with a U.S. branch or agency of Credit Suisse (the "Cash Collateral Account C; together with the Cash Collateral Account A and the Cash Collateral Account B, the "Cash Collateral Accounts") to the extent that such B LOC Termination Disbursement of the B Credit Enhancer is reimbursable by withdrawals from the Cash Reserve Account; provided, however, if at any time the short-term credit rating of the Agent from S&P and Moody's shall be reduced below -30- 33 A-1 or P-1, respectively, the Agent shall, within 30 days of such reduction, convert the Cash Collateral Account B and the Cash Collateral Account C to segregated trust accounts. The Agent shall promptly notify each Rating Agency in writing of the occurrence of any such draw on the B Letter of Credit. (c) Upon the payment in full of all obligations under or in respect of the Commercial Paper Notes and the Liquidity Agreement (in respect of interest, principal and commitment fees), all Deposited Funds on deposit in the Cash Collateral Account A shall be paid to the A Support Credit Enhancer or National (as the A Support Credit Enhancer may direct), in accordance with Section 2.3(g) of the A Support Reimbursement Agreement. (d) Upon the payment in full of all obligations under or in respect of the Commercial Paper Notes and the Liquidity Agreement (in respect of interest, principal and commitment fees), all Deposited Funds on deposit in the Cash Collateral Account B shall be paid to B Support Credit Enhancers or National (as the B Support Credit Enhancers may direct), in accordance with Section 2.3 of the B Support Letter of Credit Reimbursement Agreement. (e) Upon the payment in full of all obligations under or in respect of the Commercial Paper Notes and the Liquidity Agreement (in respect of interest, principal and commitment fees), all Deposited Funds on deposit in the Cash Collateral Account C shall be paid to National. SECTION 5.08. Conversion. If on any Business Day there exists a Credit Payment Deficit, including after any LOC Termination Disbursement has been made as provided in Section 5.07(a) or (b) above, and if on such day (i) the amount of such Credit Payment Deficit exceeds the A Letter of Credit Amount on such day, and (ii) A Support Liquidity Disbursements are Outstanding, then, such amount of A Support Liquidity Disbursements shall be reduced, and the amount of A Support Credit Disbursements Outstanding shall be increased in an aggregate amount equal to the lesser of (a) the amount by which the Credit Payment Deficit exceeds the A Letter of Credit Amount (which A Letter of Credit Amount shall, in any event, be drawn, in accordance with the second and third paragraphs of Section 5.05, as an A Credit Demand) and (b) the aggregate amount of A Support Liquidity Disbursements, (such reductions and increases shall be referred to as an "A Conversion"). To the extent that (i) any Credit Payment Deficit remains after the A Conversion and (ii) such remaining Credit Payment Deficit exceeds the remaining amounts on deposit in the Cash Reserve Account; and (iii) Cash Reserve Support Liquidity Disbursements are Outstanding, then the Cash Reserve Support Liquidity Disbursements shall be reduced by the amount by which the remaining Credit Payment Deficit exceeds the amount on deposit in the Cash Reserve Account and the amount -31- 34 of Cash Reserve Support Credit Disbursements shall be increased by such amount (such reductions and increases shall be referred to as a "Cash Reserve Conversion"). To the extent that (i) any Credit Payment Deficit remains after the Cash Reserve Conversion and (ii) such remaining Credit Payment Deficit exceeds the B Letter of Credit Amount and (iii) B Support LOC Liquidity Disbursements are Outstanding, then the B Support LOC Liquidity Disbursements shall be reduced by the amount by which the remaining Credit Payment Deficit exceeds the B Letter of Credit Amount and the amount of B Support LOC Credit Disbursements shall be increased by such amount (such reductions and increases shall be referred to as a "B Conversion", and together with an A Conversion and a Cash Reserve Conversion, a "Conversion"). On the Business Day any such Conversion is required, the Agent (as soon as it becomes aware of the same) shall provide the B Letter of Credit Enhancer with a Notice of Conversion in the form of Exhibit C to the A Letter of Credit Reimbursement Agreement, the A Support Credit Enhancer with a Notice of Conversion in the form of Exhibit A to the A Support Reimbursement Agreement and the B Support Credit Enhancers with a Notice of Conversion in the form of Exhibit B to the Support Letter of Credit Reimbursement Agreement, as applicable, in each case, by 1:00 p.m. (New York City time) on such Business Day; Provided, however, that the failure to furnish such Notice shall not prevent such Conversion from being affected in accordance with the preceding sentence. SECTION 5.09. The Cash Collateral Accounts. (a) When established, the Cash Collateral Accounts are intended to function in all respects as replacements in whole or in part for, and the equivalent of all or a portion of, the Fronting Letters of Credit. Accordingly, following their creation, each herein to "LOC Liquidity Disbursements", "LOC Credit Disbursements", "Conversion" and similar terms shall mean and be a reference to actions taken with respect to the Cash Collateral Accounts that correspond to actions that otherwise would have been taken with respect to the Fronting Letters of Credit. Without limiting the generality of the foregoing, upon funding of the Cash Collateral Accounts, the Agent shall, (i) at all times after the funding of any portion of the Cash Collateral Account A when otherwise required to make a draw under the A Letter of Credit pursuant to the second paragraph of Section 5.05 or 5.06(b), first, make a draw from the Cash Collateral Account A in the amount and at such time as a draw would be made under the A Letter of Credit pursuant to the second paragraph of Section 5.05 or 5.06(b), as applicable, and second, make a draw under the A Letter of Credit and (ii) at all times after the funding of any portion of the Cash Collateral Account 13 or Cash Collateral Account C when otherwise required to make a draw under the B Letter of Credit pursuant to the third paragraph of Section 5.05 or 5.06(c), make a draw, first, from the Cash Collateral Account C, until such Account is exhausted, second, from the Cash -32- 35 Collateral Account B, in each case in the amount and at such time as a draw would be made under the B Letter of Credit pursuant to the third paragraph of Section 5.05 or 5.06(c), as applicable and third, make a draw under the Letter of Credit. In addition, when a Conversion is required to occur pursuant to Section 5.06, a Conversion shall occur in respect of drawings made on the Cash Collateral Accounts pursuant to Section 5.06(b) or (c). The Agent shall provide written notice to National, each Rating Agency and the Support Credit Enhancers of any draw from the Cash Collateral Accounts pursuant to Section 5.05. The Cash Collateral Account A shall be reimbursed in the amount that would have been paid to the A Support Credit Enhancer in respect of A Support Liquidity Disbursements under Section 2.01 and 5.02(b). The Cash Collateral Account B shall be reimbursed in the amount that would have been paid to the B Support Credit Enhancers in respect of B Support LOC Liquidity Disbursements under Section 2.01 and 5.02(b). The Cash Collateral Account C shall be reimbursed in the amount that would have been paid to the Cash Reserve Account in respect of Cash Reserve Support Liquidity Disbursements under Section 2.01 and 5.02 (b). The Cash Collateral Accounts shall be reimbursed for any withdrawals made pursuant to Section 5.05 in the following order of priority: first, the Cash Collateral Account B shall be reimbursed, second, the Cash Collateral Account C shall be reimbursed, and third, the Cash Collateral Account A shall be reimbursed. If, following the occurrence of an Event of Bankruptcy with respect to National, NFC or any of the Fronting Credit Enhancers, remittance of any amount under clause Fifth of Section 2.01 or under clause (iv) of Section 5.02(b) in respect of any Support Liquidity Disbursement (whether such Support Liquidity Disbursement shall have arisen due to a draw under either of the Fronting Letters of Credit or from the Cash Collateral Accounts) would not, following application thereof, immediately reinstate the Fronting Letters of Credit or the Cash Collateral Accounts to the full extent of the portion of such payment that is in respect of principal, no remittance shall be made in respect of the principal amount of such Support Liquidity Disbursement and funds otherwise available for such purpose shall be remitted, to the extent permitted by law, to the Liquidity Lenders for ratable application against the principal amount of Liquidity Advances then outstanding. Any notice required to have been given to the Support Credit Enhancers shall continue to be given until such time as the Support Credit Enhancers are reimbursed in full. (b) Amounts on deposit from time to time in the Cash Collateral Accounts shall be invested upon written direction in overnight Eligible Investments (or, Eligible Investments having longer maturities if (i) the A Support Credit Enhancer has consented thereto in the case of the Cash Collateral Account A (or National has consented, if the A Support Credit Enhancer has been fully reimbursed), (ii) the B Support Credit Enhancers have -33- 36 consented thereto in the case of the Cash Collateral Account B (or National has consented, if the B Support Credit Enhancers have been fully reimbursed), (iii) National has consented thereto in the case of the Cash Collateral Account C and (iv) the Agent shall have received written confirmation of the Rating Agencies that Eligible Investments having such longer maturities will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies) in accordance with Section 5.04 hereof, as directed by the A Support Credit Enhancer with respect to the Cash Collateral Account A (or National, to the extent of any funds on deposit therein not attributable to an unreimbursed A Support Termination Disbursement or an unreimbursed A Support Event of Default Disbursement, the B Support Credit Enhancers with respect to the Cash Collateral Account B (or National, to the extent of funds on deposit therein not attributable to an unreimbursed B Support Termination Disbursement) or National with respect to the Cash Collateral Account C, and the earnings on such Eligible Investments and interest paid on withdrawals shall be paid to the A Support Credit Enhancer with respect to the Cash Collateral Account A, the B Support Credit Enhancers with respect to the Cash Collateral Account B or National with respect to the Cash Collateral Account C or, if the applicable Support Credit Enhancer has been reimbursed in full of all obligations owing to it by NFC and National in respect of the applicable Cash Collateral Account, to National or NFC (as directed by the applicable Support Credit Enhancer), in accordance with Section 2.3 of the A Support Reimbursement Agreement or the B Support Letter of Credit Reimbursement Agreement, as applicable. Such interest and earnings are not Deposited Funds and shall not be considered on deposit in the Cash Collateral Accounts. To the extent the amount on deposit in the Cash Collateral Accounts (other than such interest and earnings) is in excess of the Required Enhancement Amount (as such Required Enhancement Amount is notified to the Agent by the Liquidity Agent from time to time), such excess shall be released in the following order of priority: first, to the Support Credit Enhancers to be applied in accordance with Section 2.3(e) of the B Support Letter of Credit Reimbursement Agreement; second, to National to reimburse National for the amount withdrawn for the Cash Reserve Account as a Cash Reserve Support Termination Disbursement; third, to the A Support Credit Enhancer to be applied in accordance with Section 2.3(e) of the A Support Reimbursement Agreement; and fourth, to National. -34- 37 ARTICLE VI. DEFAULT SECTION 6.01. Rights of the Agent upon Amortization Event, Loan Event of Default and Event of Default. (a) (i) Only if and whenever an Amortization Event or Loan Event of Default shall have occurred and be continuing, the Agent, at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter) specifying the action to be taken) of the Required Liquidity Providers shall, from time to time, withdraw amounts in the Accounts or the Cash Collateral Accounts for application as provided in Section 5.02(f) and (ii) only if and whenever an Amortization Event (other than a Scheduled Amortization Event) or Loan Event of Default shall have occurred and be continuing, the Agent, at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter) specifying the action to be taken) of the Required Liquidity Providers may also exercise from time to time any rights and remedies available to it under applicable law or any Related Document. NFC agrees to enforce any rights it may have under the Related Documents at the direction of the Agent. Any amounts obtained by the Agent on account of or as a result of the exercise by the Agent of any right with respect to any funds at any time and from time to time on deposit in, or otherwise to the credit of, any of the Accounts, shall be held by the Agent as additional collateral for the repayment of the NFC Obligations and shall be applied as provided in Section 2.01 hereof. The Agent agrees to undertake the actions set forth with respect to the Agent in Section 9.2 of the Liquidity Agreement. (b) If a Liquidation Event of Default shall have occurred and be continuing, the Agent, at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter) specifying the actions to be taken) of the Majority Banks and the B Support Credit Enhancers, and upon receipt of indemnity from the Liquidity Lenders and the B Support Credit Enhancers reasonably satisfactory to it, shall direct NFC and the Master Collateral Agent to exercise all rights, remedies, powers, privileges and claims of NFC and (with respect to the Master Collateral for which the Agent is designated as a Beneficiary) the Master Collateral Agent against National under or in connection with the Loan Agreement and the Master Collateral Agency Agreement and any party to any of the Related Documents, including the right or power to take any action to compel performance or observance by National or any such party of its obligations to NFC and the Master Collateral Agent, the right to take possession of any of the Vehicles, and to give any consent, request, notice, direction, approval, extension or waiver in respect of the Loan Agreement, and any right of NFC to take such action shall be suspended. If NFC shall have failed, -35- 38 within 15 Business Days of receiving the directions of the Agent, to accomplish such directed actions, the Agent may but shall not be obligated to take such previously directed actions (and any related action, as it would be permitted to direct NFC to take pursuant to the previous sentence, thereafter determined by the Agent to be appropriate without the need under this provision or any other provision hereunder to direct NFC to take such action) on behalf of NFC and the Secured Parties. (c) If a Liquidation Event of Default shall have occurred and be continuing, the Agent may and, at the direction (which direction shall be in writing or by telephone (confirmed in writing promptly thereafter) specifying the action to be taken) of the Majority Banks and the B Support Credit Enhancers, and upon receipt of indemnity satisfactory to it, shall direct NFC and the Master Collateral Agent to exercise all rights, remedies, powers, privileges and claims of National, the Master Collateral Agent and NFC against the Manufacturers under or in connection with the Repurchase Programs. Upon the occurrence of a Liquidation Event of Default, the Majority Banks and the B Support Credit Enhancers may direct the Agent to instruct the Master Collateral Agent to return, or cause National to return, the Vehicles to the related Manufacturers and then, to the extent any Manufacturer fails to accept any such Vehicles under the terms of the applicable Repurchase Program, to cause the Master Collateral Agent to liquidate the Vehicles in accordance with the rights of NFC and the Secured Parties under the Loan Agreement and the Master Collateral Agency Agreement. In the event of a Liquidation Event of Default, the Agent, NFC, the Master Collateral Agent and National shall be deemed to have been directed to return each Vehicle to the related Manufacturer under the related Repurchase Program at the end of the minimum holding period (if any) for such Vehicle under the related Repurchase Program, unless the Majority Banks and the B Support Credit Enhancers specifically waive such direction in writing. SECTION 6.02. Special Provisions Concerning Remedies and Sale If Manufacturer Default or Inability to Turn Back under Repurchase Program. (a) Upon the occurrence of a Liquidation Event of Default in conjunction with a Manufacturer Ineligibility Event or the termination of a Repurchase Program, the Agent shall have the right to direct the Master Collateral Agent to sell any or all of the Vehicles covered by the related Repurchase Program of such Manufacturer consistent with the provisions of Section 4.03(b) hereof. In connection therewith the Agent shall have the right to substitute itself or any nominee or agent in lieu of NFC as party to any of the NFC Agreements. The Agent may direct the Master Collateral Agent to take legal proceedings for the appointment of a receiver or receivers (to which the Agent shall be entitled as a matter of right) to take possession of the Vehicles pending the sale thereof pursuant either to the powers -36- 39 of sale granted by the Master Collateral Agency Agreement or this Collateral Agreement or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of the Master Collateral Agency Agreement or this Collateral Agreement. After termination of this Collateral Agreement and the payment in full of the NFC Obligations, any proceeds of all the Assigned Collateral received or held by the Agent shall be turned over to NFC and the Assigned Collateral shall be reassigned to NFC by the Agent without recourse to the Agent and without any representations, warranties or agreements of any kind. The Agent shall execute such documents and instruments as NFC may reasonably request in connection with such reassignment. (b) Upon any sale of any of the Assigned Collateral directly by the Agent or the Master Collateral Agent, whether made under the power of sale given under Section 4.03(b) or 6.02(a) hereof, under the Master Collateral Agency Agreement, or under judgment, order or decree in any judicial proceeding for the foreclosure or involving the enforcement of this Collateral Agreement or the Master Collateral Agency Agreement: (i) the Agent, any Liquidity Lender and/or any of the Support Credit Enhancers may bid for and purchase the property being sold, and upon compliance with the terms of sale may hold, retain and possess and dispose of such property in its own absolute right without further accountability; (ii) the Agent or the Master Collateral Agent pursuant to the Master Collateral Agency Agreement may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold; (iii) the Agent is hereby irrevocably appointed the true and lawful attorney-in-fact of NFC in its name and stead, to make all necessary deeds, bills of sale, releases and instruments of assignment and transfer of the property thus sold and for such other purposes as are necessary or desirable to effectuate the provisions (including, without limitation, this Section 6.02) of this Collateral Agreement, and for that purpose it may execute and deliver all necessary deeds, bills of sale, releases and instruments of assignment and transfer, and may substitute one or more Persons with like power (including the Master Collateral Agent), NFC hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof; but if so requested by the Agent or by any purchaser, NFC shall ratify and confirm any such sale or transfer by executing and delivering to the Agent or to such purchaser all property, deeds, bills of sale, instruments of assignment and transfer and releases as may be designated in any such request; (iv) all right, title, interest, claim and demand whatsoever, either at law or in equity or otherwise, of NFC in and to the property so sold shall be divested; and such sale shall be a perpetual bar both at law and in equity against NFC, its successors and -37- 40 assigns, and against any and all Persons claiming or who may claim the property sold or any part thereof from, through or under NFC, its successors or assigns; (v) the receipt of the Agent or of the officer thereof making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchase money, and such purchaser or purchasers, and his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Agent or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misapplication or non-application thereof; and (vi) to the extent that it may lawfully do so, NFC agrees that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension or redemption laws, or any law permitting it to direct the order in which the Vehicles shall be sold, now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance or enforcement of this Collateral Agreement. (c) In addition to any rights and remedies now or hereafter granted hereunder or under applicable law with respect to the Assigned Collateral, the Agent shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any applicable jurisdiction. ARTICLE VII. THE AGENT, THE LIQUIDITY LENDERS, THE SUPPORT CREDIT ENHANCERS AND THE HOLDERS OF COMMERCIAL PAPER NOTES SECTION 7.01. Appointment and Powers of Agent. The Secured Parties hereby appoint the Agent their agent hereunder, and hereby authorize the Agent to take such action on their behalf and to exercise such rights, remedies, powers and privileges hereunder as are specifically authorized to be exercised by the Agent by the terms hereof, together with such rights, remedies, powers and privileges as are reasonably incidental thereto. NFC has appointed the Agent its "Beneficiary" under and for the purposes of the Master Collateral Agency Agreement. The parties hereto agree that the Agent shall not be required to exercise any discretion or take any action or refrain from taking any action in its capacity as Beneficiary for the Secured Parties and NFC, but shall only be required to act or refrain from acting in such capacity (and shall be fully protected in so acting or refraining from acting) upon the instruction of the Required Liquidity Providers or NFC, as the case may be, as provided herein. The Agent may execute any of its duties as agent hereunder by or through agents or employees and shall be entitled to retain -38- 41 experts and to act in reliance upon the advice of such experts concerning all matters pertaining to the agencies hereby created and its duties hereunder, and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such experts selected by it. The relationship between the Agent, and each of the Secured Parties is that of agent and principal only, and nothing herein shall be deemed to constitute the Agent a trustee for any of the Secured Parties or impose on the Agent any obligations other than those for which express provision is made herein. If the Agent receives unclear or conflicting instructions, it shall be entitled to refrain from taking action until clear or non-conflicting instructions are received, but shall inform the instructing party or parties promptly of its decision to refrain from taking such action. Except as required by the specific terms of this Collateral Agreement, the Agent shall have no duty to exercise any rights, power, remedy or privilege granted to it hereby, or to take any affirmative action hereunder or thereunder, unless directed to do so by the Required Liquidity Providers (and shall be fully protected in acting or refraining from acting pursuant to such directions which shall be binding on the Secured Parties), and shall not, without the prior approval of the Required Liquidity Providers, waive any default on the part of NFC, National or the Manufacturers with respect to the Assigned Collateral or amend, modify, supplement or terminate, or agree to any surrender of, this Collateral Agreement or the Assigned Collateral. Notwithstanding anything herein to the contrary, the Agent shall not be required to take any action which the Agent has reasonably determined that a reasonable likelihood exists that such action will expose the Agent to personal or financial liability, unless indemnified to its satisfaction, or which is contrary to this Collateral Agreement, or any other agreement or instrument relating to the Assigned Collateral or applicable law. None of the Secured Parties nor any of its or their respective directors, officers, employees or agents, shall be liable to any Secured Party or any other Person for any action taken or omitted to be taken by it or them hereunder, or in connection herewith, except for its or their own gross negligence or willful misconduct; nor (except for its own due execution and delivery thereof) shall the Agent be responsible to any Secured Party for the validity, effectiveness, value, sufficiency or enforceability against National or NFC of this Collateral Agreement or any other document furnished pursuant hereto or in connection herewith (including the Master Collateral Agency Agreement), or of the Assigned Collateral (or any part thereof), the Eligible Investments (or any part thereof) or the Deposited Funds (or any part thereof). Without limiting the generality of the foregoing, the Agent: (i) makes no warranty or -39- 42 representation to any Secured Party and shall not be responsible to any Secured Party for any statements, warranties or representations made by any other Person in or in connection with this Collateral Agreement, the Loan Agreement, the Repurchase Programs, the Liquidity Agreement, the Master Collateral Agency Agreement, the A Support Reimbursement Agreement, the B Support Letter of Credit Reimbursement Agreement or any other document relating to the Assigned Collateral; and (ii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Collateral Agreement, the A Support Reimbursement Agreement, the B Support Letter of Credit Reimbursement Agreement, the Loan Agreement, the Repurchase Programs, the Liquidity Agreement, the Master Collateral Agency Agreement or any other agreements or instruments relating to the Assigned Collateral on the part of any party hereto or thereto or to inspect any books and records relating to the Assigned Collateral other than as it determines necessary in the fulfillment of its own obligations hereunder. The Agent shall be entitled to rely on any communication, instrument, paper or other document reasonably believed by it to be genuine and correct and to have been given, signed or sent by the proper Person or Persons. The Agent shall be entitled to assume that no Amortization Event or Loan Event of Default shall have occurred and be continuing and that the Accounts, and any funds on deposit in or to the credit of such Accounts, are not subject to any writ, order, judgment, warrant of attachment, execution or similar process (collectively a "writ"), unless (i) in the case of any writ, an officer in the asset finance department of the Agent has actual knowledge thereof or (ii) the Agent has received written notice from the Liquidity Agent or National under the Loan Agreement or any of the B Support Credit Enhancers that the Majority Banks or the B Support Credit Enhancers, as the case may be, consider that such an Amortization Event or Loan Event of Default has occurred or such writ has been issued and continues to be in effect, which notice specifies the nature thereof. The Agent may accept deposits from, lend money to and generally engage in any kind of business with NFC, any Manufacturer, National and their respective affiliates as if it were not the agent of the Liquidity Lenders, the Support Credit Enhancers and the Holders of Commercial Paper Notes. The Agent shall have the right to refrain from taking any action under Article VI hereof unless it has received written directions from the appropriate parties to take such action. SECTION 7.02. Agents and Employees of the Agent. (a) Each Liquidity Lender hereby agrees, in accordance with its pro rata percentage of the sum of the Aggregate Liquidity Commitment under the Liquidity Agreement, and each of the Support Credit Enhancers agrees, subject to the limitations set forth in this clause (a), to indemnify and hold harmless the Agent (to the extent not -40- 43 reimbursed by NFC), from and against any and all losses (other than the Agent's loss of profit), liabilities (including, liabilities for penalties), actions, suits, judgments, demands, damages, out-of-pocket costs and expenses of any kind whatsoever (including, without limitation, reasonable fees and expenses of counsel and other experts) incurred or suffered by the Agent in its capacity as agent hereunder (including as Beneficiary under the Master Collateral Agency Agreement) as a result of any action taken or omitted to be taken by the Agent in such capacity or otherwise incurred or suffered by, made upon, or assessed against the Agent in such capacity to the extent not reimbursed by NFC or by application of the Assigned Collateral; provided that neither the Support Credit Enhancers nor any Liquidity Lender shall be liable for any portion of any such losses, liabilities, actions, suits, judgments, demands, costs or expenses resulting from or attributable to gross negligence or willful misconduct on the part of the Agent or its agents or employees. Without limiting the generality of the foregoing, each Liquidity Lender hereby agrees, in the ratio aforesaid, and each of the Support Credit Enhancers agrees to reimburse the Agent promptly following its demand for any out-of-pocket expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Agent hereunder and not promptly reimbursed to the Agent by NFC or by application of the Assigned Collateral. The obligations of each Liquidity Lender and the Support Credit Enhancers under this paragraph shall survive the termination of this Collateral Agreement, the Liquidity Agreement, the A Support Reimbursement Agreement and the B Support Letter of Credit Reimbursement Agreement, respectively, and the discharge of NFC's obligations thereunder. The aggregate liability of the Liquidity Lenders hereunder for any claim shall be limited to a percentage of the indemnity owing equal to the percentage that the Aggregate Liquidity Commitment are of the Program Size minus the initial amount on deposit in the Cash Reserve Account and the liability of each Support Credit Enhancer shall be limited to a percentage of the indemnity owing equal to the percentage that its Letter of Credit Enhancer Commitment is of the Program Size minus the initial amount on deposit in the Cash Reserve Account. If at any time, following its demand therefor, the Agent shall not be reimbursed by NFC or by the Liquidity Lenders and the Support Credit Enhancers, the Agent is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all amounts at any time held by the Agent for the benefit of the Liquidity Lenders or the Support Credit Enhancers, including without limitation any such amounts designated for disbursement to the Liquidity Lenders and/or the Support Credit Enhancers in accordance with Section 2.01 or Section 5.02(b), against any and all of the obligations of the Liquidity Lenders and the Support Credit Enhancers to the Agent now or hereafter existing under this Collateral Agreement. The Agent agrees promptly to notify each Liquidity Lender and the -41- 44 Support Credit Enhancers after any such set-off and application made by the Agent, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Agent under this Section are in addition to other rights and remedies which the Agent may have. Any such set-off against amounts owed to Liquidity Lenders by the Agent shall not cause a payment default of NFC on amounts due to such Liquidity Lenders to the extent funds are available in the Accounts to be allocated to the payment of all amounts due to the Liquidity Lenders in accordance with Section 2.01 or 5.02 (b), as applicable. (b) No provision of this Collateral Agreement shall require the Agent to expend or risk its own funds or otherwise incur any financial or other liability in the performance of any duties hereunder or in the exercise of any rights and powers hereunder. (c) Any action or proceeding alleging any breach by the Agent of duties under this Collateral Agreement shall be prosecuted only in the courts of the State of New York or in the United States District Court for the Southern District of New York. The Agent shall have the right at any time to seek instructions from any court of competent jurisdiction. The Agent may rely on the advice of counsel and shall be held harmless for actions taken in reliance thereon. (d) The Agent makes no representation as to, and shall have no responsibility for, the correctness of any statement contained in, or the validity or sufficiency of, this Collateral Agreement or any documents or instruments referred to in this Collateral Agreement or the sufficiency or effectiveness of any collateral assigned by this Collateral Agreement or as to or for the validity or collectibility of any obligation contemplated by this Collateral Agreement. The Agent shall not be accountable for the use or application by any person of disbursements properly made by the Agent in conformity with the provisions of this Collateral Agreement. (e) The Agent may exercise any of its duties hereunder by or through agents or employees. The possession of the Assigned Collateral by such agents or employees shall be deemed to be the possession of the Agent. (f) The provisions of this Section 7.02 shall survive the termination of this Collateral Agreement or the resignation of the Agent hereunder. SECTION 7.03. Waiver of Jury Trial. EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, -42- 45 THIS COLLATERAL AGREEMENT OR ANY OTHER RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO IN CONNECTION HEREWITH OR THEREWITH. EACH OF THE PARTIES HERETO ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO ENTERING INTO THIS COLLATERAL AGREEMENT AND EACH OTHER RELATED DOCUMENT. SECTION 7.04. Successor Agent. The Agent acting hereunder at any time may resign by an instrument in writing addressed and delivered, 60 days prior to the effectiveness of such resignation, to each Liquidity Lender, the Liquidity Agent, the Support Credit Enhancers, the Placement Agents, the Dealers, NFC, each Rating Agency and the Depositary, and may be removed at any time with or without cause by an instrument in writing duly executed by or on behalf of the Required Liquidity Providers with written notice to each of the Rating Agencies. Subject to the provisions hereof, the Required Liquidity Providers shall appoint, subject to the written consent of NFC (which consent shall not be unreasonably withheld), a successor to the Agent upon any such resignation or removal, by an instrument of substitution complying with the requirements of applicable law, or, in the absence of any such requirements, without any formality other than appointment and designation in writing. Upon the making and acceptance of such appointment, the execution and delivery by such successor Agent of a ratifying instrument pursuant to which such successor Agent agrees to assume the duties and obligations imposed on the Agent by the terms of this Collateral Agreement, and the delivery to such successor Agent of the Assigned Collateral, the Deposited Funds and documents and instruments then held by the retiring Agent, such successor Agent shall thereupon succeed to and become vested with all the estate, rights, powers, remedies, privileges, immunities, indemnities, duties and obligations hereby granted to or conferred or imposed upon the retiring Agent named herein, and one such appointment and designation shall not exhaust the right to appoint and designate further successor Agents hereunder. No removal or resignation of the Agent shall be effective unless and until a successor Agent has been duly appointed, and the appointment of such successor Agent has been accepted by such successor Agent. No Agent shall be discharged from its duties or obligations hereunder until the Assigned Collateral, the Deposited Funds and documents and instruments then held by such retiring Agent shall have been transferred or delivered to the successor Agent in its capacity as bank or trust company, until all Deposited Funds held in the Accounts and the Cash Collateral Accounts maintained with or in the name of the retiring Agent shall have been transferred to the new Collateral Account and until such retiring Agent shall have executed and delivered to the successor Agent appropriate -43- 46 instruments substituting such successor Agent as Beneficiary of NFC for purposes of the Master Collateral Agency Agreement and assigning the retiring Agent's interest in the Assigned Collateral, the Accounts, the Cash Collateral Accounts, the Deposited Funds and Eligible Investments to the successor Agent. If no successor Agent shall be appointed, as aforesaid, or, if appointed, shall not have accepted its appointment, within 30 days after notice of resignation or removal of the retiring Agent, then, subject to the provisions hereof, the retiring Agent may appoint a successor Agent with the written consent of the Liquidity Agent, the Support Credit Enhancers and (so long as no Amortization Event (other than a Scheduled Amortization Event) or Loan Event of Default then exists) NFC, which consent shall not be unreasonably withheld. Each such successor Agent shall provide NFC, each Liquidity Lender, the Liquidity Agent, the Depositary and the Support Credit Enhancers with its address, and telephone, telecopy, telex, E-Mail (if applicable) and two numbers, to be used for purposes of Section 9.04 hereof, in a notice complying with the terms of said Section. Notwithstanding the resignation or removal of any Agent hereunder, the provisions of this Article VII shall continue to inure to the benefit of such retiring Agent in respect of any action taken or omitted to be taken by such retiring Agent in its capacity as such while it was Agent under this Collateral Agreement. NFC shall provide prompt notice to each Rating Agency of the appointment of a successor Agent. SECTION 7.05. Qualifications of Agent. Any Agent at any time acting hereunder must at all times be (i) the corporate trust department of a bank or trust company having its principal office in the District of Columbia or one of the states located in the United States, or (ii) a bank or trust company having its principal office in the District of Columbia or one of the states located in the United States, authorized to accept deposits, or a branch office or agency of a foreign bank located in the District of Columbia or one of the states of the United States, in each case having short-term ratings from Moody's and S&P at least equal to the rating such Rating Agency then assigns to the Commercial Paper Notes. SECTION 7.06. Instructions of the Required Liquidity Providers and Other Parties. In any instance in which the Agent is permitted to take action hereunder, the Agent shall, except as expressly provided herein or in the Liquidity Agreement, act in accordance with the written instructions received, if any, from the Required Liquidity Providers. Without limitation of the foregoing, the Agent is authorized to give instructions to the Master Collateral Agent under the Master Collateral Agency Agreement with respect to release of any funds (for which the Agent is a Beneficiary) upon the direction of the Required Liquidity Providers. All instructions and notices from the -44- 47 Required Liquidity Providers shall be submitted to the Agent through the Liquidity Agent and the Support Credit Enhancer Agents. All instructions hereunder required to be given by the Majority Banks and the B Support Credit Enhancers shall be submitted to the Agent through the Liquidity Agent and the B Support Credit Enhancer Agents. ARTICLE VIII. AMENDMENTS, MODIFICATIONS, WAIVERS AND CONSENTS SECTION 8.01. Execution of Amendments, etc. No amendment, modification, supplement, termination or waiver of or to any provision of this Collateral Agreement or the defined terms used herein and set forth in the Definitions List, nor any consent to any departure by NFC from any provision of this Collateral Agreement, shall be effective unless the same shall be in writing and signed on behalf of the Agent, the Liquidity Agent on behalf of the Majority Banks, the Depositary, the B Support Credit Enhancers, the A Support Credit Enhancer and NFC; provided, however, that (i) the written consent of all Liquidity Lenders and the Support Credit Enhancers shall be necessary to the extent that any such amendment, modification, supplement, termination, waiver or consent (a) releases the assignment given hereunder in respect of any of the Assigned Collateral or (b) affects this Section 8.01 or Section 2.01 or 5.02 and (ii) such amendment, modification, supplement, termination or waiver shall not result in the downgrading or the withdrawal of the then current ratings of the Commercial Paper Notes provided by the Rating Agencies as evidenced by written confirmation from the Rating Agencies. Any waiver of any provision of this Collateral Agreement, and any consent to any departure by NFC from the terms of any provision of this Collateral Agreement, shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand upon NFC in any instance hereunder shall entitle NFC to any other or further notice or demand in similar or other circumstances. Notwithstanding the foregoing provisions of this Section 8.01, NFC, the Liquidity Agent, the Agent and the Support Credit Enhancers may, at any time and from time to time, without the consent of the other Secured Parties, enter into any amendment, supplement or other modification to this Agreement to cure any apparent ambiguity or to correct or supplement any provision in this Agreement that may be inconsistent with any other provision herein; provided, however, that (i) any such action shall not have a materially adverse effect on the interests of the Liquidity Lenders and (ii) a copy of any such amendment, supplement or other modification is furnished the -45- 48 other Secured Parties, in accordance with the notice provisions hereof not later than ten days prior to the execution thereof. ARTICLE IX. MISCELLANEOUS SECTION 9.01. Further Assurances. NFC (i) from time to time, at its expense, will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, as reasonably requested by the Agent, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Assigned Collateral, including without limitation, the execution of financing or continuation statements, or amendments thereto and (ii) hereby authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Assigned Collateral without the signature of NFC, where permitted by law. A carbon photographic or other reproduction of this Assigned Collateral Agreement or any financing statement covering the Assigned Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 9.02. No Waiver; Cumulative Remedies. No failure on the part of the Agent to exercise, and no delay on the part of the Agent in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Agent preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies that may be available to the Agent, whether at law, in equity or otherwise. SECTION 9.03. Notice of Amendments; Waivers; Notice of LIBOR. Notice of any amendment, waiver or other change of the terms of the Assigned Collateral (including, without limitation any model year changes in any Repurchase Program) shall be sent by NFC, promptly upon becoming aware thereof, to each Rating Agency which shall be required to confirm their ratings on the Commercial Paper Notes prior to the effectiveness thereof. SECTION 9.04. Notices, etc. Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, directions, instructions and other communications required or permitted to be given to any party hereto shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set -46- 49 forth below, or at any other address or facsimile number, as the case may be, as such party may notify to the other parties hereto in accordance with the provisions of this Section 9.04; provided, however, all monthly statements provided for in Section 5.02(c) hereof shall be sent by first class mail. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted upon receipt of electronic confirmation of transmission. If to NFC: National Fleet Funding Corporation 7700 France Avenue South Minneapolis, Minnesota 55435 Attention: Michael J. Becker Telephone No.: (612) 830-2102 Facsimile No.: (612) 893-6143 If to the Agent: Credit Suisse 12 East 49th Street New York, New York 10017 Attention: Asset Finance Tel. No.: (212) 238-5370 Telecopy No. (212) 238-5332 If to the A Support Credit Enhancer: General Motors Corporation 767 Fifth Avenue New York, New York 10153 Attention: Assistant Treasurer Tel. No.: (212) 418-3502 Telecopy No.: (212) 418-3695 with a copy to: Attn: Anne Larin 3031 West Grand Blvd. Detroit, Michigan 48202 Tel. No.: (313) 974-1969 Telecopy No.: (313) 974-0685 -47- 50 If to Citibank, N.A. as a B Support Credit Enhancer: Citibank, N.A. 399 Park Avenue New York, New York 10043 Attention: Autos Group, 8th Floor, Zone 12 Telephone No.: (212) 559-8852 Facsimile No.: (212) 826-2375 If to Credit Suisse, as a B Support Credit Enhancer: Credit Suisse 12 East 49th Street New York, New York 10017 Attention: Asset Finance Telephone: (212) 238-5370 Telecopier: (212) 238-5332 If to the Liquidity Agent: Citibank, N.A. 120 Wall Street, 13th Floor New York, New York 10043 Attention: Autos Group, 8th Floor, Zone 12 Tel. No.: (212) 559-8852 Telecopy No.: (212) 826-2375 If to the Depositary: CITIBANK, N.A. 120 Wall Street 13th Floor New York, New York 10043 Attention: Structured Finance Group Tel. No.: (212) 412-6230 Telecopy No.: (212) 480-1615 -48- 51 If to Moody's: Moody's Investors Service, Inc. 99 Church Street New York, New York 10007 Attention: ABS Monitoring Department Tel. No.: (212) 553-0300 Telecopy No.: (212) 553-4773 If to S&P: Standard & Poor's Ratings Group 25 Broadway New York, New York 10001 Attention: Asset-Backed Surveillance Group If to the other Liquidity Lenders, at the addresses set forth below their signatures on the signature pages of the Liquidity Agreement, as such addresses may be revised from time to time by written notice from such Liquidity Lenders. SECTION 9.05. Fee; Costs and Expenses, etc. NFC shall pay to the Agent as its fee for its services and the amounts set forth in the Fee Letter. NFC hereby agrees to reimburse the Agent for all reasonable out-of-pocket costs and expenses (including counsel fees and expenses, but excluding costs and expenses solely attributable to administrative overhead) incurred by the Agent in connection with the administration and enforcement of this Collateral Agreement and agrees to indemnify and hold harmless the Agent, the Support Credit Enhancers, the Depositary, the Liquidity Agent and the Liquidity Lenders from and against any and all losses (other than loss of profit), liabilities (including liabilities for penalties), actions, suits, judgments, demands, reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorney's fees and expenses but excluding costs and expenses attributable solely to administrative overhead) incurred by the Agent (in its capacity as Agent (including as Beneficiary under the Master Collateral Agency Agreement), the Depositary, the Liquidity Lenders, the Liquidity agent or the support Credit Enhancers in connection with the administration or enforcement of this Collateral Agreement or the Master Collateral Agency Agreement and also agrees to pay, indemnify, and to hold each Liquidity Lender, the Agent, the Liquidity Agent, the Depositary and the Support Credit Enhancers harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or -49- 52 modification of, or any waiver or consent under or in respect of, this Collateral Agreement or the Master Collateral Agency Agreement; provided, however, that NFC shall not be required to indemnify any Secured Party for any such loss, liability, action, suit, judgment, demand, cost or expense due to willful misconduct or gross negligence on the part of such Secured Party or its respective agents or employees. If NFC shall fail to do any act or thing which it has covenanted to do hereunder or any representation or warranty on the part of NFC contained herein or repeated and reaffirmed herein shall be breached, the Agent may, with the consent of the Required Liquidity Providers, but shall not be required, to, do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all amounts so expended by the Agent shall be repayable to it by NFC upon the Agent's demand therefor. The obligations of NFC under this Section 9.05 shall survive the termination of this Collateral Agreement and the discharge of the other obligations of NFC hereunder and shall also survive the termination of the Aggregate Liquidity Commitment of the Liquidity Lenders and the termination of the Fronting Letters of Credit in accordance with the provisions of the Liquidity Agreement and of the Fronting Letters of Credit, respectively. SECTION 9.06. Agent Appointed Attorney-in-Fact. NFC hereby appoints the Agent its attorney-in-fact, with full power of substitution, for the purpose of taking such action (including, without limitation any action pursuant to Section 4.03 hereof) and executing agreements, instruments and other documents, in the name of NFC, as the Agent or the Required Liquidity Providers may deem necessary or advisable to accomplish the purposes hereof, which appointment is coupled with an interest and is irrevocable. SECTION 9.07. Termination; Assigned Collateral. This Collateral Agreement, and any grants, pledges and assignments hereunder, shall terminate when (a) all NFC Obligations shall have been fully paid and satisfied, (b) the Aggregate Liquidity Commitment of the Liquidity Lenders under the Liquidity Agreement, the A Letter of Credit Commitment, the B Letter of Credit Commitment, the B Support Letter of Credit Commitments, the A Support Reimbursement Agreement and related documents have terminated, and (c) the Fronting Letters of Credit and the B Support Letters of Credit shall have terminated, at which time the Agent, at the request of NFC and upon receipt of a certificate from NFC to the effect that the conditions in clauses (a), (b) and (c) above have been complied with and upon receipt of a certificate from the Liquidity Agent, the Depositary and the Support Credit Enhancers, to the effect that the conditions in clauses (a), (b) and (c) relating to NFC Obligations to the Liquidity Lenders, the Holders of Commercial Paper Notes and the Support Credit Enhancers have been complied with, shall reassign (without recourse upon, or any warranty whatsoever by, the -50- 53 Agent), deliver at NFC's expense all Assigned Collateral and documents then in the custody or possession of the Agent promptly to NFC and execute such documents and instruments as NFC may reasonably request in connection with such reassignment. NFC and the Secured Parties hereby agree that, if any Deposited Funds remain on deposit in the Collateral Account after the termination of this Collateral Agreement, such amounts shall be released by the Agent and paid to NFC. SECTION 9.08. Governing Law: Binding Character: Assignment. THIS COLLATERAL AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAW. This Collateral Agreement shall be binding upon and shall inure to the benefit of NFC, the Liquidity Lenders, the Liquidity Agent, the Support Credit Enhancers, the Depositary, the Holders of Commercial Paper Notes and the Agent, and their respective successors and assigns; provided, however, that NFC may not assign any of its right hereunder or in connection herewith or any interest herein (voluntarily, by operation of law or otherwise) without the prior written consent of all of the Liquidity Lenders and the Support Credit Enhancers. This Collateral Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Collateral Agreement, the Liquidity Lenders and the Holders of the Commercial Paper Notes and each of their respective successors and assigns. SECTION 9.09. Severability of Provisions. Any provision of this Collateral Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.10. No Bankruptcy Petition Against NFC. Each of the Secured Parties hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of the latest maturing Commercial Paper Note, it will not institute against, or join with any other Person in instituting against, NFC, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any Federal or state bankruptcy or similar law; provided, however, that nothing in this Section 9.10 shall constitute a waiver of any right to indemnification, reimbursement or other payment from NFC pursuant to this Collateral Agreement. In the event that any such Secured Party takes action in violation of this Section 9.10, NFC agrees that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of -51- 54 such a petition by any such Secured Party against NFC or the commencement of such action and raise the defense that such Secured Party has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 9.10 shall survive the termination of this Collateral Agreement, and the resignation or removal of the Agent, the Liquidity Agent, the Depositary or the Support Credit Enhancers. Nothing contained herein shall preclude participation by any Secured Party in assertion or defense of its claims in any such proceeding involving NFC. SECTION 9.11. No Recourse. The obligations of NFC under this Collateral Agreement are solely the corporate obligations of NFC. No recourse shall be had for the payment of any amount owing in respect of Section 9.05 hereof or for the payment of any fee hereunder or any other obligation or claim arising out of or based upon this Collateral Agreement against any stockholder, employee, officer, director, affiliate or incorporator of NFC; provided, however, that nothing in this Section 9.11 shall relieve any of the foregoing Persons from any liability which such Person may otherwise have for its gross negligence or willful misconduct. The provisions of this Section 9.11 shall survive the termination of this Collateral Agreement. SECTION 9.12. Confidentiality. Each party hereto (other than NFC) agrees that it shall not disclose any Confidential Information to any Person without the prior written consent of National or NFC, other than (a) to any Secured Party, and then only on a confidential basis, (b) as required by any law, rule or regulation or any judicial process of which NFC or National, as the case may be, has knowledge; provided that any party hereto may disclose Confidential Information as required by law, rule or regulation or any judicial process of which NFC or National, as the case may be, does not have knowledge if such party is prohibited by law from disclosing such requirement to NFC or National, as the case may be, and (c) in the course of litigation with NFC or National, or any Secured Party. "Confidential Information" means information that National or NFC furnishes to a Secured Party on a confidential basis, but does not include any such information that is or becomes generally available to the public other than as a result of a disclosure by such Secured Party or other person to which Secured Party delivered such information or that is or becomes available to such Secured Party from a source other than National or NFC, provided that such source is not (1) known to such Secured Party to be bound by a confidentiality agreement with NFC or National, as the case may be, or (2) known to such Secured Party to be otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation. -52- 55 SECTION 9.13. Headings. Article and Section headings used in this Collateral Agreement are for convenience of reference only and shall not affect the construction of this Collateral Agreement. SECTION 9.14. Execution in Counterparts. This Collateral Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Collateral Agreement. SECTION 9.15. Limited Recourse to NFC. The Agent agrees that the obligations of NFC to the Agent hereunder shall be payable in the order and priority set forth in Section 2.01 and 5.02(b), as applicable, of this Collateral Agreement. Such obligations shall be due and payable only to the extent that NFC's assets and the Fronting Letters of Credit Amount are sufficient to pay such obligations. No claims of the Agent arising under or in connection with this Collateral Agreement are intended to be impaired or waived by this Section 9.15. SECTION 9.16. Waiver of Set-Off With Respect to NFC. Each of the Agent, the Depositary, the Liquidity Agent, and each of the Support Credit Enhancers hereby waives and relinquishes any right that it has or may have to set-off or to exercise any banker's lien or any right of attachment or garnishment with respect to any funds at any time and from time to time on deposit in or otherwise to the credit of, any account and any claims of NFC therein or with respect to any right to payment from NFC, it being understood, however, that nothing contained in this Section 9.16 shall, or is intended to, derogate from the assignment and security interest granted to the Agent or the Master Collateral Agent under this Collateral Agreement and the Master Collateral Agency Agreement or impair any rights of the Secured Parties, the Agent or the Master Collateral Agent hereunder or thereunder. -53- 56 IN WITNESS WHEREOF, NFC, the Support Credit Enhancers, the Depositary, the Agent, Liquidity Agent, the Placement Agents and the Dealers have caused this Collateral Agreement to be duly executed by their respective officers all as of the day and year first above written. NATIONAL FLEET FUNDING CORPORATION By: /s/ Michael J. Becker ------------------------------------ Name: Michael J. Becker Title: Assistant Secretary and Treasurer CITIBANK, N.A., as Liquidity Agent and Depositary By: /s/ ------------------------------------ Name: Title: CITIBANK, N.A., as B Support Credit Enhancer and Placement Agent By: /s/ Kyle L. Miller ------------------------------------ Name: Kyle L. Miller Title: Authorized Signatory CREDIT SUISSE, NEW YORK BRANCH, as Agent and B Support Credit Enhancer By: /s/ Carl Jackson ------------------------------------ Name: Carl Jackson Title: Member of Senior Management By: /s/ RP Saylor ------------------------------------ Name: Roger Saylor Title: Associate 57 GENERAL MOTORS CORPORATION, as A Support Credit Enhancer By: Anne T. Larin ------------------------------------ Name: Anne T. Larin Title: Attorney-in-fact for Heidi Kun Vice President CS FIRST BOSTON CORPORATION, as Dealer By: /s/ Scott E. Zoellner ------------------------------------ Name: Scott E. Zoellner Title: Vice President EX-4.13 14 LETTER AGREEMENT 07/13/95 1 Exhibit 4.13 LETTER AGREEMENT Letter Agreement, dated as of July 13, 1995 (this "Letter Agreement"), between NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC") and GOLDMAN SACHS MONEY MARKETS, L.P., a Delaware limited partnership ("GSMN LP"). W I T N E S S E T H: WHEREAS, NFC desires, in connection with that certain Dealer Agreement, dated as of June 7, 1995 (the "Dealer Agreement") among NFC, National Care Rental System, Inc., a Delaware Corporation ("National") and CS First Boston Corporation, a Massachusetts corporation ("CSFB"), to appoint GSMM LP to act as Dealer for the Notes (as defined in the Dealer Agreement) and GSMN LP desires to accept such appointment as a Dealer; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth for such terms in Annex A to the Liquidity Agreement, dated as of June 7, 1995, among NFC, certain financial institutions listed on the signature pages thereto and Citibank, N.A., as liquidity agent, as such agreement may be amended, supplemented, restated or otherwise modified from time to time. SECTION 2. Appointment as Dealer. NFC hereby appoints GSMM LP to act as a dealer for the Notes in accordance with the terms and conditions of the Dealer Agreement and acknowledges that GSMM LP shall have the right to assist NFC in the sale or placement of the Notes during the term of the Dealer Agreement in accordance with the terms and conditions of the Dealer Agreement. GSMM LP hereby accepts such appointment and by its signature hereto shall become a Dealer under the Dealer Agrement with the same force and effect as if originally named therein as a Dealer and GSMM LP hereby agrees to all terms and provisions of the Dealer Agreement applicable to it as a Dealer thereunder. SECTION 3. Notices; Delivery of Certificated Notes. (a) Unless otherwise indicated in the Dealer Agreement, all notices required to be provided to GSMM LP as a Dealer under the terms and provisions of the Dealer Agreement shall be in writing, either delivered by hand, by mail (postage prepaid), or by telex, telecopier or telegram, and any such notice shall be effective when received by GSMM LP at the address specified below. 2 Goldman Sachs Money Markets, L.P. 85 Broad Street New York, New York 10004 Attention: Blanton Neill Telephone No.: (212) 902-0346 Facsimile No,: (212) 357-8680 (b) Pursuant to the Dealer Agreement, if Notes sold or placed by GSMM LP are evidenced by Certificated Notes, NFC will instruct the Depositary to deliver executed and countersigned Certificated Notes to Goldman Sachs Money Markets, L.P., Note and Discount, 85 Broad Street, New York, New York 10021, prior to 2:15 p.m., New York City time, on the date of issuance. SECTION 4. Conditions of Effectiveness. This Letter Agreement shall become effective on the date hereof, if, and only if, on or prior to the date hereof, counterparts of this Letter Agreement shall have been duly executed and delivered by NFC and GSMM LP and counterparts of this Letter Agreement shall have been duly acknowledged and delivered by National and CSFB. SECTION 5. Execution in Counterparts. This Letter Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Letter Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Letter Agreement. SECTION 6. Governing Law. THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 3 IN WITNESS WHEREOF, the parties hereto have caused this Letter Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL FLEET FUNDING CORPORATION By: /s/ Michael S. Becker ---------------------------------------- Name: Michael S. Becker Title: Treasurer GOLDMAN SACHS MONEY MARKETS, L.P., a Delaware limited partnership By: GSMM Corp., as sole general partner By: /s/ John P. Heanue ---------------------------------------- Name: John P. Heanue Title: Corp. Officer ACKNOWLEDGED BY: NATIONAL CAR RENTAL SYSTEM, INC. By: /s/ Ervin A. Zater ---------------------------------------- Name: Ervin A. Zater Title: Corporate Vice President CS FIRST BOSTON CORPORATION By: /s/ Richard W. Kulz ---------------------------------------- Name: Richard W. Kulz Title: Director EX-4.14 15 SUPPORT INTERREDITOR AGREEMENT 05/29/96 1 Exhibit 4.14 EXECUTION COPY A SUPPORT INTERCREDITOR AGREEMENT THIS A SUPPORT INTERCREDITOR AGREEMENT (this "Agreement"), dated as of May 29, 1996, is entered into by and among GENERAL MOTORS CORPORATION, a Delaware corporation ("GM") and THE BANK OF NEW YORK, a New York banking corporation (such party, and each other party that shall execute a Joinder Agreement in the form of Annex A hereto, a Reduction A Support Credit Enhancer"), NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), and NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"). BACKGROUND A. Pursuant to the A Support Letter of Credit Agreement dated as of June 7, 1995 (the "A Support Letter of Credit Agreement"), GM has agreed to reimburse the A Credit Enhancer (defined below) for amounts drawn under a letter of credit (the "A Letter of Credit") issued by the A Credit Enhancer. B. Pursuant to the A Support Reimbursement Agreement dated as of June 7, 1995 (the "A Support Reimbursement Agreement") among GM, National and NFC, National and NFC have agreed to reimburse GM for amounts paid by GM pursuant to the A Support Letter of Credit Agreement. C. The maximum amount of GM's obligations to the A Credit Enhancer pursuant to the A Support Letter of Credit Agreement is reduced by an amount equal to the A Support Reduction Amount (as defined below) on June 7 of each year. D. Pursuant to the A Support Reimbursement Agreement, National and NFC are obligated to deliver to the A Credit Enhancer a Reduction Amount Letter of Credit Agreement (as defined below) or Reduction Amount Credit Support (as defined below), in either case, an amount equal to the A Support Reduction Amount. E. Each Reduction A Support Credit Enhancer has entered into a Reduction Support Agreement (as defined below) pursuant to which it has agreed to provide such additional credit support to the A Credit Enhancer. F. In order to prioritize the claims of GM and the various Reduction A Support Credit Enhancers with respect to 2 reimbursement by National and NFC and amounts payable pursuant to the Collateral Agreement (as defined below), the parties are entering into this Agreement. G. Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereof, GM, National, NFC and each Reduction A Support Credit Enhancer hereby agree as follows: Section 1. Certain Definitions. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions List attached as Annex A to the Liquidity Agreement, dated as of June 7, 1995 among National Fleet Funding Corporation, the liquidity lenders set forth therein, and Citibank, N.A., as liquidity agent, as in effect on the date hereof and as such Annex A may be amended or modified from time to time in accordance with the terms of the Liquidity Agreement (the "Definitions List"). Section 2. Assignment of Rights Under Collateral Agreement. GM hereby transfers, assigns, grants and conveys to each Reduction Support Credit Enhancer all GM's right, title and interest as an A Support Credit Enhancer under the Collateral Agreement but only to the extent of the A Support Reduction Amount in respect of which such Reduction Support Credit Enhancer has entered into a Reduction Support Agreement. From and after such assignment, for purposes of the Collateral Agreement, GM and each Reduction Support Credit Enhancer shall each be deemed to be an A Support Credit Enhancer, each to the extent of and in accordance with the proportion that the amount of its A Support Commitment bears to the Aggregate A Support Commitment. Section 3. Priorities With Respect to National Reimbursement Obligations. GM agrees that its right to receive payment from National on account of any A Support Credit Disbursement, A Support Termination Disbursement or A Support Event of Default Disbursement made by GM, is and shall be expressly subordinate and junior in right of payment to the prior payment in full of all amounts then due and payable by National to any Reduction A Support Credit Enhancer on account of any A Support Credit Disbursement, A Support Termination Disbursement or A Support Event of Default Disbursement made by such Reduction A Support Credit Enhancer. Section 4. Priorities With Respect to NFC Reimbursement Obligations. GM and each Reduction A Support Credit Enhancer agrees that amounts payable (i) by NFC to GM and the Reduction A Support Credit Enhancers and (ii) pursuant to the Collateral Agreement, in each case, on account of any A Support Liquidity Disbursements, A Support Termination Disbursements and A Support 3 Event of Default Disbursements shall be allocated among GM and the Reduction A Support Credit Enhancers on a pro-rata basis based on each party's A Support Disbursements outstanding. Section 5. Allocations Among Reduction A Support Credit Enhancers. Each Reduction A Support Credit Enhancer agrees that amounts payable (i) by National or NFC to the Reduction A Support Credit Enhancers and (ii) pursuant to the Collateral Agreement, in either case, on account of any A Support Disbursements made by the Reduction A Support Credit Enhancers shall be allocated among the Reduction A Support Credit Enhancers on a pro-rata basis based on each Reduction A Support Credit Enhancer's outstanding A Support Disbursements (to the extent reimbursable by NFC). If any Reduction A Support Credit Enhancer shall obtain any payment or other recovery (whether voluntary or involuntary) in connection with this Agreement (other than with respect to collateral specifically pledged to such Reduction A Support Credit Enhancer as provided in Section 5) in excess of the pro rata share of such Reduction A Support Credit Enhancer, such Reduction A Support Credit Enhancer shall purchase from the other Reduction A Support Credit Enhancers such participating interest as shall be necessary to cause such purchasing Reduction A Support Credit Enhancer to share the excess payment or other recovery with the other Reduction A Support Credit Enhancers on a pro rata basis; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Reduction A Support Credit Enhancer, the purchase shall be rescinded and each Reduction A Support Credit Enhancer shall repay to the purchasing Reduction A Support Credit Enhancer the purchase price to the ratable extent of such recovery together with an amount equal to such selling Reduction A Support Credit Enhancer's ratable share according to the proportion of (a) the amount of such selling Reduction A Support Credit Enhancer's required repayment to the purchasing Reduction A Support Credit Enhancer to (b) the total amount so recovered from the purchasing Reduction A Support Credit Enhancer of any interest or other amount paid or payable by the purchasing Reduction A Support Credit Enhancer in respect of the total amount so recovered. National and NFC agree that any Reduction A Support Credit Enhancer so purchasing a participation from another Reduction A Support Credit Enhancer pursuant to this Section may, to the fullest extent not prohibited by law, exercise all its rights of payment with respect to such participation as fully as if such Reduction A Support Credit Enhancer were the direct creditor of National or NFC in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Reduction A Support Credit Enhancer receives a secured claim to which this Section applies, such Reduction A Support Credit Enhancer shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the 4 Reduction A Support Credit Enhancer entitled under this Section to share in the benefits of any recovery on such secured claim. Section 6. Rights to Specific Collateral. Nothing herein contained shall affect the rights of any Reduction A Support Credit Enhancer in any collateral specifically pledged, assigned, granted or otherwise provided to such Reduction A Support Credit Enhancer under such Reduction A Support Credit Enhancer's Reduction Support Reimbursement Agreement; provided, however, that, (a) to the extent that it is a condition to the reinstatement of the amount of any Reduction Support Agreement after any draws thereon that National replenish or replace such specific collateral, National shall not replenish or replace such specific collateral (and such Reduction A Support Credit Enhancer shall not be entitled to retain any collateral delivered by National to replenish or replace such specific collateral) unless and until all amounts then due and payable to GM by National under the A Support Reimbursement Agreement with GM have been paid and (b) to the extent that it is a condition to the reinstatement of the amount of any Reduction Support Agreement after any draws thereon that NFC replenish or replace such specific collateral, NFC shall not replenish or replace such specific collateral (and such Reduction A Support Credit Enhancer shall not be entitled to retain any collateral delivered by NFC to replenish or replace such specific collateral) unless and until all amounts then due and payable to GM by NFC under the A Support Reimbursement Agreement with GM have been paid. Section 7. Agreement to Hold in Trust. If any party hereto shall receive payment of any amount which such party is aware (by notice or otherwise) is in violation hereof, it shall not commingle such payment with such holder's assets generally, and it shall hold such payment in trust for the benefit of the party entitled thereto and promptly pay it over to such party entitled thereto. Section 8. Joinder by Reduction A Support Credit Enhancers. Any party hereafter entering into a Reduction Amount Letter of Credit Agreement or otherwise agreeing to provide Reduction Amount Credit Support which has not theretofore become a party hereto shall sign and deliver to National, NFC, GM and the Agent, with copies for each other Reduction A Support Credit Enhancer, a Joinder Agreement substantially in the form of Annex A hereto. Section 9. Acceptance by Transferees. No A Support Credit Enhancer will transfer, sell or otherwise dispose of its interest as an A Support Credit Enhancer except to a party that agrees to be bound by the terms of this Agreement in a writing delivered to National, NFC, GM, each Reduction A Support Credit Enhancer and the Agent concurrently with such transfer, sale or 5 disposition; notwithstanding the foregoing, any party becoming an A Support Credit Enhancer shall be conclusively deemed to have accepted and agreed to all the terms and provisions hereof and to have become a party to this Agreement. Section 10. Amendments. This Agreement may be amended and the terms hereof may be waived only with the written consent of National, NFC, GM and each Reduction A Support Credit Enhancer. Section 11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of State of New York, without regard to principles of conflicts of laws. Section 12. Jurisdiction. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST GM, ANY REDUCTION A SUPPORT CREDIT ENHANCER, NATIONAL OR NFC WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR (TO THE EXTENT PERMITTED BY LAW FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT GM, EACH REDUCTION A SUPPORT CREDIT ENHANCER, NATIONAL AND NFC EACH ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COSTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Section 13. Severability. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 14. Term. This Agreement shall remain in full force and effect until the reimbursement of all A Support Disbursements by National or NFC, as the case may be, and the payment by National or NFC, as the case may be, of all other amounts payable under any A Support Letter of Credit Agreement, notwithstanding the earlier termination of any A Support Letter of Credit Agreement. Section 15. Successors and Assigns. This Agreement shall be binding upon GM, each Reduction A Support Credit Enhancer, National and NFC, and the respective successors and assigns of each of them. Section 16. Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on the same or separate counterparts, each of which 6 counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same agreement. 7 IN WITNESS WHEREOF, GM, The Bank of New York, National and NFC have caused this Agreement to be duly executed by their duly authorized officers, as of the day and year first above written. GENERAL MOTORS CORPORATION By: /s/ Mark Newman ------------------------------------ Name: Mark Newman Title: Attorney-in-Fact THE BANK OF NEW YORK By: /s/ Richard A. Raffetto ------------------------------------ Name: Richard A. Raffetto Title: Assistant Vice President NATIONAL CAR RENTAL SYSTEM, INC. By: /s/ Mike Becker ------------------------------------ Name: Mike Becker Title: NATIONAL FLEET FUNDING CORPORATION By: /s/ Mike Becker ------------------------------------ Name: Mike Becker Title: 8 ANNEX A JOINDER BY REDUCTION A SUPPORT CREDIT ENHANCER Reference is made to the A Support Intercreditor Agreement (the "A Support Intercreditor Agreement"), dated as of May 29, 1996 among National Car Rental System, Inc., National Fleet Funding Corporation, General Motors Corporation and the Reduction A Support Credit Enhancers from time to time becoming parties thereto. By execution of this Joinder Agreement, the undersigned agrees to become a Reduction A Support Credit Enhancer and be bound by all the provisions of, the A Support Intercreditor Agreement with the same force and effect as if the undersigned were a signatory party thereof. [ ] By: --------------------------- Name: Title: Date: ------------------------ EX-4.15 16 ASSIGMENT & ASSUMPTION AGREEMENT 05/29/96 1 Exhibit 4.15 EXECUTION COPY ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is dated as of May 29, 1996 among CITIBANK, N.A. ("Citibank"), CREDIT SUISSE, a Swiss banking corporation acting through its New York Branch ("CS") and CAISSE NATIONALE DE CREDIT AGRICOLE ("Credit Agricole"). WITNESSETH: WHEREAS, Citibank and CS are parties to that certain B Support Letter of Credit Reimbursement Agreement dated as of June 7, 1995, among Citibank, CS, National Fleet Funding Corporation and National Car Rental System, Inc. ("National") (as such agreement may be amended or modified from time to time, the "B Support Letter of Credit Reimbursement Agreement"); WHEREAS, Citibank and CS each desire to assign and Credit Agricole desires to acquire and assume all of Citibank's and CS's respective rights, interests and obligations in and under the B Support Letter of Credit Reimbursement Agreement; WHEREAS, Credit Agricole intends to issue a $32,125,000 irrevocable letter of credit which will replace the existing B Support Letters of Credit issued by Citibank and Credit Suisse pursuant to the B Support Letter of Credit Reimbursement Agreement; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereby agree, upon the terms and subject to the conditions set forth below, as follows: Section 1. Defined Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth for such terms in the B Support Letter of Credit Reimbursement Agreement. Section 2. Assignment and Assumption. (a) Citibank and CS each hereby assign, transfer and convey to Credit Agricole all of their respective right, title and interest, and delegate all their duties and obligations, in, to and under the B Support Letter of Credit Reimbursement Agreement and under all Related Documents as B Support Credit Enhancers, with the exception of the indemnification rights of Citibank and CS pursuant to Section 2 6.2 of the B Support Letter of Credit Reimbursement Agreement for the period during which Citibank and CS were B Support Credit Enhancers, which rights are specifically being retained by Citibank and CS (the "Indemnification Rights") and (b) Credit Agricole hereby accepts the foregoing assignment, transfer and conveyance of all such right, title and interest of Citibank and CS and assumes all of Citibank's and CS's respective obligations and duties, under the B Support Letter of Credit Reimbursement Agreement, with the exception of the Indemnification Rights, and hereby becomes a party thereunder. Each of Citibank and CS hereby represents and warrants that it is the legal and beneficial owner of all the right, title and interest being assigned by it hereunder and such right, title and interest are free and clear of any lien, encumbrance or adverse claim arising through Citibank or CS. Section 3. Conditions to Effectiveness. This Agreement shall not be effective until (a) Citibank and CS shall have returned to them their undrawn B Support Letters of Credit, (b) National shall have paid all accrued fees and expenses of Citibank and CS payable under the B Support Letter of Credit Reimbursement Agreement, and (c) Credit Agricole shall have issued a B Support Letter of Credit. Section 4. 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 and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. Section 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. CITIBANK, N.A. By: /s/ Susan Maccagnan ------------------------------------- Name: Susan Maccagnan Title: Vice President CREDIT SUISSE, NEW YORK BRANCH By: /s/ ROGER W. SAYLOR CARL JACKSON ----------------------------------------- Name: ROGER W. SAYLOR CARL JACKSON Title: ASSOCIATE MEMBER OF SENIOR MANAGEMENT CAISSE NATIONALE DE CREDIT AGRICOLE By: /s/ KATHERINE L. ABBOTT ------------------------------------ Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT Acknowledged and consented to DEUTSCHE BANK AG, NEW YORK BRANCH, as B Credit Enhancer By: /s/ STEVEN B. ROBERTS ----------------------------- Name: STEVEN B. ROBERTS Title: ATTORNEY-IN-FACT By: /s/ GREGORY V. PETRETTI ----------------------------- Name: GREGORY V. PETRETTI Title: ATTORNEY-IN-FACT EX-4.16 17 LETTER AGREEMENT 11/20/96 1 Exhibit 4.16 LETTER AGREEMENT Letter Agreement dated as of November 20, 1996 (this "Letter Agreement"), between NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC") and CITICORP SECURITIES, INC., a Delaware corporation ("Citi"). WITNESSETH: WHEREAS, NFC desires, in connection with that certain Dealer Agreement, dated as of June 7, 1995 (as heretofore amended, the "Dealer Agreement") among NFC, National Car Rental System, Inc., a Delaware corporation ("National"), CS First Boston Corporation, a Massachusetts corporation ("CSFB"), and Goldman, Sachs & Co., a New York limited partnership (successor organization to Goldman Sachs Money Markets, L.P., a Delaware limited partnership) ("GSC"), to appoint Citi to act as a Dealer for the Notes (as defined In the Dealer Agreement) and Citi desires to accept such appointment as a Dealer; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings set forth for such terms in Annex A to the Liquidity Agreement, dated as of June 7, 1995, among NFC, certain financial institutions listed on the signature pages thereto and Citibank, N.A., as liquidity agent, as such agreement may be amended, supplemented, restated or otherwise modified from time to time. SECTION 2. Appointment as Dealer. NFC hereby appoints Citi to act as a dealer for the Notes in accordance with the terms and conditions of the Dealer Agreement and acknowledges that Citi shall have the right to assist NFC in the sale or placement of the Notes during the terms and conditions of the Dealer Agreement. Citi hereby accepts such appointment and by its signature hereto shall become a Dealer under the Dealer Agreement with the same force and effect as if originally named therein as a Dealer and Citi hereby agrees to be bound by the terms and provisions of the Dealer Agreement. SECTION 3. Notices. Unless otherwise indicated in the Dealer Agreement, all notices required to be provided to Citi as a Dealer under the terms and provisions of the Dealer Agreement shall be in writing, either delivered by hand, by mail (postage prepaid), or by telex, telecopier or telegram, and any such notice shall be effective when received by Citi at the address specified below. 2 Citicorp Securities, Inc. 399 Park Avenue New York, New York 10043 Attention: J. Darrell Thomas Telephone No.: (212)291-4096 Facsimile No.: (212)291-3910 SECTION 4. Conditions of Effectiveness. This Letter Agreement shall become effective on the date hereof, if, and only if, on or prior to the date hereof, counterparts of this Letter Agreement shall have been duly executed and delivered by NFC and Citi and counterparts of this Letter Agreement shall have been duly acknowledged and delivered by National, CSFB and GSC. SECTION 5. Execution in Counterparts. This Letter Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Letter Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Letter Agreement. SECTION 6. Governing Law. THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF TO STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Letter Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL FLEET FUNDING CORPORATION By: /s/ MJ Becker ------------------------------------- Name: MJ Becker ------------------------------- Title: Asst. Secretary and Treasurer ------------------------------- 2 3 CITICORP SECURITIES, INC. By ------------------------------------- Name: ------------------------------- Title: ------------------------------ ACKNOWLEDGED BY: NATIONAL CAR RENTAL SYSTEM, INC. By /s/ E.A. Zinter ----------------------------- Name: E.A. Zinter ------------------------ Title: EVP ----------------------- CS FIRST BOSTON CORPORATION By ----------------------------- Name: ------------------------ Title: ----------------------- GOLDMAN, SACHS & CO. By ----------------------------- Name: ------------------------ Title: Authorized Signatory 3 EX-4.17 18 SUPPL. & AMDT. TO COLLATERAL AGREEMENT 12/20/96 1 Exhibit 4.17 SUPPLEMENT AND AMENDMENT TO COLLATERAL AGREEMENT, dated as of December 20, 1996 (this "Amendment"), among NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), GENERAL MOTORS CORPORATION, a Delaware corporation ("GM"), as an A Support Credit Enhancer, THE BANK OF NEW YORK, a New York banking corporation ("BONY"), as an A Support Credit Enhancer, CAISSE NATIONALE DE CREDIT AGRICOLE ("Credit Agricole"), as the B Support Credit Enhancer, CITIBANK, N.A., a national banking corporation ("Citibank"), as Liquidity Agent (the "Liquidity Agent") for the Liquidity Lenders and as Depositary (the "Depositary") under the Depositary Agreement acting on its own and on behalf of the Holders of Commercial Paper Notes, CREDIT SUISSE, a Swiss banking corporation acting through its New York branch ("Credit Suisse"), as collateral agent (the "NFC Collateral Agent") for itself and the Liquidity Lenders, the Liquidity Agent, the Depositary and the Series 1996-2 Support Credit Enhancers, and, as Dealers, CS FIRST BOSTON CORPORATION, a Massachusetts corporation ("CSFB"), GOLDMAN, SACHS & CO., a New York limited partnership (successor organization to Goldman Sachs Money Markets, L.P., a Delaware limited partnership) ("GS & Co."), and CITICORP SECURITIES, INC., a Delaware corporation ("Citicorp", and together with CSFB and GS & Co. collectively the "Dealers"). W I T N E S S E T H : WHEREAS, NFC, GM, Citibank, Credit Suisse, the Liquidity Agent, the Depositary, the NFC Collateral Agent and the Dealers have entered into the Collateral Agreement, dated as of June 7, 1995, as modified by (i) the letter agreement dated July 13, 1995 from GS & Co. as a Dealer to the other parties to such Collateral Agreement, (ii) the A Support Intercreditor Agreement dated as of May 29, 1996 (under which GM assigned to BONY all GM's right, title and interest as an A Support Credit Enhancer under such Collateral Agreement, but only to the extent of the A Support Reduction Amount in respect of which BONY as Reduction Support Credit Enhancer has entered into a Reduction Support Agreement), (iii) the Assignment and Assumption Agreement dated as of May 29, 1996 among Citibank, Credit Suisse and Credit Agricole (under which Citibank and Credit Suisse assigned to Credit Agricole all their respective rights, titles and interests, and delegated all their respective duties and obligations, in, to and under such Collateral Agreement and other Related Documents) and (iv) the letter agreement dated November 20, 1996 from Citicorp as a Dealer to the other parties to such Collateral Agreement (such Collateral Agreement as so modified being the "NFC Collateral Agreement"); WHEREAS, NFC proposes (i) to enable National Car Rental Financing Limited Partnership, a special purpose Delaware limited partnership ("NFLP"), to refinance the Refinanced Vehicles on the Series 1996-2 Closing Date by (A) accepting the Series 1996- 2 2 2 Floating Rate Rental Car Asset Backed Variable Funding Note (the "Series 1996-2 Note") to be issued to NFC by NFLP in the initial principal amount of the then outstanding principal amount of the Loan Note under and as defined in the Loan Agreement and to be authenticated and delivered by or on behalf of The Bank of New York, a New York banking corporation, as trustee (the "Trustee") under the Base Indenture, dated as of April 30, 1996, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996 (the "Base Indenture"), and as supplemented by the Series 1996-2 Supplement, dated as of December 20, 1996 (the "Series 1996-2 Supplement," and together with the Base Indenture, the "Indenture"), between NFLP and the Trustee, and (B) cancelling, upon the payment to NFC by National of the unpaid accrued interest on the Loan Note and upon the satisfaction of certain other conditions, the Loan Note, and (ii) thereafter to make further Series 1996-2 Advances to NFLP from time to time, the Indebtedness arising from which is to be evidenced by the Series 1996-2 Note, to enable NFLP to acquire Acquired Vehicles, and to finance the acquisition by National of National Vehicles, from certain Eligible Manufacturers; WHEREAS, contemporaneously with the execution and delivery of this Amendment, NFLP as lessor and National as lessee are entering into the Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996 (the "Lease"), pursuant to which NFLP will refinance the Refinanced Vehicles, and will acquire Acquired Vehicles, and will finance the acquisition of National Vehicles, in each case for leasing to National for use in National's domestic daily rental business; and to secure the NFLP Obligations with respect to the Series 1996-2 Note, NFLP will, under the Series 1996-2 Supplement, grant to the Trustee, for the benefit of the Series 1996-2 Noteholder, a first priority perfected security interest in all of NFLP's right, title and interest in, among other things, the Lease; WHEREAS, contemporaneously with the execution and delivery of this Amendment, NFC and the NFC Collateral Agent are entering into a Supplement dated as of the date hereof to the Master Collateral Agency Agreement, pursuant to which (i) as security for the payment of the respective obligations from time to time owing by National to NFLP and other Financing Sources (or any Beneficiary as assignee thereof) under the Lease and other related Financing Documents (as defined therein), National will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Refinanced Vehicles and National Vehicles and the other National Master Collateral for the Series 1996-2 Note, and (ii) as security for the payment of the respective obligations from time to time owing by NFLP to the Trustee for the benefit of the Series 1996-2 Noteholder (or any Beneficiary as assignee thereof) under the Series 1996-2 Note and other related Financing Documents, NFLP will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Acquired Vehicles and the other NFLP Master Collateral for the Series 1996-2 Note; 3 3 WHEREAS, NFC, the Liquidity Lenders and the Liquidity Agent have entered into the Liquidity Agreement, and, contemporaneously with the execution and delivery of this Amendment, are entering into the Second Amendment to Liquidity Agreement, dated as of the date hereof (the "Liquidity Agreement Amendment"), among NFC, the Liquidity Lenders and the Liquidity Agent under which the Liquidity Agreement is being amended to implement the proposed refinancing described above; WHEREAS, National, NFLP and NFC have requested that the Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary and the NFC Collateral Agent agree to amend the NFC Collateral Agreement to cause NFC to pledge and assign under the NFC Collateral Agreement all of NFC's right, title and interest in and to the Series 1996-2 Note, and otherwise to implement the proposed refinancing described above; and such parties are, on the terms and conditions set forth below, willing to grant such request; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. Capitalized terms used but not defined in this Amendment, including the preamble and the recitals (WHEREAS clauses) hereof, shall have the meanings assigned to such terms in the Indenture. SECTION 2. Amendments to NFC Collateral Agreement. The NFC Collateral Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) The preamble and the recitals (WHEREAS clauses) and Article I are amended in full to read: "THIS COLLATERAL AGREEMENT, dated as of June 7, 1995, as amended by Supplement and Amendment, dated as of December 20, 1996 (this "Collateral Agreement"), is entered into by and among NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), GENERAL MOTORS CORPORATION, a Delaware corporation ("GM"), as an A Support Credit Enhancer, THE BANK OF NEW YORK, a New York banking corporation ("BONY"), as a Reduction Support Credit Enhancer and also an A Support Credit Enhancer, CAISSE NATIONALE DE CREDIT AGRICOLE ("Credit Agricole"), as the B Support Credit Enhancer, CITIBANK, N.A., a national banking association, as Liquidity Agent (the "Liquidity Agent") for the Liquidity Lenders and as Depositary (the "Depositary") under the Depositary Agreement, acting on its own behalf and on behalf of the Holders of Commercial Paper Notes, CREDIT SUISSE, a Swiss banking corporation acting through its New York branch ("Credit Suisse"), as collateral agent (the "NFC 4 4 Collateral Agent") for itself and the Liquidity Lenders, the Liquidity Agent, the Depositary on behalf of the Holders of Commercial Paper Notes, and the Series 1996-2 Support Credit Enhancers, and CS FIRST BOSTON CORPORATION, a Massachusetts corporation ("CSFB"), GOLDMAN, SACHS & CO., a New York limited partnership (successor organization to Goldman Sachs Money Markets, L.P., a Delaware limited partnership) ("GS & Co.") and CITICORP SECURITIES, INC., a Delaware corporation ("Citicorp", together with CSFB, GS & Co. and any other dealers for Commercial Paper Notes engaged by NFC from time to time that agree to become parties to the Dealer Agreement and this Agreement, the "Dealers") as Dealers, and any placement agents for Commercial Paper Notes engaged by NFC from time to time that agree to become parties to the Placement Agency Agreement and this Agreement (the "Placement Agents"). "BACKGROUND 1. NFC is issuing and selling its Commercial Paper Notes (such capitalized term, together with each other capitalized term used herein, shall have the meaning assigned thereto in Section 1.01) in the commercial paper market and has obtained the Liquidity Commitments of the Liquidity Lenders to make Liquidity Advances to NFC. 2. Upon and after the execution and delivery of the Supplement and Amendment to Collateral Agreement, dated as of December 20, 1996 (the "NFC Collateral Agreement Amendment"), among the parties hereto, NFC will (i) enable National Car Rental Financing Limited Partnership, a special purpose Delaware limited partnership ("NFLP"), to refinance the Refinanced Vehicles on the Series 1996-2 Closing Date by (A) accepting the Series 1996-2 Note to be issued to NFC by NFLP under the Series 1996-2 Supplement in the initial principal amount of the then outstanding principal amount of the Loan Note under and as defined in the Loan Agreement and (B) cancelling, upon the payment to NFC by National of the unpaid accrued interest on the Loan Note and upon the satisfaction of certain other conditions, the Loan Note, and (ii) thereafter make further Series 1996-2 Advances to NFLP from time to time, the Indebtedness arising from which will be evidenced by the Series 1996-2 Note, to enable NFLP to acquire Acquired Vehicles, and to finance the acquisition by National of National Vehicles, from Eligible Manufacturers. 3. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, NFLP as lessor and National as lessee are entering into the Lease, pursuant to which NFLP will refinance the Refinanced Vehicles, and will acquire Acquired Vehicles, and will finance the acquisition of National Vehicles, in each case for leasing to National for use in National's domestic daily rental business; and to secure the NFLP Obligations with respect to the Series 1996-2 Note, 5 5 NFLP will under the Series 1996-2 Supplement, grant to the Trustee, for the benefit of the Series 1996-2 Noteholder, a first priority perfected security interest in all of NFLP's right, title and interest in, among other things, the Lease. 4. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, NFC and the NFC Collateral Agent are entering into a Supplement dated as of the date thereof to the Master Collateral Agency Agreement, pursuant to which (i) as security for the payment of the respective obligations from time to time owing by National to NFLP and other Financing Sources (or any Beneficiary as assignee thereof) under the Lease and other related Financing Documents (as defined therein), National will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Refinanced Vehicles and National Vehicles and the other National Master Collateral for the Series 1996-2 Note, and (ii) as security for the payment of the respective obligations from time to time owing by NFLP to the Trustee for the benefit of the Series 1996-2 Noteholder (or any Beneficiary as assignee thereof) under the Series 1996-2 Note and other related Financing Documents, NFLP will grant to the Master Collateral Agent for the benefit of the NFC Secured Parties a first priority perfected security interest in such Acquired Vehicles and the other NFLP Master Collateral for the Series 1996-2 Note. 5. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, National, NFC and the Series 1996-2 Support Credit Enhancers are entering into an Amended and Restated Collateral Sharing Agreement, dated as of the date thereof, amending and restating the predecessor agreement to the NFC Collateral Sharing Agreement and pursuant to which the Series 1996-2 Support Credit Enhancers will agree that their respective interests as Financing Sources in the Master Collateral for the Series 1996-2 Noteholder is subject and subordinate to the interest therein of NFC as a Financing Source and the A Support Credit Enhancers will agree that their respective interests as a Financing Source in such Master Collateral is subject and subordinate to the interest therein of the B Support Credit Enhancer as a Financing Source. 6. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, NFC, the Liquidity Lenders and the Liquidity Agent are entering into a Second Amendment to Liquidity Agreement, dated as of the date thereof, providing for, among other things, the Liquidity Commitments of the Liquidity Lenders to make, on the terms and subject to the conditions set forth therein, Revolving Advances to NFC from time to time to enable NFC to make Series 1996-2 Advances to NFLP from time to time and to make other Liquidity Advances to NFC from time to time. 6 6 7. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, the A Credit Enhancer is amending its A Letter of Credit as partial credit support for certain amounts owing by National under the Lease and as liquidity support for maturing Commercial Paper Notes. 8. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, BONY as an A Support Credit Enhancer (and also as the Reduction Support Credit Enhancer) is amending its Reduction A Support Letter of Credit as partial support for certain amounts drawn under the A Letter of Credit. 9. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, (a) NFC, National and GM as an A Support Credit Enhancer are amending the A Support Reimbursement Agreement pursuant to which NFC and National, to the extent set forth in such Agreement, will reimburse such A Support Credit Enhancer for amounts paid by it to the A Credit Enhancer for reimbursement of draws made under the A Letter of Credit and (b) NFC, National and BONY as an A Support Credit Enhancer (and also as the Reduction Support Credit Enhancer) are amending the Reduction A Support Reimbursement Agreement pursuant to which NFC and National, to the extent set forth in such Agreement, will reimburse such A Support Credit Enhancer for amounts drawn under the Reduction A Support Letter of Credit. 10. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, the B Credit Enhancer is amending its B Letter of Credit as partial credit support for certain amounts owing by National under the Lease and as liquidity support for maturing Commercial Paper Notes. 11. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, NFC, National and the B Credit Enhancer are amending the B Letter of Credit Reimbursement Agreement pursuant to which NFC and National, to the extent set forth in such Agreement, will reimburse the B Credit Enhancer for amounts drawn under its B Letter of Credit. 12. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, the B Support Credit Enhancer is amending its B Support Letter of Credit to provide the B Credit Enhancer support for its obligations under the B Letter of Credit. 13. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, NFC, National and the B Support Credit Enhancer are amending the B Support Letter of Credit Reimbursement Agreement pursuant to 7 7 which NFC and National, to the extent set forth in such Agreement, will reimburse the B Support Credit Enhancer for amounts drawn under its B Support Letter of Credit. 14. Contemporaneously with the execution and delivery of the NFC Collateral Agreement Amendment, NFC and the Depositary are entering into an Amendment dated as of the date thereof to the Depositary Agreement, which provides for the issuance of Commercial Paper Notes. 15. Contemporaneously with the execution and delivery of this Collateral Agreement, and on or prior to the inclusion of an additional Manufacturer as an Eligible Manufacturer, NFC, National, NFLP, the Master Collateral Agent and such Eligible Manufacturer selling Vehicles to National or NFLP financed or refinanced with the proceeds from Series 1996-2 Advances made by NFC, have entered into, or will enter into, an Assignment Agreement, pursuant to which National and NFLP each assigns to the Master Collateral Agent for the benefit of NFC and the NFC Collateral Agent certain of National's and NFLP's rights under the Repurchase Program offered by such Eligible Manufacturer. 16. NFC is entering into this Collateral Agreement with Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary, the NFC Collateral Agent, the Placement Agents and the Dealers for the purpose of, among other things, providing for the repayment or payment of all amounts at any time and from time to time owing by NFC to the Liquidity Lenders or the Liquidity Agent under or in connection with the Liquidity Agreement or this Collateral Agreement and all amounts owing at any time and from time to time by NFC to the A Support Credit Enhancers under or in connection with the A Support Reimbursement Agreement or this Collateral Agreement or owing by NFC to the B Support Credit Enhancer under or in connection with the B Support Letter of Credit Reimbursement Agreement or this Collateral Agreement or owing by NFC to the Holders of the Commercial Paper Notes or the Depositary or owing by NFC to the NFC Collateral Agent hereunder or owing by NFC to the Dealers under the Dealer Agreement or owing by NFC to the Placement Agents under the Placement Agency Agreement. "NOW, THEREFORE, in consideration of the premises and agreements herein contained, each of NFC, the Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary, the Agent, the Dealers and the Placement Agents agrees as follows: 8 8 "ARTICLE I. DEFINITIONS SECTION 1.01. Definitions. Capitalized terms used but not defined herein (including the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Base Indenture, dated as of April 30, 1996, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, and as supplemented by the Series 1996-2 Supplement, dated as of December 20, 1996, between National Car Rental Financing Limited Partnership, a special purpose Delaware limited partnership ("NFLP"), and The Bank of New York, a New York banking corporation, as trustee (together with its successors in trust thereunder as provided in such Base Indenture, the "Trustee"), as the same may be further amended, supplemented or otherwise modified from time to time in accordance with the provisions thereof (the "Base Indenture" or the "Series 1996-2 Supplement"). The definitions of such terms in the Base Indenture or the Series 1996-2 Supplement shall be referred to herein and in all other Related Documents as the "Definitions List"." (b) The terms used in the NFC Collateral Agreement set forth below shall be changed to the terms, respectively, set opposite such terms below:
TERMS USED IN THE NFC COLLATERAL AGREEMENT CHANGED TO ------------------------------------------ ---------- A Support Credit Enhancer A Support Credit Enhancers A Support Reimbursement Agreement A Support Reimbursement Agreements Agent NFC Collateral Agent B Support Credit Enhancers B Support Credit Enhancer B Support Letters of Credit B Support Letter of Credit Collateral Agreement NFC Collateral Agreement Collateral Sharing Agreement NFC Collateral Sharing Agreement
9 9
TERMS USED IN THE NFC COLLATERAL AGREEMENT CHANGED TO ------------------------------------------ ---------- Credit Enhancer Series 1996-2 Enhancement Provider Credit Payment Deficit Series 1996-2 Lease Payment Deficit Fronting Credit Enhancers Series 1996-2 Fronting Credit Enhancers Fronting Letter of Credit Amount Series 1996-2 Fronting Letter of Credit Amount Fronting Letters of Credit Series 1996-2 Fronting Letters of Credit Interest Period Series 1996-2 Interest Period Loan Agreement Series 1996-2 Supplement and/or the Lease, as applicable National National and/or NFLP, as applicable Obligations NFC Obligations Required Enhancement Amount Series 1996-2 Required Enhancement Amount Support Credit Enhancers Series 1996-2 Support Credit Enhancers
(c) All references to "Loan Event of Default" and "Potential Loan Event of Event of Default" throughout the NFC Collateral Agreement are deleted. (d) (i) All references to "Vehicles" and "Repurchase Programs" throughout the NFC Collateral Agreement shall mean and refer to those 10 10 Vehicles and Repurchase Programs, respectively, that are part of the Master Collateral for the Series 1996-2 Note. (ii) All references to "the Master Collateral for which NFC and the Support Credit Enhancers are designated as Financing Sources and the Agent and the Support Credit Enhancers are designated as Beneficiaries" throughout the NFC Collateral Agreement include, without limitation, the Master Collateral for the Series 1996-2 Note. (e) Clause Fifth of Section 2.01 is amended in full to read: "Fifth, first, the payment, pro rata, of all principal Indebtedness (including Commitment Termination Date Liquidity Advances), at any time and from time to time, due (in the case of a Commitment Termination Date Liquidity Advance, such Advance will be deemed to be due for purposes of this clause Fifth on the date such Advance is made) from NFC (a) to the Liquidity Lenders in connection with the Liquidity Advances made pursuant to the Liquidity Agreement, (b) to the A Support Credit Enhancers in connection with A Support Liquidity Disbursements, (c) to the B Support Credit Enhancer in connection with B Support LOC Liquidity Disbursements made under the B Support Letter of Credit and (d) if applicable, to the Series 1996-2 Cash Collateral Accounts in connection with moneys withdrawn from such Accounts to fund any LOC Liquidity Disbursements, together with all amounts payable in respect of interest on any of the foregoing; and second, the payment, pro rata, of the obligations of NFC in connection with A Support Credit Disbursements, A Support Reduction Disbursements, and B Support LOC Credit Disbursements and the NFC Reimbursement Share of any A Support Termination Disbursement, A Support Event of Default Disbursement or B Support LOC Termination Disbursements, together with all amounts payable in respect of interest on any of the foregoing;" (f) Subsection (a) of Section 3.03 is amended in full to read: "(a) All action necessary (including, without limitation, the filing of UCC-1 financing statements, the delivery of the Series 1996-2 Note to the NFC Collateral Agent, the assignment and delivery of the Lease to the Trustee, the assignment of certain rights under the Repurchase Programs to the Master Collateral Agent, and the notation on the Vehicle certificates of title of the Master Collateral Agent's lien or the assignment of an existing lien) to protect and perfect the NFC Collateral Agent's security interest on behalf of the Secured Parties in the Assigned Collateral now in existence and hereafter acquired or created, the Cash Collateral Accounts and the 11 11 Deposited Funds has been duly and effectively taken or, in the case of such notation on such Vehicle certificates of title, is being diligently taken." (g) Clauses (i) through (viii) of Section 4.01(a) (describing the Assigned Collateral) are amended in full to read, respectively: "(i) the NFC Agreements, including, without limitation, the Series 1996-2 Note, all moneys due and to become due to NFC from NFLP under or in connection with the NFC Agreements, whether payable as principal, interest, rents, fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of the NFC Agreements or otherwise, and all rights, remedies, powers, privileges and claims of NFC against any other party under or with respect to the Series 1996-2 Note, the Series 1996-2 Supplement and the other NFC Agreements (whether arising pursuant to the terms of such NFC Agreements or otherwise available to NFC at law or in equity), the right to enforce any of the Series 1996-2 Note, the Series 1996-2 Supplement or other NFC Agreements as provided herein and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with respect to the Series 1996-2 Note, the Series 1996-2 Supplement or other NFC Agreements or the obligations of any party thereunder; and (ii) all right, title and interest of NFC in, to and under any Repurchase Programs as they relate to the Refinanced Vehicles or to the National Vehicles or Acquired Vehicles financed with the proceeds of Series 1996-2 Note, and all moneys due and to become due in respect of such Vehicles from the Manufacturers under or in connection with the Repurchase Programs (other than Excluded Payments) whether payable as Vehicle repurchase prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Repurchase Programs or otherwise and all rights to compel performance and otherwise exercise remedies thereunder; and (iii) [reserved]; and (iv) [reserved]; and (v) all other right, title and interest of NFC in, to and under the Master Collateral Agency Agreement, including, without limitation, the portion of the Master Collateral for the Series 1996-2 Note; and 12 12 (vi) all additional property that may from time to time hereafter be subjected to the grant and pledge hereof by NFC or by anyone on its behalf; and (vii) all property assigned to the NFC Collateral Agent pursuant to Section 5.02 hereof, including the Accounts, the Cash Collateral Accounts and the Deposited Funds; and (viii) all proceeds, products and profits of and from any and all of the foregoing, including, without limitation, payments under insurance (whether or not the Master Collateral Agent or the NFC Collateral Agent is the loss payee thereof) or Vehicle warranties and cash; provided that in no event shall any of the foregoing include any right, title or interest in the Fleet Finance Agreement and payments thereunder." (h) The first sentence of Section 4.02 (concerning the application of Assigned Collateral) is amended in full to read: "NFC hereby acknowledges and agrees that, until this Collateral Agreement is terminated, NFC shall, and the NFC Collateral Agent is authorized to, cause (i) all moneys, instruments, cash and other proceeds due and to become due to NFC or the NFC Collateral Agent under or in connection with the Master Collateral for the Series 1996-2 Note under the Master Collateral Agency Agreement (including, without limitation, amounts due from Manufacturers under their Repurchase Programs but excluding amounts representing the proceeds from sales of Vehicles by National or NFLP at auction to third parties other than the Manufacturers, warranty payments and insurance proceeds) to be paid directly to the Master Collateral Agent for deposit into the Master Collateral Account; (ii) amounts representing the proceeds from sales of Vehicles that are part of the Master Collateral for the Series 1996-2 Note by National or NFLP at auction to third parties other than the Manufacturers to be deposited by National or NFLP within two Business Days of its receipt thereof into the Master Collateral Account and (iii) all payments made by or on behalf of NFLP under the Series 1996-2 Note to be deposited into the NFC Collection Account or such other account as the NFC Collateral Agent may from time to time specify to the Person making such payments; and, in each case of clauses (i), (ii) and (iii) above, NFC represents to the Secured Parties that it has instructed National, NFLP and the Manufacturers, as applicable, to so remit such amounts." (i) The last paragraph of Section 4.04, and Section 4.05, are amended in full to read, respectively: 13 13 "Upon the occurrence of an Amortization Event, the NFC Collateral Agent, upon direction by the Required Liquidity Providers, shall direct NFC (i) not to make any further Series 1996-2 Advances, and (ii) if no Commercial Paper Notes are then outstanding, to declare, or to direct the Trustee to declare, the Series 1996-2 Note immediately due and payable. "SECTION 4.05. Notice of Default. Promptly upon becoming aware thereof, NFC agrees to give the Liquidity Agent, the Liquidity Lenders, the Series 1996-2 Support Credit Enhancers, the Depositary, the Placement Agents, the Dealers, the NFC Collateral Agent, the Master Collateral Agent and each Rating Agency prompt written notice (and in no case more than two days after NFC has actual knowledge thereof) of each Amortization Event or Potential Amortization Event, and each default on the part of any Manufacturer under any Repurchase Program, that comes to NFC's attention." (j) The second paragraph of Section 5.01 is amended in full to read: "It is understood and agreed by NFC and the Secured Parties that on any Business Day there shall be deposited in the Collateral Account the following moneys, instruments, cash and proceeds received by the NFC Collateral Agent or NFC at any time and from time to time: (a) from the Depositary from the sale of Commercial Paper Notes to the extent of maturing Commercial Paper Notes, (b) during the Series 1996-2 Rapid Amortization Period, from the Master Collateral Agent pursuant to the Master Collateral Agency Agreement, (c) from the sale of Vehicles in accordance with Section 4.03(b) hereof, (d) during the Series 1996-2 Rapid Amortization Period and, to the extent that interest shall be payable to the applicable NFC Secured Parties, during the Series 1996-2 Revolving Period, any other proceeds of the Assigned Collateral, (e) from the Series 1996-2 Fronting Credit Enhancers as LOC Liquidity Disbursements, (f) subject to the provisions of Section 5.05, from the Series 1996-2 Fronting Credit Enhancers as LOC Credit Disbursements, (g) subject to the provisions of Section 5.05, from the Cash Collateral Accounts pursuant to Section 5.09 and (h) any and all moneys at any time and from time to time received on behalf of NFC, and required by the terms of this Collateral Agreement, the Master Collateral Agency Agreement, the Repurchase Programs or any other Related Document to be deposited in the Collateral Account." (k) Section 5.02(b) is amended (i) by changing the wording of Section 5.02(b) that occurs before clauses (i) though (ix) thereof to read as follows: 14 14 "So long as no Amortization Event shall have occurred and then be continuing, NFC, with respect to clauses (ii) and (iv) through (viii) below, and the Depositary with respect to clause (i) below, and the Liquidity Agent, on behalf of the Liquidity Lenders, with respect to clause (iii) below, shall have the right to instruct the Agent to withdraw or allocate and retain, or order the transfer of, Deposited Funds from any of the Accounts (subject to the penultimate paragraph of Section 5.01 with respect to the Termination Advance Account), from time to time as necessary, for deposit into the NFC Collection Account or for the following purposes in the following priority:" and (ii) by changing clause (iv) of Section 5.02(b) to read: "(iv) first, the payment, pro rata, of all principal Indebtedness (including Commitment Termination Date Liquidity Advances) at any time and from time to time due (in the case of a Commitment Termination Date Liquidity Advance, such Advance will be deemed to be due for purposes of this Section 5.02(b)(iv) on the date such Advance is made) from NFC (a) to the Liquidity Lenders in connection with the Liquidity Advances made pursuant to the Liquidity Agreement, (b) to the A Support Credit Enhancers in connection with A Support Liquidity Disbursements, (c) to the B Support Credit Enhancer in connection with B Support LOC Liquidity Disbursements and (d) if applicable, to the Cash Collateral Accounts in connection with moneys withdrawn from such Accounts to fund any LOC Liquidity Disbursements, together with all amounts payable in respect of interest on any of the foregoing; and second, the payment, pro rata, of the obligations of NFC in connection with A Support Credit Disbursements, A Support Reduction Disbursements, and B Support LOC Credit Disbursements and the NFC Reimbursement Share of any A Support Termination Disbursement, A Support Event of Default Disbursement or B Support LOC Termination Disbursement, together with all amounts payable in respect of interest on any of the foregoing." (l) Clause (viii) of Section 5.02(b) is amended in full to read: "(viii) the making of further Series 1996-2 Advances by NFC under the Series 1996-2 Supplement for the purchase or financing by National or NFLP of additional Vehicles of the Manufacturers; and" (m) Section 5.03 is amended by deleting from the fifth sentence thereof the words "or to the Cash Reserve Account pursuant to clause fifth of Section 2.01 or the corresponding provisions under Section 5.02(b) hereof,". 15 15 (n) Section 5.04 is amended by deleting from the second sentence thereof (i) clause (iii) (concerning Cash Collateral Account C) and (ii) the words (immediately before the proviso thereto), "or National with respect to Cash Collateral Account C". (o) Section 5.05 is amended in full to read: "SECTION 5.05. Credit Demand. (a) On or prior to the Business Day preceding each Payment Date, NFC shall provide the NFC Collateral Agent with a copy of the Monthly Certificate provided to NFC by National pursuant to Section 24.7(vi) of the Lease. The NFC Collateral Agent shall be entitled to rely on such Monthly Certificate as evidence of the amount of payments with respect to Lease due on such Payment Date. The NFC Collateral Agent shall calculate as of 11:00 a.m. (New York City time) on each Payment Date the Series 1996-2 Lease Payment Deficit, if any, on such Payment Date. (b) So long as the A Letter of Credit shall not have been terminated on any Business Day that a Series 1996-2 Lease Payment Deficit exists, the NFC Collateral Agent shall, by 12:00 noon (New York City time) on the same Business Day, draw on the A Letter of Credit in an amount equal to the lesser of (i) such Series 1996-2 Lease Payment Deficit and (ii) the full amount available to be drawn under the A Letter of Credit on such Business Day, by presenting a draft accompanied by a Certificate of A Credit Demand in the form of Annex A to the A Letter of Credit, and shall, during the Series 1996-2 Revolving Period, deposit the proceeds of such draw in the NFC Collection Account and, at all other times, deposit the proceeds of such draw in the Collateral Account. The NFC Collateral Agent shall promptly notify each Rating Agency in writing of the occurrence of any such draw on the A Letter of Credit. (c) To the extent the Series 1996-2 Lease Payment Deficit exceeds the A Letter of Credit Amount and A Support Liquidity Disbursements are Outstanding, the NFC Collateral Agent shall effect an A Conversion in accordance with the provisions of Section 5.08. (d) If and only if, on any such Business Day that a Series 1996-2 Lease Payment Deficit exists, the amount available to be drawn under the A Letter of Credit and the amount of an A Conversion is less than such Series 1996-2 Lease Payment Deficit (such deficiency is referred to as a "B Credit Draw Amount") and the B Letter of Credit shall not have been terminated, the NFC Collateral Agent shall, by 12:00 noon (New York City time) on the same Business Day, draw on the B Letter of Credit in an amount equal to the lesser of (i) such B Credit Draw Amount and (ii) the full 16 16 amount available to be drawn under the B Letter of Credit on such Business Day, by presenting a draft accompanied by a Certificate of B Credit Demand in the form of Annex A to the B Letter of Credit, and shall, during a Series 1996-2 Revolving Period, deposit the proceeds of such draw in the NFC Collection Account and, at all other times, deposit the proceeds of such draw in the Collateral Account. The NFC Collateral Agent shall promptly notify each Rating Agency in writing of the occurrence of any such draw on the B Letter of Credit." (p) Subsection (e) of Section 5.06 is amended by changing the term "Reduction Amount Letter of Credit" contained therein to the term "Reduction Amount Letter of Credit Agreement". (q) Subsection (a) of Section 5.07 is amended by changing the term "the Loan payments" contained in clause (2) thereof to the term "the Lease payments". (r) Subsection (b) of Section 5.07 is amended by (i) changing the term "B Certificate of Termination Demand" contained therein to the term "Certificate of B Termination Demand", (ii) deleting clause (ii) thereof (creating Cash Collateral Account C), and (iii) deleting the words "and Cash Collateral Account C" from the proviso thereto. (s) Section 5.07 is further amended by deleting therefrom subsection (e) (concerning Cash Collateral Account C). (t) Section 5.08 is amended by (i) deleting the second sentence thereof (concerning the Cash Reserve Account), (ii) changing the first reference to "Cash Reserve Conversion" in the third sentence thereof to "A Conversion" and (iii) deleting the second reference to "Cash Reserve Conversion" in the third sentence thereof. (u) Subsection (a) of Section 5.09 is amended in full to read: "(a) When established, the Cash Collateral Accounts are intended to function in all respects as replacements in whole or in part for, and the equivalent of all or a portion of, the Series 1996-2 Fronting Letters of Credit. Accordingly, following their creation, each reference herein to "LOC Liquidity Disbursements", "LOC Credit Disbursements", "Conversion" and similar terms shall mean and be a reference to actions taken with respect to the Cash Collateral Accounts that correspond to actions that otherwise would have been taken with respect to the Series 1996-2 Fronting Letters of Credit. Without limiting the generality of the foregoing, upon funding of the Cash Collateral Accounts, the NFC Collateral Agent shall, (i) at 17 17 all times after the funding of any portion of the Cash Collateral Account A when otherwise required to make a draw under the A Letter of Credit pursuant to the second paragraph of Section 5.05 or 5.06(b), first, make a draw from the Cash Collateral Account A in the amount and at such time as a draw would be made under the A Letter of Credit pursuant to the second paragraph of Section 5.05 or 5.06(b), as applicable, and second, make a draw under the A Letter of Credit and (ii) at all times after the funding of any portion of the Cash Collateral Account B when otherwise required to make a draw under the B Letter of Credit pursuant to the third paragraph of Section 5.05 or Section 5.06(c), make a draw, first, from the Cash Collateral Account B, in each case in the amount and at such time as a draw would be made under the B Letter of Credit pursuant to the third paragraph of Section 5.05 or 5.06(c), as applicable and, second, make a draw under the B Letter of Credit. In addition, when a Conversion is required to occur pursuant to Section 5.08, a Conversion shall occur in respect of drawings made on the Cash Collateral Accounts pursuant to Section 5.06(b) or (c). The NFC Collateral Agent shall provide written notice to National, each Rating Agency and the Series 1996-2 Support Credit Enhancers of any draw from the Cash Collateral Accounts pursuant to Section 5.05. The Cash Collateral Account A shall be reimbursed in the amount that would have been paid to the A Support Credit Enhancers in respect of A Support Liquidity Disbursements under Sections 2.01 and 5.02(b). The Cash Collateral Account B shall be reimbursed in the amount that would have been paid to the B Support Credit Enhancer in respect of B Support LOC Liquidity Disbursements under Sections 2.01 and 5.02(b). The Cash Collateral Accounts shall be reimbursed for any withdrawals made pursuant to Section 5.05 in the following order of priority: first, the Cash Collateral Account B shall be reimbursed, and, second, the Cash Collateral Account A shall be reimbursed. If, following the occurrence of an Event of Bankruptcy with respect to National, NFLP, NFC or any of the Series 1996-2 Fronting Credit Enhancers, remittance of any amount under clause Fifth of Section 2.01 or under clause (iv) of Section 5.02(b) in respect of any Support Liquidity Disbursement (whether such Support Liquidity Disbursement shall have arisen due to a draw under either of the Series 1996-2 Fronting Letters of Credit or from the Cash Collateral Accounts) would not, following application thereof, immediately reinstate the Series 1996-2 Fronting Letters of Credit or the Cash Collateral Accounts to the full extent of the portion of such payment that is in respect of principal, no remittance shall be made in respect of the principal amount of such Support Liquidity Disbursement and funds otherwise available for such purpose shall be remitted, to the extent permitted by law, to the Liquidity Lenders for ratable application against the principal amount of Liquidity Advances then outstanding. Any notice required to have been given to the Support Credit Enhancers shall continue to be given until such time as the Support Credit Enhancers are reimbursed in full." 18 18 (v) Subsection (b) of Section 5.09 is amended by deleting therefrom (i) clause (iii) thereof (concerning Cash Collateral Account C), (ii) the words "or National with respect to the Cash Collateral Account C" wherever such words appear, and (iii) clause second thereof, and by changing clauses third and fourth thereof to clauses second and third, respectively. (w) Subsection (a) of Section 7.02 is amended by restating the fourth sentence thereof to read: "The aggregate liability of the Liquidity Lenders hereunder for any claim shall be limited to a percentage of the indemnity owing equal to the percentage that the Aggregate Liquidity Commitment is of the Program Size, and the liability of each Series 1996-2 Support Credit Enhancer shall be limited to a percentage of the indemnity owing equal to the percentage that its Credit Enhancer Commitment is of the Program Size." (x) Section 9.04 is amended by changing the address and facsimile number of each of the NFC Collateral Agent, the A Support Credit Enhancers and the B Support Credit enhancer to the respective address and facsimile number set forth below: "If to the NFC Collateral Agent: Until January 1, 1997: Credit Suisse 12 East 49th Street New York, New York 10017 Attention: Asset Finance Telephone: (212) 238-5370 Telecopy No.: (212) 238-5332 From and after January 1, 197: Credit Suisse First Boston 11 Madison Avenue New York, New York 10010 Attention: Asset Finance 19 19 Telephone: (212) 325-9078 Telecopy No.: (212) 325-6677 "If to GM as an A Support Credit Enhancer: General Motors Corporation 767 Fifth Avenue New York, New York 10153 Attention: Assistant Treasurer Tel. No.: (212) 418-3502 Telecopy No.: (212) 418-3695 with a copy to: Attention: Office of the General Counsel General Motors Corporation 3031 West Grand Boulevard Detroit, Michigan 48202 Tel. No.: (313) 974-1969 Telecopy No.: (313) 974-0685 "If to BONY as an A Support Credit Enhancer: The Bank of New York Central Division 19th Floor One Wall Street New York, New York 10286 Attention: Richard A. Raffetto Tel. No.: (212) 635-8044 Telecopy No.: (212) 635-1208 20 20 "If to Credit Agricole as the B Support Credit Enhancer: Caisse Nationale de Credit Agricole 55 East Monroe Street Chicago, Illinois 60603-5702 Attention: Laurence Grant Tel. No.: (312) 372-9200 Telecopy No.: (312) 372-2830" SECTION 3. Conditions of Effectiveness. This Amendment shall become effective when, and only when, the Liquidity Agent shall have received counterparts of this Amendment executed by NFC, GM, BONY, Credit Agricole, Citibank as Liquidity Agent and as Depositary, and Credit Suisse as the NFC Collateral Agent, and Section 2 hereof shall become effective when, and only when, the Liquidity Agreement Amendment, including Sections 2, 3 and 4 thereof, shall have become effective in accordance with Section 5 of the Liquidity Agreement Amendment. SECTION 4. Reference to and Effect on the Related Documents. (a) Upon the effectiveness of this Amendment, including Section 2 hereof, on and after the date hereof each reference in the NFC Collateral Agreement to "this Collateral Agreement", "hereunder", "hereof" or words of like import referring to the NFC Collateral Agreement, and each reference in the other Related Documents to "the Collateral Agreement", "thereunder", "thereof" or words of like import referring to the NFC Collateral Agreement, shall mean and be a reference to the NFC Collateral Agreement as amended hereby, and each reference in the Related Documents to "the Definitions List annexed as Annex A to the Liquidity Agreement" or words of like import shall mean and be a reference to the "Definitions List" as defined in the Liquidity Agreement as amended by the Liquidity Agreement Amendment. (b) Except as specifically amended above or as contemplated by the Liquidity Agreement Amendment and Section 5(e) of the Liquidity Agreement Amendment, the NFC Collateral Agreement and all other Related Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the NFC Collateral Agreement and all of the Assigned Collateral described therein do and shall continue to secure the payment of all NFC Obligations. 21 21 (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party thereto under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. SECTION 5. Limited Recourse to NFC; No Recourse. (a) GM, BONY, Credit Agricole, the Liquidity Agent, the Depositary and the NFC Collateral Agent agree that the obligations of NFC to such parties hereunder shall be payable in the order and priority set forth in Section 2.01 and 5.02(b), as applicable, of the NFC Collateral Agreement. Such obligations shall be due and payable only to the extent that NFC's assets and the Series 1996-2 Fronting Letters of Credit Amount are sufficient to pay such obligations. No claims of such parties arising under or in connection with the NFC Collateral Agreement are intended to be impaired or waived by this Section 5. (b) Without limitation to the obligations of NFC hereunder, no recourse shall be had for the payment of any fee hereunder or any other obligation or claim arising out of or based upon this Amendment or any amendment to any other Related Document against any stockholder, employee, officer, director, affiliate or incorporator of NFC based on their status as such or their actions in connection therewith. The provisions of this Section 5 shall survive the termination of this Amendment. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall constitute delivery of a manually executed counterpart of this Amendment. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. 22 22 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL FLEET FUNDING CORPORATION By /s/ MJ Becker --------------------- Name: MJ Becker Title: CREDIT SUISSE, NEW YORK BRANCH, as NFC Collateral Agent By /s/ Roger W. Saylor --------------------- Name: ROGER W. SAYLOR Title: ASSOCIATE By /s/ Carl Jackson --------------------- Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT CITIBANK, N.A., as Liquidity Agent and as Depositary By /s/ Annette Marsula --------------------- Name: Anette Marsula Title: Senior Trust Officer 23 23 GENERAL MOTORS CORPORATION, as an A Support Credit Enhancer By /s/ Marc L. Bourhis ----------------------- Name: Marc L. Bourhis Title: Attorney-in-fact THE BANK OF NEW YORK, as an A Support Credit Enhancer By /s/ Richard A. Raffetto ----------------------- Name: Richard A. Raffetto Title: Assistant Vice President 24 24 CAISSE NATIONALE DE CREDIT AGRICOLE, as B Support Credit Enhancer By /s/ Katherine L. Abbott ---------------------------- Name: KATHERINE L. ABBOTT Title: FIRST VICE PRESIDENT CS FIRST BOSTON CORPORATION, as a Dealer By /s/ Mark D. Wolsij ---------------------------- Name: MARK D. WOLSIJ Title: VICE PRESIDENT GOLDMAN, SACHS & CO. (successor organization to Goldman Sachs Money Markets, L.P.), as a Dealer By: /s/ John P. Heanne ---------------------------- Name: John P. Heanne Title: Authorized Signatory CITICORP SECURITIES, INC., as a Dealer By /s/ J. Darrell Thomas ---------------------------- Name: J. Darrell Thomas Title: Vice President EX-4.18 19 AMDT. & RESTATED MARTER COLL. AGENCY AGREEMENT 1 Exhibit 4.18 EXECUTION COPY AMENDED AND RESTATED MASTER COLLATERAL AGENCY AGREEMENT among NATIONAL CAR RENTAL SYSTEM, INC., as a grantor and as Servicer, NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as a grantor, as a Financing Source and as a Beneficiary VARIOUS FINANCING SOURCES PARTIES HERETO, VARIOUS BENEFICIARIES PARTIES HERETO, and CITIBANK, N.A., not in its individual capacity but solely as Master Collateral Agent Dated as of April 30, 1996 2
TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I CERTAIN DEFINITIONS 1.1. Certain Definitions .................................................3 1.2 Interpretation and Construction ....................................14 ARTICLE II MASTER COLLATERAL AGENT AS LIENHOLDER FOR THE BENEFICIARIES 2.1. Security Interest ..................................................14 2.2. Designation of Beneficiaries .......................................17 2.3. Redesignation of Beneficiaries .....................................18 2.4. Servicer's Fleet Report ............................................19 2.5. Master Collateral Account ..........................................19 2.6. Certificates of Title ..............................................22 2.7. Release of Collateral ..............................................22 2.8. Power of Attorney ..................................................24 ARTICLE III THE SERVICER 3.1. Acceptance of Appointment...........................................24 3.2. Servicer Functions .................................................24 3.3. The Servicer Not to Resign .........................................25 3.4. Servicing Rights of Master Collateral Agent ........................26 3.5. Incumbency Certificate .............................................26 ARTICLE IV THE MASTER COLLATERAL AGENT 4.1. Appointment.........................................................26 4.2. Representations.....................................................29 4.3. Exculpatory Provisions..............................................29 4.4. Limitations on Duties of the Master Collateral Agent ............................................................30 4.5. Resignation and Removal of Master Collateral Agent ............................................................33 4.6. Status of Successors to Master Collateral Agent ............................................................34 4.7. Merger of the Master Collateral Agent...............................34
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Section Page - ------- ---- 4.8. Compensation and Expenses...........................................35 4.9. Stamp, Other Similar Taxes and Filing Fees..........................35 4.10. Indemnification.....................................................35 ARTICLE V MISCELLANEOUS 5.1. Amendments, Supplements and Waivers.................................36 5.2. Notices.............................................................37 5.3. Headings ...........................................................37 5.4. Severability .......................................................37 5.5. Counterparts........................................................37 5.6. Conflicts with Financing Documents; Reservation of Rights.........................................................37 5.7. Binding Effect......................................................38 5.8. Governing Law.......................................................38 5.9. Effectiveness.......................................................38 5.10. Termination of Beneficiary..........................................38 5.11. Termination of this Agreement.......................................38 5.12. Assignment by Financing Sources.....................................39 5.13. NFC Related Documents; NFLP's Related Documents.........................................................39 5.14. No Bankruptcy Petition Against Financing Sources...........................................................39 5.15. Jurisdiction; Consent to Service of Process.........................39 5.16. Waiver of Jury Trail................................................40 5.17. Insurance Notification..............................................40
EXHIBITS Exhibit A Supplement Exhibit B Servicer's Fleet Report Exhibit C Certificate of Title Locations Exhibit D Power of Attorney
-ii- 4 AMENDED AND RESTATED MASTER COLLATERAL AGENCY AGREEMENT THIS AMENDED AND RESTATED MASTER COLLATERAL AGENCY AGREEMENT, dated as of April 30, 1996 (amending and restating the Master Collateral Agency Agreement dated as of June 7, 1995 (the "Original Agreement")) (as further amended, supplemented, restated or otherwise modified from time to time, this "Agreement"), among NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"), as servicer (in such capacity, the "Servicer") and as a grantor, NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a Delaware limited partnership ("NFLP"), as a grantor, THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as trustee for the benefit of the Noteholders under the NFLP Indenture referred to below (in such capacity, the "Trustee"), NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), GENERAL MOTORS CORPORATION, a Delaware corporation, in its capacity as Support Credit Enhancer ("GM"), CITIBANK, N.A., a national banking association ("Citi"), CREDIT SUISSE, a Swiss banking corporation acting through its New York branch ("Credit Suisse"; and together with NFLP, NFC, GM, Citi and any other party which from time to time executes a Supplement hereto as a Financing Source (which may include National) being herein called individually a "Financing Source" and collectively, the "Financing Sources"), CREDIT SUISSE, a Swiss banking corporation acting through its New York branch, as collateral agent under the NFC Collateral Agreement referred to below (in such capacity, the "NFC Agent" and together with the Trustee, GM, Citi, Credit Suisse and any other party which from time to time executes a Supplement hereto as a Beneficiary being herein called individually a "Beneficiary" and collectively, the "Beneficiaries"), and CITIBANK, N.A., not in its individual capacity but solely as master collateral agent for the Beneficiaries (in such capacity, the "Master Collateral Agent"). BACKGROUND 1. The parties to the Original Agreement (such term and all other capitalized terms used herein having the meanings assigned thereto in Section 1.1 hereof unless otherwise indicated) desire to amend and restate the Original Agreement in its entirety to provide for, among other things, the addition of NFLP as a grantor thereunder in connection with the extension of financing by NFLP to National and the acquisition of Vehicles by NFLP to be leased to National. 2. National now owns, and will from time to time hereafter acquire or lease, certain Vehicles for use in its daily domestic rental operations. NFLP will from time to time acquire and lease 5 to National, certain Vehicles for use in National's daily domestic rental operations. 3. Pursuant to the Financing Documents executed by NFC, (i) NFC has made, and may from time to time hereafter make loans to National secured by, among other things, Vehicles and related rights, and (ii) NFC has assigned to the NFC Agent all such loans and related security. 4. Pursuant to the Financing Documents executed by NFLP, (i) NFLP may from time to time extend financing to National secured by, among other things, Vehicles and related rights, and (ii) NFLP has assigned to the Trustee all such obligations of National and related security. 5. Pursuant to the Financing Documents executed by NFLP, (i) NFLP may from time to time acquire vehicles and lease such Vehicles to National, and (ii) NFLP is assigning such lease and granting a security interest in the Vehicles acquired by it and related security to the Master Collateral Agent hereunder for the benefit of the Trustee. 6. Pursuant to that certain Supplement to Master Collateral Agency Agreement dated as of June 7, 1995, each of Citi and Credit Suisse was designated as a Financing Source and a Beneficiary under the Original Agreement to secure payment of National's obligations from time to time owing to Citi and Credit Suisse under the B Support Letter of Credit Reimbursement Agreement, dated as of June 7, 1995, among National, NFC, Citi and Credit Suisse. 7. (a) Pursuant to that certain Supplement to Master Collateral Agency Agreement dated as of June 7, 1995, GM was designated as a Financing Source and a Beneficiary under the Original Agreement to secure payment of National's obligations from time to time owing to GM under the A Support Reimbursement Agreement, dated as of June 7, 1995, among National, NFC and GM. (b) Pursuant to section 2.2 of this Agreement, GM is being designated as a Financing Source and Beneficiary under this Agreement to secure payment of National's obligations from time to time owing to GM under the Support Reimbursement Agreement, dated as of April 30, 1996, between National and GM. 8. Each of National and NFLP may from time to time obtain financing with respect to Vehicles acquired by it or obtain credit enhancement to support such financing from other Persons (which Persons providing financing to National will include NFLP) which are or shall hereafter become parties hereto as Financing Sources or shall hereafter be named as Beneficiaries with respect to a Financing Source. -2- 6 9. Citibank, N.A. has agreed to act as Master Collateral Agent, and in its capacity as Master Collateral Agent to be named as the lienholder on the Certificates of Title for the Vehicles, for the benefit of the Beneficiaries from time to time. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS SECTION 1.1. Certain Definitions. As used in this Agreement, the following terms have the respective meanings set forth below or set forth in another section hereof or in any other agreement as indicated. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions List attached as Schedule 1 to the Base Indenture as in effect on the date hereof and as such Schedule 1 may be amended, supplemented or modified from time to time in accordance with the terms of the Base Indenture (the "Definitions List"). "Affiliate" means, with respect to any specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and "controlled" and "controlling" have meanings correlative to the foregoing. "Assignment Agreement" means the agreement with respect to each Manufacturer and its Manufacturer Program, entered into or to be entered into among NFLP and/or National, as assignor, and the Master Collateral Agent, as assignee, and acknowledged by such Manufacturer, assigning to the Master Collateral Agent certain of NFLP's and/or National's right, title and interest in such Manufacturer's Manufacturer Program as it relates to Vehicles purchased from such Manufacturer. "Base Indenture" shall mean the Base Indenture, dated as of April 30, 1996, as such agreement may be amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, between NFLP and The Bank of New York, as Trustee. "Beneficiary" has the meaning set forth in the preamble. -3- 7 "'Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York, Minneapolis, Minnesota and in the city in which the Corporate Trust Office is located are authorized or obligated by law or executive order to be closed. "Capitalized Cost" means, with respect to each Vehicle, the price paid for such Vehicle by National or NFLP, as applicable, to the dealer or Manufacturer selling such Vehicle, as more specifically defined in the Financing Documents related to a Financing Source. "Certificate of Title" means, with respect to each Vehicle, the certificate of title applicable to that Vehicle duly issued in accordance with the certificate of title act or statute covering that Vehicle. "Chrysler" means Chrysler Corporation, a Delaware corporation. "Corporate Trust Office" means the principal corporate trust office of the Master Collateral Agent, located at 120 Wall Street, 13th Floor, New York, New York, Attn: Structured Finance Group, or at such other address as the Master Collateral Agent may designate from time to time by notice to National. "Default" means any event of default or amortization event or any default or any event, act or condition which with the lapse of time or notice or both would become an event of default or amortization event (other than any scheduled amortization event) under any of the Financing Documents. "Depositary Agreement" means the Depositary Agreement, dated as of June 7, 1995, between NFC and Citibank, N.A., as depositary, as the same may be amended, supplemented or modified from time to time. "Depreciation Charge" means with respect to any Vehicle which is a Related Vehicle of a Beneficiary, Depreciation Charge as defined in the Financing Documents related to such Beneficiary, and if Depreciation Charge is not defined in such Financing Documents, "Depreciation Charge" means, with respect to any Vehicle covered by a Repurchase Program, the scheduled daily depreciation charge set forth by the Manufacturer in its Repurchase Program for such Vehicle calculated as set forth in such Repurchase Program. "Designated Vehicle" means a Vehicle owned by NFLP or National with respect to which the Servicer, National or NFLP has notified the Master Collateral Agent in writing that such Vehicle has been designated to be exchanged for one or more Replacement -4- 8 Vehicles or released for exchange pursuant to an Exchange Agreement. "Duff & Phelps" means Duff & Phelps Credit Rating Co. "Eligible Investments" means (a) Government Obligations; (b) Participation certificates (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) and senior debt obligations of the Federal Home Loan Mortgage Corporation, consolidated system wide bonds and notes of the Farm Credit System, senior debt obligations and mortgage-backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) of the Federal National Mortgage Association which, in the case of mortgage-backed securities, are rated at least AA by S&P and Aa by Moody's (and, if any securities issued by, or indebtedness of, a Financing Source is then rated by Duff & Phelps and Duff & Phelps rates such mortgage-backed securities, are rated at least AA by Duff & Phelps), senior debt obligations (excluding securities that have no fixed value and/or whose terms do not promise a fixed dollar amount at maturity or call date) of the Student Loan Marketing Association and debt obligations of the Resolution Funding Corp. (collectively, "Agency Obligations"); (c) Direct obligations of any state of the United States of America or any subdivision or agency thereof whose short-term unsecured general obligation debt has ratings from Standard & Poor's of at least A-1 and Moody's of at least P-1 (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source are then rated by Duff & Phelps and Duff & Phelps rates such investment) or any obligation that has ratings from S&P and Moody's at least equivalent to A-1 and P-1, respectively (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source are then rated by Duff & Phelps and Duff & Phelps rates such investment), and which is fully and unconditionally guaranteed by any state, subdivision or agency whose short-term, unsecured general obligation debt has ratings from Standard & Poor's and Moody's at least equivalent to A-l and P-1, respectively (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source is then rated by Duff & Phelps and Duff & Phelps rates such investment); -5- 9 (d) Commercial paper maturing in not more that three hundred sixty-five (365) days and having ratings from Standard & Poor's and Moody's at least equivalent to A-1 and P-1, respectively (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source are then rated by Duff & Phelps and Duff & Phelps rates such investment); (e) Deposits, federal funds or bankers acceptances (maturing in not more that three hundred sixty-five (365) days) of any domestic bank (including a branch office of a foreign bank which branch office is located in the United States, provided that the Master Collateral Agent shall have received a legal opinion or opinions to the effect that full timely payment of such deposit or similar obligation is enforceable against the principal office or any branch of such bank), which: (i) has an unsecured, uninsured and unguaranteed obligation which has ratings from Standard & Poor's and Moody's at least equivalent to A-1 and P-1, respectively (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source are then rated by Duff & Phelps and Duff & Phelps rates such investment), or (ii) is the lead bank of a parent bank holding company with an uninsured, unsecured and unguaranteed obligation meeting the rating requirements in (i) above; (f) Deposits of any bank or savings and loan association which has combined capital, surplus and undivided profits of not less than $100 million, provided such deposits are fully insured by the FDIC, the Banking Insurance Fund or the Savings Association Insurance Fund; (g) Investments in a money-market fund which may be a 12b-1 fund as registered under the Investment Company Act and is rated at least the equivalent of AAm or AAm-G by Standard & Poor's and P-1 by Moody's (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source are then rated by Duff & Phelps and Duff & Phelps rates such investment); (h) Repurchase agreements with any institution having short-term, unsecured debt rated at least the equivalent of A-1 by Standard & Poor's and P-1 by Moody's (and at least D-1 from Duff & Phelps, if any securities issued by or indebtedness of a Financing Source are then rated by Duff & Phelps and Duff & Phelps rates such investment); and -6- 10 (i) Other investment instruments approved in writing by the Majority Beneficiaries and offered by financial institutions that have a combined capital and surplus and undivided profits of not less than $250,000,000 and with respect to which the Master Collateral Agent shall have received written confirmation of the Rating Agencies that inclusion of any such investment instrument as an Eligible Investment will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by the Rating Agencies. "Eligible Vehicle" means, with respect to each Financing Source, a Vehicle meeting the requirements for financing under the Financing Documents with respect to such Financing Source. "Exchange Agreement" means an agreement among NFLP, National and the Qualified Intermediary which provides for the assignment by NFLP or National to the Qualified Intermediary of (i) Exchanged Vehicles, (ii) all Exchanged Vehicle Repurchase Rights, (iii) all right, title and interest of NFLP or National in, to and under any contracts for the sale of any Exchanged Vehicle and (iv) all right, title and interest of NFLP in, to and under any contracts for the purchase of Replacement Vehicles; provided that any such Exchange Agreement covering Vehicles financed under any Financing Documents will not become effective with respect to Vehicles financed under such Financing Documents until NFLP and National obtain (i) from each Rating Agency written confirmation that entry into such Exchange Agreement will not result in the reduction or withdrawal of the then current rating of any outstanding securities or indebtedness issued by a Financing Source and (ii) opinions of counsel with respect to perfection, priority and non-consolidation in substantially the same form as those delivered as of the Closing Date. "Exchanged Vehicle" means a Designated Vehicle that (i) (a) if subject to a Repurchase Program, has been accepted for repurchase by the Manufacturer under the related Repurchase Program or (b) if not subject to a Repurchase Program, has been sold to a third party, (ii) (a) with respect to which NFLP or National has received or concurrently receives delivery of one or more Replacement Vehicles with an aggregate Net Book Value equal to or greater than the Termination Value of such Designated Vehicle or (b) with respect to which the release of the lien of the Master Collateral Agent thereon would not cause an Asset Amount Deficiency to exist and (iii) with respect to which the Lien of the Master Collateral Agent has been released in accordance with Section 2.7 of this Agreement; provided that until the NFC Agent provides written notice to the contrary to the Master Collateral Agent, no Vehicle that is a Related Vehicle with respect to NFC shall be an Exchanged Vehicle. -7- 11 "Exchanged Vehicle Insurance Proceeds" means, with respect to each Exchanged Vehicle, all payments under insurance policies (whether or not the Master Collateral Agent is named as the loss payee thereof) or any warranty payable by reason of loss or damage to, or otherwise with respect to, any Exchanged Vehicle. "Exchanged Vehicle Repurchase Rights" means, with respect to each Exchanged Vehicle that is subject to a Repurchase Program, all right, title and interest of NFLP or National in, to and under each Repurchase Program associated with any Exchanged Vehicles, to the extent such right, title and interest relates to such Exchanged Vehicles, including any amendments thereof and all monies due and to become due in respect of such Exchanged Vehicle under or in connection with such Repurchase Program, whether payable as Vehicle repurchase prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Repurchase Program or otherwise and all rights to compel performance and otherwise exercise remedies thereunder. "Excluded Payments" means the following amounts payable to National or NFLP pursuant to the Repurchase Programs: (i) all incentive payments payable to National or NFLP in respect of purchases of Vehicles under the Repurchase Programs (but not any amounts payable to National or NFLP by a Manufacturer as an incentive for selling Program Vehicles outside of the related Repurchase Program), (ii) all amounts payable to National or NFLP as compensation for the preparation by National or NFLP of newly delivered vehicles under the Repurchase Programs, (iii) all amounts payable to National or NFLP in reimbursement for warranty work performed by National or NFLP on the vehicles under the Repurchase Programs and (iv) all amounts payable to National under Section 6.11 of the Asset Purchase Agreement, dated as of April 4, 1995 among GM, Old National and National. "FDIC" means the Federal Deposit Insurance Corporation. "Financing Documents" means any and all agreements, instruments and contracts evidencing or related to any financing arrangement between National and/or NFLP and a Financing Source providing for the making of loans to National or NFLP, the purchase of assets, or undivided interests therein, from National or NFLP, the lease to National of Vehicles, any other arrangement providing for the financing of the Vehicles, except any agreement to provide financing to a Qualified Intermediary and all agreements, indentures, instruments and contracts pursuant to which any Financing Source grants an interest in any portion of the Master Collateral to a Beneficiary, in any such case, as such agreements, indentures, instruments and contracts may be amended, supplemented, extended or otherwise modified from time to time. -8- 12 "Financing Source" has the meaning set forth in the preamble. "Fleet Report" means the monthly report substantially in the form of Exhibit B hereto required to be delivered by the Servicer to the Master Collateral Agent pursuant to Section 2.4 hereof. "GM" means General Motors Corporation, a Delaware corporation. "GM Guaranty" means the guaranty issued by GM to National, dated as of June 7, 1995, guaranteeing the obligations of Old National under the Vehicle Title Nominee Agreement. "Government Obligations" means direct obligations of, or obligations the timely payment of principal of and interest on which is fully and unconditionally guaranteed by, the United States of America and U.S. Treasury REFCORPS. "Guaranteed Depreciation Program" means a guaranteed depreciation program pursuant to which a Manufacturer has agreed with National or NFLP to (a) cause Vehicles manufactured by it or one of its Affiliates that are turned back during the specified Repurchase Period to be sold at Auction by an auction dealer, (b) cause the proceeds of any such sale to be paid to National or NFLP, (or NFLP's Qualified Intermediary) as applicable, by such auction dealer within seven days of such sale and (c) pay to National or NFLP, as applicable, the excess, if any, of the guaranteed payment amount with respect to any such Vehicle calculated as of the Disposition Date in accordance with the provisions of such guaranteed depreciation program over the amount paid to National or NFLP, as applicable, by an auction dealer pursuant to clause (b) above. "Guaranteed Payment" means the amount payable by a Manufacturer under a Guaranteed Depreciation Program in respect of any particular vehicle. "Incumbency Certificate" has the meaning set forth in Section 3.5. "Initial Vehicles" means the Vehicles financed by National under the NFC Financing Documents on June 9, 1995. "Intercreditor Agreement" means the Intercreditor and Subordination Agreement dated as of June 7, 1995 among National, certain subordinated creditors listed on Schedule A thereto and certain senior creditors listed on Schedule B thereto, as the same may be amended, supplemented, modified or waived from time to time. -9- 13 "Investment Company Act" means the Investment Company Act of 1940, as amended. "Investment Letter" has the meaning set forth in Section 2.5(f) hereof. "Lien" means, when used with respect to any Person, any interest in any real or personal property, asset or other right held, owned or being purchased or acquired by such Person which secures payment or performance of any obligation, and shall include any mortgage, lien, pledge, encumbrance, charge, retained security title of a conditional vendor or lessor, or other security interest of any kind, whether arising under a security agreement, mortgage, lease, deed of trust, chattel mortgage, assignment, pledge, retention or security title, financing or similar statement, or notice or arising as a matter of law, judicial process or otherwise. "Liquidity Agreement" means the Liquidity Agreement, dated as of June 7, 1995, among NFC, the financial institutions on the signature pages thereof, and Citibank, N.A., as liquidity agent for such financial institutions, as the same may be amended, extended, supplemented or modified from time to time. "Majority Beneficiaries" means, at any time, Beneficiaries (other than National, if applicable) that hold or represent or act on behalf of Financing Sources (other than National, if applicable) that hold (including by way of pledge or assignment) more than 66-2/3% of the outstanding principal amount of indebtedness of National or NFLP under the Financing Documents at such time (excluding any such indebtedness held by National or NFLP). "Manufacturer" means a manufacturer of passenger automobiles and/or light trucks. "Master Collateral" has the meaning set forth in Section 2.1 "Master Collateral Account" has the meaning set forth in Section 2.5. "Master Collateral Agent" has the meaning set forth in the preamble, and includes any successor to Citibank, N.A. in its capacity as Master Collateral Agent. "Moody's" means Moody's Investors Services, Inc. "National Master Collateral" has the meaning set forth in Section 2.1(a). -10- 14 "Net Book Value" means, at any time with respect to each Related Vehicle, such Vehicles Capitalized Cost minus the aggregate Depreciation Charges, if any, accrued for such Vehicle through the last day of the Related Month and/or as more specifically calculated in accordance with the Financing Documents for the related Financing Source. "NFC" has the meaning set forth in the preamble. "NFC Agent" has the meaning set forth in the preamble. "NFC Collateral Agreement" means the Collateral Agreement dated as of June 7, 1995, among NFC, GM, as A support credit enhancer, Citibank, N.A., as agent for the financial institutions party to the Liquidity Agreement, as depositary under the Depositary Agreement, as placement agent and as a B support credit enhancer, Credit Suisse, as a B support credit enhancer, the NFC Agent and CS First Boston Corporation, as dealer, as the same may be amended, supplemented or modified from time to time. "NFC Loan Agreement" means the Loan Agreement, dated as of June 7, 1995, between NFC and National, as the same may be amended, supplemented or modified from time to time. "NFLP" has the meaning set forth in the preamble. "NFLP Indenture" means the Base Indenture, dated as of April 30, 1996, between NFLP and the Trustee, incorporating each of the Series Supplements thereto executed and delivered from time to time, as such Base Indenture or Series Supplements may be amended, supplemented or modified from time to time. "NFLP Master Collateral" has the meaning set forth in Section 2.1(b). "Officer's Certificate" means, with respect to any Person, a certificate executed by the President, any Vice President, the Secretary, the Treasurer, the general partner or any other person designated as an authorized officer by the board of directors of such Person. "Old National" means National Car Rental System, Inc., a wholly-owned subsidiary of GM, as seller under that certain Asset Purchase Agreement, dated as of April 4, 1995, among Old National, NCR Acquisition Corp., as buyer, and GM. "Original Agreement" has the meaning set forth in the preamble. -11- 15 "Person" means an individual, partnership, corporation, trust or unincorporated organization, or government or agency or political subdivision thereof. "Pro rata" means, at any time as to any interest or amount with respect to any Beneficiary, a fraction the numerator of which is the then aggregate indebtedness and other obligations of each of National and NFLP, as applicable, then owing to the Financing Source relating to such Beneficiary and the denominator of which is the then aggregate indebtedness and other obligations of each of National and NFLP, as applicable, then owing to all Financing Sources; provided, however, that if a Beneficiary must return any amount paid with respect to such obligations for any reason, such returned amounts shall be reinstated as obligations for purposes of the foregoing calculation. "Qualified Institution" means a depositary institution or trust company (which may include the Master Collateral Agent) organized under the laws of the United States of America or any one of the states thereof or the District of Columbia; provided, however, that at all times such depositary institution or trust company is a member of the FDIC and has a short-term debt rating of at least A-1 by S&P and P-1 by Moody' s. "Qualified Intermediary" means a party designated in an Exchange Agreement as an intermediary for exchanges of Vehicles by NFLP or National pursuant to such Exchange Agreement. "Rating Agencies" means any rating agency, to the extent such agency, at the request of National or NFLP pursuant to the applicable Financing Documents, is then rating the outstanding securities or indebtedness of any Financing Source. "Related Master Collateral" has the meaning set forth in Section 2.2. "Related Month" means, with respect to any date, the most recently ended calendar month. "Related Vehicles" has the meaning set forth in Section 2.2. "Replacement Vehicle" means an Eligible Vehicle (i) which is owned by NFLP or National, (ii) with respect to which the Master Collateral Agent is noted as the first lienholder on the Certificate of Title therefor, (iii) which is subject to no Liens other than the Lien of the Master Collateral Agent and (iv) which (a) has been acquired pursuant to an Exchange Agreement as a Replacement Vehicle for a Designated Vehicle or Designated Vehicles (b)(1) has a Net Book Value equal to or greater than the aggregate Termination Value of the Designated Vehicles or Vehicles which it replaces or (2) has a Net Book Value when -12- 16 aggregated with the Net Book Value of one or more other Replacement Vehicles tendered in exchange for a Designated Vehicle equal to or greater than the Termination Value for such Designated Vehicle and (c) has been designated on the Servicer's computer system as a Related Vehicle with respect to the Beneficiary to which the related Designated Vehicle or Designated Vehicles are designated. "Repurchase Period" means, with respect to any Vehicle covered by a Repurchase Program, the period during which such Vehicle may be turned in to the Manufacturer thereof for repurchase pursuant to the applicable Repurchase Program. "Repurchase Program" means a (i) program pursuant to which a Manufacturer has agreed with National or NFLP to repurchase Vehicles manufactured by it or one of its Affiliates during the specified Repurchase Period or (ii) a guaranteed depreciation program pursuant to which a Manufacturer has agreed with National or NFLP to (a) cause Vehicles manufactured by it or one of its Affiliates that are turned back during the specified Repurchase Period to be sold by an auction dealer, (b) cause the proceeds of any such sale to be paid to National or NFLP (or NFLP's Qualified Intermediary) , as applicable, by such auction dealer within seven days of such sale and (c) pay to National or NFLP, as applicable, the excess, if any, of the guaranteed payment amount with respect to any such Vehicle calculated in accordance with the provisions of such guaranteed depreciation program over the amount paid to National or NFLP, as the case may be, by an auction dealer pursuant to clause (b) above. "Series Supplement" means a supplement to the Base Indenture complying (to the extent applicable) with the terms of Section 2.3 or Article 11 of the Base Indenture. "Servicer" has the meaning set forth in the preamble. "Standard & Poor's" means Standard & Poor's Structured Ratings Group. "Supplement" means a supplement to this Agreement, substantially in the form of Exhibit A hereto. "Termination Value" means, with respect to any Vehicle, as of any date, an amount equal to (i) the Capitalized Cost of such Vehicle minus (ii) unless otherwise deducted in the calculation of "Capitalized Cost", all Depreciation Charges for such Vehicle accrued prior to such date. "Trustee" means, initially, The Bank of New York, as trustee under the NFLP Indenture, or any successor trustee thereunder. -13- 17 "Uniform Commercial Code" or "UCC" means, with respect to a particular jurisdiction, the Uniform Commercial Code, as in effect from time to time in such jurisdiction, or any successor statute thereto. "Vehicle" means each passenger automobile or light truck owned by National or NFLP and purchased, financed or refinanced by National or NFLP with proceeds obtained from a Financing Source including each Initial Vehicle (or otherwise evidenced by a Certificate of Title showing the Master Collateral Agent as lienholder), together with any replacement parts and repairs thereto. "Vehicle Title Nominee Agreement" means the Vehicle Title Nominee Agreement, dated as of June 7, 1995, between Old National and National. SECTION 1.2. Interpretation and Construction. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, to the singular include the plural and to the part include the whole. The words "hereof", "herein", "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". Sections and other headings contained in this Agreement are for reference purposes only and shall not control or effect the construction of this Agreement or the interpretation hereof in any respect. Section, subsection and exhibit references are to this Agreement unless otherwise specified. As used in this Agreement, the masculine, feminine or neuter gender shall each be deemed to include the others whenever the context so indicates. ARTICLE II MASTER COLLATERAL AGENT AS LIENHOLDER FOR THE BENEFICIARIES SECTION 2.1. Security Interest. (a) Grant by National. As security for the payment of the respective obligations from time to time owing by National to each Financing Source (or any Beneficiary as assignee thereof) under the related Financing Documents, National hereby (i) confirms its grant, pledge and assignment pursuant to the Original Agreement and (ii) to the extent not covered under clause (i), hereby grants, pledges and assigns to the Master Collateral Agent for the benefit of the Beneficiaries (to the -14- 18 extent set forth in Sections 2.2 and 2.3), of a continuing, first priority Lien on all right, title and interest of National in, to and under the following, whether existing or acquired as of June 7, 1995 or thereafter (the "National Master Collateral"): (i) all Vehicles owned by National and all Certificates of Title with respect thereto; (ii) the Master Collateral Account and all funds from time to time deposited or held therein; (iii) all investments of funds on deposit in the Master Collateral Account, and all certificates, instruments and documents related to such investments; (iv) each Repurchase Program (other than Excluded Payments) associated with the Vehicles owned by National to the extent such right, title and interest relates to such Vehicles, including any amendments thereof and all monies due and to become due in respect of such Vehicles under or in connection with each such Repurchase Program whether payable as Vehicle repurchase prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Repurchase Program or otherwise and all rights to compel performance and otherwise exercise remedies thereunder; (v) the Vehicle Title Nominee Agreement; (vi) the GM Guaranty; (vii) all payments under insurance policies (whether or not the Master Collateral Agent is named as the loss payee thereof) or any warranty payable by reason of loss or damage to, or otherwise with respect to, any of the Vehicles owned by National; and (viii) any and all products and proceeds of any of the foregoing; provided that in no event shall any of the foregoing include any right, title or interest in the Fleet Finance Agreement or the NFLP Fleet Finance Agreement and payments made thereunder. Notwithstanding anything to the contrary contained in this Master Collateral Agency Agreement, the pledge and security interest granted by National hereunder is an extension of the pledge and security interest granted under the Original Agreement. (b) Grant by NFLP. As security for the payment of the respective obligations from time to time owing by NFLP to each Financing Source (or any Beneficiary as assignee thereof) under -15- 19 the related Financing Documents, NFLP hereby grants, pledges and assigns to the Master Collateral Agent for the benefit of the Beneficiaries (to the extent set forth in Sections 2.2 and 2.3), a continuing, first priority Lien on all NFLP's right, title and interest in, to and under the following, whether now or hereafter existing or acquired (the "NFLP Master Collateral" and together with the National Master Collateral, the "Master Collateral"): (i) all Vehicles owned by NFLP and all Certificates of Title with respect thereto; (ii) the Master Collateral Account and all funds from time to time deposited or held therein; (iii) all investments of funds on deposit in the Master Collateral Account, and all certificates, instruments and documents related to such investments; (iv) each Repurchase Program associated with the Vehicles owned by NFLP to the extent such right, title and interest relates to such Vehicles, including any amendments thereof and all monies due and to become due in respect of such Vehicles under or in connection with each such Repurchase Program (other than Excluded Payments) whether payable as Vehicle repurchase prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Repurchase Program or otherwise and all rights to compel performance and otherwise exercise remedies thereunder; (v) all payments under insurance policies (whether or not the Master Collateral Agent is named as the loss payee thereof) or any warranty payable by reason of loss or damage to, or otherwise with respect to, any of the Vehicles owned by NFLP; and (vi) all right, title and interest of NFLP in, to and under the Vehicle Title Nominee Agreement; (vii) all right, title and interest of NFLP in, to and under the GM Guaranty; (viii) any and all products and proceeds of any of the foregoing; provided that in no event shall any of the foregoing include any right, title or interest in the Fleet Finance Agreement or the NFLP Fleet Finance Agreement and payments made thereunder. Each of National, NFLP, each Financing Source and each Beneficiary hereby authorizes the Master Collateral Agent to be named as the first lienholder on the Certificates of Title for -16- 20 the Vehicles (other than the Initial Vehicles), in a representative capacity, as Master Collateral Agent for the Beneficiaries. The Master Collateral Agent agrees that all of its right, title and interest in and to the Master Collateral shall be solely for the respective benefit of each Beneficiary. Each Financing Source and each Beneficiary hereby directs the Master Collateral Agent to execute and deliver as of the date set forth therein in its capacity as Master Collateral Agent hereunder each Assignment Agreement hereafter entered into by National or NFLP. SECTION 2.2. Designation of Beneficiaries. Each of the NFC Agent, the Trustee, GM, Citi, Credit Suisse and any party which from time to time executes a Supplement as a beneficiary is hereby designated as the Beneficiary with respect to the Vehicles designated on the Servicer's computer system as Vehicles acquired by or financed with the proceeds advanced by the related Financing Source or as otherwise provided in a Supplement with respect to such Beneficiary ("Related Vehicles") and the other Master Collateral related thereto (the "Related Master Collateral"). The designation of Related Vehicles with respect to each Beneficiary on the Servicer's computer system shall be considered prima facie evidence of such Beneficiary's rights with respect to such Related Vehicles and the Related Master Collateral. If at any time a Beneficiary reasonably believes that such designation by the Servicer is incorrect, it may dispute such designation by delivering a written notice to the Master Collateral Agent setting forth its claim as to the correct designation of its Related Vehicles (each a "Redesignation"). The Master Collateral Agent shall, promptly upon receipt of such notice, distribute a copy thereof to National, NFLP, each Financing Source and each Beneficiary (other than the Beneficiary disputing the Servicer's designation of Related Vehicles). Each such Financing Source and Beneficiary shall, within 10 Business Days of receipt of such notice from the Master Collateral Agent, notify the Master Collateral Agent in writing as to whether it consents to the disputing Beneficiary's Redesignation. If the Master Collateral Agent receives written notice from each such Beneficiary and Financing Source containing its consent to the disputing Beneficiary's Redesignation within the period set forth above, it shall promptly notify the Servicer and the Servicer shall effect such Redesignation. Each Beneficiary shall be entitled to the benefits of this Agreement only with respect to its Related Vehicles and Related Master Collateral. No Beneficiary shall have any interest in (i) any Vehicle which is not a Related Vehicle as to such Beneficiary, or (ii) any funds in the Master Collateral Account that are proceeds of any Vehicle which is not a Related Vehicle as to such Beneficiary, (iii) rights under any Repurchase Program with respect to any Vehicle which is not a Related Vehicle as to such Beneficiary or -17- 21 (iv) any other Master Collateral which is not Related Master Collateral as to such Beneficiary, in each case regardless of the time, order, manner or nature of attachment or perfection of security interests in Vehicles (including the giving of or failure to give any purchase money security interest or other notice, or the order of filing financing statements), or any provision of the Uniform Commercial Code, the federal Bankruptcy Code, or other applicable law. SECTION 2.3. Redesignation of Beneficiaries. Each of National and NFLP may, from time to time (i) finance additional Vehicles with proceeds from a Financing Source, and/or (ii) refinance Vehicles then owned by it and financed by a Financing Source with proceeds from a different Financing Source. In connection therewith, the Servicer shall designate on its computer system the Financing Source the proceeds of which are used to finance or refinance such Vehicles, and, upon repayment of the Financing Source in the case of refinanced Vehicles (x) such Vehicles shall automatically constitute Related Vehicles of the Beneficiary related to such Financing Source, and (y) in the case of a refinancing, such Vehicles shall cease to be Related Vehicles of the Beneficiary related to the previous Financing Source. Notwithstanding the foregoing, in connection with a refinancing the right of the Servicer to designate Vehicles that will cease to be Related Vehicles with respect to a Beneficiary, shall be subject to the conditions that immediately after giving effect to such designation: (a) no Default shall exist under the Financing Documents related to such Beneficiary (provided, however, that the Servicer shall have the right to make such designation for the purpose of curing such Default); and (b) such Beneficiary shall have designated to it Related Vehicles with a collateral value (as determined under the Financing Documents relating to the Financing Source with respect to such Beneficiary) not less than the collateral value required in such Financing Documents to support the outstanding loans or securities issued under such Financing Documents. Each designation or redesignation by the Servicer shall automatically constitute a representation and warranty for the benefit of such Beneficiary that the conditions in Sections 2.3(a) and 2.3(b) have been met and that all Related Vehicles of a Beneficiary meet the eligibility criteria set forth in the relevant Financing Documents and that, in the case of refinanced Vehicles, the loans or securities of the original Financing Source with respect to such refinanced Vehicles have been repaid. Such Vehicles shall be redesignated at their Net Book Value calculated in accordance with the Financing Documents relating to -18- 22 the Financing Source with respect to the applicable Beneficiary. Except as provided in Section 2.5(c), no Beneficiary shall have any interest in any Vehicle or other Master Collateral for which it is no longer designated as the Beneficiary, it being understood that, subject to the satisfaction of the conditions set forth in Sections 2.3(a) and 2.3(b) and repayment of the loans or securities of the original Financing Source with respect to refinanced Vehicles, any such redesignation shall automatically constitute a release by such Beneficiary of any interest therein. SECTION 2.4. Servicer's Fleet Report. Within 20 days after the end of each calendar month, the Servicer shall furnish to the Master Collateral Agent a report (which may be on diskette, magnetic tape or other electronic medium acceptable to the Master Collateral Agent) substantially in the form of Exhibit B ("Fleet Report") showing for each Beneficiary as of the last day of such calendar month and after giving effect to the most recent redesignation of Vehicles (i) the Related Vehicles designated to such Beneficiary identified by the vehicle identification numbers with respect to such Related Vehicles, (ii) whether such Related Vehicles are owned by National or NFLP and (iii) the Capitalized Cost and Net Book Value of such Related Vehicles (calculated in accordance with the Financing Documents relating to the applicable Financing Source). The Master Collateral Agent shall make the Fleet Report available for inspection by any Beneficiary at the Corporate Trust Office, during normal business hours, upon such Beneficiary's written request. SECTION 2.5. Master Collateral Account. (a) The Master Collateral Agent shall establish and maintain in the name of Master Collateral Agent for the benefit of the Beneficiaries, or cause to be established and maintained, an account (the "Master Collateral Account"), bearing a designation clearly indicating that the funds deposited therein are held for the respective benefit of each Beneficiary. The Master Collateral Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers so long as such institution has a credit rating for its unsecured long-term debt not lower than Baa3 by Moody's and not lower than investment grade by Standard & Poor's. If the Master Collateral Account is not maintained in accordance with the previous sentence, then within 10 Business Days of obtaining knowledge of such fact, the Master Collateral Agent shall establish a new Master Collateral Account which complies with such sentence and transfer into the new Master Collateral Account all funds from the non-qualifying Master Collateral Account. Initially, the Master Collateral Account will be established with the Master Collateral Agent. -19- 23 (b) National or NFLP may enter into an Exchange Agreement with respect to Vehicles owned by each of them respectively, an interest in which has been pledged hereunder; provided that the conditions to effectiveness of any such Exchange Agreement with respect to such Vehicles specified in the definition thereof shall have been satisfied. National or NFLP may designate certain Vehicles as Designated Vehicles to be exchanged, pursuant to an Exchange Agreement, for one or more Replacement Vehicles. Upon receiving either (i) the required Replacement Vehicle or Replacement Vehicles as Master Collateral and confirming their compliance with the requirements set forth in the definition of "Replacement Vehicle" by receipt of Vehicle Orders and a Vehicle Acquisition Schedule covering such Replacement Vehicle or Vehicles, or (ii) written confirmation from the Servicer, dated not more than seven days prior to the requested release date, to the effect that the release of the Master Collateral Agent's Lien on such Designated Vehicle and on any Exchanged Vehicle Repurchase Rights and sales proceeds with respect thereto will not result in the Required Asset Amount (calculated on such date) exceeding the Aggregate Asset Amount (calculated on such date, giving effect to all increases in the Ineligible Asset Amount through such date), the Master Collateral Agent shall release its Lien on the related Designated Vehicle in accordance with Section 2.7 hereof, and such Designated Vehicle shall become an Exchanged Vehicle. All proceeds related to Exchanged Vehicles, whether sale proceeds, amounts due under a Repurchase Program, or payments from Manufacturers in respect of turned-back Exchange Vehicles sold at Auction shall no longer be part of the Master Collateral and shall not be required to be deposited into the Master Collateral Account. (c) The Servicer and NFLP, as applicable, shall cause payments (i) representing amounts payable under Repurchase Programs (including Guaranteed Payments, but not including other proceeds from sales of Program Vehicles at Auction or amounts payable by Manufacturers under a Repurchase Program with respect to Exchanged Vehicles) and (ii) relating to the other Master Collateral (other than sale proceeds from sales of Vehicles other than to or through a Manufacturer under its Repurchase Program, insurance proceeds and warranty payments with respect to Vehicles and any amounts payable with respect to Exchanged Vehicles) to be made directly to the Master Collateral Agent for deposit into the Master Collateral Account; provided that in the event any Exchange Agreement is entered into by NFLP and National, a Manufacturer may cause payments representing amounts payable under Manufacturer Programs (including Guaranteed Payments) to be deposited into a Master Deposit Account for further allocation and deposit to (a) the applicable Exchange Account with respect to such payments relating to Exchanged Vehicles and (b) to the Master Collateral Account with respect to all other such payments. Within two Business Days of receipt thereof in -20- 24 available funds, National or NFLP will deposit into the Master Collateral Account proceeds received by National or NFLP from (i) sales of Vehicles other than to or through a Manufacturer under its Repurchase Program, (ii) sales of Vehicles at Auction, and (iii) insurance proceeds and warranty payments received by National or NFLP during the continuance of a default or amortization event with respect to any Financing Source under its Financing Documents. Each of National and NFLP will designate the Master Collateral Agent as loss payee on its physical damage and comprehensive insurance policies on the Vehicles. The Master Collateral Agent shall promptly notify the Servicer when funds are deposited in the Master Collateral Account and promptly thereafter, but in no event more than seven days after the receipt of funds by National or any Financing Source or receipt of such notice from the Master Collateral Agent, as the case may be, the Servicer shall instruct the Master Collateral Agent in writing (upon which instruction the Master Collateral Agent is entitled to conclusively rely) as to (i) the amount thereof which represents payments arising from the Related Vehicles and Related Master Collateral of each Beneficiary and (ii) upon the occurrence and during the continuance of a Default and as needed under clauses (c) and (d) below, the dollar amount thereof that is derived from the National Master Collateral and the NFLP Master Collateral, respectively. The Master Collateral Agent shall promptly after receipt of instructions from the Servicer (upon which instructions the Master Collateral Agent may conclusively rely), distribute or cause to be distributed to each Beneficiary the funds in the Master Collateral Account representing payments arising from the Related Vehicles and Related Master Collateral of such Beneficiary to an account previously specified in writing by such Beneficiary to the Master Collateral Agent, provided, however, that the Servicer shall not direct the Master Collateral Agent to so remit an amount in respect of National Master Collateral or NFLP Master Collateral, as the case may be, that would exceed the amount required to pay all amounts owing to such Beneficiary or to the Financing Source related to such Beneficiary by National and NFLP, respectively. (d) At such time as no further distributions from National or NFLP (as applicable) to a Financing Source, pursuant to the Financing Documents, are required or will be required to be made to a Beneficiary pursuant to Section 2.5(b), all remaining funds allocated to such Beneficiary in the Master Collateral Account shall be distributed to National or NFLP, as their interests appear upon the written direction of the Servicer. (e) If at any time the Master Collateral Agent or the Servicer shall receive any funds to which it is not entitled pursuant to the provisions of this Agreement, the Servicer shall so advise the Master Collateral Agent (upon which advice the Master Collateral Agent may conclusively rely) and the Master -21- 25 Collateral Agent or the Servicer, as the case may be, shall forthwith take reasonable steps to ensure that such funds are remitted to the Person so entitled thereto, such remittance to be made promptly after determination thereof. (f) The Servicer may instruct (upon which instruction the Master Collateral Agent may conclusively rely) the Master Collateral Agent to invest funds on deposit in the Master Collateral Account in Eligible Investments. Such investment instructions may be given by any employee of the Servicer as to whom a National Agent has notified the Master Collateral Agent in writing that such employee is authorized to deliver such instructions. If the Master Collateral Agent does not receive instructions from the Servicer prior to 11:00 a.m. on any day as to the distribution or investment of any funds in the Master Collateral Account then the Master Collateral Agent shall invest such funds in Eligible Investments set forth in a letter (the "Investment Letter") previously delivered by the Servicer to the Master Collateral Agent. All such investments shall be redeemable or mature on the next Business Day. The Master Collateral Agent shall not be responsible for any losses incurred on any investments made pursuant to this paragraph (f). SECTION 2.6. Certificates of Title. The Servicer shall hold all Certificates of Title, in trust, as agent of, and custodian for, the Master Collateral Agent. The Servicer shall (i) hold all such Certificates of Title, under lock and key, in a safe fireproof location at one or more of the offices specified in Exhibit C (as the same may be from time to time revised by the Servicer on 30 days' prior written notice to the parties hereto), and (ii) not release or surrender any Certificate of Title except in accordance with this Agreement (and in any event not release or surrender any of the Certificates of Title other than Certificates of Title as to which the Lien of the Master Collateral Agent has been released in accordance with this Agreement). The Servicer shall cause the Certificates of Title with respect to each Vehicle owned by National (other than the Initial Vehicles) to show National, and each Vehicle owned by NFLP (other than the Initial Vehicles) to show NFLP, as the registered owner and Citibank, N.A., as agent, as the first lienholder, at the address referred to in the next sentence. The Master Collateral Agent has established a post office box in New York City to be used exclusively as its address as first lienholder noted on the Certificates of Title. The Master Collateral Agent shall, on a semi-weekly basis, forward to the Servicer at its address set forth in Section 5.2 hereof, all Certificates of Title received at such post office box address titled in the name of National or in the name of NFLP. SECTION 2.7. Release of Collateral. (a) Upon receiving the required items specified in clause (i) or (ii) of Section -22- 26 2.5(b) hereof, and upon satisfaction of the following conditions precedent immediately prior to the release of such Lien: (I) such Designated Vehicles satisfy all the requirements specified in clause (ii) of the definition of "Exchanged Vehicle", (II) no Amortization Event, Liquidation Event of Default or Limited Liquidation Event of Default has occurred and is continuing, (III) all conditions precedent, if any, specified in any Financing Document with respect to the release of the related Beneficiary's Lien on such Designated Vehicle have been satisfied, the Lien of the Master Collateral Agent on a Designated Vehicle, and on any Exchanged Vehicle Repurchase Rights related thereto and on any sales proceeds with respect to Exchanged Vehicles that are not subject to a Repurchase Program will be automatically released. (b) The Master Collateral Agent hereby grants to the Servicer a power of attorney, with full power of substitution, to take any and all actions, in the name of the Master Collateral Agent, (i) to note the Master Collateral Agent as the holder of a first lien on the Certificates of Title, and/or otherwise ensure that the first Lien shown on any and all Certificates of Title (other than any Certificate of Title relating to an Initial Vehicle) is in the name of the Master Collateral Agent, (ii) to release the Master Collateral Agent's Lien on any Certificate of Title in connection with the sale or disposition of the related Vehicle permitted pursuant to the provisions of the Financing Documents relating to such Vehicle; and (iii) to release the Master Collateral Agent's Lien on any Certificate of Title with respect to any Vehicle which is not a Related Vehicle with respect to any Beneficiary. Nothing in this Agreement shall be construed as authorization from the Master Collateral Agent to the Servicer to release any Lien on the Certificates of Title except upon compliance with this Agreement. (c) Each Beneficiary may cause the Master Collateral Agent to terminate the power of attorney referred to in Section 2.7(a) (including the related power granted under Section 2.8) with respect to such Beneficiary's Related Vehicles after the occurrence, and during the continuance, of a Default (after giving effect to any cure period or grace period) under the Financing Documents relating to the Financing Source with respect to such Beneficiary by giving written notice to such effect to the Servicer and the Master Collateral Agent. The Master Collateral Agent agrees that upon receipt of any such notice it shall promptly terminate such power of attorney by giving written notice to such effect to the Servicer and National. The Master Collateral Agent will follow the direction (upon which direction the Master Collateral Agent may conclusively rely) of the Servicer to release liens on Vehicles unless a contrary direction is received from a Financing Source or Beneficiary or if the -23- 27 Financing Documents require direction to be given by another party. The Servicer will, upon request of the Master Collateral Agent, provide the Master Collateral Agent or any applicable Beneficiary with a list of Vehicles as to which the Lien of the Master Collateral Agent has been released during the Related Month. In connection with any release permitted under this Section 2.7, the Master Collateral Agent and each Beneficiary agrees to execute such further documents, if any, as may be reasonably requested by the Servicer to effect such release. SECTION 2.8. Power of Attorney. To further evidence the power of attorney referred to in Section 2.7, the Master Collateral Agent agrees that upon request of the Servicer it will execute a separate power of attorney substantially in the form of Exhibit D. ARTICLE III THE SERVICER SECTION 3.1. Acceptance of Appointment. The Master Collateral Agent hereby appoints National and National hereby agrees to act as the initial Servicer under this Agreement. Each Financing Source and each Beneficiary hereby appoints National to act as Servicer. SECTION 3.2. Servicer Functions. The Servicer shall service and administer the Vehicles, and without limitation of the foregoing, the Servicer shall: (i) cause the Master Collateral Agent to be shown as the first lienholder on all Certificates of Title (other than Certificates of Title relating to the Initial Vehicles), (ii) in accordance with the requirements of the Financing Documents related to a Financing Source and as applicable thereunder, either (a) designate Vehicles as Related Vehicles on its computer system in accordance with Sections 2.2 and 2.3 hereof such that after giving effect thereto each Beneficiary shall have designated to it Related Vehicles that have been purchased, financed or refinanced with funds provided from the Financing Source or as otherwise provided in a Supplement with respect to such Beneficiary, or (b) designate Vehicles as Related Vehicles on its computer system in accordance with Sections 2.2 and 2.3 hereof such that after giving effect thereto each Beneficiary shall have designated to it Related Vehicles with a collateral value (as determined under the relevant Financing Documents relating to the Financing Source with respect to such Beneficiary) not less than the collateral value required in such Financing Documents to such Beneficiary to support the outstanding loans or securities issued under such -24- 28 Financing Documents, (iii) direct payments due under the Repurchase Programs (other than payments with respect to Exchanged Vehicles) and payments with respect to other Master Collateral (other than insurance proceeds, warranty payments, amounts payable to NFLP with respect to Exchanged Vehicles and sales proceeds from sales of Vehicles to third parties (other than under any related Repurchase Program) or insurance proceeds in respect of Vehicles received directly by the Servicer) to be deposited directly to the Master Collateral Account by the Manufacturers and related auction dealers in accordance with this Agreement and deposit into the Master Collateral Account sale proceeds (including amounts paid to the Servicer by a Manufacturer as a result of the Servicer's sale of such Vehicle outside such Manufacturer's Repurchase Program) or insurance proceeds in respect of the Vehicles (other than Exchanged Vehicles) received directly by the Servicer, within two Business Days of the Servicer's receipt thereof, (iv) except as otherwise permitted under the applicable Financing Documents, turn in Vehicles owned by National and NFLP and covered by Repurchase Programs to the relevant Manufacturer within the applicable repurchase period and comply with all of its obligations under the Repurchase Programs, (v) furnish the Servicer's Fleet Report as provided in Section 2.4, (vi) instruct the Master Collateral Agent to make distributions, withdrawals and payments from the Master Collateral Account in accordance with Section 2.5(b), 2.5(c) and 2.5(d), (vii) execute and deliver, for the benefit of the Beneficiaries, any and all documents with respect to the Vehicles and the Repurchase Programs and, to the extent permitted under and in compliance with applicable law and regulations, to commence enforcement proceedings with respect to such Repurchase Programs, (viii) perform the functions described in Section 2.7, and (ix) otherwise administer and service Vehicles in accordance with the Financing Documents. The Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with its servicing and administration duties which it may deem necessary or desirable to accomplish such servicing and administration duties and which does not materially adversely affect the interests of any Beneficiary or the likelihood of repayment of the indebtedness to the Financing Sources unless otherwise prohibited by applicable Financing Documents. Nothing in this Agreement shall at any time prevent the Servicer from in good faith taking any action to assure that its systems and records relating to the Vehicles and the Financing Sources are at all times accurate. SECTION 3.3. The Servicer Not to Resign. Without the prior written consent of the Master Collateral Agent, each of the Beneficiaries and the Rating Agencies, the Servicer shall not resign from the obligations and duties hereby imposed on it hereunder. -25- 29 SECTION 3.4. Servicing Rights of Master Collateral Agent. If the Servicer shall fail to perform any of its obligations hereunder, which failure adversely affects one or more Beneficiaries, the Master Collateral Agent, at the direction and at the expense of the Beneficiaries so adversely affected thereby, shall take such action or cause such action to be taken (pursuant to Section 4.1(d)), to perform such obligations as shall be so directed by such Beneficiaries, whereupon the Master Collateral Agent shall have full right and authority to take or cause to be taken such action so directed, provided, that, such action or direction is permitted by the related Financing Documents or this Agreement. SECTION 3.5. Incumbency Certificate. With the delivery of this Agreement and from time to time thereafter, each of National and NFLP shall furnish to the Master Collateral Agent a certificate (each, an "Incumbency Certificate") certifying as to the incumbency and specimen signatures of officers of National, NFLP and the Servicer, respectively (the "National Agents") authorized to act, and to give instructions and notices, on behalf of National, NFLP and the Servicer, respectively, hereunder. Until the Master Collateral Agent receives a subsequent Incumbency Certificate, the Master Collateral Agent shall be entitled to rely on the last such National Incumbency Certificate delivered to it for purposes of determining the authorized National Agents. ARTICLE IV THE MASTER COLLATERAL AGENT SECTION 4.1. Appointment. (a) Each Financing Source and each Beneficiary, by its execution of this Agreement, appoints Citibank, N.A. as its Master Collateral Agent under and for purposes of this Agreement. Each Financing Source and each Beneficiary authorizes the Master Collateral Agent to act on behalf of such Financing Source and Beneficiary under this Agreement and, in the absence of other written instructions from a Beneficiary with respect to its Related Vehicles and Related Master Collateral as may be received from time to time by the Master Collateral Agent (with respect to which the Master Collateral Agent agrees that it will comply), subject to the other provisions of this Article IV, to exercise such powers hereunder as are specifically delegated to or required of the Master Collateral Agent by the terms hereof and to exercise such powers as are provided to each Financing Source and Beneficiary with respect to its Related Vehicles and other Related Master Collateral under the related Financing Documents and with such powers as may be reasonably incidental thereto. The Master Collateral Agent is hereby irrevocably appointed the true and -26- 30 lawful attorney-in-fact of each of the Beneficiaries' in its name and stead, for such purposes as are necessary or desirable to effectuate the provisions of this Agreement, including, without limitation, in exercising remedies upon or otherwise dealing with the Master Collateral. Each such power of attorney is irrevocable and coupled with an interest. (b) If any Beneficiary represents to the Master Collateral Agent that it has the right to act with respect to its related Master Collateral pursuant to its related Financing Documents, then the Master Collateral Agent shall exercise any and all rights, remedies, powers and privileges available to such Beneficiary with respect to its related Master Collateral to the extent and in the manner directed by such Beneficiary, at such Beneficiary's expense and subject to the other provisions of this Agreement (including without limitation Section 4.4(g)), as permitted under the related Financing Documents, including, without limitation, the transmission of notices of default, repossession of Related Vehicles, and the institution of legal or administrative actions or proceedings. Each of National, NFLP, the Beneficiaries and the Financing Sources agrees that the Master Collateral Agent may exercise such rights, remedies, powers and privileges in lieu of a Beneficiary in accordance with the preceding sentence and agrees that National or NFLP shall reimburse the Master Collateral Agent for such enforcement expenses only to the same extent that it would be obligated to reimburse the applicable Beneficiary for such enforcement expenses pursuant to the related Financing Documents. (c) Instructions given to the Master Collateral Agent by any Beneficiary shall comply (and delivery of any such instructions by a Beneficiary to the Master Collateral Agent shall be deemed to be a representation and warranty by such Beneficiary that such instructions comply) with the Financing Documents of such Beneficiary. (d) The Master Collateral Agent may at any time delegate any duties or obligations hereunder (including, but not limited to, any duties or obligations arising pursuant to Section 3.4 or 4.1(b) hereof) to any Person who agrees to conduct such duties in accordance with the terms hereof. Any such delegation shall not constitute a resignation within the meaning of Section 4.5 hereof and the Master Collateral Agent shall not be liable for the acts or omissions of such Persons so long as such Persons are selected with reasonable care. If any such delegation occurs, notification thereof shall be given to the Servicer, the Beneficiaries and the Rating Agencies. (e) The Master Collateral Agent hereby delegates its duty to enforce the Vehicle Title Nominee Agreement to the Servicer and grants the Servicer all necessary power and authority to take -27- 31 all lawful action to enforce the rights assigned to the Master Collateral Agent hereunder with respect to the Vehicle Title Nominee Agreement; provided, however, that such delegation shall be deemed to be revoked after the occurrence, and during the continuance, of a Default (after giving effect to any cure period or grace period) under the Financing Documents relating to a Financing Source to which rights under the Vehicle Title Nominee Agreement have been pledged as collateral. In addition, the Servicer hereby agrees to take any and all lawful and commercially reasonable action it is directed to take, by written instruction from the Master Collateral Agent, with respect to the Vehicle Title Nominee Agreement. To the extent the Servicer fails to so act within a reasonable period of time, the Master Collateral Agent may itself take such actions as it has directed the Servicer to take with respect to the Vehicle Title Nominee Agreement. (f) If, at the time a Default exists under the Financing Documents related to a Beneficiary, the Master Collateral Agent shall default in its obligation to exercise the rights, remedies, powers or privileges of a Beneficiary with respect to its Master Collateral in accordance with the direction of such Beneficiary (including any rights under Sections 3.4 or 4.1(b), the Master Collateral Agent shall, upon the written request of such Beneficiary, assign to such Beneficiary the Master Collateral Agent's security interest in such Beneficiary's Master Collateral and shall execute those instruments and documents necessary to effectuate such assignment (including, if necessary, the execution of documents necessary to change the name of the first lienholder on Certificates of Title for such Beneficiary's Related Vehicles to such Beneficiary or its agent or assignee) and such Beneficiary may thereafter direct that payments that would otherwise be paid into the Master Collateral Account with respect to its Related Vehicles be paid to another account permitted by the applicable Financing Documents. (g) The Master Collateral Agent will, semi-annually, beginning no earlier than August 28, 1996, cause a title check to be performed on 2% of all Related Vehicles at such time pursuant to Section 9.14 of the NFC Loan Agreement (at the expense of National) and any nationally recognized independent auditor shall be deemed to be a Person acceptable to the Agent to perform such title check pursuant to such Section. National shall instruct such Person to perform such title check in a manner that reflects the geographic distribution (by state of titling) of the Related Vehicles for which the NFC Agent is then designated as a Beneficiary. (h) Citibank, N.A., in its individual or in any other capacity, may be a Beneficiary hereunder and as such shall be entitled to all of the protections and rights of a Beneficiary -28- 32 under this Agreement without regard to its capacity as Master Collateral Agent hereunder. (i) Upon receipt by the Master Collateral Agent from a Manufacturer of any information pertaining to payments made by such Manufacturer or an auction dealer to the Master Collateral Account in connection with any Repurchase Program, the Master Collateral Agent shall provide such information to National. SECTION 4.2. Representations. Citibank, N.A. hereby represents and warrants that (i) it is a national banking association having trust powers duly incorporated, validly existing and in good standing under the laws of the United States and it has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and (ii) the execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action on its part, and this Agreement is the legal, valid and binding obligation of Citibank, N.A., enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights generally and by the application of equitable principles. SECTION 4.3. Exculpatory Provisions. The Master Collateral Agent makes no representations as to the value or condition of the Master Collateral or any part thereof, the status or designation of any Vehicle as a Related Vehicle to any Beneficiary pursuant to Section 2.2 hereof, as to the title of National or NFLP thereto, as to the protection afforded by this Agreement, as to any statements, representations or warranties made by any other Person in or in connection with this Agreement or any Financing Document, as to the validity, execution (except its own execution), enforceability, priority, perfection, legality or sufficiency of this Agreement or any Financing Document or any documents or instruments referred to therein, or the sufficiency or effectiveness or perfection or priority of any Lien on any collateral described in this Agreement, or as to the validity or collectibility of any obligation contemplated by this Agreement, and the Master Collateral Agent shall incur no liability or responsibility in respect of any such matters. The Master Collateral Agent shall not be responsible for insuring the Master Collateral or for the payment of taxes, charges, assessments or Liens upon the Master Collateral or for perfecting or maintaining the perfection of its security interest in the Master Collateral purported to be granted hereby or otherwise as to the maintenance of the Master Collateral. Any reference herein to actual knowledge of the Master Collateral Agent shall mean actual knowledge of an officer of the Master Collateral Agent assigned to and working in its Corporate Trust Office or such other department as the Master Collateral Agent may -29- 33 designate from time to time in a notice to National, NFLP and the Beneficiaries. SECTION 4.4. Limitations on Duties of the Master Collateral Agent. (a) The Master Collateral Agent undertakes to perform only the duties expressly set forth herein and no implied duties shall be read into this Agreement. Nothing herein shall be deemed to constitute the Master Collateral Agent a trustee or fiduciary for any Financing Source or any Beneficiary. (b) The Master Collateral Agent may exercise the rights and powers granted to it by this Agreement, together with such powers as are reasonably incidental thereto, but only pursuant to the terms of this Agreement. (c) The Master Collateral Agent's duty of care shall be solely to deal with the Master Collateral as it would with property of its own, the Master Collateral Agent shall not be liable for any error of judgment made in good faith by an officer thereof, or for any action taken or omitted to be taken by it in accordance with this Agreement. (d) The Master Collateral Agent shall have no authority to grant, convey or assign the Certificates of Title or change the notation of a security interest thereon or deal with the Certificates of Title in any way except as expressly provided herein. (e) The Master Collateral Agent shall have no liability or responsibility for (i) any release of Master Collateral by the Servicer pursuant to Sections 2.7 or 2.8, (ii) any act of the Servicer taken in its own name or the name of the Master Collateral Agent, or (iii) custody of any Certificates of Title not delivered to it and required to be held by it in connection with this Agreement. (f) The Master Collateral Agent shall have no duty to calculate, compute or verify, and shall not be held in any manner responsible for the content of the Servicer's Fleet Report, except to verify that the certificate filed therewith conforms to the form of Exhibit B. (g) Except as required by the specific terms of this Agreement, the Master Collateral Agent shall not be required to exercise any discretion and shall have no duty to exercise or to refrain from exercising any right, power, remedy or privilege granted to it hereby, or to take any affirmative action or refrain from taking any affirmative action hereunder, unless directed to do so by Beneficiaries specified herein as being entitled to direct the Master Collateral Agent hereunder (and shall be fully protected in acting or refraining from acting -30- 34 pursuant to or in accordance with such directions, which shall be binding on each of the Financing Sources and Beneficiaries). Notwithstanding anything herein to the contrary, the Master Collateral Agent shall not be required to take any action (a) that in its reasonable opinion is or may be contrary to law or to the terms of this Agreement, any Financing Document or any other agreement or instrument relating to the Master Collateral, or which might or would in its reasonable opinion subject it or any of its directors, officers, employees or agents to personal or financial liability or (b) unless it is indemnified hereunder to its satisfaction (and if any indemnity should become, in the determination of the Master Collateral Agent, inadequate, the Master Collateral Agent may call for additional indemnity and cease to act until such additional indemnity is given. (h) Subject to Section 4.8(ii), the Master Collateral Agent may, in its sole discretion, retain counsel, independent accountants and other experts selected by it and may act in reliance upon the advice of such counsel, independent accountants and other experts concerning all matters pertaining to the agencies hereby created and its duties hereunder, and shall be held harmless and shall not be liable for any action taken or omitted to be taken by it in good faith in reliance upon or in accordance with the statements and advice of such counsel (or counsel to National or NFLP), accountants and other experts. In the event that the Master Collateral Agent receives conflicting instructions delivered in accordance with this Agreement, the Master Collateral Agent shall have the right to seek instructions concerning its duties and actions under this Agreement from any court of competent jurisdiction. (i) If the Master Collateral Agent receives unclear or conflicting instructions, it shall be entitled to refrain from taking action until clear or non-conflicting instructions are received, but shall inform the instructing party or parties promptly of its decision to refrain from taking such action. Without limiting the foregoing, in the event that the Master Collateral Agent receives unclear or conflicting instructions from Beneficiaries hereunder or there is any other disagreement between the other parties hereto resulting in adverse claims and demands being made in connection with the Master Collateral, or in the event that the Master Collateral Agent in good faith is in doubt as to what action it should take hereunder, the Master Collateral Agent shall be entitled to retain the Master Collateral until the Master Collateral Agent shall have received (i) a final order of a court of competent jurisdiction directing delivery of the Master Collateral or (ii) a written agreement executed by the other parties hereto directing delivery of the Master Collateral in which event the Master Collateral Agent shall disburse the Master Collateral in accordance with such order or agreement. Upon request of the Master Collateral Agent, -31- 35 any such court order shall be accompanied by a legal opinion by counsel for the presenting party satisfactory to the Master Collateral Agent to the effect that such order is final. (j) The Master Collateral Agent shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, any Financing Document or any other agreements or instruments relating to the Master Collateral on the part of any party hereto or thereto or to inspect any books and records relating to the Master Collateral other than as it determines necessary in the fulfillment of its own obligations hereunder. (k) The Master Collateral Agent shall be entitled to rely on any communication, certificate, instrument, opinion, report, notice, paper or other document reasonably believed by it to be genuine and correct and to have been signed, given or sent by the proper Person or Persons. The Master Collateral Agent shall be entitled to assume that no Default shall have occurred and be continuing and that the Master Collateral Account, and any funds on deposit in or to the credit of such Master Collateral Account, are not subject to any writ, order, judgment, warrant of attachment, execution or similar process (collectively, a "writ"), unless (i) in the case of any writ, the Master Collateral Agent has actual knowledge thereof or (ii) the Master Collateral Agent has received written notice from National, a Beneficiary or a Financing Source that such a Default has occurred or such writ has been issued and, in each case, continues to be in effect, which notice specifies the nature thereof. (l) The Master Collateral Agent, in its individual capacity, may accept deposits from, lend money to and generally engage in any kind of business with National, NFLP, any Financing Source, any Manufacturer and their respective affiliates as if it were not the agent of the Beneficiaries or the Financing Sources. (m) Any action or proceeding alleging any breach by the Master Collateral Agent of duties under this Agreement shall be prosecuted only in the courts of the State of New York or in the United States District Court for the Southern District of New York. (n) The Master Collateral Agent shall not be accountable for the use or application by any person of disbursements properly made by the Master Collateral Agent in conformity with the provisions of this Agreement. (o) The Master Collateral Agent may exercise any of its duties hereunder by or through agents or employees. The possession of the Master Collateral by such agents or employees -32- 36 shall be deemed to be the possession of the Master Collateral Agent. No provision of this Agreement shall require the Master Collateral Agent to expend or risk its own funds or otherwise incur any financial or other liability in the performance of any duties hereunder or in the exercise of any rights and powers hereunder unless the Master Collateral Agent is provided with an indemnity from one or more of the Beneficiaries, satisfactory to the Master Collateral Agent in its sole discretion. SECTION 4.5. Resignation and Removal of Master Collateral Agent. (a) The Master Collateral Agent may, at any time with or without cause by giving 60 days' prior written notice to National, NFLP and the Beneficiaries, resign and be discharged of its responsibilities hereunder created, such resignation to become effective upon the appointment by National and NFLP of a successor Master Collateral Agent with the approval of the Majority Beneficiaries, which approval shall not be unreasonably withheld, and the acceptance of such appointment by such successor Master Collateral Agent. National shall, promptly upon receipt thereof, provide a copy of the notice from the Master Collateral Agent referred to in the preceding sentence to each Rating Agency. The Master Collateral Agent may be removed by National or NFLP at any time (with or without cause) upon 30 days' written notice by National or NFLP, as the case may be, to the Master Collateral Agent and each of the Rating Agencies, and the approval of the successor Master Collateral Agent by the Majority Beneficiaries, which approval will not be unreasonably withheld; provided, however, that if either National or NFLP is in default under this Agreement or any Financing Document and such default has a material adverse effect on the Beneficiaries, then so long as such default continues, the right of National or NFLP, as applicable, to remove the Master Collateral Agent shall cease and the non-defaulting grantor shall have, or if both National and NFLP are then in default, then the Majority Beneficiaries shall have, the right to remove the Master Collateral Agent (with or without cause) upon 30 days' written notice to National, NFLP, the Master Collateral Agent and each of the Rating Agencies; provided, further, that no removal of the Master Collateral Agent shall be effective until the appointment of a successor Master Collateral Agent and acceptance of such appointment by such Master Collateral Agent. Any removed Master Collateral Agent shall be entitled to its reasonable fees and expenses to the date the successor Master Collateral Agent assumes the Master Collateral Agent's duties hereunder. The indemnification of Section 4.10 shall survive the termination of the other provisions of this Agreement as to the predecessor Master Collateral Agent. If no successor Master Collateral Agent shall be appointed and approved within 30 days from the date of the giving of the aforesaid notice of resignation or within 30 days from the date of such notice of removal, the Master Collateral Agent, on behalf of National, NFLP, each Financing -33- 37 Source and each Beneficiary may appoint, or petition a court of competent jurisdiction to appoint, a successor Master Collateral Agent to act until such time, if any, as a successor Master Collateral Agent shall be appointed as above provided. Any successor Master Collateral Agent so appointed by such court shall immediately without further act supersede any predecessor Master Collateral Agent. Upon the appointment of a successor Master Collateral Agent hereunder, the predecessor Master Collateral Agent shall be discharged of and from any and all further obligations arising in connection with this Agreement. (b) The appointment and designation referred to in Section 4.5(a) shall, after any required filing, be full evidence of the right and authority to make the same and of all the facts therein recited, and this Agreement shall vest in such successor Master Collateral Agent, without any further act, deed or conveyance, all of the estate and title of its predecessors and upon such filing for record the successor Master Collateral Agent shall become fully vested with all the estates, properties, rights, powers, duties, authority and title of its predecessors; but any predecessor Master Collateral Agent shall, nevertheless on payment of its charges and on the written request of the Majority Beneficiaries, National, NFLP or any successor Master Collateral Agent empowered to act as such at the time any such request is made, execute and deliver an instrument without recourse or representation transferring to such successor all the estates, properties, rights, powers, duties, authority and title of such predecessor hereunder and shall deliver all securities and moneys held by it to such successor Master Collateral Agent. Upon the appointment of a successor Master Collateral Agent hereunder, the predecessor Master Collateral Agent shall be discharged of and from any and all further obligations arising in connection with this Agreement. SECTION 4.6. Status of Successors to Master Collateral Agent. Every successor to the Master Collateral Agent appointed pursuant to Section 4.5 shall be a bank or trust company in good standing and having power so to act and incorporated under the laws of the United States or any State thereof or the District of Columbia, and shall also have capital, surplus and undivided profits of not less than $100,000,000 if there be such an institution with such capital, surplus and undivided profits willing, qualified and able to accept the trust upon reasonable or customary terms. The Servicer shall give the Rating Agencies written notice prior to any successor Master Collateral Agent being appointed pursuant to Section 4.5. SECTION 4.7. Merger of the Master Collateral Agent. Any corporation into which the Master Collateral Agent may be merged, or with which it may be converted or consolidated, or any corporation resulting from any merger, conversion or -34- 38 consolidation to which the Master Collateral Agent shall be a party shall be the Master Collateral Agent under this Agreement without the execution or filing of any paper or any further act on the part of the parties hereto. The Master Collateral Agent shall give the Rating Agencies, National, NFLP and the Servicer prior written notice of any such merger, conversion or consolidation. SECTION 4.8. Compensation and Expenses. National shall pay to the Master Collateral Agent, from time to time (i) compensation for its services hereunder for administering the Master Collateral as set forth in the fee letter dated as of June 7, 1995, between National and the Master Collateral Agent, as such letter may be amended, modified or supplemented from time to time, and (ii) all reasonable fees and out-of-pocket expenses of the Master Collateral Agent (A) arising in connection with the preparation, execution, delivery, or modification of this Agreement and/or the enforcement of any of the provisions hereof or (B) incurred in connection with the administration of the Master Collateral, the sale or other disposition of Master Collateral pursuant to any Financing Document and/or the preservation, protection or defense of the Master Collateral Agent's rights under this Agreement and in and to the Master Collateral. SECTION 4.9. Stamp. Other Similar Taxes and Filing Fees. National shall indemnify and hold harmless the Master Collateral Agent from any present or future claim for liability for any stamp or other similar tax and any penalties or interest with respect thereto, that may be assessed, levied or collected by any jurisdiction in connection with this Agreement or any Master Collateral. National shall pay, or reimburse the Master Collateral Agent for, any and all amounts in respect of, all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts payable in respect of the execution, delivery, performance and/or enforcement of this Agreement. SECTION 4.10. Indemnification. National shall pay, and indemnify and hold the Master Collateral Agent and each of the officers, employees, directors and agents thereof harmless from and against, any and all liabilities (including liabilities for penalties and liabilities arising or resulting from actions or suits), obligations, losses, judgments, demands, damages, claims, costs or expenses of any kind or nature whatsoever that may at any time be imposed on, incurred by, or asserted against, the Master Collateral Agent or any such officers, employees, directors or agents in any way relating to or arising out of the execution, delivery, amendment, enforcement, performance and/or administration of this Agreement, including reasonable fees and expenses of counsel and other experts, and National shall -35- 39 reimburse each Beneficiary for any payments made by such Beneficiary to the Master Collateral Agent or any such officers, employees, directors or agents for any of the foregoing; provided, however, that National shall not be liable for the payment of any portion of such liabilities (including liabilities for penalties and liabilities arising or resulting from actions or suits), obligations, losses, judgments, demands, damages, claims, costs or expenses of the Master Collateral Agent or any such officers, employees, directors or agents which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the gross negligence or willful misconduct of the Master Collateral Agent or any such agent. Each of the Beneficiaries agrees in accordance with its pro rata portion of the Master Collateral, to indemnify and hold the Master Collateral Agent and each of its officers, employees, directors and agents harmless to the same extent as National in accordance with the foregoing paragraph but only to the extent that the Master Collateral Agent has not been paid by National pursuant to such paragraph; provided that the Trustee's obligation to indemnify the Master Collateral Agent shall be limited to actions taken by the Master Collateral Agent at the direction of the Trustee, it being understood that the indemnification obligation of the Trustee shall be paid solely out of funds constituting servicing fees under the NFLP Indenture. ARTICLE V MISCELLANEOUS SECTION 5.1. Amendments. Supplements and Waivers. This Agreement may be amended, waived, terminated, supplemented or otherwise modified pursuant to a writing executed by the Master Collateral Agent, each Beneficiary, each Financing Source, National, NFLP, GM and the Servicer; provided, however, that (i) the consent of each Beneficiary and each Financing Source need not be obtained in connection with the execution of a supplement or amendment that only adds a Financing Source or Beneficiary as a party to this Agreement and (ii) an amendment may be executed without the consent of a Beneficiary or a Financing Source if such amendment is effected only to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Agreement which shall not be inconsistent with the provisions of this Agreement or any other such Related Document; provided, such action pursuant to this clause shall not adversely affect the interests of a Beneficiary or a Financing Source in any material respect. -36- 40 Additional Financing Sources or Beneficiaries may from time to time become parties hereto and Financing Sources or Beneficiaries hereunder by the execution of a Supplement by such additional Financing Source or Beneficiary, the Master Collateral Agent, the Servicer, National and NFLP. The Servicer shall give the Rating Agencies prior written notice of any amendment, supplement, waiver or modification of this Agreement. Upon execution of a Supplement, the Servicer shall furnish a copy thereof to the other parties hereto. SECTION 5.2. Notices. All notices, requests, demands and other communications provided for or permitted hereunder shall, unless otherwise stated herein, be in writing (including facsimile communications) and shall be sent by mail (by registered or certified mail, return receipt requested), facsimile or hand delivery (a) if to National, the Servicer, NFC, the Trustee, the NFC Agent, NFLP, GM, Citi, Credit Suisse or the Master Collateral Agent, at the address specified for such party on the signature pages hereto; or (b) if to any other Beneficiary, Financing Source or other Person specified in a Supplement, at the address specified in such Supplement; or, in each case, at such other address as shall be designated by it in a written notice to each other party hereto. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, or if transmitted by facsimile shall be deemed given when received. SECTION 5.3. Headings. Section, subsection and other headings used in this Agreement are for convenience only and shall not affect the construction of this Agreement. SECTION 5.4. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 5.5. Counterparts. This Agreement may be executed in separate counterparts and by the different parties on different counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 5.6. Conflicts with Financing Documents; Reservation of Rights. The parties agree that in the event of -37- 41 any conflict between the provisions of this Agreement and the provisions of any Financing Documents, the provisions of this Agreement shall control. Except as expressly provided herein, nothing contained in this Agreement is intended to affect or limit, in any way, the rights that each of the Beneficiaries has insofar as the rights of such parties and third parties are involved. Except as expressly provided herein, the Beneficiaries specifically reserve all their respective rights against National, NFLP, any Financing Source and/or any third party. SECTION 5.7. Binding Effect. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. Nothing herein is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement or the Master Collateral. SECTION 5.8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. SECTION 5.9. Effectiveness. This Agreement shall become effective on the execution and delivery hereof and shall remain in effect until no amounts are owed to any Financing Source under any Financing Document and no Beneficiary or Financing Source shall have any claim on the Master Collateral. SECTION 5.10. Termination of Beneficiary. Upon receipt by the Master Collateral Agent of a notice from a Beneficiary to the effect that (i) (A) such Beneficiary then has no Related Vehicles hereunder, no amounts are then owing to the related Financing Source under its Financing Documents and such Financing Documents have been terminated and are of no further force or effect or (B) the Master Collateral Agent's security interest has been reassigned to such Beneficiary pursuant to Sections 4.1(f) or 5.11(b) and (ii) such Beneficiary has elected to terminate this Agreement, this Agreement shall terminate as to such Beneficiary. SECTION 5.11. Termination of this Agreement. At any time that there are no Beneficiaries, National may terminate this Agreement upon notice to the Master Collateral Agent, and the Master Collateral Agent shall take all actions reasonably requested by National, at National's expense, to evidence the termination of this Agreement and the Master Collateral Agent's interest in the Master Collateral, including, without limitation, execute such documents and instruments as National may reasonably request in connection with such reassignment; provided, however, that Sections 4.3, 4.4(a), (c), and (e) through (o), 4.8, and the indemnification set forth in Sections 4.9 and 4.10 shall survive the termination of this Agreement. -38- 42 SECTION 5.12. Assignment by Financing Sources. Each Financing Source acknowledges that it has assigned and does hereby assign to its related Beneficiary all of its rights and interests under this Agreement and further acknowledges that its related Beneficiary may exercise all of such Financing Source's rights hereunder. SECTION 5.13. NFC Related Documents; NFLP's Related Documents. (a) To the extent that this Agreement affects the secured parties under NFC's Financing Documents, it shall be considered a Related Document (as defined in NFC's Financing Documents) for all purposes except voting provisions. (b) To the extent that this Agreement affects the secured parties under NFLP's Financing Documents, it shall be considered a Related Document (as defined in NFLP's Financing Documents) for all purposes except voting provisions. SECTION 5.14. No Bankruptcy Petition Against Financing Sources. The Master Collateral Agent hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of the latest maturing debt security issued by a Financing Source, it will not institute against, or join with any other Person in instituting against, such Financing Source, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any Federal or state bankruptcy or similar law; provided, however, that nothing in this Section 5.14 shall constitute a waiver of any right to indemnification, reimbursement or other payment from any Financing Source or Beneficiary pursuant to this Agreement; provided, further, that this Section 5.14 shall only be effective with respect to a Financing Source for which the related Financing Documents contain a no bankruptcy petition provision similar to this Section 5.14. In the event that the Master Collateral Agent takes action in violation of this Section 5.14, each affected Financing Source agrees that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by the Master Collateral Agent against such Financing Source or the commencement of such action and raise the defense that the Master Collateral Agent has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 5.14 shall survive the termination of this Agreement, and the resignation or removal of the Master Collateral Agent. SECTION 5.15. Jurisdiction; Consent to Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST NATIONAL, ANY FINANCING SOURCE OR ANY BENEFICIARY WITH RESPECT TO THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT MAY BE BROUGHT IN ANY STATE OR (TO THE EXTENT PERMITTED BY LAW) FEDERAL COURT OF COMPETENT JURISDICTION -39- 43 IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, NATIONAL, EACH FINANCING SOURCE AND EACH BENEFICIARY ACCEPTS FOR ITSELF AN IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. NATIONAL DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, INC., 1633 BROADWAY, NEW YORK, NEW YORK 10019, AND EACH FINANCING SOURCE AND EACH BENEFICIARY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK 10019, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY NATIONAL, EACH FINANCING SOURCE AND EACH BENEFICIARY IRREVOCABLY AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY NATIONAL, EACH FINANCING SOURCE AND EACH BENEFICIARY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO NATIONAL, SUCH FINANCING SOURCE OR SUCH BENEFICIARY SO SERVED AT ITS ADDRESS PROVIDED IN THE APPLICABLE SIGNATURE PAGE HERETO, EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OR PROCESS. IF ANY AGENT APPOINTED BY NATIONAL, SUCH FINANCING SOURCE OR SUCH BENEFICIARY REFUSES TO ACCEPT SERVICE, NATIONAL, EACH FINANCING SOURCE AND EACH BENEFICIARY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHTS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF ANY FINANCING SOURCE OR BENEFICIARY TO BRING PROCEEDINGS AGAINST NATIONAL IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 5.16. Waiver of Jury Trial. THE MASTER COLLATERAL AGENT, EACH FINANCING SOURCE, EACH BENEFICIARY AND NATIONAL HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE MASTER COLLATERAL AGENT, ANY FINANCING SOURCE, ANY BENEFICIARY OR NATIONAL IN CONNECTION HEREWITH OR THEREWITH. NATIONAL ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE MASTER COLLATERAL AGENT, EACH FINANCING SOURCE AND EACH BENEFICIARY ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER RELATED DOCUMENT. SECTION 5.17. Insurance Notification. The Master Collateral Agent shall, promptly upon its receipt of notification of any termination of or proposed cancellation or nonrenewal of -40- 44 any insurance policies required to be maintained under any of the Financing Documents, notify the Beneficiary thereof of any such termination, proposed cancellation or nonrenewal. -41- 45 IN WITNESS WHEREOF, each party hereto has executed this Agreement or caused this Agreement to be duly executed by its officer thereunto duly authorized as of the day and year first above written. NATIONAL CAR RENTAL SYSTEM, INC., as grantor and as Servicer By: /s/ ------------------------------------ Name: Title: Address: World Headquarters 7700 France Avenue South Minneapolis, MN 55435 NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as grantor By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ ------------------------------------ Name: Title Address: 7700 France Avenue South Minneapolis, MN 55433 CITIBANK, N.A., not in its individual capacity but solely as Master Collateral Agent By: /s/ Annette M. Marsule ------------------------------------ Name: Annette M. Marsule Title: Address: 120 Wall Street, 13th Fl. New York, New York 10043 46 FINANCING SOURCES NATIONAL FLEET FUNDING CORPORATION By: /s/ MJ Becker ------------------------------------ Name: Title: Address: 7700 France Avenue South Minneapolis, MN 55435 NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ ------------------------------------ Name: Title: Address: 7700 France Avenue South Minneapolis, MN 55435 CITIBANK, N.A. By: /s/ ------------------------------------ Name: Title: Vice President Address: 399 Park Avenue New York, New York 10043 Attention: Autos Group, 8th Floor, Zone 12 -43- 47 CREDIT SUISSE, NEW YORK BRANCH By: /s/ CARL JACKSON ----------------------------------- Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT By: /s/ ROGER SAYLOR ------------------------------------ Name: ROGER SAYLOR Title: ASSOCIATE Address: 12 East 49th Street New York, New York 10017 Attention: Asset Finance GENERAL MOTORS CORPORATION By: /s/ Marc Bourhis ------------------------------------ Name: Marc Bourhis Title: Attorney-in-fact Address: 767 Fifth Avenue New York, New York 10153 Attention: Assistant Treasurer 48 BENEFICIARIES CREDIT SUISSE, NEW YORK BRANCH, as NFC Agent By: /s/ CARL JACKSON ------------------------------------ Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT By: /s/ ROGER SAYLOR ------------------------------------ Name: ROGER SAYLOR Title: ASSOCIATE Address: 12 East 49th Street New York, New York 10017 Attention: Asset Finance THE BANK OF NEW YORK, as Trustee By: /s/ ------------------------------------ Name: Title: Address: 101 Barclay Street Floor 12 East New York, New York 10286 Attention: Corporate Trust Division CITIBANK, N.A. By: /s/ Suzanne Maccraonan ------------------------------------ Name: Title: VP Address: 399 Park Avenue New York, New York 10043 Attention: Autos Group, 8th Floor Zone 12 49 CREDIT SUISSE, NEW YORK BRANCH, By: /s/ CARL JACKSON ------------------------------------ Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT By: /s/ ROGER SAYLOR ------------------------------------ Name: ROGER SAYLOR Title: ASSOCIATE Address: 12 East 49th Street New York, New York 10017 Attention: Asset Finance GENERAL MOTORS CORPORATION By: /s/ Marc Bourhis ------------------------------------ Name: Marc Bourhis Title: Attorney-in-fact Address: 767 Fifth Avenue New York, New York 10153 Attention: Assistant Treasurer EX-4.19 20 SUPPL. & AMDT. TO COLLATERAL AGENCY AGREEMENT 1 Exhibit 4.19 SUPPLEMENT AND AMENDMENT TO AMENDED AND RESTATED MASTER COLLATERAL AGENCY AGREEMENT, dated as of December 20, 1996 (this "Amendment"), among NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"), as grantor and as Servicer, NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership ("NFLP"), as grantor and as a Financing Source, CITIBANK, N.A., a national banking corporation, as Master Collateral Agent (the "Master Collateral Agent"), and NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), as an additional Financing Source, GENERAL MOTORS CORPORATION, a Delaware corporation ("GM"), THE BANK OF NEW YORK, a New York banking corporation ("BONY"), and CAISSE NATIONALE DE CREDIT AGRICOLE ("Credit Agricole"), in each case of GM, BONY and Credit Agricole as additional Financing Sources, and CREDIT SUISSE, a Swiss banking corporation acting through its New York branch, as collateral agent under the NFC Collateral Agreement (as defined in the Master Collateral Agreement referred to below) (the "NFC Agent"), BONY, individually and as Trustee, GM and Credit Agricole, in each case of the NFC Agent, BONY (individually and as Trustee), GM and Credit Agricole as Beneficiaries. W I T N E S S E T H : WHEREAS, National, NFLP and the Master Collateral Agent have entered into the Amended and Restated Master Collateral Agency Agreement, dated as of April 30, 1996, as modified by (i) Supplement to Master Collateral Agency Agreement, dated as of June 7, 1995 (pursuant to which GM was designated as a Financing Source and a Beneficiary to secure payment of National's obligations from time to time owing to GM under the existing A Support Reimbursement Agreement), (ii) Supplement to Amended and Restated Master Collateral Agency Agreement, dated as of April 30, 1996 (pursuant to which Credit Agricole, as assignee of Citibank, N.A. and Credit Suisse, was designated as a Financing Source and Beneficiary to secure payment of National's obligations from time to time owing to Credit Agricole under the B Support Letter of Credit Reimbursement Agreement), (iii) Supplement to Amended and Restated Master Collateral Agency Agreement, dated as of April 30, 1996 (pursuant to which BONY was designated as a Financing Source and Beneficiary to secure payment of National's obligations from time to time owing to BONY under the Reduction A Support Reimbursement Agreement), and (iv) Supplement to Amended and Restated Master Collateral Agency Agreement, dated as of the date hereof (pursuant to which NFC is being designated as a Financing Source and the NFC Agent is being designated as a Beneficiary to secure, among other things, payment of National's obligations from time to time owing to NFLP under the Lease and NFLP's obligations under the Series 1996-2 Note), under which NFLP, NFC, GM, BONY and Credit Agricole have been designated as Financing Sources and the NFC Agent, BONY, individually and as 2 2 Trustee, GM and Credit Agricole have been designated as Beneficiaries (such Amended and Restated Master Collateral Agency Agreement being the "Master Collateral Agreement"); WHEREAS, NFC proposes to restructure its Financing Documents (as defined in the Master Collateral Agreement) by (i) enabling NFLP to refinance the Refinanced Vehicles on the Series 1996-2 Closing Date by (A) accepting the Series 1996-2 Floating Rate Rental Car Asset Backed Variable Funding Note (the "Series 1996-2 Note") to be issued to NFC by NFLP in the initial principal amount of the then outstanding principal amount of the Loan Note under and as defined in NFC's Loan Agreement and to be authenticated and delivered by or on behalf of BONY, as Trustee, and (B) cancelling, upon the payment to NFC by National of the unpaid accrued interest on the Loan Note and upon the satisfaction of certain other conditions, the Loan Note, and (ii) thereafter making further Series 1996-2 Advances to NFLP from time to time, the Indebtedness arising from which is to be evidenced by the Series 1996-2 Note, to enable NFLP to acquire Acquired Vehicles, and to finance the acquisition by National of National Vehicles, from certain Eligible Manufacturers; WHEREAS, contemporaneously with the execution and delivery of this Amendment, NFLP as lessor and National as lessee are entering into the Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996 (the "Lease"), pursuant to which NFLP will refinance the Refinanced Vehicles, and will acquire Acquired Vehicles, and will finance the acquisition of National Vehicles, in each case for leasing to National for use in National's domestic daily rental business; WHEREAS, National, NFLP and NFC have requested that the Master Collateral Agent, the Financing Sources and the Beneficiaries under the Master Collateral Agreement implement the proposed refinancing described above; and such parties are, on the terms and conditions set forth below, willing to grant such request; and WHEREAS, as of the date hereof, there are no Initial Vehicles that are part of the Refinanced Vehicles or otherwise subject to either Lease and so the National Master Collateral no longer includes the Vehicle Title Nominee Agreement (relating to the Initial Vehicles) or the GM Guaranty (guaranteeing obligations under the Vehicle Title Nominee Agreement); NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto hereby agree, upon the terms and subject to the conditions set forth below, as follows: SECTION 1. Defined Terms. Capitalized terms used but not defined in this Amendment, including the preamble and the recitals (WHEREAS clauses) hereof, shall have the meanings assigned to such terms in the Series 1996-2 Supplement, dated as of 3 3 December 20, 1996, to Base Indenture, dated as of April 30, 1996, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996 (the "Indenture"), between NFLP and the Trustee. SECTION 2. Amendments to Master Collateral Agreement. The Master Collateral Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (a) The preamble and the recitals (WHEREAS clauses) of the Master Collateral Agreement are amended in their entirety to read as follows: "THIS AMENDED AND RESTATED MASTER COLLATERAL AGENCY AGREEMENT, dated as of April 30, 1996 (amending and restating the Master Collateral Agency Agreement dated as of June 7, 1995 (the "Original Agreement")), as amended by the Supplement and Amendment, dated as of December 20, 1996 (as so amended and as further amended, supplemented, restated or otherwise modified from time to time, this "Agreement"), among NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"), as servicer (in such capacity, the "Servicer") and as a grantor, NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a Delaware limited partnership ("NFLP"), as a grantor and as a Financing Source, THE BANK OF NEW YORK, a New York banking corporation ("BONY"), as a Support Credit Enhancer, and as trustee for the benefit of the Noteholders under the NFLP Indenture referred to below (in such capacity, the "Trustee"), NATIONAL FLEET FUNDING CORPORATION, a Delaware corporation ("NFC"), GENERAL MOTORS CORPORATION, a Delaware corporation, in its capacity as a Support Credit Enhancer ("GM"), CAISSE NATIONALE DE CREDIT AGRICOLE, as a Support Credit Enhancer ("Credit Agricole"; and together with NFLP, NFC, BONY, GM and any other party which from time to time executes a Supplement hereto as a Financing Source (which may include National) being herein called individually a "Financing Source" and collectively, the "Financing Sources"), CREDIT SUISSE, a Swiss banking corporation acting through its New York branch ("Credit Suisse"), as collateral agent under the NFC Collateral Agreement referred to below (in such capacity, the "NFC Agent" and together with the Trustee, BONY, GM, Credit Agricole and any other party which from time to time executes a Supplement hereto as a Beneficiary being herein called individually a "Beneficiary" and collectively, the "Beneficiaries"), and CITIBANK, N.A. ("Citi"), not in its individual capacity but solely as master collateral agent for the Beneficiaries (in such capacity, the "Master Collateral Agent"). 4 4 BACKGROUND 1. Pursuant to the Financing Documents executed by NFLP prior to the date hereof, (i) NFLP has extended, and may from time to time hereafter extend, financing to National secured by, among other things, certain Vehicles and related rights, and (ii) NFLP has assigned to the Trustee all such obligations of National and related security. 2. Pursuant to such Financing Documents, (i) NFLP has acquired certain Vehicles and leased such Vehicles to National, and may from time to time hereafter acquire certain other vehicles and lease such Vehicles to National, and (ii) NFLP has assigned such lease and granted a security interest in such Vehicles acquired by it and related security to the Master Collateral Agent hereunder for the benefit of the Trustee. 3. Pursuant to the Financing Documents executed by NFC prior to the date hereof, (i) NFC has made loans to National secured by, among other things, certain Vehicles and related rights, and (ii) NFC has assigned to the NFC Agent all such loans and related security. 4. Upon and after the execution and delivery of, among other things, the Supplement and Amendment to Master Collateral Agency Agreement, dated as of December 20, 1996 (the "Master Collateral Agreement Amendment"), among the parties hereto, NFC will (i) enable NFLP to refinance the Refinanced Vehicles (as defined in the Series 1996-2 Supplement, dated as of December 20, 1996 (the "Series 1996-2 Supplement"), to the Base Indenture) on the Series 1996-2 Closing Date (as defined in the Series 1996-2 Supplement) by (A) accepting the Series 1996-2 Note (as defined in the Series 1996-2 Supplement) to be issued to NFC by NFLP under the Series 1996-2 Supplement in the initial principal amount of the then outstanding principal amount of the Loan Note under and as defined in the NFC Loan Agreement and (B) cancelling, upon the payment to NFC by National of the unpaid accrued interest on the Loan Note and upon the satisfaction of certain other conditions, the Loan Note, and (ii) thereafter make further Series 1996-2 Advances to (as defined in the Series 1996-2 Supplement) NFLP from time to time, the Indebtedness arising from which will be evidenced by the Series 1996-2 Note, to enable NFLP to acquire Acquired Vehicles, and to finance the acquisition by National of National Vehicles (as defined in the Series 1996-2 Supplement), from Eligible Manufacturers (as defined in the Series 1996-2 Supplement). 5. Pursuant to additional Financing Documents executed by NFLP contemporaneously herewith, (i) NFLP may from time to time extend additional financing to National secured by, among other things, certain other Vehicles and 5 5 related rights, and (ii) NFLP has assigned to the Trustee all such additional obligations of National and related security. 6. Pursuant to such additional Financing Documents (i) NFLP may from time to time acquire certain other Vehicles and lease such other Vehicles to National, and (ii) NFLP has assigned such lease and granted a security interest in such Vehicles acquired by it and related security to the Master Collateral Agent hereunder for the benefit of the Trustee. 7. (a) Pursuant to that certain Supplement to Master Collateral Agency Agreement, dated as of June 7, 1995, GM was designated as a Financing Source and a Beneficiary under this Agreement to secure payment of National's obligations from time to time owing to GM under the A Support Reimbursement Agreement, dated as of June 7, 1995 (as amended, supplemented, restated or otherwise modified from time to time), among National, NFC and GM. (b) Pursuant to Section 2.2 of this Agreement, GM was designated as a Financing Source and Beneficiary under this Agreement to secure payment of National's obligations from time to time owing to GM under the Support Reimbursement Agreement, dated as of April 30, 1996 (as amended, supplemented, restated or otherwise modified from time to time), between National and GM. (c) Pursuant to that certain Supplement to Amended and Restated Master Collateral Agency Agreement, dated as of April 30, 1996, Credit Agricole (as assignee of Citi and Credit Suisse) was designated as a Financing Source and Beneficiary under this Agreement to secure payment of National's obligations from time to time owing to Credit Agricole under the B Support Letter of Credit Reimbursement Agreement, dated as of June 7, 1995 (as amended, supplemented, restated or otherwise modified from time to time), among National, NFC and Credit Agricole (as assignee of Citi and Credit Suisse). (d) Pursuant to that certain Supplement to Amended and Restated Master Collateral Agency Agreement, dated as of April 30, 1996, BONY was designated as a Financing Source and Beneficiary under this Agreement to secure payment of National's obligations from time to time owing to BONY under the Reduction A Support Reimbursement Agreement, dated as of May 29, 1996 (as amended, supplemented, restated or otherwise modified from time to time), among National, NFC and BONY. 6 6 (e) Pursuant to Section 2.2 of this Agreement, and in connection with the Series 1996-2 Supplement, NFLP and NFC are being designated as Financing Sources and the Trustee and the NFC Agent are being designated as Beneficiaries under this Agreement to secure, among other things, payment of National's obligations from time to time owing to NFLP under the Second Master Motor Vehicle Lease and Servicing Agreement, dated as of December 20, 1996 (as amended, supplemented, restated or otherwise modified from time to time), between National and NFLP and NFLP's obligations under the Series 1996-2 Note. 8. Each of National and NFLP may from time to time obtain financing with respect to Vehicles acquired by it or obtain credit enhancement to support such financing from other Persons (which Persons providing financing to National will include NFLP) which are or shall hereafter become parties hereto as Financing Sources or shall hereafter be named as Beneficiaries with respect to a Financing Source. 9. Citi has agreed to continue to act as Master Collateral Agent, and in its capacity as Master Collateral Agent to continue to be named as the lienholder on the Certificates of Title for the Vehicles, for the benefit of the Beneficiaries from time to time. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:". (b) Section 1.1 of the Master Collateral Agreement is amended by amending in their entirety the following definitions as set forth below: "'Base Indenture' means the Base Indenture, dated as of April 30, 1996, between NFLP and BONY, as Trustee, as amended by the Supplement and Amendment to the Base Indenture, dated as of December 20, 1996, and as further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, exclusive of Supplements creating a new Series of Notes." "'Business Day' means any day that is not (i) a Saturday, Sunday, or (ii) any other day on which banks are authorized or obligated by law or executive order to close in New York City, New York or Minneapolis, Minnesota or the city in which the Corporate Trust Office is located, or (iii) in connection with any Financing 7 7 Document, any other day not designated as a "Business Day" in such Financing Document." "'Depositary Agreement' means the Depositary Agreement, dated as of June 7, 1995, between NFC and Citibank, N.A., as depositary, as amended by the Amendment to Depositary Agreement, dated as of December 20, 1996, and as the same may be further amended, supplemented or modified from time to time." "'Intercreditor Agreement' means the Intercreditor and Subordination Agreement, dated as of June 7, 1995, among National, certain subordinated creditors listed on Schedule A thereto and certain senior creditors listed on Schedule B thereto, as modified by the Joinder by Senior Debt Holder, executed by BONY as of April 30, 1996, the Acceptance by Subordinated Debt Holder, executed by GM as of April 30, 1996, the Acceptance by Subordinated Debt Holder, executed by Credit Agricole as of May 24, 1996, and the Acceptance by Subordinated Debt Holder, executed by BONY as of May 29, 1996, and as amended by the Amendment to Intercreditor and Subordination Agreement, dated as of December 20, 1996, and as further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof." "'Liquidity Agreement' means the Liquidity Agreement, dated as of June 7, 1995, among NFC, the financial institutions on the signature pages thereof, and Citibank, N.A., as liquidity agent for such financial institutions, as modified by the Consent and Amendment to Liquidity Agreement, dated as of December 15, 1995, the Consent of Liquidity Lenders, and the Extension of Scheduled Liquidity Commitment Termination Date, dated as of May 29, 1996, the Amendment to Liquidity Agreement, dated as of May 29, 1996, and the Second Amendment to Liquidity Agreement, dated as of December 20, 1996, and as the same may be further amended, extended, supplemented or modified from time to time." "'NFC Collateral Agreement' means the Collateral Agreement, dated as of June 7, 1995, among NFC, the NFC Agent, Citi, as agent for the financial institutions party to the Liquidity Agreement and as depositary under the Depositary Agreement, GM, as an A support credit enhancer, BONY, as an A support credit enhancer, Credit Agricole, as a B support credit enhancer, and CS First Boston Corporation, Goldman, Sachs & Co., and Citicorp Securities, Inc., as dealers, as modified by the A Support Intercreditor Agreement, dated as of May 29, 1996 (as amended, supplemented or modified from time to time), among GM, BONY, NFC and National, and as amended by the Supplement and Amendment to Collateral Agreement, dated as of December 20, 1996, and as the same may be further amended, supplemented or modified from time to time." 8 8 "'NFLP Indenture' mean the Base Indenture, dated as of April 30, 1996, between NFLP and the Trustee, as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, incorporating each of the Series Supplements thereto executed and delivered from time to time, as such Base Indenture or Series Supplements may be amended, supplemented or modified from time to time." (c) Section 1.1 of the Master Collateral Agreement is further amended by amending the proviso to the definition of the term "Exchanged Vehicle" contained therein to read as follows: ; "provided that until the NFC Agent provides written notice to the contrary to the Master Collateral Agent, no Vehicle that is a Related Vehicle with respect to NFC or the NFC Agent shall be an Exchanged Vehicle." (d) Section 2.1(a) of the Master Collateral Agreement is amended by deleting the references in clauses (v) and (vi) thereof to "the Vehicle Title Nominee Agreement" and "the GM Guaranty", respectively, and, accordingly, amending such clauses to read: "(v) [reserved]; (vi) [reserved];" (e) Section 2.1(b) of the Master Collateral Agreement is amended by deleting the references in clauses (vi) and (vii) thereof to "all right, title and interest of NFLP in, to and under the Vehicle Title Nominee Agreement" and "all right, title and interest of NFLP in, to and under the GM Guaranty", respectively, and, accordingly, amending such clauses to read: "(vi) [reserved]; (vii) [reserved];" (f) Section 2.2 of the Master Collateral Agreement is amended by replacing the words "Citi, Credit Suisse" contained therein with the words "Credit Agricole, BONY." (g) The first two sentences of Section 2.5(c) of the Master Collateral Agreement are amended in their entirety to read as follows: 9 9 "The Servicer and NFLP, as applicable, shall cause payments (i) representing amounts payable under Repurchase Programs (including Guaranteed Payments, but not including other proceeds from sales of Program Vehicles at Auction or amounts payable by Manufacturers under a Repurchase Program with respect to Exchanged Vehicles) and (ii) relating to the other Master Collateral (other than sale proceeds from sales of Vehicles other than to or through a Manufacturer under its Repurchase Program, insurance proceeds and warranty payments with respect to Vehicles and any amounts payable with respect to Exchanged Vehicles) to be made directly to the Master Collateral Agent for deposit into the Master Collateral Account (or, in the case of any such payments relating to the Series 1996-2 Note or any other Financing Document, or any Vehicle, relating thereto, as otherwise directed by the NFC Agent pursuant to the NFC Collateral Agreement); provided that in the event any Exchange Agreement is entered into by NFLP and National, a Manufacturer may cause payments representing amounts payable under Manufacturer Programs (including Guaranteed Payments) to be deposited into a Master Deposit Account for further allocation and deposit to (a) the applicable Exchange Account with respect to such payments relating to Exchanged Vehicles and (b) to the Master Collateral Account (or, in the case of any such payments, if any, relating to the Series 1996-2 Note or any other Financing Document, or any Vehicle, relating thereto, as otherwise directed by the NFC Agent pursuant to the NFC Collateral Agreement) with respect to all other such payments. By the second Business Day following its receipt thereof in available funds, National or NFLP will deposit into the Master Collateral Account (or, in the case of any such proceeds relating to the Series 1996-2 Note or any other Financing Document, or any Vehicle, relating thereto, as otherwise directed by the NFC Agent pursuant to the NFC Collateral Agreement) proceeds received by National or NFLP from (i) sales of Vehicles other than to or through a Manufacturer under its Repurchase Program, (ii) sales of Vehicles at Auction, and (iii) insurance proceeds and warranty payments received by National or NFLP during the continuance of a default or amortization event with respect to any Financing Source under its Financing Documents." (h) Section 2.4 of the Master Collateral Agreement is amended by deleting the word "and" before clause (iii) in the first sentence thereof and substituting therefor a comma and adding after said clause (iii) the words, "and (iv) the state in which each Vehicle is titled"; and also Exhibit B to the Master Collateral Agreement is amended by deleting the word "and" before clause (v) in the first sentence thereof and substituting therefor a comma and adding after said clause (v) the words, "and (vi) the state in which each Vehicle is titled". (i) The fourth and fifth sentences of Section 2.5(c) of the Master Collateral Agreement are amended by replacing the parenthetical "(upon which instructions the Master Collateral Agent may conclusively rely)" contained therein with the parenthetical "(which 10 10 instructions may be given by any employee of the Servicer as to whom a National Agent has notified the Master Collateral Agent that such employee is authorized to deliver such instructions, and upon which instructions the Master Collateral Agent may conclusively rely)". (j) Section 2.5(d) of the Master Collateral Agreement is amended by replacing the reference to "Section 2.5(b)" contained therein with a reference to "Section 2.5(c)". (k) The second sentence of Section 2.5(f) of the Master Collateral Agreement is amended in its entirety to read as follows: "Such investment instructions may be given by any employee of the Servicer as to whom a National Agent has notified the Master Collateral Agent that such employee is authorized to deliver such instructions." (l) Section 2.6 of the Master Collateral Agreement is amended in its entirety to read as follows: "SECTION 2.6. Certificates of Title. The Servicer shall hold all Certificates of Title in trust, as agent of, and custodian for, the Master Collateral Agent. The Servicer shall (i) hold all such Certificates of Title, under lock and key, in a safe fireproof location at one or more of the offices specified in Exhibit C (as the same may be from time to time revised by the Servicer on 30 days' prior written notice to the parties hereto), and (ii) not release or surrender any Certificate of Title except in accordance with this Agreement (and in any event not release or surrender any of the Certificates of Title other than Certificates of Title as to which the Lien of the Master Collateral Agent has been released in accordance with this Agreement). The Servicer shall cause the Certificates of Title with respect to each Vehicle owned by National to show National, and each Vehicle owned by NFLP to show NFLP, as the registered owner and Citibank, N.A., as agent, as the first lienholder, at the address referred to in the next sentence. The Master Collateral Agent has established a lock-box in Minneapolis, Minnesota to be used exclusively as its address as first lienholder noted on the Certificates of Title, to which lock-box both the Servicer and the Master Collateral Agent shall have access; provided, however, that the Master Collateral Agent may, at any time after the occurrence and during the continuance of any Default under any Financing Document to which any Vehicles relate, and upon notice to the Servicer, establish a post office box in New York City thereafter to be used exclusively thereafter as its address as first lienholder noted on the Certificates of Title for such Vehicles (in which case) the Master Collateral Agent shall thereafter, on a semi-weekly basis, forward to the Servicer at its address set forth in Section 5.2 11 11 hereof all Certificates of Title received at such post office box address titled in the name of National or in the name of NFLP)." (m) Section 2.7(c) of the Master Collateral Agreement is amended by replacing the reference to "Section 2.7(a)" contained therein with a reference to "Section 2.7(b)". (n) Clause (iii) of Section 3.2 of the Master Collateral Agreement is amended in its entirety to read as follows: "(iii) direct payments due under the Repurchase Programs (other than payments with respect to Exchanged Vehicles) and payments with respect to other Master Collateral (other than insurance proceeds, warranty payments, amounts payable to NFLP with respect to Exchanged Vehicles and sales proceeds from sales of Vehicles to third parties (other than under any related Repurchase Program) or insurance proceeds in respect of Vehicles received directly by the Servicer) to be deposited directly to the Master Collateral Account (or, in the case of any such payments relating to the Series 1996-2 Note or any other Financing Document, or any Vehicle, relating thereto, as otherwise directed by the NFC Agent pursuant to the NFC Collateral Agreement) by the Manufacturers and related auction dealers in accordance with this Agreement and deposit into the Master Collateral Account (or, in the case of any such payments relating to the Series 1996-2 Note or any other Financing Document, or any Vehicle, relating thereto, as otherwise directed by the NFC Agent pursuant to the NFC Collateral Agreement) sale proceeds (including amounts paid to the Servicer by a Manufacturer as a result of the Servicer's sale of such Vehicle outside such Manufacturer's Repurchase Program) or insurance proceeds in respect of the Vehicles (other than exchanged Vehicles) received directly by the Servicer, by the second Business Day following the Servicer's receipt thereof,". (o) Section 4.1(g) of the Master Collateral Agreement is amended by replacing the words "Section 9.14 of the NFC Loan Agreement" contained therein with the words "Section 24.14 of the Lease for the Series 1996-2 Note". (p) Section 4.1 of the Master Collateral Agreement is amended by deleting subsection (e) thereof. (q) Exhibit B of the Master Collateral Agreement is amended by amending clause (v) thereof in its entirety to read as follows: "(v) the monthly reports required pursuant to Section 7.1 of each Fleet Finance Agreement and NFLP Fleet Finance Agreement (in each case as such term is 12 12 defined in Schedule 1 to the Base Indenture), to the extent such Section requires that such reports be prepared by the Servicer". SECTION 3. Conditions of Effectiveness. This Amendment shall become effective when, and only when, the Liquidity Agent shall have received counterparts of this Amendment executed by National, NFLP, NFC, GM, BONY, the Trustee, Credit Agricole, Citibank as Master Collateral Agent, and Credit Suisse as the NFC Agent, and Section 2 hereof shall become effective when, and only when, the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, between NFLP and the Trustee, including Section 2 thereof, shall have become effective in accordance with Section 3 thereof. SECTION 4. Reference to and Effect on the Related Documents. (a) Upon the effectiveness of this Amendment, including Section 2 hereof, on and after the date hereof each reference in the Master Collateral Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Master Collateral Agreement, and each reference in the other Related Documents to "the Master Collateral Agreement", "thereunder", "thereof" or words of like import referring to the Master Collateral Agreement, shall mean and be a reference to the Master Collateral Agreement as amended hereby. (b) Except as specifically amended above, the Master Collateral Agreement and all other Related Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Master Collateral Agreement and all of the Master Collateral described therein do and shall continue to secure the payment of all National Obligations or NFLP Obligations, as applicable. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party thereto under any of the Related Documents, nor constitute a waiver of any provision of any of the Related Documents. SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile shall constitute delivery of a manually executed counterpart of this Amendment. SECTION 6. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. 13 13 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NATIONAL CAR RENTAL SYSTEM, INC. as grantor and as Servicer By: /s/ E.A. Zinter ----------------------------------------- Name: E.A. Zinter Title: EVP NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as grantor and as a Financing Source By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ M.J. Baker ------------------------------------ Name: Title: CITIBANK, N.A., as Master Collateral Agent By: /s/ Annette Marsula ----------------------------------------- Name: Annette Marsula Title: Senior Trust Officer NATIONAL FLEET FUNDING CORPORATION, as a Financing Source By /s/ M.J. Baker ----------------------------------------- Name: Title: 14 14 CREDIT SUISSE, NEW YORK BRANCH, as NFC Agent, as a Beneficiary By /s/ R. Saylor ----------------------------------------- Name: ROGER W. SAYLOR Title: ASSOCIATE By /s/ Carl Jackson ----------------------------------------- Name: CARL JACKSON Title: MEMBER OF SENIOR MANAGEMENT GENERAL MOTORS CORPORATION, as a Financing Source and Beneficiary By /s/ Marc L. Boothis ----------------------------------------- Name: Marc L. Boothis Title: Attorney-in-Fact THE BANK OF NEW YORK, individually and as Trustee, as a Financing Source and Beneficiary By /s/ Cheryl L. Laser ----------------------------------------- Name: CHERYL L. LASER Title: Assistant Vice President CAISSE NATIONALE DE CREDIT AGRICOLE, as a Financing Source and Beneficiary By /s/ Katherine L. Abbott ----------------------------------------- Name: KATHERINE L. Abbott Title: FIRST VICE PRESIDENT EX-4.20 21 MASTER MOTOR VEHICLE LEASE & SERVICING AGREEMENT 1 Exhibit 4.20 EXECUTION COPY MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT dated as of April 30, 1996 between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Lessor, and NATIONAL CAR RENTAL SYSTEM, INC., as Lessee and Servicer AS SET FORTH IN SECTION 27 HEREOF, LESSOR HAS ASSIGNED TO NFLP (AS DEFINED HEREIN) AND NFLP HAS ASSIGNED TO THE TRUSTEE (AS DEFINED HEREIN) CERTAIN OF ITS RIGHT, TITLE AND INTEREST IN AND TO THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION) NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE TRUSTEE ON THE SIGNATURE PAGE THEREOF. 2 TABLE OF CONTENTS SECTION 1. CERTAIN DEFINITIONS .............................................1 Section 1.1. Certain Definitions ....................................1 Section 1.2. Accounting and Financial ...............................2 Section 1.3. Cross References; Headings .............................2 Section 1.4. Interpretation .........................................2 SECTION 2. GENERAL AGREEMENT ................................................3 Section 2.1. Leasing of Vehicles ....................................3 Section 2.2. Right of Lessee to Act as Lessor's Agent ...............4 Section 2.3. Payment of Purchase Price by Lessor; Certain Additional Payments to the Servicer ...........................5 Section 2.4. Non-liability of Lessor ................................5 SECTION 3. TERM .............................................................6 Section 3.1. Vehicle Lease Commencement Date ........................6 Section 3.2. Lease Commencement Date ................................6 SECTION 4. CONDITIONS PRECEDENT .............................................7 Section 4.1. No Default .............................................7 Section 4.2. Texas Vehicles .........................................7 Section 4.3. Other Conditions .......................................7 SECTION 5.RENT AND CHARGES ..................................................7 Section 5.1 Payment of Rent ........................................7 Section 5.2. Payment of Availability Payment ........................7 Section 5.3. Payment of Monthly Supplemental Payment ................8 Section 5.4. Payment of Termination Payments, Casualty Payments, and Late Return Payments ............................8 Section 5.5. Late Payment ...........................................8 SECTION 6. Reserved ........................................................8 SECTION 7. CASUALTY OBLIGATION .............................................8 SECTION 8. VEHICLE USE .....................................................8 SECTION 9. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES ..........................................................10 SECTION 10. MAINTENANCE AND REPAIRS ........................................11 SECTION 11. VEHICLE WARRANTIES .............................................11 SECTION 12. PROGRAM VEHICLE USAGE REQUIREMENTS AND DISPOSITION .............12 Section 12.1. Usage ................................................12 Section 12.2. Disposition Procedure.................................12 3 Section 12.3. Termination Payments..................................13 SECTION 13. LATE RETURN PAYMENTS............................................13 SECTION 14. REDESIGNATION OF VEHICLES.......................................14 SECTION 15. GENERAL INDEMNITY...............................................14 Section 15.1. Indemnity of the Lessor...............................14 Section 15.2. Indemnification of the Trustee........................16 Section 15.3. Reimbursement Obligation by the Lessee................17 Section 15.4 Notice to Lessee of Claims ...........................17 Section 15.5 Defense of Claims ....................................17 SECTION 16. SUCCESSORS AND ASSIGNS; ASSIGNMENT..............................18 SECTION 17 DEFAULT AND REMEDIES THEREFOR Section 17.1 Events of Default.....................................18 Section 17.2. Effect of Lease Event of Default......................18 Section 17.3. Rights of Lessor Upon Lease Event of Default .......................................................20 Section 17.4. Measure of Damages....................................21 Section 17.5. Application of Proceeds...............................24 SECTION 18. MANUFACTURER EVENTS OF DEFAULT ................................25 SECTION 19. CERTIFICATION OF TRADE OR BUSINESS USE.........................25 SECTION 20. SURVIVAL ......................................................25 SECTION 21. RIGHTS OF LESSOR PLEDGED TO MASTER COLLATERAL AGENT AND TRUSTEE.........................................................25 SECTION 22. MODIFICATION AND SEVERABILITY ..................................28 SECTION 23. CERTAIN REPRESENTATIONS AND WARRANTIES..........................28 Section 23.1. Organization; Ownership; Power; Qualification ................................................28 Section 23.2 Authorization; Enforceability ........................28 Section 23.3 Compliance ...........................................29 Section 23.4 Financial Information; Financial Condition ...........29 Section 23.5 Litigation ...........................................30 Section 23.6 Liens ................................................30 Section 23.7 Employee Benefit Plans ...............................31 Section 23.8 Investment Company Act ...............................31 Section 23.9 Regulations G, T, U and X ............................31 Section 23.10 Business Locations; Trade Names .....................31 Section 23.11 Taxes ...............................................32 Section 23.12 Governmental Authorizations .........................32 Section 23.13 Absence of Default ..................................32 ii 4 Section 23.14 Compliance with Requirements of Law .................32 Section 23.15 Accuracy of Information .............................32 Section 23.16 Solvency ............................................33 Section 23.17 Stock Ownership .....................................33 Section 23.18 Necessary Actions ...................................33 Section 23.19 Supplemental Documents True and Correct .............33 Section 23.20 Eligible Vehicles; Eligible Franchisees .............33 SECTION 24. CERTAIN AFFIRMATIVE COVENANTS...................................33 Section 24.1 Corporate Existence; Foreign Qualifications .........34 Section 24.2 Books, Records and Inspections ......................34 Section 24.3 Accounting Methods; Financial Records ...............34 Section 24.4 Insurance ...........................................35 Section 24.5 Manufacturer Programs ...............................35 Section 24.6 Reporting Requirements ..............................36 Section 24.7 Taxes and Liabilities ...............................40 Section 24.8 Maintenance of Separate Existence ...................41 Section 24.9 Maintenance of Credit Enhancement ...................41 Section 24.10 Manufacturer Payments; Sales Proceeds ...............41 Section 24.11 Compliance with Requirements of Law .................42 Section 24.12 Delivery of Information .............................42 Section 24.13 Master Collateral Agent as Lienholder ...............42 Section 24.14 Maintenance of the Vehicles .........................42 Section 24.15 Certificates of Title ...............................42 Section 24.16 Release of Collateral ...............................43 Section 24.17 Change of Location or Name ..........................43 Section 24.18 Deliveries; Further Assurances ......................44 Section 24.19 Additional Actions ..................................44 Section 24.20. Subleases ..................................................45 SECTION 25. CERTAIN NEGATIVE COVENANTS ....................................45 Section 25.1 Mergers, Consolidations .............................45 Section 25.2 Regulations G, T, U and X ...........................46 Section 25.3 Liens ...............................................46 Section 25.4 Use of Vehicles .....................................46 Section 25.5 Percentage of Non-Program Vehicles ..................46 Section 25.6 Acquisition and Financing of Vehicles ...............46 SECTION 26. SERVICING COMPENSATION ........................................47 SECTION 27. BANKRUPTCY PETITION AGAINST LESSOR ............................48 SECTION 28. FORUM SELECTION AND CONSENT TO JURISDICTION ...................48 SECTION 29. GOVERNING LAW .................................................49 SECTION 30. JURY TRIAL ....................................................49 -iii- 5 SECTION 31. NOTICES .......................................................49 SECTION 32. HEADINGS ......................................................50 SECTION 33. EXECUTION IN COUNTERPARTS .....................................50 SECTION 34. EFFECTIVENESS .................................................50 SCHEDULES AND ATTACHMENTS Schedule 23.10 Business Locations ATTACHMENTS A-1 Information on Refinanced Vehicles ATTACHMENTS A-2 Vehicle Acquisition Schedule ATTACHMENTS B Form of Power of Attorney ATTACHMENTS C Form of Certification of Trade or Business Use EXHIBITS EXHIBIT A Form of Monthly Certificate EXHIBIT B Form of Monthly Noteholders' Statement EXHIBIT C Form of Annual Certificate EXHIBIT D Form of Joinder to Intercreditor Agreement EXHIBIT E Form of Notice of Lease Payment Deficit -iv- 6 MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT This Master Motor Vehicle Lease and Servicing Agreement (the "Base Lease" and, as supplemented by the Lease Annexes, this Agreement" or "Lease"), dated as of April 30, 1996, by and between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a Delaware corporation (the "'Lessor" or "NFLP"), and NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"), in its capacity as lessee (the "Lessee") and as servicer (the "Servicer"). W I T N E S S E T H: WHEREAS, the Lessor (such capitalized term, together with all other capitalized terms used herein, shall have the meaning assigned thereto in Section 1) intends to refinance the Refinanced Vehicles and to purchase, and finance the purchase of, additional Eligible Vehicles from one or more Manufacturers with the proceeds obtained by the issuance of its Notes issued pursuant to the Indenture and with certain other funds; and WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, Vehicles for use in the Lessee's domestic daily rental car operations; WHEREAS, the Lessee desires to refinance the Refinanced Vehicles and finance the acquisition of the Financed Vehicles and retain tax ownership of such Refinanced Vehicles and Financed Vehicles and Lessor desires to facilitate such financing. NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: SECTION 1. CERTAIN DEFINITIONS. Section 1.1. Certain Definitions. As used in this Agreement and unless the context requires a different meaning, capitalized terms not otherwise defined herein or in the Annexes hereto shall have the meanings assigned to such terms in the Definitions List, attached as Schedule 1 to the Base Indenture, dated as of April 30, 1996 (as such agreement may be amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, the "Base Indenture"), between NFLP and The Bank of New York, as trustee, as in effect on the date hereof and as such Schedule 1 may be amended, supplemented or modified from time to time in accordance with the terms of the Base Indenture (the "Definitions List"). 7 Section 1.2. Accounting and Financial Determinations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall be made, to the extent applicable and except as otherwise specified in this Agreement, in accordance with GAAP. When used herein, the term "financial statement" shall include the notes and schedules thereto. Section 1.3. Cross References: Headings. The words "hereof", "herein" and "hereunder" and words of a similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Annex, Section, Schedule and Exhibit references contained in this Agreement are references to Annexes, Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. Any reference in any Section or definition to any clause is, unless otherwise specified, to such clause of such Section or definition. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. Section 1.4. Interpretation. In this Agreement, unless the context otherwise requires: (a) the singular includes the plural and vice versa; (b) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to any Person in a particular capacity only refers to such Person in such capacity; (c) reference to any gender includes the other gender (d) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (e) "including" (and, with correlative meaning, Include) means including without limiting the generality of any description preceding such term; (f) "or" is not exclusive; (g) provisions apply to successive events and transactions; and -2- 8 (h) with respect to the determination of any period of time, "from" means "from and including' and "to" means "to but excluding". SECTION 2. GENERAL AGREEMENT. (a) As specified in the Lease Annexes, the Lessee and the Lessor intend that this Agreement be (i) an operating lease with respect to the Acquired Vehicles and (ii) a financing arrangement with respect to the Financed Vehicles. (b) If, notwithstanding the intent of the parties to this Agreement, this Agreement is deemed by any court, tribunal, arbitrator or other adjudicative authority in any proceeding (each, a "Court") to constitute a financing arrangement or otherwise not to constitute a "true lease" with respect to the Acquired Vehicles, then it is the intention of the parties that this Agreement together with the Master Collateral Agency Agreement, as such agreements apply to the Acquired Vehicles, shall constitute a security agreement under applicable law. It is also the intention of the parties that this Agreement together with the Master Collateral Agency Agreement, as such agreements apply to the Financed Vehicles, shall in all events constitute a security agreement under applicable law. The Lessee hereby acknowledges that it has granted to the Master Collateral Agent, pursuant to the Master Collateral Agency Agreement, for the benefit of the Trustee, a first priority security interest in all of the Lessee's right, title and interest in and to the National Master Collateral (as defined therein) as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all of the obligations and liabilities of the Lessee to the Lessor and the Trustee, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred (including interest accruing after the Lease Expiration Date and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding), which may arise under, out of, or in connection with, this Agreement and any other document made, delivered or given in connection herewith, whether on account of rent, principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees and disbursements of counsel to the Lessor or the Trustee that are required to be paid by the Lessee pursuant to the terms hereof). Section 2.1. Leasing of Vehicles. From time to time, subject to the terms and conditions hereof, the Lessor agrees to lease to the Lessee and the Lessee agrees to lease from the Lessor the Refinanced Vehicles and each additional Acquired Vehicle or Financed Vehicle identified in vehicle order summaries (each, a "Vehicle Order") produced from time to time by the Lessee, listing Vehicles ordered by the Lessee from Eligible -3- 9 Manufacturers, for itself or as agent for the Lessor, pursuant to the terms of any applicable Manufacturer Programs or otherwise. The Lessor shall, subject to Section 4 and to compliance with the terms of the Indenture, make available to the Lessee under this Lease, financing for Financed Vehicles (other than Texas Vehicles) in an aggregate amount, and Acquired Vehicles and Texas Vehicles for lease to the Lessee hereunder in an aggregate Net Book Value, which collectively shall not exceed the Maximum Lease Commitment. The Lessee shall make available to the Lessor (a) a schedule as set forth in Attachment A-1 hereto containing information concerning the Refinanced Vehicles of a scope agreed upon by the Lessor and the Lessee, and (b), if requested by the Lessor, each Vehicle Order, together with a schedule containing the information with respect to the Vehicles included within such Vehicle Order as is set forth in Attachment A-2 hereto, or in such form as is otherwise requested by the Lessor (each, a "Vehicle Acquisition Schedule"). In addition, the Lessee shall provide such other information regarding such Vehicles as the Lessor may reasonably require from time to time. The Lessor shall lease to the Lessee, and the Lessee shall lease from the Lessor, only Vehicles that are Eligible Vehicles. This Agreement, together with the Manufacturer Programs and any other related documents attached to this Agreement or submitted with a Vehicle Order (collectively, the 'Supplemental Documents"), will constitute the entire agreement regarding the leasing of Vehicles by the Lessor to the Lessee. Section 2.2. Right of Lessee to Act as Lessor's Agent. The Lessor agrees that the Lessee may act as the Lessor's agent in placing Vehicle Orders on behalf of the Lessor, as well as filing claims on behalf of the Lessor for damage in transit, and other Manufacturer delivery claims related to the Vehicles leased hereunder; provided, however, that the Lessor may hold the Lessee liable for losses due to the Lessee's actions in performing as the Lessor's agent hereunder. In addition, the Lessor agrees that the Lessee may make arrangements for delivery of Vehicles to a location selected by the Lessee at the Lessee's expense to the extent that any such expense has not been included in the Capitalized Cost of such Vehicle. The Lessee or the applicable Sublessee may accept or reject Eligible Vehicles upon delivery in accordance with the Lessee's or such Sublessee's customary business practices, and any Eligible Vehicle, if rejected, will be deemed a Casualty hereunder to the extent the Capitalized Cost thereof has been paid by the Lessor or the Lessee. The Lessee, acting as agent for the Lessor, shall be responsible for pursuing any rights of the Lessor with respect to the return of any Eligible Vehicle to the Manufacturer thereof pursuant to the preceding sentence. The Lessee agrees that any Vehicles ordered by Lessee on behalf of the Lessor pursuant to this Section 2,2 shall be ordered utilizing the procedures consistent with the applicable Manufacturer Program or any guidelines of the -4- 10 Manufacturer for the ordering or purchasing of Non-Program Vehicles, in each case as and to the extent applicable. Section 2.3. Payment of Purchase Price by Lessor: Certain Additional Payments to the Servicer. (a) Upon receipt of the Manufacturer's invoice and certificate of origin in respect of any Vehicle other than a Replacement Vehicle, the Lessor or its agent shall pay or cause to be paid to the dealer or the related Manufacturer in accordance with such Manufacturer's payment terms, as applicable, the Capitalized Cost of such Vehicle under the applicable Manufacturer Program (in the case of a Program Vehicle) or otherwise (in the case of a Non-Program Vehicle) as established by the invoice of the dealer or the Manufacturer, as the case may be and the Lessee shall pay all applicable costs and expenses of freight, packing, handling, storage, shipment and delivery of such Vehicle to the extent that the same have not been included within the Capitalized Cost; provided, however, that to the extent a Qualified Intermediary purchases a Replacement Vehicle on behalf of the Lessee or the Lessor, such Qualified Intermediary shall pay the Capitalized Cost of such Replacement Vehicle with funds other than amounts on deposit in the Collection Account or any subaccount thereof; provided further, however, that solely in the case of the Refinanced Vehicles, the Lessor shall pay to the Master Collateral Agent on the Lease Commencement Date, for allocation to National Fleet Funding Corporation as a Financing Source, an amount equal to the aggregate Net Book Value as of the Lease Commencement Date of the Refinanced Vehicles. (b) All amounts paid by the Manufacturer on account of vehicle preparation services or work covered by warranty performed by National with respect to Vehicles acquired or financed pursuant to this Agreement or as incentive payments for maintaining a particular fleet mix shall inure to the benefit of National and, to the extent any such payments are received by the Lessor, the Trustee or the Master Collateral Agent, shall promptly be paid over to National. Section 2.4. Non-liability of Lessor. The Lessor shall not be liable to the Lessee for any failure or delay in obtaining Vehicles or making delivery thereof. AS BETWEEN THE LESSOR AND THE LESSEE, ACCEPTANCE FOR LEASE OF THE VEHICLES SHALL CONSTITUTE THE LESSEE'S ACKNOWLEDGMENT AND AGREEMENT THAT THE LESSEE HAS FULLY INSPECTED SUCH VEHICLES, THAT THE VEHICLES ARE IN GOOD ORDER AND CONDITION AND ARE OF THE MANUFACTURE, DESIGN, SPECIFICATIONS AND CAPACITY SELECTED BY THE LESSEE, THAT THE LESSEE IS SATISFIED THAT THE SAME ARE SUITABLE FOR THIS USE AND THAT THE LESSOR IS NOT A MANUFACTURER, AN AGENT OF THE MANUFACTURER OR OTHERWISE ENGAGED IN THE SALE OR DISTRIBUTION OF VEHICLES, AND HAS NOT MADE AND DOES NOT HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH -5- 11 RESPECT TO MERCHANTABILITY, CONDITION, QUALITY, CAPABILITY, WORKMANSHIP, DURABILITY OR SUITABILITY OF THE VEHICLE IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY WARRANTY THAT THE LEASED VEHICLES WILL SATISFY THE REQUIREMENTS OF ANY LAW OR ANY CONTRACT SPECIFICATION, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT THERETO AND AS BETWEEN THE LESSOR AND THE LESSEE, THE LESSEE AGREES TO BEAR ALL SUCH RISKS AT ITS SOLE COST AND EXPENSE. THE LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE CLAIMS AGAINST THE LESSOR AND ANY LEASED VEHICLE FOR BREACH OF ANY WARRANTY OF ANY KIND WHATSOEVER AND, AS TO THE LESSOR, THE LESSEE LEASES THE LEASED VEHICLES "AS IS." The Lessor shall not be liable for any failure or delay in delivering any Vehicle ordered for lease pursuant to this Agreement, or for any failure to perform any provision hereof, resulting from fire or other casualty, natural disaster, riot, strike or other labor difficulty, governmental regulation or restriction, or any cause beyond the Lessor's direct control. IN NO EVENT SHALL THE LESSOR BE LIABLE FOR ANY INCONVENIENCES, LOSS OF PROFITS OR ANY OTHER CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, WHATSOEVER OR HOWSOEVER CAUSED, WHETHER RESULTING FROM ANY DEFECT IN OR ANY THEFT, DAMAGE, LOSS OR FAILURE OF ANY VEHICLE, OR OTHERWISE, AND THERE SHALL BE NO ABATEMENT OF RENT BECAUSE OF THE SAME. SECTION 3. TERM. Section 3.1. Vehicle Lease Commencement Date. The "Vehicle Lease Commencement Date" shall mean, (i) for each Refinanced Vehicle, the Closing Date for the first Series of Notes issued under the Indenture, and (ii) for each other Vehicle, the date referenced in the Vehicle Acquisition Schedule with respect to such Vehicle, which in no event shall be later than the date that funds are expended by the Lessor to acquire or finance the acquisition of such Vehicle. A vehicle shall be deemed hereunder to be a Vehicle leased under the Lease on each day during the period (the "Vehicle Term") from and including the Vehicle Lease Commencement Date to but excluding the Vehicle Lease Expiration Date. Section 3.2. Lease Commencement Date. The "Lease Commencement Date" shall mean the Closing Date for the first Series of Notes issued under the Indenture. The "Lease Expiration Date" shall mean the later of (i) the date of the payment in full of all Series of Notes and all outstanding Carrying Charges and (ii) the Vehicle Lease Expiration Date for the last Vehicle subject to lease by the Lessee hereunder. The "Term" of this Agreement shall mean the period commencing on the Lease Commencement Date and ending on the Lease Expiration Date. -6- 12 SECTION 4. CONDITIONS PRECEDENT. The agreement of the Lessor to make available any Acquired Vehicle for lease to the Lessee, and to make available Texas Vehicles or financing for the acquisition of any other Financed Vehicle (other than Refinanced Vehicles) for lease to the Lessee upon the Lessee's placement of a Vehicle Order, for itself or as agent of the Lessor, is subject to the terms and conditions of the Indenture and subject to the satisfaction of the conditions to effectiveness specified in Section 34 and the following conditions precedent as of the Vehicle Lease Commencement Date for such Vehicle: Section 4.1. No Default. No Potential Lease Event of Default or Lease Event of Default shall have occurred and be continuing on such date or would result from the making of such lease. Section 4.2. Texas Vehicles. The aggregate Net Book Value of Texas Vehicles on the Lease Commencement Date for any Vehicle shall not exceed 12.5` of the aggregate Net Book Value of all Vehicles financed under the Lease on such day. Section 4.3. Other Conditions. The leasing of such Vehicle shall not be prohibited by the provisions of any Supplement other than a Supplement establishing a Segregated Series. SECTION 5. RENT AND CHARGES. The Lessee will pay Rent and certain other charges on a monthly basis as set forth in this Section 5: Section 5.1. Payment of Rent. On each Payment Date, the Lessee shall pay to the Lessor the aggregate of all Rent payable on such Payment Date with respect to the Vehicles, as provided in the related Lease Annexes. Section 5.2. Payment of Availability Payment. On each Payment Date, the Lessee shall pay to the Lessor an amount (the unavailability Payment") in respect of the unutilized portion of the Maximum Lease Commitment. "Availability Payment" with respect to each Payment Date shall equal (a) the aggregate interest due on the Outstanding Notes of all Series as of such Payment Date, plus (b) an amount equal to all Carrying Charges for the Related Month, less (c) the sum of (i) any Monthly Variable Rent due on such Payment Date, (ii) any Monthly Finance Rent due on such Payment Date, and (iii) any earnings on Permitted Investments (less any portion thereof allocated to the Retained Interestholder) accruing through the Determination Date occurring prior to such Payment Date and not included in the calculation of Availability Payments with respect to any prior Payment Date. -7- 13 Section 5.3. Payment of Monthly Supplemental Payment. On each Payment Date, the Lessee shall pay to the Lessor the Monthly Supplemental Payment that has accrued during the Related Month with respect to the Financed Vehicles, as provided in Sections 6 and 7 of Annex B. Section 5.4. Payment of Termination Payments. Casualty Payments. and Late Return Payments. On each Payment Date, the Lessee shall pay to the Lessor all Casualty Payments, Termination Payments and Late Return Payments that have accrued with respect to the Acquired Vehicles, as provided in, respectively, Sections 7. 12.3 and 13. Section 5.5. Late Payment. In the event the Lessee fails to remit payment of any amount due under the Lease on or before the Payment Date, the amount not paid will be considered delinquent and the Lessee will pay a late charge equal to the product of (a) the VFR plus It, times (b) the delinquent amount for the period from the Payment Date to the date on which such delinquent amount is received by the Trustee, multiplied by (c) the actual number of days elapsed during such period divided by 360. SECTION 6. Reserved. SECTION 7. CASUALTY OBLIGATION. If a Vehicle becomes a Casualty, then the Lessee shall (a) promptly notify the Lessor of such occurrence, and (b) in the case of an Acquired Vehicle, on the Payment Date next succeeding the last day of the Related Month in which the Lessee obtained actual knowledge that such Vehicle has become a Casualty, pay to the Lessor an amount (a "Casualty Payment") equal to the Net Book Value of such Vehicle, calculated as of the first day of the Related Month in which the Lessee obtained actual knowledge that such Vehicle became a Casualty (net of Monthly Base Rent and Monthly Supplemental Payments made in respect of such Vehicle during such Related Month). Upon payment by the Lessee to the Lessor in accordance herewith of the Casualty Payment for any Acquired Vehicle that has become a Casualty, (i) the Lessor, upon request of the Lessee, shall cause title to such Vehicle to be transferred to the Lessee to facilitate liquidation of such Vehicle by the Lessee, (ii) the Lessee shall be entitled to any physical damage insurance proceeds applicable to such Acquired Vehicle (if at such time the Lessee carries such insurance coverage), and (iii) the Lien of the Master Collateral Agent on such Vehicle shall automatically be released thereby. SECTION 8. VEHICLE USE. The Lessee shall use Vehicles leased hereunder solely for the Lessee's domestic daily rental car operations; provided that the Lessee may, from time to time, sublease Vehicles to Eligible Franchisees pursuant to Lessee -8- 14 Agreements, including Subleases, used in the ordinary course of the Lessee's business and such Eligible Franchisees shall rent Vehicles subleased by it to consumers in the ordinary course of such Eligible Franchisee's domestic daily rental car operations (provided further, however, that the aggregate Net Book Value of all Vehicles subject to Subleases on any day shall not exceed an amount equal to (a) 5` of the aggregate Net Book Value of all Vehicles leased under the Lease on such day, or (b) such greater amount as each Rating Agency shall have confirmed in writing will not result in the reduction or withdrawal of the then current rating of any outstanding Series of Notes). Notwithstanding any such Lessee Agreement, the Lessee shall remain fully liable for its obligations under this Agreement and the other Related Documents (including any obligation hereunder or thereunder that it may cause any Eligible Franchisee to perform or fulfill). The Lessee shall promptly and duly execute, deliver, file and record all such documents, statements, filings and registrations, and take such further actions as the Lessor, the Master Collateral Agent, the Servicer or the Trustee shall from time to time reasonably request in order to establish, perfect and maintain the Lessor's title to and interest in the Acquired Vehicles and the related Certificates of Title as against the Lessee or any third party in any applicable jurisdiction and to establish, perfect and maintain the Master Collateral Agent's lien on the Vehicles as noted on the related Certificates of Title (other than recordation of the Lien of the Master Collateral Agent on the Certificates of Title for the Initial Vehicles) as a perfected first-priority lien in any applicable jurisdiction. The Lessee may, at the Lessee's sole expense, change the place of principal location of any Vehicles. Within 60 days after any such change of location, the Lessee shall take all actions necessary (i) to maintain the perfected first-priority Lien of the Master Collateral Agent on such Vehicles as noted on the Certificates of Title with respect to such Vehicles (other than recordation of the Lien of the Master Collateral Agent on the Certificates of Title for the Initial Vehicles) and the Lessor shall cooperate to the extent required for the Lessee to do so, and (ii) to meet all material legal requirements applicable to such Vehicles. Following a Lease Event of Default or Manufacturer Event of Default, and upon the Lessor's request, the Lessee shall advise the Lessor in writing where all Vehicles leased hereunder as of such date are principally located. The Lessee shall not knowingly use any Vehicles, or knowingly permit the same to be used, for any unlawful purpose. The Lessee shall and shall require the Franchisees to use reasonable precautions to prevent loss or damage to Vehicles. The Lessee shall or shall cause the Franchisees to comply in all material respects with all applicable statutes, decrees, ordinances and regulations regarding acquiring, titling, registering, leasing, insuring and disposing of Vehicles and shall and shall require the Franchisees to take reasonable steps to ensure that operators are licensed. -9- 15 The Lessee shall or shall cause the Franchisees to perform, at their own expense, such vehicle preparation and conditioning services with respect to Vehicles as are customary. The Lessor, the Master Collateral Agent or the Trustee or any authorized representative of the Lessor, the Master Collateral Agent or the Trustee may during reasonable business hours from time to time, upon reasonable prior notice, without disruption of the Lessee's or the Franchisees' business and subject to applicable law, inspect Vehicles and registration certificates, Certificates of Title and related documents covering Vehicles wherever the same be located. SECTION 9. REGISTRATION: LICENSE: TRAFFIC SUMMONSES: PENALTIES AND FINES. The Lessee, at its expense, shall be responsible for proper registration and licensing of Vehicles, and titling of Vehicles in the name of the Lessor (in the case of Acquired Vehicles and Texas Vehicles) or the Lessee (in the case of all other Financed Vehicles), in each case (other than with respect to the Initial Vehicles) with the Lien of the Master Collateral Agent noted thereon, and where required, the Lessee shall or shall cause the Franchisees to have Vehicles inspected by any appropriate governmental authority; provided, however, that notwithstanding the foregoing, unless a Liquidation Event of Default or Limited Liquidation Event of Default shall have occurred and be continuing, possession of all Certificates of Title shall remain with the Servicer. The Lessee shall pay or cause to be paid all registration fees, title fees, license fees, traffic summonses, penalties, judgments and fines incurred with respect to any Vehicle during the Vehicle Term for such Vehicle or imposed during the Vehicle Term for such Vehicle by any governmental authority or any court of law or equity with respect to Vehicles in connection with the Lessee's operation of Vehicles, and any such amounts paid by the Lessor on the Lessee's behalf, in its discretion upon at least 15 days' prior notice to the Lessee, will be reimbursed within thirty (30) days of the Lessor notifying the Lessee of such payment; provided, however, that the Lessor shall not pay on the Lessee's behalf any traffic summons, or any penalty, judgment or fine for so long as such amount is being contested by the Lessee in good faith and by appropriate proceedings with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP and provided that the Lessee has agreed in writing to indemnify and hold the Lessor harmless from and against all loss, liability and expense arising out of such unpaid amounts (and, in any case, for so long as forfeiture of any Vehicles or other Master Collateral will not result from the failure to pay any such amounts). The Lessor agrees to execute a power of attorney substantially in the form of Attachment B hereto (a "Power of Attorney"), and such other documents as may be necessary in order to allow the Lessee to title, register and dispose of the Acquired Vehicles and the Texas Vehicles; and the Lessee -10- 16 acknowledges and agrees that with respect to the Acquired Vehicles, it has no right, title or interest in or with respect to any Certificate of Title. Notwithstanding anything herein to the contrary, the Lessor may terminate such Power of Attorney as provided in Section 17.3. SECTION 10. MAINTENANCE AND REPAIRS. The Lessee shall or shall cause the Franchisees to pay for all maintenance and repairs to keep Vehicles in good working order and condition, and shall or shall cause the Franchisees to maintain Vehicles as required in order to keep the Manufacturer's warranty in force. The Lessee shall or shall cause the Franchisees to return each Vehicle to an authorized Manufacturer facility or the applicable Manufacturer's authorized warranty station (which may be a facility of the Lessee) for warranty work. The Lessee shall or shall cause the Franchisees to comply with any Manufacturer's recall of any Vehicle. The Lessee shall or shall cause the Franchisees to pay, or cause to be paid, all usual and routine expenses incurred in the use and operation of Vehicles including, but not limited to, fuel, lubricants, and coolants. The Lessor, upon thirty (30) days' prior notice to the Lessee (including any failure by a Franchisee to pay any such expenses), may pay any such expenses that have not otherwise been paid by, or on behalf of, the Lessee, and any expenses incurred by the Lessor on the Lessee's behalf for maintenance, repair, operation or use by the Lessee of Vehicles will promptly be reimbursed (in any event no later than the next Payment Date following such payment) by the Lessee to the Lessor in the amount paid by the Lessor. The Lessee shall not, without the prior consent of the Lessor, make any material alterations to any Program Vehicle which would result in a reduction of the Repurchase Price for such Vehicle or any material alterations to any Non-Program Vehicle. Any improvements or additions to an Acquired Vehicle shall become and remain the property of the Lessor, except that any addition or improvement to such a Vehicle made by the Lessee shall remain the property of the Lessee if it can be disconnected or removed from the Vehicle without impairing the functioning of or resale value thereof, other than any function or value provided by such addition or improvement. SECTION 11. VEHICLE WARRANTIES. If a Vehicle is covered by a Manufacturer's warranty, the Lessee, during the Vehicle Term, shall have the right to make any claims under such warranty which the Lessor could make and to receive related proceeds directly. As provided in Section 2.4, the Lessor makes no warranty or representation whatsoever, express or implied, with respect to any Vehicle. -11- 17 SECTION 12. PROGRAM VEHICLE USAGE REQUIREMENTS AND DISPOSITION. Section 12.1. Usage. As used herein, the term "vehicle turn-in condition" with respect to each Program Vehicle means a set of criteria for evaluating Program Vehicles upon their delivery at the end of the applicable Vehicle Terms, which criteria will be determined in accordance with the related Manufacturer Program. Program Vehicles not meeting the applicable Manufacturer Program's vehicle turn-in condition requirements will, unless redesignated as a Non-Program Vehicle in accordance with Section 14, be purchased by the Lessee in accordance with the Casualty procedure set forth in Section 7 or otherwise disposed of in accordance with the late delivery procedure set forth in Section 13, as applicable. Section 12.2. Disposition Procedure: Sale of Program Vehicles Outside of Manufacturer Program. (a) Except as otherwise permitted pursuant to subsection (b) below, prior to the end of the Vehicle Term, the Lessee will or will cause the related Franchisee to deliver each Program Vehicle (other than a Casualty) to the nearest related Manufacturer official auction or other facility designated by such Manufacturer at the Lessee's sole expense and in accordance with the terms of the applicable Manufacturer Program. Any transportation allowance (for delivery costs) and any rebates or credits applicable to the unexpired term of any license plates for a Vehicle shall inure to the benefit of the Lessee and, to the extent received by the Lessor, the Trustee or the Master Collateral Agent, shall promptly be paid over to the Lessee. The Lessee will comply with the requirements of law and the requirements of the Manufacturer Programs in connection with, among other things, the delivery of Certificates of Title, documents of transfer signed as necessary, signed Condition Reports, and signed odometer statements for the Program Vehicles. (b) At the election of any of the Servicer, the Lessee or the Lessor, Program Vehicles may be sold during the Repurchase Period in a sale which is not made pursuant to the related Manufacturer Program only (i) if such Program Vehicle is a Financed Vehicle and the Lessee has theretofore paid to the Lessor an amount equal to the Net Book Value of such Program Vehicle (plus all unpaid Rent and Monthly Supplemental Payments in respect of such Vehicle) or (ii) the purchase price (including any amounts paid by the Manufacturer as an incentive for selling such Vehicle outside of the related Manufacturer Program), net of all fees and expenses incurred in connection with such sale, exceed the Net Book Value of such Vehicle less reasonably predictable Excess Mileage Charges, Excess Damage Charges, Missing Equipment Charges and other similar charges imposed by the Manufacturer. -12- 18 Section 12.3. Termination Payments. On the Payment Date next succeeding the earlier of (a) the last day of the Related Month in which the Repurchase Price with respect to any Acquired Vehicle that is a Program Vehicle is received by the Lessor, the Master Collateral Agent or the Trustee (including by deposit into the Collection Account or the Master Collateral Account) and (b) the thirtieth (30th) day after the expiration of the Repurchase Period for such Acquired Vehicle, the Lessee shall pay to the Lessor in respect of such Acquired Vehicle any Excess Damage Charges, Excess Mileage Charges, Missing Equipment Charges, early turnback surcharges and any other similar charges and penalties (collectively, a "Program Vehicle Termination Payment") as determined by the Manufacturer or its agent in accordance with the applicable Manufacturer Program and on the Payment Date next succeeding the earlier of (i) the last day of the Related Month in which Disposition Proceeds from the sale or other disposition of an Acquired Vehicle that is a Non-Program Vehicle, but is not a Casualty, are received by the Lessor, the Master Collateral Agent or the Trustee (including by deposit into the Collection Account or the Master Collateral Account), and (ii) the thirtieth (30th) day after the date which is eighteen (18) months after the date of the original dealer invoice for such Vehicle sold as a new vehicle, the Lessee shall pay to the Lessor in respect of such Vehicle an amount (a "Non-Program Vehicle Termination Payment") equal to the quotient of (x) the sum of all Program Vehicle Termination Payments for the Related Month, divided by (y) the number of Acquired Vehicles that were Program Vehicles and with respect to which, during the Related Month, either the Repurchase Price was received or there occurred the 30th day after the expiration of the Repurchase Period (Program Vehicle Termination Payments and Non-Program Vehicle Termination Payments collectively, "Termination Payments"). The provisions of this Section 12.3 will survive the expiration or earlier termination of the Term. SECTION 13. LATE RETURN PAYMENTS. If an Acquired Vehicle which is a Program Vehicle is not returned to the Manufacturer or sold at Auction prior to the expiration of the Repurchase Period for- such Vehicle in accordance with Section 12.2, the Lessee shall, unless such Vehicle has been redesignated as a Non-Program Vehicle in accordance with Section 14, (a) promptly notify the Lessor of its failure to return such Vehicle to the Manufacturer or to sell such Vehicle at Auction during the Repurchase Period therefor, (b) use commercially reasonable efforts to sell or otherwise dispose of such Vehicle in a manner reasonably likely to maximize proceeds from such disposition and consistent with industry practice, (c) cause the Disposition Proceeds, if any, from any such sale or disposition to be paid to the Master Collateral Agent, in accordance with paragraph 10(d) of Annex A, and (d) on the Payment Date next succeeding the earlier of (i) the last day of the Related Month in which such Disposition -13- 19 Proceeds are received by the Lessor, the Master Collateral Agent or the Trustee (including by deposit into the Collection Account or the Master Collateral Account), and (ii) the thirtieth (30th) day after the expiration of the Repurchase Period for such Vehicle, pay to the Lessor an amount (a "Late Return Payment") equal to the excess of (x) the Net Book Value of such Vehicle, calculated as of the first day of the calendar month in which such Repurchase Period expired, over (y) the sum of (A) the dollar amount of such Disposition Proceeds plus (B) any Monthly Base Rent paid by the Lessee with respect to such Vehicle in any calendar month after the calendar month in which such Repurchase Period expired (which dollar amount may be equal to, but not less than, zero dollars). SECTION 14. REDESIGNATION OF VEHICLES. At any time, including upon the occurrence of a Manufacturer Event of Default with respect to the Manufacturer of any Program Vehicle or a Program Vehicle's becoming ineligible for repurchase by its Manufacturer or for sale at Auction under the applicable Manufacturer Program, due to physical damage, repair charges or accrued mileage, in each case in excess of that permitted under the related Manufacturer Program, or due to any failure or inability to return the Vehicle to the Manufacturer or the designated Auction prior to the expiration of the Repurchase Period, or due to any other event or circumstance, the Servicer may designate the related Vehicle as a Non-Program Vehicle if such Vehicle, as a Non-Program Vehicle, will be an Eligible Vehicle, provided that no Amortization Event or Potential Amortization Event has occurred and is continuing and provided further that no violation of the requirements of Section 25.5 has occurred and is continuing or would be caused by such redesignation and no failure or violation of any other condition, requirement, or restriction specified in any related Series Supplement would be caused by such redesignation (subject to the right of the Noteholders holding the requisite Invested Amount of each applicable Series of Notes to waive such violation, in each case as and to the extent permitted under the related Series Supplement); provided, in each case, that (x) any additional Monthly Base Rent due with respect to each such Vehicle, relating to the decrease, if any, of the Net Book Value of such Vehicle under the newly applicable Depreciation Schedule, shall be paid on the next succeeding Payment Date, and (y) the minimum level of Enhancement required under the applicable Series Supplement, after giving effect to such designation, shall be satisfied on the date of designation. SECTION 15. GENERAL INDEMNITY. Section 15.1. Indemnity of the Lessor. The Lessee agrees to indemnify and hold harmless the Lessor and the Lessor's directors, officers, agents and employees (collectively, together -14- 20 with the Persons subject to indemnity under Section 15.2, the "Indemnified Persons") against any and all claims, demands and liabilities of whatsoever nature, and all costs and expenses, relating co or in any way arising out of: Section 15.1.1. the ordering, delivery, acquisition, title on acquisition, rejection, installation, possession, titling, retitling, registration, re-registration, custody by the Lessee of title and registration documents, use, nonuse, misuse, operation, deficiency, defect, transportation, repair, control or disposition of any Vehicle leased hereunder or to be leased hereunder, including, without limitation, any such Vehicle subleased to a Franchisee. The foregoing shall include, without limitation, any liability (or any alleged liability) of the Lessor to any third party arising out of any of the foregoing, including, without limitation, all legal fees, costs and disbursements arising out of such liability (or alleged liability); Section 15.1.2. all (i) federal, state, county, municipal, foreign or other fees and taxes of whatsoever nature other than income taxes, including but not limited to license, qualification, registration, franchise, sales, use, gross receipts, ad valorem, business, property (real or personal), excise, motor vehicle, and occupation fees and taxes, with respect to any Vehicle or the acquisition, purchase, sale, lease, sublease, rental, use, operation, control, ownership or disposition of any Vehicle by any Person or measured in any way by the value thereof or by the business of, investment by, or ownership by the Lessor or the Lessee with respect thereto, (ii) all federal, state, local and foreign income taxes and penalties and interest thereon, whether assessed, levied against or payable by the Lessor or otherwise as a result of its being a member of any group of corporations including the Lessee that file any tax returns on a consolidated or combined basis, and (iii) documentary, stamp, filing, recording, mortgage or other taxes, if any, which may be payable by the Lessor or the Lessee in connection with this Agreement, the other Related Documents or the Lessee Agreements and any penalties or interest with respect thereto; Section 15.1.3. any violation by the Lessee of this Agreement or of any Related Documents or Lessee Agreements to which the Lessee is a party or by which it is bound or any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection of any governmental or public body or authority and all other requirements having the force of law applicable at any time to any -15- 21 Vehicle or any action or transaction by the Lessee with respect thereto or pursuant to this Agreement; Section 15.1.4. all reasonable out of pocket costs and expenses of the Lessor (including the reasonable fees and disbursements of counsel for the Lessor) in connection with the preparation, execution, delivery and performance of this Agreement and the other Related Documents, including, without limitation, any and all fees of the Trustee, Paying Agent, Clearing Agencies and Master Collateral Agent, all fees payable in connection with any Enhancement, any and all fees payable to Rating Agencies and any underwriting or placement agency fees incurred in connection with the sale of the Notes; Section 15.1.5. all reasonable out of pocket costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lessor and the Master Collateral Agent, the Trustee or the Noteholders in connection with the administration, enforcement, waiver or amendment of this Agreement and any other Related Documents, and all indemnification obligations of the Lessor under the Related Documents; and Notwithstanding the foregoing, the Lessee shall have no duty to indemnify any Indemnified Person for any claims, demands, liabilities, costs, or expenses to the extent such claim, demand, liability, cost or expense arises out of or is due to such Person's negligence or willful misconduct. Section 15.2. Indemnification of the Trustee. The Lessee agrees to indemnify and hold harmless the Trustee (and its officers, directors, employees and agents) from and against any loss, liability, expense, damage or injury suffered or sustained by reason of, or arising out of or in connection with: (i) any acts or omissions of the Lessee pursuant to this Agreement and (ii) the Trustee's appointment under the Indenture and the Trustee's performance of its obligations thereunder, or any document pertaining to any of the foregoing to which the Trustee is a signatory, including, but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, however, the Lessee shall have no duty to indemnify the Trustee to the extent such loss, liability, expense, damage or injury suffered or sustained is due to the Trustee's negligence or willful misconduct. Any such indemnification shall not be payable from the assets of NFLP. The provisions of this indemnity shall run directly to and be enforceable by the Trustee or any other Indemnified Person subject to the limitations hereof. The indemnification provided for in this Section 15.2 shall be -16- 22 addition to any other indemnities available to the Trustee and shall survive the termination of the duties of the Lessee hereunder and the termination of this Agreement or a document to which the Trustee is a signatory or the resignation or removal of the Trustee. Section 15.3. Reimbursement Obligation by the Lessee. The Lessee shall forthwith upon demand reimburse the Lessor or the Trustee, as the case may be, for any sum or sums expended with respect to any of the foregoing, or shall pay such amounts directly upon request from the Lessor or the Trustee; provided, however, that, if so requested by the Lessee, the Lessor or the Trustee shall submit to the Lessee a statement documenting any such demand for reimbursement or prepayment. To the extent that the Lessee in fact indemnifies the Lessor or the Trustee under the indemnity provisions of this Agreement, the Lessee shall be subrogated to the rights of the Lessor or the Trustee, as the case may be, in the affected transaction and shall have a right to determine the settlement of claims therein. The obligations of the Lessee contained in this Section 15 shall survive the expiration or earlier termination of this Agreement or any lease of any Vehicle hereunder; provided, however, that the factual or legal circumstances giving rise to the Lessor's exposure to liability occur during the period that the Lease is in effect as to the Vehicle for which such exposure to liability arose. Section 15.4. Notice to Lessee of Claims. The Lessor or the Trustee, as the case may be, shall notify the Lessee in writing (a "Notice of Claim") of the pendency of any such claim, action or facts referred to in this Section 15 for which indemnity may be required. Section 15.5. Defense of Claims. Defense of any claim referred to in this Section 15 for which indemnity may be required shall, at the option and request of the Lessee, be conducted by the Lessee. Following receipt of any Notice of Claim, the Lessee will inform the Indemnified Person of its election to defend such claim. Such Indemnified Person may participate in any such defense at its own expense, provided such participation, in the Lessee's reasonable opinion, does not interfere with the Lessee's defense. The Lessee agrees that no Indemnified Person will be liable to the Lessee for any claim caused directly or indirectly by the inadequacy of any Vehicle for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs, servicing or adjustments thereto or any delay in providing or failure to provide such or any interruption or loss of service or use thereof or any loss of business, all of which shall be the risk and responsibility of the Lessee, except to the extent that any of the foregoing is caused by the gross negligence or willful misconduct of such Indemnified Person. The rights and indemnities of each -17- 23 Indemnified Person hereunder are expressly made for the benefit of, and will be enforceable by, each Indemnified Person notwithstanding the fact that such Indemnified Person is not or is no longer a party to (or entitled to receive the benefits of) this Agreement. This general indemnity shall not affect any claims of the type discussed above, or otherwise, which the Lessee may have against the Manufacturer. SECTION 16. SUCCESSORS AND ASSIGNS: ASSIGNMENT. This Agreement shall be binding upon the Lessor, the Lessee and their respective successors and assigns, and shall inure to the benefit of the Lessee, the Lessor, and the Trustee and the Master Collateral Agent as third party beneficiaries and their respective successors and assigns; provided, however, that the Lessee shall not have the right to assign its rights or delegate its duties under this Agreement without (i) the Lessor's and the Trustee's prior written consent and (ii) receipt of written confirmation from each of the Rating Agencies that its then current rating will not be reduced or withdrawn with respect to any outstanding Series of Notes as a result thereof; provided, further, however, the Lessee may sublease certain of the Vehicles under the terms of the Lessee's Subleases to Eligible Franchisees (subject to the limitations specified in Section 8), and the Lessee and such Eligible Franchisees may rent such Vehicles to consumers in the ordinary course of their respective domestic daily rental businesses. Any purported assignment in violation of this Section 16 shall be void and of no force or effect. Nothing contained herein shall be deemed to restrict the right of the Lessee to acquire or dispose of, by purchase, lease, financing, or otherwise, motor vehicles that are not subject to the provisions of this Agreement. SECTION 17. DEFAULT AND REMEDIES THEREFOR. Section 17.1. Events of Default. Any one or more of the following will constitute an event of default (a "Lease Event of Default") as that term is used herein: Section 17.1.1. the occurrence of (i) a default in the payment of any Monthly Base Rent, Monthly Variable Rent, Monthly Finance Rent, Termination Payment, Casualty Payment, Late Return Payment, Monthly Supplemental Payment or Availability Payment, and the continuance thereof for five (5) Business Days, or (ii) a default in the payment of any amount payable under this Agreement (other than amounts described in clause (i) above) and the continuance thereof for five (5) Business Days; Section 17.1.2. any unauthorized assignment or transfer of this Agreement by the Lessee occurs; -18- 24 Section 17.1.3. the Lessee fails to comply with or perform any covenant, condition, agreement or provision of this Agreement (which failure does not constitute a Lease Event of Default under any of the other provisions of this Section 17) and the continuance of such failure for 60 days after the earlier of (i) the date the Lessor, the Master Collateral Agent or the Trustee delivers written notice thereof to the Lessee and (ii) the date the Lessee obtains actual knowledge thereof and such failure (to the extent such provision does not incorporate a materiality limitation in its terms) materially adversely affects the interests of the Lessor, the Trustee or the Secured Parties; Section 17.1.4. any representation or warranty made by the Lessee in this Agreement or any Related Document is incorrect in any respect as of the date such warranty or representation is made and continues to be incorrect for a period of 60 days after the earlier of (i) the date on which written notice thereof shall have been given to the Lessee by the Lessor, the Master Collateral Agent or the Trustee and (ii) the date on which the Lessee obtains actual knowledge thereof, and which failure to be correct (to the extent such representation and warranty does not incorporate a materiality limitation in its terms) materially adversely affects the interests of the Lessor, the Trustee or the Secured Parties; or any schedule, certificate, financial statement, report, notice, or other writing furnished by the Lessee to the Lessor is false or misleading in any respect on the date as of which the facts therein set forth are stated or certified, and continues to be incorrect in any respect for a period of 60 days after the earlier of (a) the date on which written notice thereof shall have been given to the Lessee by the Lessor, the Master Collateral Agent or the Trustee and (b) the date on which the Lessee obtains actual knowledge thereof, and which failure to be correct materially adversely affects the interests of the Lessor, the Trustee or the Secured Parties; Section 17.1.5. an Event of Bankruptcy occurs with respect to the Lessee; Section 17.1.6. all or any portion of any Related Document shall at any time and for any reason not be in full force and effect or any event shall occur and be continuing which constitutes an Amortization Event under the Indenture, and such failure or event materially adversely affects the interests of the Lessor, the Trustee or the Secured Parties; -19- 25 Section 17.1.7. the Pension Benefit Guaranty Corporation or the Internal Revenue Service shall have filed notice of one or more liens against the Lessee (unless such lien does not purport to cover the Master Collateral or any amount payable under this Agreement), and such notice shall have remained in effect for more than thirty (30) days unless, prior to the expiration of such period, the Lessee shall have removed such lien or shall have provided the Lessor with a bond (from a bond provider which the Rating Agencies shall have approved) in an amount at least equal to the amount of such liens. Section 17.2. Effect of Lease Event of Default. (a) If any Lease Event of Default or Liquidation Event of Default shall occur and be continuing, the rights of the Lessee to place Vehicle Orders pursuant to this Agreement (but not otherwise) shall immediately terminate; (b) If a Lease Event of Default described in Section 17.1.1(i), 17.1.2 or 17.1.5 or a Liquidation Event of Default shall occur, then the Monthly Base Rent, the Monthly Supplemental Payment, Casualty Payments (in each case calculated as if all Vehicles had become a Casualty during the Related Month), the Monthly Variable Rent, the Availability Payment, the Monthly Finance Rent (in each case calculated as if the full amount of interest, principal and other charges under all outstanding Series of Notes were then due and payable in full), Termination Payments and Late Return Payments shall, automatically, without further action by the Lessor or the Trustee, become immediately due and payable; (c) If a Limited Liquidation Event of Default shall occur, then the Monthly Base Rent, the Monthly Supplemental Payment and Casualty Payments (in each case, calculated as if each Vehicle with respect to which the Lessor has terminated the Lessee's right to possession pursuant to Section 17.3(iii) had become a Casualty during the Related Month) the Monthly Variable Rent, the Availability Payment and the Monthly Finance Rent (in each case, calculated as if the full amount of interest, principal and other charges under the applicable Series of Notes were then due and payable in full), Termination Payments and Late Return Payments (in each case, with respect to each Vehicle with respect to which the Lessor has terminated the Lessee's right to possession pursuant to Section 17.3(iii)) shall automatically, without further action by the Lessor or the Trustee, become immediately due and payable; (d) If any other Lease Event of Default shall occur, the Lessor or the Trustee may declare the Rent and all other charges and payments (calculated as described in paragraph (b) above) to be due and payable, whereupon such Rent and such other charges -20- 26 and payments (as so calculated) shall, subject to Section 17.4, become immediately due and payable. Section 17.3. Rights of Lessor Upon Lease Event of Default. Liquidation Event of Default or Limited Liquidation Event of Default. If a Lease Event of Default, Liquidation Event of Default or Limited Liquidation Event of Default shall occur, then the Lessor at its option may: (i) Only if a Lease Event of Default shall have occurred and be continuing, proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the Lessee of the applicable covenants and terms of this Agreement or to recover damages for the breach hereof calculated in accordance with Section 17.4; or (ii) If a Liquidation Event of Default or a Limited Liquidation Event of Default shall have occurred and be continuing, the Lessor and the Trustee, to the extent provided in the Indenture, shall have all the rights against the Lessee and the Collateral provided in the Indenture upon a Liquidation Event of Default or a Limited Liquidation Event of Default, including the right to take (under the specified circumstances) possession of Vehicles (to the extent specified in this Agreement or the Indenture) immediately; or (iii) If a Liquidation Event of Default has occurred, by notice in writing to the Lessee, terminate this Agreement in its entirety and/or the right of possession hereunder of the Lessee as to the Vehicles, and the Lessor may direct delivery by the Lessee of documents of title to the Vehicles, whereupon all rights and interests of the Lessee to the Vehicles (except as otherwise provided herein) will cease and terminate (but the Lessee will remain liable hereunder as herein provided, calculated in accordance with Section 17.4); or, if a Limited Liquidation Event of Default has occurred, by notice in writing to the Lessee, terminate the right of possession hereunder of the Lessee as to such number of Vehicles as will generate proceeds from liquidation in an amount sufficient to pay all principal of and interest on the related Series of Notes, and the Lessor may direct delivery by the Lessee of documents of title to such Vehicles, whereupon all right, title and interest of the Lessee to such Vehicles (except as otherwise provided herein) will cease and terminate (but the Lessee will remain liable hereunder as herein provided, calculated in accordance with Section 17.4); and thereupon, in either such case, the Lessor or its agents may peaceably enter upon the premises of the Lessee or other premises where such Vehicles may be located and take possession of them and thenceforth -21- 27 hold, possess and enjoy the same free from any right of the Lessee, or its successors or assigns, to employ such Vehicles for any purpose whatsoever consistent with the mitigation of losses and damages, and the Lessor will, nevertheless, have a right to recover from the Lessee any and all amounts which under the terms of Section 17.2 (as limited by Section 17.4) of this Agreement may be then due. The Lessor will provide the Lessee with written notice of the place and time of any sale of Financed Vehicles pursuant to this Section 17.3 at least five (5) days prior to the proposed sale, which notice period shall be deemed commercially reasonable, and the Lessee may purchase the Vehicle(s) at the sale. Each and every power and remedy hereby specifically given to the Lessor will be in addition to every other power and remedy hereby specifically given or now or hereafter existing at law, in equity or in bankruptcy and each and every power and remedy may be exercised from time to time and simultaneously and as often and in such order as may be deemed expedient by the Lessor; provided, however, that the measure of damages recoverable against the Lessee will in any case be calculated in accordance with Section 17.4. All such powers and remedies will be cumulative, and the exercise of one will not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Lessor in the exercise of any such power or remedy and no renewal or extension of any payments due hereunder will impair any such power or remedy or will be construed to be a waiver of any default or any acquiescence therein. Any extension of time for payment hereunder or other indulgence duly granted to the Lessee will not otherwise alter or affect the Lessor's rights or the obligations hereunder of the Lessee. The Lessor's acceptance of any payment after it will have become due hereunder will not be deemed to alter or affect the Lessor's rights hereunder with respect to any subsequent payments or defaults therein; or (iv) If the Lessee shall default in the due performance and observance of any of its obligations under Section 10, 24.4, 24.5, 24.6(iv), 24.9, 25.3 or 25.4 hereof, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Lessee by the Lessor or the Trustee, the Lessor shall have the ability to exercise all rights, remedies, powers, privileges and claims of the Lessee against the Manufacturers under or in connection with the Manufacturer Programs with respect to (i) Vehicles the Lessee has determined to turn back to the Manufacturers under such Manufacturer Programs and (ii) whether or not the Lessee shall then have determined to turn back such Vehicles, any -22- 28 Vehicles for which the applicable Repurchase Period will end within one week or less; or (v) Upon a default in the performance (after giving effect to any grace periods provided herein) by the Lessee of its obligations under Section 23.6 or 24.19 hereof with respect to certain Vehicles, the Lessor or the Trustee shall] have the right to take actions reasonably necessary to correct such default with respect to the subject Vehicles including the execution of UCC financing statements with respect to Manufacturer Programs and other general intangibles and the completion of Vehicle Perfection and Documentation Requirements on behalf of the Lessee or the Lessor, as applicable; or (vi) Upon the occurrence of a Liquidation Event of Default, the Servicer will return all Program Vehicles to the related Manufacturer and shall sell all Non-Program Vehicles, in each case, in accordance with the instructions of the Lessor. Upon the occurrence of a Limited Liquidation Event of Default, the Servicer will return Program Vehicles to the related Manufacturer, and shall use commercially reasonable efforts to sell Non-Program Vehicles, to generate proceeds in an amount sufficient to pay all interest on and principal of the related Series of Notes, in each case, in accordance with the instructions of the Lessor. To the extent any Manufacturer fails to accept any such Vehicles under the terms of the applicable Manufacturer Program, the Lessor shall have the right to otherwise dispose of such Vehicles and to direct the Servicer to dispose of such Vehicles in accordance with its instructions. In addition, the Lessor shall have all of the rights, remedies, powers, privileges and claims vis-a-vis the Lessee, necessary or desirable to allow the Trustee to exercise the rights, remedies, powers, privileges and claims given to the Trustee pursuant to Sections 9.2 and 2~] of the Base Indenture and the Lessee acknowledges that it has hereby granted the Lessor all of the rights, remedies, powers, privileges and claims granted to the Trustee pursuant to Article 9 of the Base Indenture and that, under certain circumstances set forth in the Base Indenture, the Trustee may act in lieu of the Lessor in the exercise of such rights, remedies, powers, privileges and claims; or (vii) By notice in writing to the Lessee, terminate the Power of Attorney (provided, that, after any such termination of the Power of Attorney, the Lessor will folio; the direction of the Servicer to release liens on Acquired Vehicles which liens are required to be released under the terms of this Agreement). -23- 29 Section 17.4. Measure of Damages. If a Lease Event of Default occurs and the Lessor, the Master collateral Agent or the Trustee exercises the remedies granted to the Lessor, the Master Collateral Agent or the Trustee under this Section 17 or under Section 9.2 of the Indenture, the amount that the Lessor shall be permitted to recover shall be equal to: (i) all Rent and payments under this Agreement (calculated as provided in Section 17.2); Plus (ii) any damages and expenses which the Lessor, the Master Collateral Agent or the Trustee shall have sustained by reason of the Lease Event of Default, together with reasonable sums for such attorneys' fees and such expenses as will be expended or incurred in the seizure, storage, rental or sale of the Vehicles or in the enforcement of any right or privilege hereunder or in any consultation or action in such connection; plus (iii) all other amounts due and payable under this Agreement; plus (iv) interest from time to time on amounts due and unpaid under this Agreement at the VFR plus 1%, computed from the date of the Lease Event of Default or the date payments were originally due the Lessor under this Agreement or from the date of each expenditure by the Lessor which is recoverable from the Lessee pursuant to this Section 17, as applicable, to and including the date payments are made by the Lessee; minus (v) an amount equal to all sums realized by the Lessor, the Master Collateral Agent and the Trustee from the liquidation of the Financed Vehicles (other than the Texas Vehicles) leased hereunder (either by receipt of payment from the Manufacturers under Manufacturer Programs, from sales of Vehicles to third parties, or otherwise), provided, however, that if a Financed Vehicle (other than a Texas Vehicle) is delivered to the Manufacturer or the designated Auction for repurchase by the Manufacturer or sale at Auction under the applicable Manufacturer Program, and such Vehicle is accepted for repurchase by such Manufacturer (as evidenced by a Condition Report indicating that such Vehicle conforms to the requirements for repurchase under such Manufacturer Program) or is sold by such Auction, the Lessor and the Trustee shall be deemed to have received, thirty (30) days after the date of such acceptance or sale, on account of this clause (v) an amount equal to the Net Book Value of such Vehicle, calculated as of its Disposition Date (less any Termination Payments payable in respect of such Vehicle). -24- 30 Section 17.5. Application of Proceeds. The proceeds of any sale or other disposition of any Financed Vehicles pursuant to Section 17.3 shall be applied in the following order: (i) to the reasonable costs and expenses incurred by the Lessor in connection with such sale or disposition, including any reasonable costs associated with repairing such Vehicles, and reasonable attorneys' fees in connection with the enforcement of this Agreement, (ii) to the payment of outstanding Rent and payments under the Lease (such proceeds to be applied first, to outstanding Monthly Variable Rent and Monthly Finance Rent pro rata, second, to outstanding Availability Payments, third, to outstanding Base Rent and Monthly Supplemental Payments pro rata, fourth, to outstanding Termination Payments, Casualty Payments and Late Return Payments pro rata and fifth, to outstanding late charges pursuant to Sections 5.5 and 17.4(iv), (iii) to the payment of all other amounts due hereunder and (iv) any remaining proceeds to the Lessee. SECTION 18. MANUFACTURER EVENTS OF DEFAULT. Upon the occurrence of a Manufacturer Event of Default with respect to a Manufacturer, the Lessee on behalf of the Lessor (a) shall no longer place Vehicle Orders for additional Program Vehicles from such Manufacturer (each, a "Defaulting Manufacturer") and (b) shall cancel any Vehicle Order for Program Vehicles of such Defaulting Manufacturer to which a vehicle identification number (a "VIN") has not been assigned as of the date such Manufacturer Event of Default occurs (to the extent such Vehicle Order is cancelable, with or without penalty). SECTION 19. CERTIFICATION OF TRADE OR BUSINESS USE. Pursuant to Section 7701 of the Code and as set forth in Attachment C hereto, the Lessee will warrant and certify that (1) the Lessee intends to use the Acquired Vehicles in a trade or business of the Lessee, and (2) the Lessee has been advised that it will not be treated as the owner of the Acquired Vehicles for federal income tax purposes. SECTION 20. SURVIVAL. In the event that, during the term of this Agreement, the Lessee becomes liable for the payment or reimbursement of any obligations, claims or taxes pursuant to any provision hereof, such liability will continue, notwithstanding the expiration or termination of this Agreement, until all such amounts are paid or reimbursed by the Lessee. SECTION 21. RIGHTS OF LESSOR PLEDGED TO MASTER COLLATERAL AGENT AND TRUSTEE. Notwithstanding anything to the contrary contained in this Agreement, the Lessee acknowledges that each of the Lessee and the Lessor, pursuant to the Master Collateral Agency Agreement, has granted a security interest to the Master Collateral Agent, for the benefit of the Trustee, in all of its right, title and interest in, to and under the Vehicles, the -25- 31 related Manufacturer Programs, the Master Collateral Account and all other Master Collateral specified in the Master Collateral Agency Agreement as being pledged by National or NFLP, and further acknowledges that the Lessor, pursuant to the Indenture, has granted a security interest to the Trustee in all of its right, title and interest in, to and under the NFLP Agreements, the Collection Account and the other Collateral described in the Indenture. Accordingly, the Lessee agrees that: (i) Subject to the terms of the Indenture, the Trustee shall have all the rights, powers, privileges and remedies of the Lessor hereunder. Specifically, the Lessee agrees that, upon the occurrence of an Amortization Event, the Trustee or, with respect to any Master Collateral, the Master Collateral Agent (for and on behalf of the Trustee) may exercise any right or remedy against the Lessee provided for herein or in the Indenture or the Master Collateral Agency Agreement and the Lessee will not interpose as a defense that such claim should have been asserted by the Lessor; (ii) Upon the delivery by the Master Collateral Agent or the Trustee of any notice to the Lessee stating that a Lease Event of Default or an Amortization Event with respect to the Lessee has occurred, then the Lessee, will, if so requested by the Master Collateral Agent (with respect to the Master Collateral) or the Trustee (with respect to the Collateral), treat the Master Collateral Agent or the Trustee or the Master Collateral Agent's or the Trustee's designee, as the case may be, for all purposes as the Lessor hereunder and in all respects comply with all obligations under this Agreement that are asserted by the Master Collateral Agent or the Trustee as the successor to the Lessor hereunder, irrespective of whether the Lessee has received any such notice from the Lessor; (iii) The Lessee acknowledges that pursuant to the Indenture, the Lessor has irrevocably authorized and directed the Lessee to, and the Lessee shall, make payments of Rent hereunder directly to the Trustee for deposit in the Collection Account established by the Trustee for receipt of such payments pursuant to the Indenture, and such payments shall discharge the obligation of the Lessee to the Lessor hereunder with respect to Rent to the extent of such payments. Upon written notice to the Lessee of a sale or assignment by the Trustee or Master Collateral Agent of its right, title and interest in moneys due under this Agreement or the Master Collateral Agency Agreement to a successor Trustee or Master Collateral Agent, the Lessee shall thereafter make payments of Rent hereunder or payments in -26- 32 respect of the Master Collateral, as applicable, to the party specified in such notice; (iv) Upon request made by the Master Collateral Agent at any time, the Lessee will take such actions as are requested by the Master Collateral Agent to maintain the Master Collateral Agent's perfected first priority security interest in the Vehicles leased under this Agreement, the Certificates of Title with respect thereto and the Master Collateral pursuant to the Master Collateral Agency Agreement; (v) A security interest in the Lessor's rights under this Agreement has been granted by the Lessor to the Trustee pursuant to the Indenture as collateral security only for all Series of Notes that do not provide for wholly series-specific collateral and, accordingly, all references herein to "all" Series of Notes shall refer only to all Series of Notes that do not provide for wholly series-specific collateral; (vi) The Trustee is hereby irrevocably appointed the true and lawful attorney-in-fact of the Lessee, in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property of the Lessee sold pursuant to Section 9.3 of the Base Indenture (including without limitation, any Financed Vehicles) and for such other purposes as are necessary or desirable to effectuate the provisions of the Indenture, and for that purpose the Trustee may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, the Lessee hereby ratifying and confirming all that its said attorney, or Such substitute or substitutes, shall lawfully do by virtue hereof, but if so requested by the Trustee or by any purchaser, the Lessee shall ratify and confirm any such sale or transfer by executing and delivering to the Trustee or to such purchaser all such property, deeds, bills of sale, instruments of assignment and transfer and releases as may be designated in any such request; and (vii) In the event that the Trustee determines to take action pursuant to the provisions of Section 9.2(e) of the Base Indenture, the Trustee may, without notice to the Lessor (unless such notice is required by applicable state law), the Servicer or the Lessee, direct the Master Collateral Agent to take legal proceedings for the appointment of a receiver to take possession of Vehicles pending the sale thereof and in any such event the Trustee shall be entitled to the appointment of a receiver for the -27- 33 Vehicles, and none of the Lessor, the Servicer or the Lessee shall object to such appointment. SECTION 22. MODIFICATION AND SEVERABILITY. No delay on the part of the Lessor, the Trustee or the Master Collateral Agent in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall in any event be effective unless (a) the same shall be in writing and signed and delivered by the Lessor and the Lessee, (b) consented to in writing by the Trustee (unless such amendment, modification, waiver or consent (i) is made only (A) to cure any ambiguity, defect or inconsistency in, or to correct or supplement any provision of, this Agreement or (B) to add to the covenants of the Lessee for the benefit of the Lessor or (C) to provide for additional collateral and (ii) as evidenced by an Opinion of Counsel delivered by the Lessee to the Trustee, will not materially adversely affect the interests of the Lessor, the Trustee or the Secured Parties) and (c) the Lessor shall have received in writing confirmation from each of the Rating Agencies that its then current rating with respect to any outstanding Series of Notes will not be reduced or withdrawn as a result thereof. SECTION 23. CERTAIN REPRESENTATIONS AND WARRANTIES. National, in its capacity as Lessee and as Servicer represents and warrants to the Lessor that as of the Closing Date with respect to the first Series of Notes and as of each other date as may be specified in Section 23.7 hereof (and each of such representations and warranties will be deemed to be remade as of the Closing Date with respect to each Series of Notes): Section 23.1. Organization: Ownership: Power: Qualification. National, in its capacities as Lessee and as Servicer (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted, and (iii) is duly qualified, in good standing and authorized to do business in each jurisdiction in WHICH the character of its properties or the nature of its businesses requires such qualification or authorization, except where the failure to so qualify is not reasonably likely to have a Material Adverse Effect. Section 23.2. Authorization: Enforceability. National, in its capacities as Lessee and as Servicer, has the corporate power and has taken all necessary corporate action to authorize it to -28- 34 execute, deliver and perform this Agreement and each of the other Related Documents to which it is a party in accordance with their respective terms, and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Lessee and the Servicer and is, and each of the other Related Documents to which the Lessee or the Servicer is a party is, a legal, valid and binding obligation of the Lessee or the Servicer, as applicable, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization and similar laws affecting creditors generally and by the availability of equitable remedies. The execution, delivery and performance by National, in its capacity as the Lessee and Servicer, of this Agreement does not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation of National or of any rule, contract, agreement, judgment, injunction, order, decree or other instrument binding upon National or any of its Assets; except to the extent that any such contravention or default would not have a Material Adverse Effect. Section 23.3. Compliance. The execution, delivery and performance, in accordance with their respective terms, by National, in its capacities as Lessee and as Servicer of this Agreement and each of the other Related Documents to which it is a party, and the consummation of the transactions contemplated and will not (i) require any consent, approval, authorization or registration not already obtained or effected, except where the failure to obtain any such consent, approval or authorization or to register is not reasonably likely to have a Material Adverse Effect, (ii) violate any applicable law with respect to National, in its capacities as Lessee and as Servicer, as applicable, which violation is reasonably likely to have a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate of incorporation or by-laws of National, in its capacities as Lessee and as Servicer, as applicable, or under any indenture, agreement, or other instrument to which National, in its capacities as Lessee and as Servicer, as applicable is a party or by which its properties may be bound, which conflict, breach or default is reasonably likely to have a Material Adverse Effect, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by National, in its capacities as Lessee and as Servicer, as applicable except Permitted Encumbrances. Section 23.4. Financial Information: Financial Condition. All financial statements (including the notes thereto) referred to in the following sentence and all financial statements -29- 35 hereafter furnished to the Lessor or the Trustee pursuant to Sections 24.6(i), (ii) and (xii) hereof have been and will be prepared in accordance with GAAP and do and will present fairly the financial condition of the entities involved as of the dates thereof and the results of their operations for the periods covered thereby, subject, in the case of all unaudited statements, to normal year-end adjustments and lack of footnotes and other presentation items. Such financial statements include the following financial statements and reports which have been furnished to the Lessor and the Trustee on or prior to the date hereof: (i) the audited consolidated balance sheets of Old National and its Consolidated Subsidiaries as of December 31, 1993 and December 31, 1994 and the related statements of income, changes in stockholders' equity and cash flow as of and for the fiscal years ending on such dates; (ii) the audited consolidated balance sheets of Old National and its Consolidated Subsidiaries as of June 1, 1995 and the related statements of income, changes in stockholders' equity and cash flow as of and for the period from January 1, 1995 through May 31, 1995; and (iii) the audited consolidated balance sheets of National and its Consolidated Subsidiaries as of November 30, 1995 and the related statements of income, changes in stockholders' equity and cash flow as of and for the period from June 1, 1995 through November 30, 1995. Section 23.5. Litigation. Except for claims as to which the insurer has admitted coverage in writing and which are fully covered by insurance, no claims, litigation (including, without limitation, derivative actions), arbitration, governmental investigation or proceeding or inquiry is pending or, to the best of the Lessee's knowledge, threatened against the Lessee which is reasonably likely to have a Material Adverse Effect. Section 23.6. Liens. The Vehicles and other Collateral are free and clear of all Liens other than Permitted Liens. The Lessor (or the Master Collateral Agent on behalf of the Lessor) has obtained, as security for the obligations of the Lessee under this Agreement, a first priority perfected Lien on all Vehicles and all the Master Collateral with respect to which the Trustee is designated as the Beneficiary under the Master Collateral Agency Agreement. All Vehicle Perfection and Documentation Requirements with respect to all Vehicles on or after the date hereof have and will continue to be satisfied; except to the extent that the failure to comply with such requirements does not, in the aggregate, materially adversely affect either the -30- 36 interests of the Lessor, the Master Collateral Agent, the Trustee or the Secured Parties under the Indenture or the likelihood of payment of all rent and other amounts due under this Agreement. Section 23.7. Employee Benefit Plans. (a) During the twelve consecutive month period prior to (i) the Closing Date and (ii) each Vehicle Lease Commencement Date: (x) no steps have been taken by the Lessee or any member of the Controlled Group, or to the knowledge of the Lessee, by any Person, to terminate any Pension Plan (other than a Pension Plan with no unfunded benefit liabilities on a termination basis); and (y) no contribution failure has occurred with respect to any Pension Plan maintained by the Lessee or any member of the Controlled Group sufficient to give rise to a Lien under Section 302(f)(1) of ERISA in connection with such Pension Plan; and (b) no condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Lessee or any member of the Controlled Group of liabilities, fines or penalties in an amount that is reasonably likely to have a Material Adverse Effect. Section 23.8. Investment Company Act. The Lessee is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act, and the Lessee is not subject to any other statute which would have a material adverse effect on its ability to perform its obligations under this Agreement or the other Related Documents, and the entering into or performance by the Lessee of this Agreement does not violate any provision of such Act and does not require any consent, approval or authorization of, or registration with, the Securities and Exchange Commission or any other governmental or public body or authority. Section 23.9. Regulations G, T, U and X. The Lessee is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System). Neither the Lessee nor any Person acting on its behalf has taken or will take action to cause the execution, delivery or performance of this Agreement to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. Section 23.10. Business Locations; Trade Names. Schedule 23.10 lists where the Lessee maintains its chief executive office, principal place of business, and location of its consolidated business and financial records; and Schedule 23.10 also lists the Lessee's legal name and each name under or by which the Lessee conducts its business and each state in which the Lessee conducts business. -31- 37 Section 23.11. Taxes. The Lessee has filed all tax returns which have been required to be filed by it, and has paid or provided adequate reserves for the payment of all taxes, including, without limitation, all payroll taxes and federal and state withholding taxes, and all assessments payable by it that have become due, other than those that are not yet delinquent or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. As of the Closing Date, there is no ongoing audit (other than routine sales tax audits and other routine audits) or, to the Lessee's knowledge, other governmental investigation of the tax liability of the Lessee and there is no unresolved claim by a taxing authority concerning the Lessee's tax liability for any period for which returns have been filed or were due other than those contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. Section 23.12. Governmental Authorizations. Each of the Lessee and the Servicer has all licenses, franchises, permits and other governmental authorizations necessary for all businesses presently carried on by it (including owning and leasing the real and personal property owned and leased by it), except where failure to obtain such licenses, franchises, permits and other governmental authorizations is not reasonably likely to have a Material Adverse Effect. Section 23.13. Absence of Default. No event has occurred or failed to occur which has not been remedied or waived, the occurrence or non-occurrence which constitutes, a Lease Event of Default or a Potential Lease Event of Default and the Lessee is not subject to any judgment, decree or final order pursuant to which the Lessee or any of its properties may be bound or affected that is reasonably likely to have a Material Adverse Effect. Section 23.14. Compliance with Requirements of Law. Each of the Lessee and the Servicer is in compliance with, and has obtained all qualifications required under, all applicable Requirements of Law, the failure to comply with which is reasonably likely to have a Material Adverse Effect. Section 23.15. Accuracy of Information. All certificates, reports, statements, documents and other information furnished to the Lessor or the Trustee by or on behalf of the Lessee pursuant to any provision of any Related Document, or in connection with or pursuant to any amendment or modification of, or waiver under, any Related Document, shall, at the time the same are so furnished, be complete and correct to the extent necessary to give the Lessor or the Trustee, as the case may be, true and -32- 38 accurate knowledge of the subject matter thereof in all material respects, and the furnishing of the same to the Lessor or the Trustee, as the case may be, shall constitute a representation and warranty by the Lessee made on the date the same are furnished to the Lessor or the Trustee, as the case may be, to the effect specified herein. Section 23.16. Solvency. As of each Closing Date, the Lessee is not insolvent (as such term is defined in the Bankruptcy Code), has adequate capital or assets to carry on its businesses, and intends to and believes that it will be able to pay its debts as such debts become due. Section 23.17. Stock Ownership. All common stock of the Lessor owned by the Lessee is owned free and clear of all Liens. Section 23.18. Necessary Actions. Upon the Servicer causing the Lien of the Master Collateral Agent to be noted on the Certificates of Title with respect to the Vehicles (other than the Initial Vehicles) or as otherwise provided for by the Master Collateral Agency Agreement or the Indenture, all filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interest granted to the Master Collateral Agent in respect of the Master Collateral have been accomplished and the security interest granted to the Master Collateral Agent pursuant to the Master Collateral Agency Agreement in and to the Master Collateral constitutes a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens other than Permitted Liens and is entitled to all rights, priorities and benefits afforded to perfected security interests by the UCC or other relevant law as enacted in any relevant jurisdiction. Section 23.19. Supplemental Documents True and Correct. All information contained in any Vehicle Order or other Supplemental Document which has been submitted, or which may hereafter be submitted by the Lessee to the Lessor is, or will be, true, correct and complete in all material respects. Section 23.20. Eligible Vehicles: Eligible Franchisees Each Vehicle is or will be on the Vehicle Lease Commencement Date for such Vehicle, an Eligible Vehicle, and each Franchisee leasing a Vehicle from the Lessor is or will be, as the case may be, an Eligible Franchisee on the date that the Sublease applicable to such Vehicle commences. SECTION 24. CERTAIN AFFIRMATIVE COVENANTS. The Lessee and, as applicable, the Servicer, each covenants and agrees that, until the expiration or termination of this Agreement, and thereafter until the obligations of the Lessee and the Servicer under this Agreement and the Related Documents are satisfied in -33- 39 full, unless at any time the Lessor, the Master Collateral Agent and the Trustee shall otherwise expressly consent in writing, it will: Section 24.1. Corporate Existence: Foreign Qualification. Do and cause to be done at all times all things necessary to (i) maintain and preserve its corporate existence and corporate power and authority to own its properties and to carry on its business, and (ii) be duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and the failure to so qualify is reasonably likely to have a Material Adverse Effect. Section 24.2. Books. Records and Inspections. (i) Maintain complete and accurate books and records with respect to Vehicles leased under this Agreement and the other Master Collateral; (ii) at any time and from time to time during regular business hours, upon reasonable prior notice from the Lessor, the Master Collateral Agent or the Trustee and subject to the normal security and confidentiality procedures of the Lessee or the Servicer, provide reasonable access to such documentation and permit the Lessor, the Master Collateral Agent or the Trustee (or such other person who may be designated from time to time by the Lessor, the Master Collateral Agent or the Trustee), or its agents or representatives to examine and make copies of such books, records and documents in the possession or under the control of the Lessee relating to the Vehicles leased under this Agreement and the other Master Collateral as the Lessor, the Master Collateral Agent, the Master Collateral Agent, the Trustee or such person may reasonably request (including in connection with the Lessor's, the Trustee's or the Master Collateral Agent's satisfaction of any requests of a Manufacturer performing an audit under its Manufacturer Program); and (iii) permit the Lessor, the Master Collateral Agent or the Trustee to visit the office (which office shall be in the continental United States and, if it is not the office where such materials normally are kept, shall be accessible without unreasonable effort or expense) and properties of the Lessee for the purpose of examining such materials, and to discuss matters relating to the Vehicles leased under this Agreement and the other Master Collateral or the Lessee's performance under this Agreement with the Lessee's independent public accountants or with any of the officers or employees of the Lessee having knowledge of such matters. Section 24.3. Accounting Methods; Financial Records. Maintain, and cause its material Subsidiaries to maintain, a system of accounting established and administered in accordance with GAAP, keep, and cause its material Subsidiaries to keep, adequate records and books of account in which complete entries will be made in accordance with such accounting principles and -34- 40 reflecting all transactions required to be reflected by such accounting principles and keep, and cause its material Subsidiaries to keep, accurate and complete records of their respective properties and assets. Section 24.4. Insurance. (a) Maintain or cause to be maintained, with financially sound and reputable insurers, (i) personal injury and damage insurance (including self-insurance) with respect to the Vehicles and (ii) insurance with respect to its properties and business (including self-insurance) against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations and the Lessee shall, from time to time, deliver to the Lessor and the Trustee, as the Lessor or the Trustee shall request, copies of certificates describing all insurance then in effect; provided, however, that the Lessee may continue its current practices of self-insurance setting aside adequate reserves to cover any and all losses: (x) which would otherwise be covered under any standard comprehensive and collision policies of insurance; and (y) arising from liability to third parties for bodily injuries, death, and property damage in an aggregate amount up to Two Million Dollars ($2,000,000) per occurrence or such greater amount per occurrence as may be from time to time hereafter approved in writing by the Lessor and the Trustee (which approval shall not be unreasonably withheld); provided, further, however, that the Lessee shall obtain excess insurance coverage in an amount not less than Thirty Million Dollars ($30,000,000) for any claims of liability against the Lessee relating to its ownership or use of vehicles. (b) The Lessee will require that each insurance policy referred to in the foregoing clause (a) provide for at least thirty (30) days prior written notice to the Master Collateral Agent and the Lessor of any termination of or proposed cancellation or nonrenewal of such policy and that each insurance policy insuring assets pledged to the Master Collateral Agent name the Master Collateral Agent as an additional insured or additional loss payee, as appropriate, pursuant to certificates in form and substance reasonably satisfactory to the Lessor and the Master Collateral Agent. Section 24.5. Manufacturer Programs. With respect to each Program Vehicle leased by the Lessee, comply, and cause the related Franchisee to comply, in all material respects, with all requirements of the applicable Manufacturer Program relating to such Vehicle. -35- 41 Section 24.6. Reporting Requirements. Except as otherwise specified below, furnish, or cause to be furnished to the Lessor, the Master Collateral Agent and the Trustee, in the case of item (iii)(b) and item (vi) below, each Rating Agency and, in the case of item (ii), item (vi) and item (x), to any Note Owner that has delivered to the Lessor a written request for same: (i) Audit Report. As soon as available and in any event within 90 days after the end of each fiscal year of the Lessee, consolidated and consolidating financial statements consisting of a balance sheet of the Lessee and its Subsidiaries as at the end of such fiscal year and statements of income, stockholders' equity and cash flows of the Lessee and its Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year (if applicable), certified by and containing an opinion, unqualified as to scope, of Arthur Andersen & Co. or other independent certified public accountants of nationally recognized standing selected by the Lessee. (ii) Quarterly Statements. As soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Lessee, financial statements consisting of consolidated and consolidating balance sheets of the Lessee and its Subsidiaries as at the end of such quarter and statements of income, stockholders' equity and cash flows of the Lessee and its Subsidiaries for each such quarter, setting forth in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year (if applicable), all in reasonable detail and certified (subject to normal year-end audit adjustments) by a senior financial officer of the Lessee as having been prepared in accordance with GAAP. (iii) Lease Events of Default; Amortization Events. Promptly after becoming aware thereof, (a) notice of the occurrence of any Potential Lease Event of Default or Lease Event of Default, together with a written statement of an Authorized Officer describing such event and the action that the Lessee proposes to take with respect thereto and (b) notice to the Lessor, the Trustee, each Enhancement Provider and the Rating Agencies of any Potential Amortization Event or Amortization Event; (iv) Monthly Vehicle Statements. On or before each Determination Date, a monthly vehicle statement (each, a "Monthly Vehicle Statement") in a form acceptable to the Lessor, which shall specify (i) the last eight digits of the VIN for each Vehicle leased hereunder during the Related -36- 42 Month by the Lessee, (ii) whether such Vehicle is leased under Annex A or Annex B hereto, (iii) the Capitalized Cost for each such Vehicle and (iv) the aggregate Net Book Value of such Vehicles as of the end of the Related Month. (v) Daily Reports. On each Business Day commencing on the Lease Commencement Date, prepare and maintain at the office of the Servicer a record (each, a "Daily Report") setting forth the aggregate of the amounts deposited in the Collection Account on the immediately preceding Business Day, which shall consist of: (A) the aggregate amount of payments received from Manufacturers and/or auction dealers under Manufacturer Programs related to the Vehicles and deposited in the Collection Account from the Master Collateral Account, plus (B) the aggregate amount of proceeds received from third parties (other than Manufacturers and auction dealers) with respect to the sale of Vehicles and deposited in the Collection Account from the Master Collateral Account, plus (C) the aggregate amount of other Collections deposited in the Collection Account. Within one Business Day after request therefor is made by the Lessor, the Master Collateral Agent or the Trustee, the Lessee shall deliver a copy of the Daily Report for any Business Day to the party making such request. (vi) Monthly Certificate. On each Determination Date, the Servicer shall forward to the Lessor, the Lessee, the Trustee, the Paying Agent and the Rating Agencies, an Officer's Certificate of the Servicer substantially in the form of Exhibit A (each, a "Monthly Certificate") setting forth, inter alia, the following information (which, in the cases of clauses (c), (d) and (e) below, will be expressed as a dollar amount per $1,000 of the original principal amount of the Notes and as a percentage of the outstanding principal balance of the Notes as of such date): (a) the aggregate amount of payments received from the Manufacturers and/or auction dealers under Manufacturer Programs and the aggregate amount of payments received from third parties (other than Manufacturers and auction dealers) with respect to the sale of Vehicles and deposited in the Collection Account from the Master Collateral Account and the aggregate amount of other Collections deposited in the Collection Account for the Related Month with respect to such Determination Date; (b) the Invested Percentage on the last day of the Related Month of each Series of Notes and each class of each Series; (c) for each Series and each class of each Series, the total amount to be distributed to Noteholders on the next succeeding Distribution Date; (d) for each Series and each class of each Series, the amount of such distribution allocable to principal on the Notes; (e) for each Series and each class of each Series, -37- 43 the amount of such distribution allocable to interest on the Notes; (f) for each Series and each class of each Series, the amount of Enhancement used or drawn in connection with the distribution to Noteholders of such Series or class on the next succeeding Distribution Date, together with the aggregate amount of remaining Enhancement not theretofore used or drawn; (g) for each Series, the Series Monthly Servicing Fee for the next succeeding Payment Date; (h) for each Series and each class of each Series, the existing Carryover Controlled Amortization Amount, if any; (i) the Pool Factor with respect to such Related Month for each Series and each class of each Series; (j) a list of all Acquired Vehicles and Financed Vehicles leased hereunder at the close of business on the last day of the Related Month; (k) the Aggregate Asset Amount and the amount of the Aggregate Asset Amount Deficiency, if any, at the close of business on the last day of the Related Month; (l) if Enhancement is provided for any Series of Notes or any class of a Series by means of overcollateralization, the amount of recoveries and losses for the Related Month, whether an ENHANCEMENT Deficiency exists with respect to such Series or class and the amount thereof, or the amount available for such overcollateralization; and (m) whether, to the knowledge of the Servicer, any Lien exists on any of the Collateral (other than Liens granted pursuant to the Indenture and the other Related Documents or permitted thereunder) which is reasonably likely to have a Material Adverse Effect. (vii) Monthly Noteholders' Statement. On or before each Distribution Date, the Servicer shall furnish to the Trustee a Monthly Noteholders' Statement substantially in the form of Exhibit B. (viii) Manufacturers. Promptly after obtaining actual knowledge thereof, notice of any Manufacturer Event of Default or replacement of a Manufacturer Program. (ix) Annual Certificate. Annual Officer's Certificates of the Lessee as follows: The Lessee will deliver to the Lessor, the Trustee, any applicable Enhancement Provider under the Indenture, and the Rating Agencies rating any outstanding Series of Notes, on or before August 30 of each fiscal year, beginning with August 30, 1997, an Officer's Certificate substantially in the form of Exhibit C (each, an "Annual Certificate") (a) stating that a review of the activities of the Lessee during the preceding fiscal year (or during the initial period from the initial Closing Date until the end of fiscal year 1996) and of its performance under this Agreement and the other Related Documents to which the Lessee is a party -38- 44 was made under the supervision of the officer signing such certificate, (b) stating that to the best of such officers knowledge, based on such review, either there has occurred no event which, with the giving of notice or passage of time or both, would constitute a Lease Event of Default or Amortization Event and that the Lessee has fully performed all its obligations under this Agreement and such other Related Documents throughout such year, or, if there has occurred such event or a Lease Event of Default or Amortization Event, specifying each such event known to such officers and the nature and status thereof, and (c) stating (and containing an Opinion of Counsel to the effect), subject to standard qualifications and assumptions, that all necessary Uniform Commercial Code continuation statements and other Uniform Commercial Code filings have been completed (including, without limitation, any precautionary filings" made by the Lessees in favor of the Lessor), all necessary Assignment Agreements have been executed and delivered pursuant to Section 2.1 of the Master Collateral Agency Agreement, and all other actions, if any, required to maintain the perfected first priority security interest of the Trustee or the Master Collateral Agent on behalf of the Trustee in the Collateral and in the Master Collateral have been taken and that the Trustee or the Master Collateral Agent continues to have a perfected security interest in the Collateral and Master Collateral. (x) Annual Report. Annual reports of independent public accountants as follows: On or before August 30 of each fiscal year, beginning with August 30, 1997, the Lessee shall cause a firm of nationally recognized independent public accountants (which may also render other services to the Servicer) to furnish a report to the Lessor, the Trustee, the Rating Agencies and any Enhancement Provider to the effect that (i) they have compared the mathematical calculations of each amount set forth in the monthly certificates forwarded by the Lessee pursuant to this agreement and the master collateral agency agreement during the period covered by such report (which shall be the period from June 1 to and including May 31 of the prior fiscal year or for the period from the initial Closing Date to May 31, 1996) with the Lessee's computer reports which were the source of such amounts and that except for such exceptions as are listed, such amounts are in agreement, and (ii) they have examined certain documents and the records relating to the servicing of the Vehicles under this Agreement and the other Related Documents to which the Lessee is a party and that with respect to individual items examined, such servicing (including the allocations of Collections under the Indenture) has been completed in compliance with all of the terms and conditions set forth in the Indenture, any -39- 45 Supplement, this Agreement and the Master Collateral Agency Agreement, except for such exceptions as shall be set forth in such report. (xi) Non-Proqram Vehicle Report. On or before the second Determination Date after each May 31, beginning with May 31, 1996, the Servicer shall cause a firm of nationally recognized independent public accountants (which may also render other services to the Servicer and which is acceptable to the Rating Agencies) to furnish a report (the "Non-Program Vehicle Report") to the Lessor, the Trustee, the Rating Agencies, and the Master Collateral Agent to the effect that they have performed certain agreed upon procedures with respect to the calculation of Market Value, and Disposition Proceeds obtained from the sale or other disposition of, all Non-Program Vehicles (other than Casualties) sold or otherwise disposed of during each Related Month in the preceding calendar year and compared such calculations of Market Value and Disposition Proceeds with the corresponding amounts set forth in the Daily Reports prepared by the Servicer pursuant to clause (v) above and that on the basis of such comparison such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such report; provided, however, that if on any August 31, November 30, or February 28 the Non-Program Vehicle Percentage equals or exceeds three percent (3~) then the Servicer shall notify each Rating Agency thereof in writing and, at the request of any Rating Agency delivered on or before the fifth (5th) Business Day thereafter, the Servicer shall cause to be prepared a Non-Program Vehicle Report covering the calendar quarter ending on such August 31, November 30, or February 28, as applicable, and shall cause such Non-Program Vehicle Report to be furnished to the Trustee, the Rating Agencies and the Master Collateral Agent on or before the second Determination Date after the last day of the quarter to which it relates. (xii) Other. Promptly, from time to time, such other information, documents, or reports respecting the Vehicles or the condition, financial or otherwise, or operations of the Servicer as the Lessor, the Master Collateral Agent or the Trustee may from time to time reasonably request in order to protect the interests of the Lessor, the Master Collateral Agent or the Trustee under or as contemplated by this Agreement or any other Related Document. Section 24.7. Taxes and Liabilities. Pay when due all taxes, assessments and other material (determined on a consolidated basis) liabilities (including titling fees and -40- 46 registration fees payable with respect to Vehicles) except as contested in good faith and by appropriate proceedings with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP if and so long as forfeiture of any Vehicles or other Master Collateral will not result from the failure to pay any such taxes, assessments or other material liabilities during the period of any such contest. Section 24.8. Maintenance of Separate Existence. The Lessee acknowledges its receipt of a copy of that certain opinion letter issued by Mayer, Brown & Platt dated April 30, 1996 addressing the issue of substantive consolidation as it may relate to the Lessee and the Lessor. The Lessee hereby agrees to maintain in place all policies and procedures, and take and continue to take all actions, described in the factual assumptions set forth in such opinion letter and relating to it. On an annual basis, the Lessee will provide to the Rating Agencies, the Trustee and the Master Collateral Agent, an Officer's Certificate certifying that it is in compliance with its obligations under this Section 24.8. Section 24.9. Maintenance of Credit Enhancement. The Lessee agrees to maintain a letter of credit or other Enhancement in a stated amount which, together with all other Enhancement provided for in the applicable Supplement, is equal to or greater than the Required Enhancement Amount for each Series. Section 24.10. Manufacturer Payments: Sales Proceeds. Any payments from Manufacturers in respect of Vehicles other than Exchanged Vehicles (whether relating to Financed Vehicles or to Acquired Vehicles) received directly by the Lessee will, within two Business Days of receipt, be deposited into the Master Collateral Account. Any payments from Manufacturers in respect of Exchanged Vehicle Repurchase Rights which payments are received directly by the Lessee will, within two Business Days of receipt, be deposited into the Exchange Account. The Lessee shall, within two Business Days of receipt thereof, deposit into the Master Collateral Account all amounts received by the Lessee directly, which amounts represent the proceeds from sales of Vehicles by auction dealers under a Guaranteed Depreciation Program and sales of Vehicles (including amounts paid to the Lessee by a Manufacturer as a result of the Lessee's sale of such Vehicle outside such Manufacturer's Manufacturer Program) by the Lessee to third parties (other than under any related Manufacturer Program) and all payments with respect to other Master Collateral (other than the Master Collateral described in the last sentence of this paragraph). Insurance proceeds (other than Exchanged Vehicle Insurance Proceeds) with respect to Vehicles will only be deposited into the Master Collateral Account if an Amortization Event or Potential Amortization Event shall have occurred and be continuing. -41- 47 Section 24.11. Compliance with Requirements of Law. Maintain in effect all qualifications required under applicable Requirements of Law and will comply with all other applicable Requirements of Law, the failure to maintain or comply with which is reasonably likely to have a Material Adverse Effect. Section 24.12. Delivery of Information. Provide the Lessor with any information or materials necessary for the Lessor to comply with its obligations under the Indenture. Section 24.13. Master Collateral Agent as Lienholder. Maintain certain computer records as follows: Concurrently with each leasing of a Vehicle under this Agreement, the Servicer shall indicate on its computer records that the Master Collateral Agent as assignee of the Lessor or the Lessee, as the case may be, is the holder of a Lien on such Vehicle for the benefit of the Trustee pursuant to the terms of the Master Collateral Agency Agreement. National shall not utilize selection procedures which it believes are ADVERSE TO THE LESSOR OR THE TRUSTEE in selecting the Vehicles to be designated to the Lessor as a Financing Source and the Trustee as a Beneficiary under the Master Collateral Agreement. Section 24.14. Maintenance of the Vehicles. The Lessee will maintain and cause to be maintained in good repair, working order, and condition all of the Vehicles in accordance with its ordinary business practices with respect to all other vehicles owned or leased by it and will use its best efforts to maintain each Program Vehicle as an eligible vehicle under the related Manufacturer Program, except in each case to the extent that any such failure to comply with such requirements is not reasonably likely to, in the aggregate, materially adversely affect the interests of the Lessor, the Master Collateral Agent or the Trustee on behalf of the Secured Parties under the Indenture or the likelihood of payment of all amounts due hereunder. National will perform all of its obligations as Servicer in all material respects as set forth in the Master Collateral Agency Agreement. Section 24.15. Certificates of Title. The Servicer shall take, or shall cause to be taken, such action as shall be necessary to submit all of the Certificates of Title (other than Certificates of Title with respect to the Initial Vehicles) to the appropriate state authority for notation of the Master Collateral Agent's lien thereon. Pursuant to the Master Collateral Agency Agreement, the original Certificates of Title relating to the Vehicles shall be held by the Servicer, in trust for the benefit of the Master Collateral Agent and the Trustee as assignee of the Lessor. The Certificates of Title shall be subject to all of the provisions of the Master Collateral Agency Agreement. -42- 48 Section 24.16. Release of Collateral. The parties agree that pursuant to the provisions of this Section 24.16 and Sections 2.3 and 2.7 of the Master Collateral Agency Agreement, any and all the Liens for the benefit of the Lessor (including the Lien of the Trustee as assignee of the Lessor and as Beneficiary under the Master Collateral Agency Agreement) on the Vehicles and the Certificates of Title therefor shall be released or deemed to be released, as provided below. From and after the earliest of: (a) in the case of a Program Vehicle, the Disposition Date for such Vehicle; or (b) receipt of the purchase price by the Lessee for a Non-Program Vehicle sold in an ordinary course sale; or (c) the payment in full of all obligations under this Agreement with respect to a Vehicle, any and all Liens for the benefit of the Lessor (including the Lien of the Trustee as assignee of the Lessor and as Beneficiary under the Master Collateral Agency Agreement) on such Vehicle and the Certificate of Title therefor shall be deemed to be released. The Lessor shall, and shall cause the Trustee and the Master Collateral Agent to, execute such documents and instruments as the Lessee may reasonably request (including a power of attorney of the Master Collateral Agent appointing the Lessee to act as the agent of the Master Collateral Agent in taking such actions as are required to evidence the release of the Lien of the Master Collateral Agent on Vehicles turned back or sold pursuant to the provisions of this Section 24.16, which power of attorney shall be revocable pursuant to Section 2.7(b) of the Master Collateral Agency Agreement). Section 24.17. Change of Location or Name. During the Term, the Lessee will not change (a) the location of its principal place of business, chief executive office or its consolidated records concerning its business and financial affairs, or (b) its legal name or the name under or by which it conducts its business, in each case without first giving the Master Collateral Agent, the Trustee and the Lessor at least 60 days' advance written notice thereof and having taken any and all action required to maintain and preserve the first priority perfected Lien of the Master Collateral Agent in the Master Collateral; provided, however, that notwithstanding the foregoing, the Lessee shall not change the location of its principal place of business, chief executive office or its consolidated records concerning its business and financial affairs to any place outside the United States of America. -43- 49 Section 24.18. Deliveries: Further Assurances. The Lessee agrees that it will, at its sole expense, (i) immediately deliver or cause to be delivered to the Lessor (or the Master Collateral Agent on the Lessor's behalf), in due form for transfer (i.e., endorsed in blank), all securities, chattel paper, instruments and documents, if any, at any time representing all or any of the Master Collateral with respect to which the Trustee is designated as the Beneficiary (it being understood that the Certificates of Title shall be held by the Servicer or the Master Collateral Agent, as the case may be, pursuant to the provisions of the Master Collateral Agency Agreement), and (ii) execute and deliver, or cause to be executed and delivered, to the Lessor or the Master Collateral Agent, as the case may be, in due form for filing or recording (and pay the cost of filing or recording the same in all public offices reasonably deemed necessary or advisable by the Lessor or the Master Collateral Agent or the Trustee, as the case may be), such assignments, security agreements, mortgages, consents, waivers, financing statements, and other documents, and do such other acts and things, all as may from time to time be reasonably necessary or, upon the request of the Lessor or the Master Collateral Agent advisable to establish and maintain to the satisfaction of the Lessor, the Master Collateral Agent and the Trustee a valid perfected first priority Lien on and security interest in all of the Master Collateral with respect to which the Trustee is designated as the Beneficiary now or hereafter existing or acquired. Section 24.19. Additional Actions. The Lessor hereby directs, authorizes and empowers the Servicer to, and the Servicer hereby agrees that it shall: (a) instruct the Trustee or the Paying Agent, as applicable, to make withdrawals and payments from the Collection Account, as contemplated in the Indenture; (b) at the request of the Trustee as required or permitted upon or after the occurrence of certain events specified in the Indenture and, to the extent permitted under and in compliance with applicable laws and regulations, execute and deliver, for the benefit of the Noteholders under the Indenture, any and all instruments necessary or appropriate to commence or maintain enforcement proceedings with respect to Manufacturer Programs or any Enhancement; (c) make any filings, reports, notices, applications, or registrations with, and to seek any consents or authorizations from the Securities and Exchange Commission and any state securities laws authority on behalf of the Lessor as may be necessary to comply with any Federal or state securities laws or reporting requirements or laws; -44- 50 (d) upon the occurrence of a Series 1996-1 Lease Payment Deficit, deliver to the Trustee a notice in the form attached hereto as Exhibit E; and (e) perform such other functions and take such other actions as it is designated to perform or take pursuant to the terms and conditions of any Related Document. Section 24.20. Subleases. The Lessee agrees that each Sublease will include provisions consistent with each contained in Section 28 of the Lease pursuant to which, inter alia, each Sublessee expressly and irrevocably submits to the non-exclusive jurisdiction of all federal and state courts of the State of New York and shall also include a provision whereby each Sublessee agrees to be bound by the provisions of Section 9.2(b) of the Base Indenture. SECTION 25. CERTAIN NEGATIVE COVENANTS. Until the expiration or termination of this Agreement and thereafter until the obligations of the Lessee are paid in full, the Lessee agrees that, unless at any time the Lessor, the Master Collateral Agent and the Trustee shall otherwise expressly consent in writing, it will not: Section 25.1. Mergers. Consolidations. Be a party to any merger or consolidation, other than (i) a merger or consolidation of any Affiliate of the Lessee into or with the Lessee (provided that the Lessee is the surviving corporation) or (ii) a merger or consolidation of the Lessee into or with another entity if: (a) the corporation formed by such consolidation or into or with which the Lessee is merged shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and, if the Lessee is not the surviving entity, shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, the Lessor and the Master COLLATERAL AGENT, THE PERFORMANCE of every covenant and obligation of the Lessee hereunder and under all other Related Documents; (b) the Lessee has delivered to the Trustee, the Lessor and the Master Collateral Agent an officer's certificate and an opinion of counsel each stating that such consolidation or merger and such supplemental agreement comply with this Section 25.1 and that all conditions precedent herein provided for relating to such transaction have been complied with; and -45- 51 (c) each Rating Agency has confirmed in writing that such assignment and succession will not cause the rating of any outstanding series of Notes to be lowered or withdrawn. Section 25.2. Regulations G, T, U and X. Use or permit any amounts funded by the Lessor pursuant to the Financing Lease to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of repurchasing or carrying margin stock" within the meaning of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, as amended from time to time. Section 25.3. Liens. Create or permit to exist any Lien with respect to any Master Collateral with respect to which the Trustee is designated as the Beneficiary, whether now or hereafter existing or acquired, except Permitted Liens. Section 25.4. Use of Vehicles. Use or contractually permit any Vehicles to be used in any manner (i) that, with respect to Program Vehicles, would make such Vehicles ineligible for repurchase or Auction under the related Eligible Manufacturer Program, (ii) for any illegal purposes or (iii) that could subject any Vehicles to confiscation. Section 25.5. Percentage of Non-Program Vehicles. Permit (i) the aggregate Net Book Value of all Non-Program Vehicles leased hereunder on any day to exceed any applicable Maximum Non-Program Vehicle Amount or (ii) the aggregate Net Book Value of Non-Program Vehicles manufactured by a single Manufacturer (other than an Approved Non-Program Vehicle Manufacturer) to exceed any applicable Maximum Manufacturer Amount. Section 25.6. Acquisition and Financing of Vehicles. Other than with respect to Initial Vehicles use funds on deposit in or required to be deposited into the Excess Funding Account (as defined in the related Supplement) or the Retained Distribution Account to acquire or finance Vehicles manufactured by Chrysler during any calendar month or series of consecutive calendar months if the Vehicle Ratio (calculated without taking the Initial Vehicles into account) for such month or series of months exceeds the following amounts: For any month 30% For any two consecutive months 50% For any three consecutive months 70% For any four consecutive months 80% For any five consecutive months 90% -46- 52 SECTION 26. SERVICING COMPENSATION. Section 26.1. As compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in Section 26.2, the Servicer shall be entitled to receive from the Lessor a monthly servicing fee (the "Monthly Servicing Fee"), payable in arrears on each Payment Date prior to the termination of this Lease, the Indenture and the Master Collateral Agency Agreement in an amount equal to the sum of the monthly servicing fees for all Series of Notes. Except as otherwise specified in the related Supplement, the Monthly Servicing Fee for each Series of Notes (each, a "Series Monthly Servicing Fee") on each Payment Date shall be equal to (i) the portion of the Supplemental Servicing Fee allocated to such Series of Notes pursuant to the related Supplement, plus (ii) one-twelfth of the product of (A) the Servicing Fee Percentage for such Series and (B) the Invested Amount of such Series as of the preceding Payment Date (after giving effect to any payments of principal on such date). The Series Monthly Servicing Fee for each Series shall be paid to the Servicer pursuant to the procedures set forth in the applicable Supplement. The supplemental servicing fee (the "Supplemental Servicing Fee") for any period shall be equal to all Carrying Charges comprising payments due from the Servicer under Section 26.2 hereof. Section 26.2. The Servicer's expenses include, and the Servicer agrees to pay, the amounts due to the Trustee pursuant to Section 10.5 of the Indenture, plus the reasonable fees and disbursements of independent accountants in connection with reports furnished pursuant to Sections 24.6(i). (ii), (x) and (xi), plus all other fees, expenses and indemnities incurred by the Servicer or the Lessor in connection with the Servicer's activities hereunder or under the Related Documents. The Servicer, however, shall not be liable for any liabilities, costs or expenses of the Lessor, the Trustee or the Noteholders arising under any tax law, including without limitation any Federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith), except to the extent incurred as a result of the Servicer's violation of the provisions of this Lease or of the Related Documents; provided, however, the foregoing provisions of this sentence shall not affect the indemnification obligations of the Lessee under Section 15 of the Lease. In the event that the Servicer fails to pay any amount due to the Trustee pursuant to Section 10.5 of the Base Indenture, the Trustee will be entitled to receive such amounts due from the Monthly Servicing Fee prior to payment thereof to the Servicer. -47- 53 SECTION 27. BANKRUPTCY PETITION AGAINST LESSOR. The Lessee hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all Series of Notes, it will not institute against, or join any other Person in instituting against, the Lessor any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. In the event that the Lessee takes action in violation of this Section 27, the Lessor agrees, for the benefit of the Noteholders, that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by the Lessee against the Lessor or the commencement of such action and raise the defense that the Lessee has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 27 shall survive the termination of this Agreement. SECTION 28. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE TRUSTEE, THE LESSOR OR THE LESSEE SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTaBRN DISTRICT OF NEW YORR; PROVIDED, HOWEVER, TEAT ANY SUIT SEEPING ENFORCEMENT AGAINST ANY VEHICLE OR OTHER PROPERTY MAY BE BROUGHT, AT THE LESSOR'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH VEHICLE OR OTHER PROPERTY MAY BE FOUND. THE LESSEE HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JUCISDICTION OF ALL FEDERAL AND STATE COURTS OF THE STATE OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE LESSEE (AND EACH SUBLESSEE) FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS By REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE LESSEE AND THE LESSOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE LESSEE HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. -48- 54 SECTION 29. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable 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 Agreement. All obligations of the Lessee and all rights of the Lessor, the Master Collateral Agent or the Trustee expressed herein shall be in addition to and not in limitation of those provided by applicable law or in any other written instrument or agreement. SECTION 30. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED TRANSACTION, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 31. NOTICES. All notices, amendments, waivers, consents and other communications provided to any party hereto under this Agreement shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted upon receipt of electronic confirmation of transmission. In each case, a copy of all notices, requests and other communications (other than any such notices, requests and other communications in the ordinary course of business) that are sent by any party or signatory hereunder shall be sent to the Trustee at the following address: THE BANK OF NEW YORK 101 Barclay Street Floor 12 East New York, New York 10286 Attention: Corporate Trust Division Telephone: (212) 815-5218 Facsimile: (212) 815-5999 -49- 55 SECTION 32. HEADINGS. Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 33. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Agreement. SECTION 34. EFFECTIVENESS. This Agreement shall become effective on the Lease Commencement Date, subject to the prior or concurrent delivery of each of the following documents (in form and substance satisfactory to the Lessor): (a) Certificate of Incorporation. The certificate of incorporation of the Lessee, duly certified by the Secretary of State of the jurisdiction of its incorporation, together with a copy of its by-laws, duly certified by the Secretary or an Assistant Secretary of the Lessee; (b) Resolutions. Copies of resolutions of the Board of Directors of the Lessee and of the Servicer authorizing or ratifying the execution, delivery and performance of those documents and matters required of it with respect to this Agreement, duly certified by the Secretary or Assistant Secretary of the Lessee; (c) Consents. etc. Certified copies of all documents evidencing any necessary corporate action, consents and governmental approvals (if any) with respect to this Agreement; (d) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of the Lessee and of the Servicer certifying the names of the individual or individuals authorized to sign this Agreement and the other Related Documents to be executed by it, together with a sample of the true signature of each such individual (the Lessor, the Master Collateral Agent and the Trustee may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein); (e) Opinions of Counsel. The opinion of Simpson Thacher & Bartlett, counsel for the Lessee and the Servicer, addressed to the Lessor, the Trustee, the Master Collateral Agent, the Enhancement Providers, the Initial Purchasers and the Rating Agencies; the opinion of Mayer, Brown & Platt, addressed to the Lessee, the Lessor, the Trustee, the Master Collateral Agent, the Enhancement Providers, the Placement -50- 56 Agents and the Rating Agencies; the opinion of each Manufacturer addressed to the Lessee, the Lessor, the Trustee, the Master Collateral Agent, the Enhancement Providers and the Rating Agencies; the opinion of counsel to each Enhancement Provider, addressed to the Lessee, the Lessor, the Trustee, the Master Collateral Agent, the Placement Agents and the Rating Agencies; the opinion of Emmet, Marvin & Martin, counsel to the Trustee, addressed to the Lessee, the Lessor, the Placement Agents, the Master Collateral Agent and each Enhancement Provider; and the opinion of Briggs Morgan, Minnesota counsel to the Lessee, addressed to the Lessor, the Trustee, the Enhancement Providers, the Placement Agents and the Rating Agencies, in each case, satisfactory in form and substance to the addressees thereof; (f) Good Standing Certificates. Certificates of good standing for the Lessee in the jurisdiction of its organization and the jurisdiction of its principal place of business; (g) Search Reports. A written search report from a Person satisfactory to the Lessor and the Trustee listing all effective financing statements that name the Lessee as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to subsection (h) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to the Lessor and the Trustee showing no evidence of such liens filed against the Lessee; (h) Evidence. Evidence of the filing of proper financing statements on Form WCC-1, (i) naming the Lessee as debtor and the Master Collateral Agent as secured party or other, similar instruments or documents, as may be necessary or desirable under the UCC of all applicable jurisdictions to perfect the Master Collateral Agent's interest in the Master Collateral with respect to which the Trustee is designated as the Beneficiary and (ii) naming the Lessee as debtor, the Lessor as secured party and the Master Collateral Agent as assignee, as may be necessary or desirable under the UCC of all applicable jurisdictions to perfect the precautionary security interest of the Lessor hereunder and the assignment of the same to the Master Collateral Agent; (i) Master Collateral Agency Agreement. An executed copy of the Master Collateral Agency Agreement; (j) Intercreditor Agreement. An executed copy of the Intercreditor Agreement; -51- 57 (k) Joinder to Intercreditor Agreement. An executed copy of the Joinder Agreement in form attached hereto as Exhibit D; (l) Vehicle Title Nominee Agreement. An executed copy of the Vehicle Title Nominee Agreement; (m) GM Guaranty. An executed copy of the GM Guaranty; (n) Assignment Agreement. An executed copy of the Assignment Agreement of each Manufacturer; (o) Certified Copy of Manufacturer Program. A copy of each Manufacturer Program relating to Vehicles which will be leased hereunder and an Officer's Certificate, dated the Closing Date, and duly executed by an Authorized Officer of the Lessee, certifying that each such copy is true, correct and complete as of the Closing Date; (p) Assignment of GMAC Lien: Evidence of Filing of UCC Termination Statements. (i) An executed copy of an assignment agreement, pursuant to which GMAC has assigned its interest in the certificates of title with respect soothe Initial Vehicles to the Master Collateral Agent; and (ii) Evidence of the filing of proper financing statements (form WCC-3) necessary to release all security interests and other rights of GMAC in the Initial Vehicles previously granted by Old National to GMAC: (q) The Indenture, dated the Closing Date, duly executed by the Lessor and the Trustee, and all conditions to the effectiveness thereof and the issuance of the Notes thereunder shall have been satisfied in all respects; (r) A letter of credit, executed by Deutsche Bank AG, New York Branch, with an initial stated amount of $15,000,000; (s) The representations and warranties contained in Section 23 shall be true and correct in all respects (except to the extent any such representation and warranty does not incorporate a materiality limitation in its terms and the failure of such representation and warranty to be true and correct in all respects does not materially adversely affect the interest of the Lessor, the Trustee or the Secured Parties); and -52- 58 (t) Other. Such other documents as the Trustee or the Lessor may reasonably request. -53- 59 IN WITNESS WHEREOF, the parties have executed this Agreement or caused it to be executed by their respective officers thereunto duly authorized as of the day and year first above written. LESSEE AND SERVICER: NATIONAL CAR RENTAL SYSTEM, INC. By: /s/ ----------------------------------- Name: Title: Address: 7700 France Avenue South Minneapolis, Minnesota 55435 Facsimile: (612) 893-6143 Telephone: (612) 830-2102 LESSOR: NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ ----------------------------------- Name: Title: Address: 7700 France Avenue South Minneapolis, Minnesota 55435 Facsimile: (612) 893-6143 Telephone: (612) 830-2133 60 Acknowledged by: MASTER COLLATERAL AGENT CITIBANK. N.A. By: /s/ Annette M. Marsula --------------------------------- Name: Annette M. Marsula Title: Senior Trust Officer Address: 120 Wall Street, 13th Floor New York, New York 10043 Attention: Annette Marsula Telephone: 212-412-6249 Facsimile: 212-480-1615 -55- 61 ANNEX A ANNEX TO THE MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT Dated as of April 30, 1996 between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Lessor, and NATIONAL CAR RENTAL SYSTEM, INC., as Lessee 62 1. Scope of Annex. This Annex A shall apply only to the acquisition, leasing and servicing of the Acquired Vehicles by NFLP pursuant to the Base Lease, as supplemented by this Lease Annex (collectively, the "Operating Lease"). 2. General Agreement. Lessor and Lessee intend that for all purposes (including, but not limited to, financial accounting, regulatory accounting, federal income tax purposes and all applicable state and local income, franchise, sales, use and excise tax purposes and for purposes of any foreign corporation, business registration or doing business statutes), (A) the Lease with regard to Acquired Vehicles will be treated as an "operating lease" pursuant to Statement of Financial Accounting Standards No. 13, as amended, as well as for all tax purposes, (B) Lessor will be treated as the owner and lessor of the Acquired Vehicles, (C) Lessee will be treated as the lessee of the Acquired Vehicles, and (D) Lessor will be entitled to all tax benefits ordinarily available to an owner of property similar to the Acquired Vehicles for such tax purposes. 3. Operating Lease Commitment. (a) Upon the execution and delivery of this Operating Lease, the Lessor shall, subject to the terms and conditions of the Agreement, purchase from time to time on or after the Lease Commencement Date and prior to the Lease Expiration Date, all Acquired Vehicles identified in Vehicle Orders placed by the Lessee for a purchase price equal to the Capitalized Cost thereof, and simultaneously therewith, the Lessor shall under the Operating Lease enter into operating leases with the Lessee with respect to such Vehicles; provided, that the aggregate Net Book Value of Acquired Vehicles leased hereunder on any date shall not exceed (a) the Maximum Lease Commitment, less (b) the Base Amount as of such date with respect to the Financing Lease. 4. Lease Procedures. In connection with the Lease of any Acquired Vehicles to be leased on or after the Lease Commencement Date, to evidence the acquisition of such Acquired Vehicles by the Lessor, the Lessee shall deliver to the Lessor the following: (a) a Vehicle Order (including a Vehicle Acquisition Schedule) with respect to all Acquired Vehicles to be leased by the Lessor on the related Vehicle Lease Commencement Date; (b) UCC termination statements terminating, or UCC partial releases releasing, any security interests and other liens (other than Permitted Liens) in favor of any Person with respect to each Acquired Vehicle leased on the Lease Commencement Date and identified in such Vehicle Order, and any related Manufacturer Programs; -2- 63 (c) with respect to the initial lease of Acquired Vehicles, a fully executed Assignment Agreement covering the related Manufacturer Programs. The Lessee hereby agrees that each such delivery of a Vehicle Order shall be deemed hereunder to constitute a representation and warranty by the Lessee, to and in favor of the Lessor and the Trustee, that all the conditions precedent to the acquisition and leasing of the Vehicles identified in such Vehicle Order have been satisfied as of the date of such Vehicle Order. 5. Maximum Vehicle Lease Term. The maximum Vehicle lease term of the Operating Lease as it relates to each Acquired Vehicle leased hereunder shall be from the Vehicle Lease Commencement Date to the date that is 18 months from the Vehicle Lease Commencement Date. On the occurrence of such date for a Vehicle not previously disposed of, the Lessee shall, (a) on behalf of the Lessor, promptly dispose of such Vehicle in accordance with the terms hereof and in accordance with any instructions of the Lessor for such disposition, (b) in each case, provide that Disposition Proceeds be paid directly to the Master Collateral Account for the benefit of the Trustee and (c) pay to the Master Collateral Agent or the Trustee, in accordance with this Operating Lease, any other amounts unpaid and owing from the Lessee under the Lease in respect of such Vehicle. 6. Lessee's Rights to Purchase Vehicles. The Lessee will have the option, exercisable with respect to any Acquired Vehicle during the Vehicle Term with respect to such Acquired Vehicle, to purchase any Vehicles leased under this Agreement at the Vehicle Purchase Price, in which event the Lessee will pay the Vehicle Purchase Price to the Master Collateral Agent on or before the Payment Date next succeeding such purchase by the Lessee plus all accrued and unpaid Monthly Base Rent and Monthly Variable Rent with respect to such Vehicle through the date of such purchase. Upon receipt of such funds by the Master Collateral Agent, the Lessor shall cause title to any such Vehicle to be transferred to the Lessee, the lien of the Master Collateral Agent in such Vehicle will automatically be released and the Servicer shall cause the Master Collateral Agent to cause the notation of its lien to be removed from the certificate of title for such Vehicle, concurrently with or promptly after the Vehicle Purchase Price for such Vehicle (and any unpaid Monthly Base Rent and unpaid Monthly Variable Rent) is paid by the Lessee to the Master Collateral Agent. 7. Vehicle Disposition. Subject to the Servicer's right to redesignate Program Vehicles as Non-Program Vehicles under Section 14 of the Base Lease, the Lessor and the Lessee agree -3- 64 that, with respect to Acquired Vehicles, the Lessee shall use commercially reasonable efforts to deliver each Program Vehicle for sale at Auction or to return each Program Vehicle to the related Manufacturer during the Repurchase Period for such Vehicle; provided, however, if for any reason, the Lessee fails to deliver such a Program Vehicle to the applicable Manufacturer for repurchase by the Manufacturer or to an Auction for sale, in each case in accordance with the applicable Manufacturer Program, during the Repurchase Period, the Lessee shall be obligated to sell or otherwise dispose of such Program Vehicle and pay a Late Return Payment with respect thereto, in each case as provided in Section 13 of the Base Lease. The Lessee shall, with respect to Acquired Vehicles that are Program Vehicles, pay the equivalent of the Monthly Base Rent for the minimum holding period under the applicable Manufacturer Program for Program Vehicles returned before the expiration of such minimum holding period, regardless of actual usage, unless such minimum holding period is waived by the Manufacturer or such a Program Vehicle is a Casualty, in which case, Section 7 of the Base Lease shall apply with respect to such Vehicle. All Repurchase Prices and Disposition Proceeds due from the disposition of Program Vehicles pursuant to this Section shall be due and payable to the Lessor. The Lessor and the Lessee agree, with respect to Acquired Vehicles, that the Lessee shall use commercially reasonable efforts to dispose of each Non-Program Vehicle (a) in a manner most likely to maximize proceeds from such disposition and consistent with industry practice and (b) within eighteen (18) months after the date of the original dealer invoice for such Vehicle sold as a new vehicle. All Disposition Proceeds due from the disposition of Non-Program Vehicles pursuant to this Section shall be due and payable to the Lessor. 8. Lessor's Right to Cause Vehicles to be Sold. Notwithstanding anything to the contrary contained in the Agreement, the Lessor shall have the right, at any time after the date fourteen (14) days prior to the expiration of the Repurchase Period for any Program Vehicle leased under this Annex A, to require that the Lessee deliver such Program Vehicle to the Manufacturer for repurchase or, as applicable, to the designated Auction for sale, or exercise commercially reasonable efforts to arrange for the sale of such Program Vehicle to a third party for a price greater than the Net Book Value thereof, in which event the Lessee shall, prior to the expiration of such Repurchase Period, deliver such Vehicle to its Manufacturer or the designated Auction or arrange for the sale of such Program Vehicle to a third party for a price greater than the Net Book Value (or purchase the Program Vehicle itself from the Lessor for the Vehicle Purchase Price). If a sale of the Program Vehicle is arranged by the Lessee prior to the expiration of such Repurchase Period, then the Lessee shall deliver the Program Vehicle to the purchaser thereof, the Lien of the Master Collateral Agent on the -4- 65 Certificate of Title of such Program Vehicle shall be released, and the Lessee shall cause to be delivered to the Lessor the funds paid for such Program Vehicle by the purchaser. If the Lessee is unable to arrange for a sale of the Program Vehicle prior to the expiration of such Repurchase Period, then the Lessee shall cease attempting to arrange for such a sale and shall return such Program Vehicle to the applicable Manufacturer or tender such Program Vehicle for Auction or purchase such Vehicle as herein provided. In no event may any Program Vehicle be sold pursuant to this Paragraph 8 (other than pursuant to a Manufacturer Program) unless the funds to be paid to the Lessor arising out of such sale (including any amounts paid by the Manufacturer as an incentive for selling such Program Vehicle outside of the related Manufacturer Program) exceed the Net Book Value of such Vehicle less reasonably predictable Excess Mileage Charges, Excess Damage Charges, Missing Equipment Charges and other similar charges imposed by the Manufacturer. 9. Calculation of Rent. Rent shall be due and payable on a monthly basis as set forth in this paragraph 9: "Monthly Base Rent", with respect to each Payment Date and each Acquired Vehicle leased under the Lease on any day during the Related Month, shall be the sum of all Depreciation Charges that have accrued with respect to such Vehicle during the Related Month. "Monthly Variable Rent", with respect to each Payment Date and each Acquired Vehicle leased under the Lease on any day during the Related Month, shall equal the sum, without double counting, of (a) the product of (i) an amount equal to the Net Book Value of such Acquired Vehicle on the first day contained within both the Related Month and the Vehicle Term with respect to such Vehicle multiplied by the VFR for the Interest Period ending on the next succeeding Payment Date and (ii) the quotient obtained by dividing (A) the number of days contained within both the Related Month and the Vehicle Term with respect to such Acquired Vehicle by (B) the total number of days in the Related Month, plus (b) the product of (i) an amount equal to all Carrying Charges for the Related Month, and (ii) the quotient obtained by dividing the Net Book Value of such Acquired Vehicle as of the first day of the Related Month by the Net Book Value of all Vehicles leased under the Lease as of the first day of the Related Month. "Rent" means Monthly Base Rent plus Monthly Variable Rent. -5- 66 10. Payment of Rent and other Payments. (a) Monthly Base Rent. On each Payment Date, the Lessee shall pay to the Lessor the Monthly Base Rents that have accrued during the Related Month with respect to all Vehicles that were leased under the Operating Lease on any day during the Related Month; (b) Monthly Variable Rent. On each Payment Date, the Lessee shall pay to the Lessor the Monthly Variable Rents that have accrued during the Related Month with respect to all Vehicles that were leased under the Operating Lease on any day during the Related Month; (c) Termination Payments. Casualty Payments and Late Return Payments. On each Payment Date, the Lessee shall pay to the Lessor all Termination Payments, Casualty Payments and Late Return Payments as provided in Section 5.4 of the Base Lease; and (d) Certain Other Payments. The Lessee shall direct all Repurchase Prices and Disposition Proceeds payable in respect of Acquired Vehicles to be paid directly to the Master Collateral Agent for the benefit of the Trustee. The Servicer and the Lessee each agree that in the event that the Servicer or the Lessee shall receive directly any such payment, including cash, securities, obligations or other property, the Servicer or the Lessee, as the case may be, shall accept the same as the Master Collateral Agent's agent and shall hold the same in trust on behalf of and for the benefit of the Master Collateral Agent, and shall deposit the same, within two (2) Business Days after receipt of such property in available funds, into the Master Collateral Account in the same form received, with the endorsement of the Servicer or the Lessee, as the case may be, when necessary or appropriate. 11. Net Lease. THE OPERATING LEASE SHALL BE A NET LEASE, AND THE LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT OR REDUCTION FOR ANY REASON WHATSOEVER. The obligations and liabilities of the Lessee hereunder shall in no way be released, discharged or otherwise affected (except as may be expressly provided herein including, without limitation, the right of the Lessee to reject Vehicles pursuant to Section 2.2 of the Base Lease) for any reason, including without limitation: (i) any defect in the condition, merchantability, quality or fitness for use of the Vehicles or any part thereof; (ii) any damage to, removal, abandonment, salvage, loss, scrapping or destruction of or any requisition or taking of the Vehicles or any part thereof; (iii) any restriction, prevention -6- 67 or curtailment of or interference with any use of the Vehicles or any part thereof; (iv) any defect in, or any Lien on, title to the Vehicles or any part thereof; (v) any change, waiver, extension, indulgence or other action or omission in respect of any obligation or liability of the Lessee or the Lessor; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to the Lessee, the Lessor or any other Person, or any action taken with respect to the Operating Lease by any trustee or receiver of any Person mentioned above, or by any court; (vii) any claim that the Lessee has or might have against any Person, including without limitation the Lessor; (viii) any failure on the part of the Lessor to perform or comply with any of the terms hereof or of any other agreement; (ix) any invalidity or unenforceability or disaffirmance of the Operating Lease or any provision hereof or any of the other Related Documents or any provision of any thereof, in each case whether against or by the Lessee or otherwise; (x) any insurance premiums payable by the Lessee with respect to the Vehicles; or (xi) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not the Lessee shall have notice or knowledge of any of the foregoing and whether or not foreseen or foreseeable. The Operating Lease shall be noncancelable by the Lessee and, except as expressly provided herein; the Lessee, to the extent permitted by law, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender the Operating Lease, or to any diminution or reduction of Rent payable by the Lessee hereunder. All payments by the Lessee made hereunder shall be final (except to the extent of adjustments provided for herein), absent manifest error and, except as otherwise provided herein, the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. If for any reason whatsoever the Operating Lease shall be terminated in whole or in part by operation of law or otherwise except as expressly provided herein, the Lessee shall nonetheless pay an amount equal to each Rent payment at the time and in the manner that such payment would have become due and payable under the terms of the Operating Lease as if it had not been terminated in whole or in part. All covenants and agreements of the Lessee herein shall be performed at its cost, expense and risk unless expressly otherwise stated. 12. Liens. Except for Permitted Liens, the Lessee shall keep all Vehicles leased by it free of all Liens arising during the Term. Upon the Vehicle Lease Expiration Date for each Vehicle leased hereunder, the Lessor may, in its discretion, remove any such Lien and any sum of money that May be paid by the Lessor in release or discharge thereof, including attorneys' fees and costs, will be paid by the Lessee upon demand by the Lessor. The Lessor may grant security interests in the Vehicles to the Master Collateral Agent in accordance with the Master Collateral -7- 68 Agency Agreement and the Indenture without consent of the Lessee. The Lessee acknowledges that the granting of Liens and the taking of other actions pursuant to the Indenture and the Related Documents does not interfere with the rights of the Lessee under the Operating Lease. 13. Non-Disturbance. So long as the Lessee satisfies its obligations hereunder, its quiet enjoyment, possession and use of the Vehicles will not be disturbed during the Term subject, however, to paragraph 8 of this Annex A and except that the Lessor, the Master Collateral Agent and the Trustee each retains the right, but not the duty, to inspect the Vehicles without disturbing the ordinary conduct of the Lessee's business. Upon the request of the Lessor, the Master Collateral Agent or the Trustee, from time to time, the Lessee will make reasonable efforts to confirm to the Lessor, the Master Collateral Agent and the Trustee the location, mileage and condition of each Vehicle and to make available for the Lessor's, the Master Collateral Agent's or the Trustee's inspection within a reasonable time period, not to exceed forty-five (45) days, the Vehicles at the location where the Vehicles are normally domiciled. Further, the Lessee will, during normal business hours and with a notice of three (3) Business Days, make its records pertaining to the Vehicles available to the Lessor, the Master Collateral Agent or the Trustee for inspection at the location where the Lessee's records are normally domiciled. 14. Certain Risks of Loss Borne by Lessee. Upon delivery of each Vehicle to the Lessee, as between the Lessor and the Lessee, the Lessee assumes and bears the risk of loss, damage, theft, taking, destruction, attachment, seizure, confiscation or requisition and all other risks and liabilities with respect to such Vehicle, including personal injury or death and property damage, arising with respect to any Vehicle due to the manufacturer, purchase, acceptance, rejection, delivery, leasing, subleasing, possession, use, inspection, registration, operation, condition, maintenance, repair or storage of such Vehicle, howsoever arising. 15. Title. This is an agreement to lease only, and title to the Acquired Vehicles will at all times remain in the Lessor's name. The Lessee will not have any rights or interest in such Vehicles whatsoever other than the rights of possession and use as provided by this Agreement. In addition, the Lessee, by its execution hereof, acknowledges and agrees that (i) the Lessor is the sole owner and holder of all right, title and interest in and to the Manufacturer Programs as they relate to the Vehicles leased hereunder and (ii) the Lessee has no right, title or interest in any Manufacturer Program as it relates to any Vehicle leased hereunder. To confirm the foregoing, the Lessee, by its execution hereof, hereby assigns and transfers to the Lessor any -8- 69 rights that the Lessee may have in respect of any Manufacturer Programs as they relate to the Vehicles leased hereunder. * * * -9- 70 ANNEX B ANNEX TO THE MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT Dated as of April 30, 1996 between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Lessor, and NATIONAL CAR RENTAL SYSTEM, INC., as Lessee 71 1. Scope of Annex. This Annex B shall apply only to the acquisition or financing, leasing and servicing of the Financed Vehicles by the Lessee pursuant to the Base Lease, as supplemented by this Lease Annex (collectively, the "Financing Lease It ) . 2. General Agreement. (a) Lessor and Lessee intend (except as explicitly provided in subparagraph (b) below) that for all purposes (including, but not limited to, financial accounting, regulatory accounting, federal income tax purposes and all applicable state and local income, franchise, sales, use and excise tax purposes and for purposes of any foreign corporation, business registration or doing business statutes), with respect to the Financed Vehicles, (A) this Lease will be treated as a financing arrangement, (B) Lessor will be treated as a lender making loans to Lessee in amounts equal to the Capitalized Cost of the Financed Vehicles, which loans are secured by the Financed Vehicles, (c) the Lessee will be treated as making payments of principal and interest (denominated as Monthly Base Rent and Monthly Supplementary Payments, and Monthly Finance Rent, respectively) to the Lessor and (D) Lessee will be treated as the owner of the Financed Vehicles and will be entitled to all tax benefits ordinarily available to an owner of property similar to the Financed Vehicles for such tax purposes. (b) Lessor and Lessee intend that for all purposes (including, but not limited to, financial accounting, regulatory accounting, federal income tax purposes and all applicable state and local income, franchise, sales, use and excise tax purposes and for purposes of any foreign corporation, business registration or doing business statutes), with respect to the Financed Vehicles, (A) this Lease, as supplemented by this Lease Annex, will be treated as a financing arrangement, (B) Lessor will be treated as a lender making loans to Lessee in amounts equal to the Capitalized Costs of Financed Vehicles, which loans are secured by the Financed Vehicles, (C) the Lessee will be treated as making payments of principal and interest (denominated as Monthly Base Rent and Monthly Supplementary Payments, and Monthly Finance Rent, respectively) to the Lessor and (D) Lessee will be treated as the owner of the Financed Vehicles and will be entitled to all tax benefits ordinarily available to an owner of property similar to the Financed Vehicles for such tax purposes. 3. Financing Lease Commitment. Subject to the terms and conditions of the Financing Lease, upon execution and delivery of the Financing Lease, the Lessor shall (i) on the Lease Commencement Date refinance the Refinanced Vehicles in an amount equal to the aggregate Net Book Value thereof, and (ii) from time to time on or after the Lease Commencement Date and prior to the Lease Expiration Date purchase all other Financed Vehicles identified in Vehicle Orders placed by the Lessee for a purchase -2- 72 price equal to the Capitalized Cost thereof, and in each case simultaneously therewith enter into this Financing Lease with the Lessee with respect to the Refinanced Vehicles and other Financed Vehicles, as the case may be; provided, that the aggregate outstanding Base Amount under the Financing Lease shall not on any date exceed (a) the Maximum Lease Commitment, less (b) the sum of (x) the sum of the Net Book Values of Acquired Vehicles leased under the Operating Lease on such date, each such Net Book Value calculated as of the first day contained within both the calendar month in which such date of determination occurs and the Vehicle Term for the related Acquired Vehicle, plus (y) accrued and unpaid Monthly Base Rent under the Operating Lease as of such date. 4. Lease Procedures. (a) Initial Lease. In connection with the Lease of the Refinanced Vehicles and any other Financed Vehicles to be leased on the Lease Commencement Date, to evidence the refinancing of the Refinanced Vehicles and the acquisition and financing of such other Financed Vehicles by the Lessor on the Lease Commencement Date and the conveyance on such date of a security interest in such Financed Vehicles to the Master Collateral Agent, the Lessee shall deliver to the Lessor on or prior to the Lease Commencement Date the following: (i) a schedule concerning the Refinanced Vehicles as specified in Section 2.1 of the Base Lease, in the case of all Refinanced Vehicles, or a Vehicle Order (including a Vehicle Acquisition Schedule) with respect to all other Financed Vehicles to be leased by the Lessor on the Lease Commencement Date; (ii) evidence, reasonably satisfactory to the Lessor and the Trustee that the Lessor has been designated as the Financing Source and the Trustee has been designated as the Beneficiary under the Master Collateral Agency Agreement with respect to the Refinanced Vehicles; (iii) a fully executed Assignment Agreement with respect to each related Manufacturer Program; and (vi) an Officer's Certificate stating that all the conditions precedent under the Lease to the leasing of such Vehicles on the Lease Commencement Date have been satisfied. -3- 73 (b) Subsequent Leases. In connection with each Lease of a Financed Vehicle after the Lease Commencement Date, to evidence the acquisition or financing of such Financed Vehicle by the Lessor and the conveyance of a security interest in such Financed Vehicles to the Master Collateral Agent, the Lessee shall deliver to the Lessor a Vehicle Order (including a Vehicle Acquisition Schedule) with respect to all Financed Vehicles to be leased by the Lessor on the date specified therein. The Lessee hereby agrees that each such delivery of a Vehicle Order shall be deemed hereunder to constitute a representation and warranty by the Lessee, to and in favor of the Lessor and the Trustee, that all the conditions precedent to the acquisition or financing and leasing of the Vehicles identified in such Vehicle Order have been satisfied as of the date of such Vehicle Order. 5. Maximum Vehicle Lease Term. The maximum Vehicle lease term of the Financing Lease as it relates to each Financed Vehicle leased hereunder shall be from the Vehicle Lease Commencement Date to the date that is 60 months from the Vehicle Lease Commencement Date. On the occurrence of such date, the Lessee shall pay to the Master Collateral Agent or the Trustee, in accordance with this Financing Lease, any amounts unpaid and owing under the Lease in respect of such Vehicle. 6. Calculation of Rent and Monthly Supplemental Payment. Rent and the Monthly Supplemental Payment shall be due and payable on a monthly basis as set forth in this paragraph 6: "Monthly Base Rent", with respect to each Payment Date and each Financed Vehicle leased under the Lease on any day during the Related Month, shall be the sum of all Depreciation Charges that have accrued with respect to such Vehicle during the Related Month. "Monthly Finance Rent", with respect to each Payment Date and each Financed Vehicle leased under the Lease on any day during the Related Month, shall equal the sum, without double counting, of (a) the product of (i) an amount equal to the Net Book Value of such Financed Vehicle on the first day contained within both the Related Month and the Vehicle Term with respect to such Vehicle multiplied by the VFR for the Interest Period ending on the next succeeding Payment Date and (ii) the quotient obtained by dividing (A) the number of days contained within both the Related Month and the Vehicle Term with respect to such Financed Vehicle by (B) the total number of days in the Related Month, plus (b) the product of (i) an amount equal to all Carrying Charges for the Related Month, and (ii) the quotient obtained by dividing the Net Book Value of such Financed Vehicle as of the first day of the Related Month by the Net -4- 74 Book Value of all Vehicles leased under the Lease as of the first day of the Related Month. "Monthly Supplemental Payment" with respect to each Payment Date and all Vehicles that were leased under the Financing Lease on any day during the Related Month shall be an amount equal to the sum of (i) the aggregate Termination Values (each as of the date on which such Financed Vehicle is no longer an Eligible Vehicle, becomes a Casualty or is sold, as applicable) of all the Financed Vehicles financed under this Finance Lease at any time during such Related Month that, without double counting, while so financed either are no longer Eligible Vehicles, have suffered a Casualty or are sold by the Lessee (it being understood that the Lessee has agreed to sell Financed Vehicles only in a manner consistent with the provisions hereof and of the Related Documents) to any Person (including the Lessee) other than to a Manufacturer pursuant to such Manufacturer's Manufacturer Program or to a third party pursuant to an Auction conducted through a Manufacturer's Manufacturer Program, in each case, during the Related Month, plus (ii) the aggregate Termination Values (each as of the applicable Disposition Date) of all the Financed Vehicles financed under this Finance Lease that while so financed were returned by the Lessee to a Manufacturer pursuant to a Manufacturer Program with respect to which either (x) the Repurchase Price has been paid by such Manufacturer and/or the related auction dealers during the Related Month or (y) a Manufacturer Event of Default has occurred, minus (iii) any amounts received by the Lessor or the Trustee, or deposited into the Collection Account, during the Related Month representing (a) Repurchase Prices for repurchases of Financed Vehicles or (b) the sales proceeds for sales of Financed Vehicles financed at the time of such sale under this Finance Lease to a third party other than (1) to a Manufacturer or (2) through an Auction. Solely for determining the amounts payable hereunder with respect to a Financed Vehicle that is a Program Vehicle that became a Casualty as a result of such Program Vehicle being held beyond the stated expiration date of the applicable Repurchase Period and not being redesignated as a Non-Program Vehicle, such Vehicle will be deemed to have become a Casualty upon such expiration date. "Rent" means Monthly Base Rent plus Monthly Finance Rent. -5- 75 7. Payment of Rent and Other Payments. (a) On each Payment Date: (i) Monthly Base Rent. The Lessee shall pay to the Lessor the Monthly Base Rents that have accrued during the Related Month with respect to all Vehicles that were leased under the Finance Lease on any day during the Related Month. (ii) Monthly Finance Rent. The Lessee shall pay to the Lessor the Monthly Finance Rents that have accrued during the Related Month with respect to all Vehicles that were leased under the Finance Lease on any day during the Related Month. (iii) Monthly Supplemental Payment. The Lessee shall pay to the Lessor the Monthly Supplemental Payment that has accrued during the Related Month with respect to all Vehicles that were leased under the Finance Lease on any day during the Related Month; provided, however, that in the event that the Monthly Supplemental Payment accrued during a Related Month is a negative dollar amount, such amount may be netted against other payments to be paid on such Payment Date pursuant to this paragraph 7. (b) On the expiration of the term of the Lease with respect to a Financed Vehicle, any remaining Base Amount, plus all other amounts payable by the Lessee under the Financing Lease with respect to such Vehicle shall be immediately due and payable. (c) The Lessee may from time to time prepay the Base Amount of the Financing Lease with respect to a Financed Vehicle, in whole or in part, on any date, provided that the Lessee shall give the Lessor and the Trustee not less than one (1) Business Day's prior notice of any prepayment, specifying the date and amount of such prepayment, and the Financed Vehicles to which such prepayment relates. 8. Risk of Loss Borne by Lessee. Upon delivery of each Vehicle to the Lessee, as between the Lessor and the Lessee, the Lessee assumes and bears the risk of loss, damage, theft, taking, destruction, attachment, seizure, confiscation or requisition with respect to such Vehicle, however caused or occasioned, and all other risks and liabilities, including personal injury or death and property damage, arising with respect to any Vehicle or the manufacture, purchase, acceptance, rejection, ownership, delivery, leasing, subleasing, possession, use, inspection, registration, operation, condition, maintenance, repair, storage, sale, return or other disposition of such Vehicle, howsoever arising. -6- 76 9. Mandatory Repurchase of Texas Vehicles. Prior to the Vehicle Lease Expiration Date with respect to each Texas Vehicle (other than a Vehicle Lease Expiration Date arising in connection with the purchase of such Texas Vehicle pursuant to this paragraph 9) and, in the case of each Texas Vehicle which is a Program Vehicle, prior to the expiration of the Repurchase Period applicable thereto (unless such Vehicle has been redesignated as a Non-Program Vehicle in accordance with Section 14 of the Base Lease), the Lessee shall purchase such Texas Vehicle (including any such Vehicle which has become a Casualty) at a purchase price equal to the Net Book Value of such Vehicle calculated as of the date of purchase (or, in the case of a Casualty, at a purchase price equal to the Monthly Supplemental Payments accruing in respect of such Casualty during the Related Month in which such Vehicle became a Casualty), which shall be payable to the Master Collateral Agent (together with all accrued and unpaid Rent and other payments due and payable on such Payment Date with respect to such Texas Vehicle through the date of such purchase) on or prior to the Payment Date next succeeding such purchase by the Lessee. Upon receipt of such purchase price by the Lessor or the Master Collateral Agent, the Lessor shall cause title to each Texas Vehicle to be transferred to the Lessee, the lien of the Master Collateral Agent in such Texas Vehicle will automatically be released and the Servicer shall cause the Master Collateral Agent to cause the notation of its lien to be removed from the Certificate of Title for such Vehicle, concurrently with or promptly after such purchase price for such Texas Vehicle (and any such unpaid Rent and payments) is paid by the Lessee to the Master Collateral Agent. Notwithstanding anything to the contrary in this Agreement, no Texas Vehicle may be sold or otherwise disposed of (other than pursuant to Section 17.3 of the Base Lease), including at Auction or by return to its Manufacturer pursuant to a Manufacturer Program, prior to its purchase by the Lessee pursuant to and in accordance with this paragraph 9. *** -7- EX-4.21 22 2ND MASTER MOTOR VEHICLE LEASE & SERV. AGREEMENT 1 Exhibit 4.21 SECOND MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT dated as of December 20, 1996 between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, as Lessor, and NATIONAL CAR RENTAL SYSTEM, INC., as Lessee and Servicer AS SET FORTH IN SECTION 21 HEREOF, LESSOR HAS ASSIGNED TO THE TRUSTEE (AS DEFINED HEREIN) ALL OF LESSOR'S RIGHT, TITLE AND INTEREST IN AND TO THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION) NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE TRUSTEE ON THE SIGNATURE PAGE THEREOF. 2 TABLE OF CONTENTS
Page SECTION 1. CERTAIN DEFINITIONS ..................................................................................... 1 Section 1.1. Certain Definitions ......................................................................... 1 Section 1.2. Accounting and Financial Determinations ..................................................... 2 Section 1.3. Cross References; Headings ................................................................... 2 Section 1.4. Interpretation ............................................................................... 2 SECTION 2. GENERAL AGREEMENT ....................................................................................... 3 Section 2.1. Leasing of Vehicles ......................................................................... 4 Section 2.2. Right of Lessee to Act as Lessor's Agent ..................................................... 4 Section 2.3. Payment of Purchase Price by Lessor; Certain Additional Payments to the Servicer ................................................................................... 5 Section 2.4. Non-liability of Lessor ..................................................................... 5 SECTION 3. TERM ................................................................................................... 6 Section 3.1. Vehicle Lease Commencement Date ............................................................. 6 Section 3.2. Lease Commencement Date ..................................................................... 6 SECTION 4. CONDITIONS PRECEDENT ................................................................................... 6 Section 4.1. No Default ................................................................................... 7 Section 4.2. Funding ..................................................................................... 7 Section 4.3. Other Conditions ............................................................................. 7 SECTION 5. RENT AND CHARGES ....................................................................................... 7 Section 5.1. Payment of Rent ............................................................................. 7 Section 5.2. Payment of Monthly Supplemental Payment ..................................................... 7 Section 5.3. Payment of Termination Payments, Casualty Payments, and Late Return Payments ................................................................................... 7 Section 5.4. Late Payment ................................................................................. 7 Section 5.5. Making of Payments ........................................................................... 8 SECTION 6. TERMINATION OF LOAN AGREEMENT. ......................................................................... 8 SECTION 7. CASUALTY AND INELIGIBLE AND OTHER VEHICLE OBLIGATION ................................................... 8 SECTION 8. VEHICLE USE ............................................................................................. 9 SECTION 9. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES ........................................... 10 SECTION 10. MAINTENANCE AND REPAIRS ............................................................................... 11
3 SECTION 11. VEHICLE WARRANTIES ..................................................................................... 11 SECTION 12. VEHICLE USAGE REQUIREMENTS AND DISPOSITION ............................................................. 11 Section 12.1. Usage ....................................................................................... 11 Section 12.2. Disposition Procedure ....................................................................... 12 Section 12.3. Termination Payments ....................................................................... 12 SECTION 13. LATE RETURN PAYMENTS ................................................................................... 12 SECTION 14. RESERVED ............................................................................................... 13 SECTION 15. GENERAL INDEMNITY ..................................................................................... 13 Section 15.1. Indemnity of the Lessor ..................................................................... 13 Section 15.2. Indemnification of the Trustee ............................................................. 15 Section 15.3. Reimbursement Obligation by the Lessee ..................................................... 15 Section 15.4. Notice to Lessee of Claims ................................................................. 16 Section 15.5. Defense of Claims ........................................................................... 16 SECTION 16. SUCCESSORS AND ASSIGNS; ASSIGNMENT ..................................................................... 16 SECTION 17. DEFAULT AND REMEDIES THEREFOR ......................................................................... 17 Section 17.1. Events of Default ........................................................................... 17 Section 17.2. Effect of Lease Event of Default, etc. ..................................................... 18 Section 17.3. Rights of Lessor, Trustee and NFC Collateral Agent Upon Lease Event of Default, Liquidation Event of Default or Series 1996-2 Limited Liquidation Event of Default ....................................................................... 19 Section 17.4. Measure of Damages ......................................................................... 22 Section 17.5. Application of Proceeds ..................................................................... 23 SECTION 18. CERTAIN LIMITED AMORTIZATION EVENTS ................................................................... 23 SECTION 19. CERTIFICATION OF TRADE OR BUSINESS USE ................................................................. 24 SECTION 20. SURVIVAL ............................................................................................... 24 SECTION 21. RIGHTS OF LESSOR PLEDGED TO MASTER COLLATERAL AGENT, TRUSTEE AND NFC COLLATERAL AGENT ........................................................................... 24 SECTION 22. MODIFICATION AND SEVERABILITY ......................................................................... 26 SECTION 23. CERTAIN REPRESENTATIONS AND WARRANTIES ................................................................. 27 Section 23.1. Organization; Ownership; Power; Qualification ............................................... 27 Section 23.2. Authorization: Enforceability ............................................................... 27 Section 23.3. Compliance ................................................................................. 28 Section 23.4. Financial Information; Financial Condition ................................................. 28 Section 23.5. Litigation ................................................................................. 28 Section 23.6. Liens ....................................................................................... 29 Section 23.7. Employee Benefit Plans ..................................................................... 29
4 Section 23.8. Investment Company Act ..................................................................... 29 Section 23.9. Regulations G, T, U and X ................................................................... 29 Section 23.10. Business Locations; Trade Names ........................................................... 30 Section 23.11. Taxes ..................................................................................... 30 Section 23.12. Governmental Authorizations ............................................................... 30 Section 23.13. Absence of Default ......................................................................... 30 Section 23.14. Compliance with Requirements of Law ....................................................... 30 Section 23.15. Eligible Vehicles ......................................................................... 31 Section 23.16. Repurchase Programs ....................................................................... 31 Section 23.17. Title to Assets ........................................................................... 31 Section 23.18. Accuracy of Information ................................................................... 31 Section 23.19. Environmental Matters ..................................................................... 31 Section 23.20. Burdensome Provisions ..................................................................... 32 Section 23.21. Solvency ................................................................................... 32 Section 23.22. Stock Ownership ........................................................................... 32 Section 23.23. Necessary Actions ......................................................................... 32 Section 23.24. Supplemental Documents True and Correct ................................................... 32 Section 23.25. Initial Vehicles ........................................................................... 33 SECTION 24. CERTAIN AFFIRMATIVE COVENANTS ......................................................................... 33 Section 24.1. Corporate Existence; Foreign Qualification ................................................. 33 Section 24.2. Books, Records and Inspections ............................................................. 33 Section 24.3. Maintenance of Properties ................................................................... 34 Section 24.4. Accounting Methods; Financial Records ....................................................... 34 Section 24.5. Insurance ................................................................................... 34 Section 24.6. Repurchase Programs ......................................................................... 35 Section 24.7. Reporting Requirements ..................................................................... 35 Section 24.8. Taxes and Liabilities ....................................................................... 39 Section 24.9. Business ................................................................................... 39 Section 24.10. Maintenance of the Vehicles ............................................................... 39 Section 24.11. Maintenance of Separate Existence ......................................................... 39 Section 24.12. Maintenance of Enhancement ................................................................. 39 Section 24.13. Repurchase Payments; Sales Proceeds ....................................................... 39 Section 24.14. Certificates of Title; Verification of Titles ............................................. 40 Section 24.15. Master Collateral Agency Agreement ......................................................... 41 Section 24.16. Compliance with Laws ....................................................................... 41 Section 24.17. Delivery of Information ................................................................... 41 Section 24.18. Restrictions ............................................................................... 41 Section 24.19. Disclosure of Material Agreements ......................................................... 41 Section 24.20. Cash Audit ................................................................................. 42 Section 24.21. Deliveries; Further Assurances ............................................................. 42 Section 24.22. Additional Actions ......................................................................... 42 SECTION 25. CERTAIN NEGATIVE COVENANTS ............................................................................. 43 Section 25.1. Mergers, Consolidations ..................................................................... 43 Section 25.2. Regulations G, T, U and X ................................................................... 43 Section 25.3. Liens ....................................................................................... 43 Section 25.4. Use of Vehicles ............................................................................. 43
5 Section 25.5. Ratio of EBIT to Total Net Interest ......................................................... 43 Section 25.6. Ratio of Cash Flow to Total Fixed Charges ................................................... 44 Section 25.7. Other Indebtedness ......................................................................... 44 Section 25.8. Restrictions on Distributions ............................................................... 44 Section 25.9. Subordinated Promissory Note ............................................................... 45 Section 25.10. Swaps ..................................................................................... 45 Section 25.11. Change of Location or Name ................................................................. 45 SECTION 26. SERVICING COMPENSATION ................................................................................. 45 Section 26.1. ............................................................................................. 45 Section 26.2. ............................................................................................. 46 SECTION 27. RELEASE OF COLLATERAL ................................................................................. 46 SECTION 28. BANKRUPTCY PETITION AGAINST LESSOR ..................................................................... 47 SECTION 29. FORUM SELECTION AND CONSENT TO JURISDICTION ........................................................... 47 SECTION 30. GOVERNING LAW ......................................................................................... 48 SECTION 31. JURY TRIAL ............................................................................................. 49 SECTION 32. NOTICES ............................................................................................... 49 SECTION 33. HEADINGS ............................................................................................... 50 SECTION 34. EXECUTION IN COUNTERPARTS ............................................................................. 50 SECTION 35. EFFECTIVENESS ......................................................................................... 50
6 SECOND MASTER MOTOR VEHICLE LEASE AND SERVICING AGREEMENT This Second Master Motor Vehicle Lease and Servicing Agreement (the "Base Lease" and, as supplemented by the Lease Annexes, this or the "Agreement" or this or the "Lease"), dated as of December 20, 1996, is by and between NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP, a special purpose Delaware limited partnership (the "Lessor" or "NFLP"), and NATIONAL CAR RENTAL SYSTEM, INC., a Delaware corporation ("National"), in its capacity as lessee (the "Lessee") and as servicer (the "Servicer"). W I T N E S S E T H: WHEREAS, the Lessor (such capitalized term, together with each other capitalized term used herein, shall have the meaning assigned thereto in Section 1) intends to refinance the Refinanced Vehicles and to purchase, and finance the purchase of, additional Eligible Vehicles from one or more Manufacturers with the proceeds obtained by the issuance of its Series 1996-2 Note (and, if any, other Shared Collateral Series Notes) issued pursuant to the Indenture and the borrowing of Series 1996-2 Advances from time to time and with certain other funds; and WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, Vehicles for use in the Lessee's domestic daily rental car operations; WHEREAS, the Lessee desires to refinance the Refinanced Vehicles and finance the acquisition of the Financed Vehicles and retain tax ownership of such Refinanced Vehicles and Financed Vehicles and Lessor desires to facilitate such financing. NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: SECTION 1. CERTAIN DEFINITIONS. Section 1.1. Certain Definitions. As used in this Agreement and unless the context requires a different meaning, capitalized terms not otherwise defined herein or in the Annexes hereto shall have the meanings assigned to such terms in the Definitions List, attached as Schedule 1 to the Base Indenture, dated as of April 30, 1996 (as supplemented and amended by the Series 1996-2 Supplement, dated as of December 20, 1996 (such Supplement being the "Series 1996-2 Supplement"), and as amended by the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, and as such agreement may be further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, the "Base Indenture"), between NFLP and The Bank of New 7 York, as trustee, as in effect on the date hereof and as such Schedule 1 has been, for purposes of the Series 1996-2 Note, supplemented by the Series 1996-2 Supplement and may be further amended, supplemented or otherwise modified from time to time in accordance with the terms of the Base Indenture (the "Definitions List"). Section 1.2. Accounting and Financial Determinations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall be made to the extent applicable and except as otherwise specified in this Agreement, in accordance with GAAP; provided, that if any change in GAAP in itself materially affects any such calculation or determination, National may by notice to the NFC Collateral Agent, or alternatively the NFC Collateral Agent may by notice to National, require that any such determination or calculation thereafter be made in accordance with GAAP as in effect, and applied by National, immediately before such change in GAAP occurs. National and NFLP each agrees to enter into negotiations in good faith to modify the financial representations and covenants and other applicable provisions contained herein and in the Base Indenture (to the extent relating to the Series 1996-2 Note) and the Series 1996-2 Supplement in a manner which reflects any such change in GAAP without adversely affecting the rights of the Trustee or the NFC Collateral Agent. When used herein, the term "financial statement" shall include the notes and schedules thereto. Section 1.3. Cross References; Headings. The words "hereof", "herein" and "hereunder" and words of a similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Annex, Section, Schedule and Exhibit references contained in this Agreement are references to Annexes, Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. Any reference in any Section or definition to any clause is, unless otherwise specified, to such clause of such Section or definition. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. Section 1.4. Interpretation. In this Agreement, unless the context otherwise requires: (a) the singular includes the plural and vice versa; (b) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to any Person in a particular capacity only refers to such Person in such capacity; (c) reference to any gender includes the other gender; 2 8 (d) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (e) "including" (and, with correlative meaning, "include") means including without limiting the generality of any description preceding such term; (f) "or" is not exclusive; (g) provisions apply to successive events and transactions; and (h) with respect to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". SECTION 2. GENERAL AGREEMENT. (a) As specified in the Lease Annexes, the Lessee and the Lessor intend that this Agreement be (i) an operating lease with respect to the Acquired Vehicles and (ii) a financing arrangement with respect to the Financed Vehicles. (b) If, notwithstanding the intent of the parties to this Agreement, this Agreement is deemed by any court, tribunal, arbitrator or other adjudicative authority in any proceeding (each, a "Court") to constitute a financing arrangement or otherwise not to constitute a "true lease" with respect to the Acquired Vehicles, then it is the intention of the parties that this Agreement together with the Master Collateral Agency Agreement, as such agreements apply to the Acquired Vehicles, shall constitute a security agreement under applicable law. It is also the intention of the parties that this Agreement together with the Master Collateral Agency Agreement, as such agreements apply to the Financed Vehicles, shall in all events constitute a security agreement under applicable law. The Lessee hereby acknowledges that it has granted to the Master Collateral Agent, pursuant to the Master Collateral Agency Agreement, for the benefit of the Trustee (on behalf of the Series 1996-2 Noteholder) and the NFC Collateral Agent (on behalf of the NFC Secured Parties), respectively, a first priority security interest in all of the Lessee's right, title and interest in and to the National Master Collateral (as defined therein) as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all of the obligations and liabilities of the Lessee to the Lessor, the Trustee and the NFC Collateral Agent, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred (including interest accruing after the Lease Expiration Date and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding), which may arise under, out of, or in connection with, this Agreement and any other document made, delivered or given in connection herewith, whether on account of rent, principal, interest, reimbursement obligations, fees, indemnities, costs or expenses (including all fees and disbursements of counsel to the Lessor or the Trustee or the NFC Collateral Agent that are required to be paid by the Lessee pursuant to the terms hereof). 3 9 Section 2.1. Leasing of Vehicles. From time to time, subject to the terms and conditions hereof, the Lessor agrees to lease to the Lessee and the Lessee agrees to lease from the Lessor the Refinanced Vehicles and each additional Acquired Vehicle or Financed Vehicle identified in vehicle order summaries (each, a "Vehicle Order") produced from time to time by the Lessee, listing Vehicles ordered by the Lessee from Eligible Manufacturers, for itself or as agent for the Lessor, pursuant to the terms of any applicable Repurchase Programs or otherwise. The Lessor shall, subject to Section 4 and to compliance with the terms of the Indenture, make available to the Lessee under this Lease, financing for Financed Vehicles in an aggregate amount, and Acquired Vehicles for lease to the Lessee hereunder in an aggregate Net Book Value, which collectively shall not exceed the Maximum Lease Commitment. The Lessee shall make available to the Lessor, by the time and day specified in Section 2.3(a), (a) a schedule as set forth in Attachment A-1 hereto containing information concerning the Refinanced Vehicles of a scope agreed upon by the Lessor and the Lessee, (b) a summary of each additional Vehicle to be leased hereunder (including, in the case of each Vehicle subject to GM's Matrix Repurchase Program, the Designated Period for such Vehicle) and, in the case of each new Vehicle, the total Capitalized Cost thereof as of the Vehicle Funding Date (as defined in Section 3.1 below) therefor and, in the case of each Vehicle that is not a new Vehicle, the Net Book Value thereof as of the end of the Related Month, and (c) if requested by the Lessor (or the NFC Collateral Agent on behalf of the Lessor), each Vehicle Order, together with a schedule containing the information with respect to the Vehicles included within such Vehicle Order as is set forth in Attachment A-2 hereto, or in such form as is otherwise requested by the Lessor (each a "Vehicle Acquisition Schedule"). In addition, the Lessee shall provide such other information regarding such Vehicles as the Lessor may reasonably require from time to time. The Lessor shall lease to the Lessee, and the Lessee shall lease from the Lessor, only Vehicles that are Eligible Vehicles. This Agreement, together with the Repurchase Programs and any other related documents attached to this Agreement or submitted with a Vehicle Order (collectively, the "Supplemental Documents"), will constitute the entire agreement regarding the leasing of Vehicles by the Lessor to the Lessee. Section 2.2. Right of Lessee to Act as Lessor's Agent. The Lessor agrees that the Lessee may act as the Lessor's agent in placing Vehicle Orders on behalf of the Lessor, as well as filing claims on behalf of the Lessor for damage in transit, and other Manufacturer delivery claims related to the Vehicles leased hereunder; provided, however, that the Lessor may hold the Lessee liable for losses due to the Lessee's actions in performing as the Lessor's agent hereunder. In addition, the Lessor agrees that the Lessee may make arrangements for delivery of Vehicles to a location selected by the Lessee at the Lessee's expense to the extent that any such expense has not been included in the Capitalized Cost of such Vehicle. The Lessee may accept or reject Eligible Vehicles upon delivery in accordance with the Lessee's customary business practices, and any Eligible Vehicle, if rejected, will be deemed a Casualty hereunder to the extent the Capitalized Cost thereof has been paid by the Lessor or the Lessee. The Lessee, acting as agent for the Lessor, shall be responsible for pursuing any rights of the Lessor with respect to the return of any Eligible Vehicle to the Manufacturer thereof pursuant to the preceding sentence. The Lessee agrees 4 10 that any Vehicles ordered by the Lessee on behalf of the Lessor pursuant to this Section 2.2 shall be ordered utilizing the procedures consistent with the applicable Repurchase Program, in each case as and to the extent applicable. Section 2.3. Payment of Purchase Price by Lessor; Certain Additional Payments to the Servicer. (a) Upon receipt of the Manufacturer's invoice, certificate of origin, and other information required in respect of any Vehicle pursuant to Section 2.1, which receipt shall occur no later than 4:00 p.m., New York City time, on a day that is not less than one, nor more than five, Business Days prior to the proposed Vehicle Funding Date for such Vehicle, the Lessor or its agent shall, subject to Section 4, pay or cause to be paid to the dealer or the related Manufacturer in accordance with such Manufacturer's payment terms, as applicable, the Capitalized Cost of such Vehicle under the applicable Repurchase Program and the Lessee shall pay all applicable costs and expenses of freight, packing, handling, storage, shipment and delivery of such Vehicle to the extent that the same have not been included within the Capitalized Cost. (b) All amounts paid by the Manufacturer on account of vehicle preparation services or work covered by warranty performed by National with respect to Vehicles acquired or financed pursuant to this Agreement or as incentive payments for maintaining a particular fleet mix shall inure to the benefit of National and, to the extent any such payments are received by the Lessor, the Trustee, the Master Collateral Agent or the NFC Collateral Agent, shall promptly be paid over to National. Section 2.4. Non-liability of Lessor. The Lessor shall not be liable to the Lessee for any failure or delay in obtaining Vehicles or making delivery thereof. AS BETWEEN THE LESSOR AND THE LESSEE, ACCEPTANCE FOR LEASE OF THE VEHICLES SHALL CONSTITUTE THE LESSEE'S ACKNOWLEDGMENT AND AGREEMENT THAT THE LESSEE HAS FULLY INSPECTED SUCH VEHICLES, THAT THE VEHICLES ARE IN GOOD ORDER AND CONDITION AND ARE OF THE MANUFACTURE, DESIGN, SPECIFICATIONS AND CAPACITY SELECTED BY THE LESSEE, THAT THE LESSEE IS SATISFIED THAT THE SAME ARE SUITABLE FOR THIS USE AND THAT THE LESSOR IS NOT A MANUFACTURER, AN AGENT OF THE MANUFACTURER OR OTHERWISE ENGAGED IN THE SALE OR DISTRIBUTION OF VEHICLES, AND HAS NOT MADE AND DOES NOT HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO MERCHANTABILITY, CONDITION, QUALITY, CAPABILITY, WORKMANSHIP, DURABILITY OR SUITABILITY OF THE VEHICLE IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY WARRANTY THAT THE LEASED VEHICLES WILL SATISFY THE REQUIREMENTS OF ANY LAW OR ANY CONTRACT SPECIFICATION, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT THERETO AND AS BETWEEN THE LESSOR AND THE LESSEE, THE LESSEE AGREES TO BEAR ALL SUCH RISKS AT ITS SOLE COST AND EXPENSE. THE LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE CLAIMS AGAINST THE LESSOR AND 5 11 ANY LEASED VEHICLE FOR BREACH OF ANY WARRANTY OF ANY KIND WHATSOEVER AND, AS TO THE LESSOR, THE LESSEE LEASES THE LEASED VEHICLES "AS IS." The Lessor shall not be liable for any failure or delay in delivering any Vehicle ordered for lease pursuant to this Agreement, or for any failure to perform any provision hereof, resulting from fire or other casualty, natural disaster, riot, strike or other labor difficulty, governmental regulation or restriction, or any cause beyond the Lessor's direct control. IN NO EVENT SHALL THE LESSOR BE LIABLE FOR ANY INCONVENIENCES, LOSS OF PROFITS OR ANY OTHER CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, WHATSOEVER OR HOWSOEVER CAUSED, WHETHER RESULTING FROM ANY DEFECT IN OR ANY THEFT, DAMAGE, LOSS OR FAILURE OF ANY VEHICLE, OR OTHERWISE, AND THERE SHALL BE NO ABATEMENT OF RENT BECAUSE OF THE SAME. SECTION 3. TERM. Section 3.1. Vehicle Lease Commencement Date. The "Vehicle Lease Commencement Date" shall mean, (i) for each Refinanced Vehicle, the Series 1996-2 Closing Date, and (ii) for each other Vehicle, the date referenced in the Vehicle Acquisition Schedule with respect to such Vehicle, which in no event shall be later than the date that funds are expended by the Lessor to acquire or finance the acquisition of such Vehicle (the "Vehicle Funding Date" for such Vehicle). A vehicle shall be deemed hereunder to be a Vehicle leased under the Lease on each day during the period (the "Vehicle Term") from and including the Vehicle Lease Commencement Date to but excluding the Vehicle Lease Expiration Date. Section 3.2. Lease Commencement Date. The "Lease Commencement Date" shall mean the Series 1996-2 Closing Date. The "Lease Expiration Date" shall mean the later of (i) the date of the final payment in full of the Series 1996-2 Note and, if any, all other Shared Collateral Series Notes, and all outstanding Carrying Charges, following the termination of the ability of the Series 1996-2 Noteholder to make Series 1996-2 Advances and the ability of the Trustee to make available to the Lessor proceeds from the NFC Collection Account pursuant to the Series 1996-2 Supplement, and (ii) the Vehicle Lease Expiration Date for the last Vehicle subject to lease by the Lessee hereunder. The "Term" of this Agreement shall mean the period commencing on the Lease Commencement Date and ending on the Lease Expiration Date. SECTION 4. CONDITIONS PRECEDENT. The agreement of the Lessor to make available any Acquired Vehicle for lease to the Lessee, and to make available financing for the acquisition of any Financed Vehicle for lease to the Lessee upon the Lessee's placement of a Vehicle Order, for itself or as agent of the Lessor, is subject to the terms and conditions of the Indenture and subject to the satisfaction of the conditions to effectiveness specified in Section 35 and the following conditions precedent as of the Vehicle Funding Date for such Vehicle: 6 12 Section 4.1. No Default. No Potential Lease Event of Default or Lease Event of Default shall have occurred and be continuing on such date or would result from the making of such lease. Section 4.2. Funding. The aggregate amount of funds to be expended by the Lessor on the Series 1996-2 Closing Date or on any other one date to acquire or finance the acquisition of any Vehicles shall not exceed the sum of (a) the Capitalized Cost of all such Vehicles that are new Eligible Vehicles plus (b) the Net Book Value of all such Vehicles that are Eligible Vehicles but are not new. Section 4.3. Other Conditions. The leasing of such Vehicle shall not be prohibited by the provisions of the Series 1996-2 Supplement or any other Supplement, if any, relating to any Shared Collateral Series Notes, the Liquidity Agreement or any other Related Document to which National, NFLP or NFC is a party, and sufficient proceeds shall be available therefor under the Series 1996-2 Supplement as a result of the issuance of the Series 1996-2 Note or, if applicable, any other Shared Collateral Series Notes, the making of Series 1996-2 Advances from time to time or otherwise from the NFC Collection Account as provided in and pursuant to the terms of the Series 1996-2 Supplement. SECTION 5. RENT AND CHARGES. The Lessee will pay Rent and certain other charges on a monthly basis as set forth in this Section 5: Section 5.1. Payment of Rent. On each Payment Date, the Lessee shall pay to the Lessor the aggregate of all Rent payable on such Payment Date with respect to the Vehicles, as provided in the related Lease Annexes. Section 5.2. Payment of Monthly Supplemental Payment. On each Payment Date, the Lessee shall pay to the Lessor the Monthly Supplemental Payment that has accrued during the Related Month with respect to the Financed Vehicles, as provided in Sections 6 and 7 of Annex B. Section 5.3. Payment of Termination Payments, Casualty Payments, and Late Return Payments. On each Payment Date, the Lessee shall pay to the Lessor all Casualty Payments, Termination Payments and Late Return Payments that have accrued with respect to the Acquired Vehicles, as provided in, respectively, Sections 7, 12.3 and 13. Section 5.4. Late Payment. In the event the Lessee fails to remit payment of any amount due under the Lease on or before the Payment Date therefor, the amount not paid will be considered delinquent and the Lessee will pay a late charge for each Interest Period equal to the product of (a) the VFR for such Interest Period (converted to a rate per annum) plus 1% per annum, times (b) the delinquent amount during such Interest Period, multiplied by (c) the actual number of days elapsed during such Interest Period divided by 360. 7 13 Section 5.5. Making of Payments. All payments of Rent and of all other Liabilities shall be made by the Lessee to, or for the account of, the Lessor (or, in the case of any payment pursuant to Section 15, the applicable Indemnified Person) in immediately available Dollars, without setoff, counterclaim or deduction of any kind. All such payments shall be made to the NFC Collection Account or, in the case of Section 24.13(iii) and (iv), the Master Collateral Account (or, in each such case, such other account as the NFC Collateral Agent may from time to time specify to the Lessee) or, in the case of any such payment pursuant to Section 15 to, or for the account of, NFC, to the NFC Collateral Account or, in the case of any such payment pursuant to Section 15 to, or for the account of, any Indemnified Person other than NFC or NFLP, to the account designated by such Indemnified Person to National, in each case with such payment to be made not later than 12:00 noon, New York City time, on the date due; and funds received after that hour shall be deemed to have been received by or for the account of the Lessor on the next following Business Day. The Lessor hereby specifies that all (i) payments made by the Manufacturers and related auction dealers under the Repurchase Programs, (ii) amounts representing the proceeds from sales of Vehicles (including amounts paid to the Lessee by a Manufacturer as a result of the Lessee's sale of such Vehicle outside such Manufacturer's Repurchase Program) by the Lessee to third parties (other than under any related Repurchase Program) and (iii) payments with respect to any other Master Collateral for the Series 1996-2 Note (other than warranty payments) shall be deposited in the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) for the Series 1996-2 Note; provided, however, that, subject to Section 4.02 of the NFC Collateral Agreement, insurance proceeds with respect to Vehicles will be deposited in the Master Collateral Account only if an Amortization Event or a Potential Amortization Event shall have occurred and be continuing. If any payment of Rent (or other Liability) falls due on a day which is not a Business Day, then such due date shall be extended to the next following Business Day and Monthly Finance Rent and Monthly Variable Rent (as the case may be) shall accrue through such Business Day. SECTION 6. TERMINATION OF LOAN AGREEMENT. In consideration for (i) the acceptance by NFC on the Series 1996-2 Closing Date of the Series 1996-2 Note issued to NFC by NFLP and having an initial principal amount outstanding thereunder equal to the aggregate principal amount of the Loan Note under and as defined in the Loan Agreement, (ii) the cancellation by NFC on the Series 1996-2 Closing Date, upon the payment by National to NFC on the Series 1996-2 Closing Date of the amounts payable by National on such date under the Loan Agreement and the unpaid interest accrued to such date on the Loan Note, of the Loan Note, (iii) the leasing by the Lessor to the Lessee of the Refinanced Vehicles under this Lease, commencing on the Lease Commencement Date, and (iv) the redesignation of the Master Collateral Agent's Lien on the Refinanced Vehicle Collateral from securing National's obligations arising under or in connection with the Loan Agreement or the Loan Note to securing the Lessee's Liabilities, the Lessor and Lessee hereby acknowledge and agree that the Loan Agreement and NFC's Loan Commitment under and as defined therein are hereby terminated. SECTION 7. CASUALTY AND INELIGIBLE AND OTHER VEHICLE OBLIGATION. If a Vehicle (i) becomes a Casualty or ceases to be an Eligible Vehicle, or (ii) 8 14 is sold or returned by the Lessee to the related Manufacturer or to a third party pursuant to an auction conducted through such Manufacturer's Repurchase Program or to any other Person (including the Lessee), and the aggregate payments deposited to the Master Collateral Account or the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) by or on behalf of such Manufacturer, third party or other Person or, in the case of any payment made in connection with such Vehicle pursuant to Section 12.3 or 13, the Lessee in connection with such sale or return for any reason is less than the Termination Value (as of the applicable Turnback Date, in the case of a sale or return to such Manufacturer or third party, or the date of such sale, in the case of a sale to such other Person) of such Vehicle other than as a result of the occurrence and continuance of an Event of Bankruptcy with respect to the applicable Manufacturer or otherwise as a result of the creditworthiness of such Manufacturer or any similar reason not directly or indirectly relating to any Vehicle or to the Lessee or the Servicer or any Affiliate thereof or any action or inaction by the Lessee or the Servicer or such Affiliate, then, in the case of each of clauses (i) and (ii), the Lessee shall (a) promptly notify the Lessor of such occurrence, in the case of any such occurrence which, in the aggregate with all other such occurrences at such time, is not immaterial, or, in the case of any other such occurrence, cause the Servicer to include notice of such occurrence in the next Monthly Certificate required to be delivered by the Servicer under Section 24.7(vi), and (b) on the Payment Date next succeeding the last day of the Related Month in which the Lessee obtained actual knowledge that such Vehicle has become a Casualty or ceased to be an Eligible Vehicle or such Vehicle was so sold or returned, pay to the Lessor an amount (a "Casualty Payment") equal to (x) in the case of a Vehicle that became a Casualty or ceased to be an Eligible Vehicle, the Termination Value of such Vehicle, calculated as of the first day of the Related Month in which the Lessee obtained actual knowledge that such Vehicle became a Casualty or ceased to be an Eligible Vehicle, or (y) in the case of any Vehicle so sold or returned, the excess of the Termination Value (as of the applicable Turnback Date, in the case of a sale or return to such Manufacturer or third party, or the date of such sale, in the case of a sale to such other Person) of such Vehicle over the aggregate payments so deposited as set forth in clause (ii) above (in each case of clauses (x) and (y) net of Monthly Base Rent and Monthly Supplemental Payments made in respect of such Vehicle during such Related Month). Solely for determining the amounts payable under this Section 7, with respect to a Vehicle that became a Casualty as a result of such Vehicle being held beyond the stated expiration date of the applicable Repurchase Period, such Vehicle will be deemed to have become a Casualty upon such expiration date. Upon payment by the Lessee to the Lessor in accordance herewith of the Casualty Payment for any Vehicle that has become a Casualty or ceased to be an Eligible Vehicle, (i) the Lessor, upon request of the Lessee, shall cause title to any such Vehicle that is an Acquired Vehicle to be transferred to the Lessee to facilitate liquidation of such Vehicle by the Lessee, (ii) the Lessee shall be entitled to any physical damage insurance proceeds applicable to such Vehicle (if at such time the Lessee carries such insurance coverage), and (iii) the Lien of the Master Collateral Agent on such Vehicle shall automatically be released thereby. SECTION 8. VEHICLE USE. The Lessee shall use Vehicles leased hereunder solely for the Lessee's domestic daily rental car operations. The Lessee shall promptly and duly execute, deliver, file and record all such documents, statements, filings and registrations, and 9 15 take such further actions as the Lessor, the Master Collateral Agent, the Servicer, the NFC Collateral Agent or the Trustee shall from time to time reasonably request in order to establish, perfect and maintain the Lessor's title to and interest in the Acquired Vehicles and the related Certificates of Title as against the Lessee or any third party in any applicable jurisdiction and to establish, perfect and maintain the Master Collateral Agent's lien on the Vehicles as noted on the related Certificates of Title as a perfected first-priority lien in any applicable jurisdiction. The Lessee may, at the Lessee's sole expense, change the place of principal location of any Vehicles. Within 60 days after any such change of location, the Lessee shall take all actions necessary (i) to maintain the perfected first-priority Lien of the Master Collateral Agent on such Vehicles as noted on the Certificates of Title with respect to such Vehicles and the Lessor shall cooperate to the extent required for the Lessee to do so, and (ii) to meet all material legal requirements applicable to such Vehicles. Following a Lease Event of Default or Manufacturer Event of Default, and upon the Lessor's request, the Lessee shall advise the Lessor in writing where all Vehicles leased hereunder as of such date are principally located. The Lessee shall not knowingly use any Vehicles, or knowingly permit the same to be used, for any unlawful purpose. The Lessee shall use reasonable precautions to prevent loss or damage to Vehicles. The Lessee shall comply in all material respects with all applicable statutes, decrees, ordinances and regulations regarding acquiring, titling, registering, leasing, insuring and disposing of Vehicles and shall take reasonable steps to ensure that operators are licensed. The Lessee shall perform, at its own expense, such vehicle preparation and conditioning services with respect to Vehicles as are customary. The Lessor, the Master Collateral Agent, the NFC Collateral Agent or the Trustee or any authorized representative of the Lessor, the Master Collateral Agent, the NFC Collateral Agent or the Trustee may during reasonable business hours from time to time, upon reasonable prior notice, without disruption of the Lessee's business and subject to applicable law, inspect Vehicles and registration certificates, Certificates of Title and related documents covering Vehicles wherever the same may be located. SECTION 9. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES. The Lessee, at its expense, shall be responsible for proper registration and licensing of Vehicles, and titling of Vehicles in the name of the Lessor (in the case of Acquired Vehicles) or the Lessee (in the case of Financed Vehicles), in each case with the Lien of the Master Collateral Agent noted thereon, and where required, the Lessee shall have Vehicles inspected by any appropriate governmental authority; provided, however, that notwithstanding the foregoing, unless a Liquidation Event of Default or Series 1996-2 Limited Liquidation Event of Default shall have occurred and be continuing, possession of all Certificates of Title shall remain with the Servicer. The Lessee shall pay or cause to be paid all registration fees, title fees, license fees, traffic summonses, penalties, judgments and fines incurred with respect to any Vehicle during the Vehicle Term for such Vehicle or imposed during the Vehicle Term for such Vehicle by any governmental authority or any court of law or equity with respect to Vehicles in connection with the Lessee's operation of Vehicles, and any such amounts paid by the Lessor on the Lessee's behalf, in its discretion upon at least 15 days' prior notice to the Lessee, will be reimbursed within thirty (30) days of the Lessor notifying the Lessee of such payment; provided, however, that the Lessor shall not pay on the Lessee's behalf any traffic summons, or any penalty, judgment or fine for so long as such amount is being contested by the 10 16 Lessee in good faith and by appropriate proceedings with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP and provided that the Lessee has agreed in writing to indemnify and hold the Lessor harmless from and against all loss, liability and expense arising out of such unpaid amounts (and, in any case, for so long as forfeiture of any Vehicles or other Master Collateral will not result from the failure to pay any such amounts). The Lessor agrees to execute a power of attorney substantially in the form of Attachment B hereto (a "Power of Attorney"), and such other documents as may be necessary in order to allow the Lessee to title, register and dispose of the Acquired Vehicles; and the Lessee acknowledges and agrees that with respect to the Acquired Vehicles, it has no right, title or interest in or with respect to any Certificate of Title. Notwithstanding anything herein to the contrary, the Lessor may terminate such Power of Attorney as provided in Section 17.3. SECTION 10. MAINTENANCE AND REPAIRS. The Lessee shall pay for all maintenance and repairs to keep Vehicles in good working order and condition, and shall maintain Vehicles as required in order to keep the Manufacturer's warranty in force. The Lessee shall return each Vehicle to an authorized Manufacturer facility or the applicable Manufacturer's authorized warranty station (which may be a facility of the Lessee) for warranty work. The Lessee shall comply with any Manufacturer's recall of any Vehicle. The Lessee shall pay, or cause to be paid, all usual and routine expenses incurred in the use and operation of Vehicles including, but not limited to, fuel, lubricants, and coolants. The Lessor, upon thirty (30) days' prior notice to the Lessee, may pay any such expenses that have not otherwise been paid by, or on behalf of, the Lessee, and any expenses incurred by the Lessor on the Lessee's behalf for maintenance, repair, operation or use by the Lessee of Vehicles will promptly be reimbursed (in any event no later than the next Payment Date following such payment) by the Lessee to the Lessor in the amount paid by the Lessor. The Lessee shall not, without the prior consent of the Lessor, make any material alterations to any Vehicle which would result in a reduction of the Repurchase Price for such Vehicle or make the Vehicle no longer eligible for repurchase under the applicable Repurchase Program. Any improvements or additions to an Acquired Vehicle shall become and remain the property of the Lessor, except that any addition or improvement to such a Vehicle made by the Lessee shall remain the property of the Lessee if it can be disconnected or removed from the Vehicle without impairing the functioning of or resale value thereof, other than any function or value provided by such addition or improvement. SECTION 11. VEHICLE WARRANTIES. If a Vehicle is covered by a Manufacturer's warranty, the Lessee, during the Vehicle Term, shall have the right to make any claims under such warranty which the Lessor could make and to receive related proceeds directly. As provided in Section 2.4, the Lessor makes no warranty or representation whatsoever, express or implied, with respect to any Vehicle. SECTION 12. VEHICLE USAGE REQUIREMENTS AND DISPOSITION. Section 12.1. Usage. As used herein, the term "vehicle turn-in condition" with respect to each Vehicle means a set of criteria for evaluating Vehicles upon their delivery at the end of the applicable Vehicle Terms, which criteria will be determined in accordance with the related Repurchase Program. Vehicles not meeting the applicable Repurchase Program's vehicle 11 17 turn-in condition requirements will be purchased by the Lessee in accordance with the Casualty procedure set forth in Section 7 or otherwise disposed of in accordance with the late delivery procedure set forth in Section 13, as applicable. Section 12.2. Disposition Procedure. Unless the Lessee exercises its option to purchase such Vehicle as permitted by, and pursuant to the requirements of, this Agreement, and except as otherwise contemplated by Section 27, prior to the end of the Vehicle Term, the Lessee will deliver each Vehicle (other than a Casualty or a Vehicle that has ceased to be an Eligible Vehicle) to the nearest related Manufacturer official auction or other facility designated by such Manufacturer at the Lessee's sole expense and in accordance with the terms of the applicable Repurchase Program. Any transportation allowance (for delivery costs) and any rebates or credits applicable to the unexpired term of any license plates for a Vehicle shall inure to the benefit of the Lessee and, to the extent received by the Lessor, the Trustee, the Master Collateral Agent or the NFC Collateral Agent, shall promptly be paid over to the Lessee. The Lessee will comply with the requirements of law and the requirements of the Repurchase Programs in connection with, among other things, the delivery of Certificates of Title, documents of transfer signed as necessary, signed Condition Reports, and signed odometer statements for the Vehicles. Section 12.3. Termination Payments. On the Payment Date next succeeding the earlier of (a) the last day of the Related Month in which the Repurchase Price with respect to any Acquired Vehicle is received by the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent (including by deposit into the NFC Collection Account or the Master Collateral Account) and (b) the thirtieth (30th) day after the expiration of the Repurchase Period for such Acquired Vehicle, the Lessee shall pay to the Lessor in respect of such Acquired Vehicle any Excess Damage Charges, Excess Mileage Charges, Missing Equipment Charges, early turnback surcharges and any other similar charges and penalties (collectively, a "Program Vehicle Termination Payment" or "Termination Payment") as determined by the Manufacturer or its agent in accordance with the applicable Repurchase Program. The provisions of this Section 12.3 will survive the expiration or earlier termination of the Term. SECTION 13. LATE RETURN PAYMENTS. If an Acquired Vehicle is not returned to the Manufacturer or sold at auction in accordance with the applicable Repurchase Program prior to the expiration of the Repurchase Period for such Vehicle in accordance with Section 12.2, the Lessee shall (a) promptly notify the Lessor of its failure so to return such Vehicle to the Manufacturer or so to sell such Vehicle at auction during the Repurchase Period therefor, (b) use commercially reasonable efforts to sell or otherwise dispose of such Vehicle in a manner reasonably likely to maximize proceeds from such disposition and consistent with industry practice, (c) cause the Disposition Proceeds, if any, from any such sale or disposition to be paid to the Master Collateral Agent, in accordance with paragraph 10 (d) of Annex A, and (d) on the Payment Date next succeeding the earlier of (i) the last day of the Related Month in which such Disposition Proceeds are received by the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent (including by deposit into the NFC Collection Account or the Master Collateral Account), and (ii) the thirtieth (30th) day after the expiration of the 12 18 Repurchase Period for such Vehicle, pay to the Lessor an amount (a "Late Return Payment") equal to the excess of (x) the Net Book Value of such Vehicle, calculated as of the first day of the calendar month in which such Repurchase Period expired, over (y) the sum of (A) the dollar amount of such Disposition Proceeds plus (B) any Monthly Base Rent paid by the Lessee with respect to such Vehicle in any calendar month after the calendar month in which such Repurchase Period expired (which dollar amount may be equal to, but not less than, zero dollars). SECTION 14. RESERVED. SECTION 15. GENERAL INDEMNITY. Section 15.1. Indemnity of the Lessor. The Lessee agrees to indemnify and hold harmless the Lessor and its successive assigns (including the Trustee, the Series 1996-2 Noteholder and, if any, the other Shared Collateral Series Noteholders, the NFC Collateral Agent and the NFC Secured Parties) and the respective directors, officers, agents and employees of the Lessor and such successive assigns (collectively, together with the Persons subject to indemnity under Section 15.2, the "Indemnified Persons") against any and all claims, demands, actions, causes of action, losses, costs, liabilities and damages of whatsoever nature, and all reasonable expenses incurred in connection therewith (including reasonable fees and disbursements of counsel), relating to or in any way arising out of: Section 15.1.1. the ordering, delivery, acquisition, title on acquisition, rejection, installation, possession, ownership, titling, retitling, registration, re-registration, custody by the Lessee of title and registration documents, use, non-use, misuse, operation, leasing, deficiency, defect, transportation, repair, maintenance, control or disposition of any Vehicle leased hereunder or to be leased hereunder. The foregoing shall include, without limitation, any liability (or any alleged liability) of the Lessor or any other Indemnified Person to any third party arising out of any of the foregoing, including, without limitation, all legal fees, costs and disbursements arising out of such liability (or alleged liability); Section 15.1.2. all (i) federal, state, county, municipal, foreign or other fees and taxes of whatsoever nature other than income taxes, including but not limited to license, qualification, registration, franchise, sales, use, gross receipts, ad valorem, business, property (real or personal), excise, motor vehicle, and occupation fees and taxes, with respect to any Vehicle or the acquisition, purchase, sale, lease, rental, use, operation, control, ownership or disposition of any Vehicle by any Person or measured in any way by the value thereof or by the business of, investment by, or ownership by the Lessor or the Lessee with respect thereto, (ii) federal, state, local and foreign income taxes and penalties and interest thereon, whether assessed, levied against or payable by the Lessor or NFC or otherwise as a result of its being a member of any group of corporations including the Lessee that file any tax returns on a consolidated or combined basis, and (iii) documentary, stamp, filing, recording, mortgage or other taxes (other than net income taxes), if any, which may be payable by the Lessor, the Lessee or any other Indemnified Person in connection with the execution, delivery, recording 13 19 or filing of this Agreement or the other Related Documents or the leasing of any Vehicles hereunder and any penalties or interest with respect thereto; Section 15.1.3. any violation by the Lessee of this Agreement or of any Related Documents to which the Lessee is a party or by which it is bound or any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection of any governmental or public body or authority and all other requirements having the force of law applicable at any time to any Vehicle or any action or transaction by the Lessee with respect thereto or pursuant to this Agreement; Section 15.1.4. all reasonable out of pocket costs and expenses of the Lessor and NFC (including the reasonable fees and disbursements of counsel for the Lessor and NFC) in connection with the preparation, execution, delivery and performance of this Agreement and the other Related Documents, including, without limitation, costs and expenses payable by the Lessor or NFC pursuant to Sections 4.2.1(b), 4.5(b), 5.3, 5.4, 5.5, 5.6, 8.1.7, 11.3 and 11.4 of the Liquidity Agreement, those payable pursuant to Sections 2.7, 2.8 and 6.2 of the B Letter of Credit Reimbursement Agreement, those payable pursuant to Sections 2.6, 2.7, 2.14 and 6.2 of the B Support Letter of Credit Reimbursement Agreement, those payable pursuant to Sections 2.12, 2.13, 2.17 and 5.2 of the Reduction A Support Reimbursement Agreement, those payable pursuant to Section 9.05 of the NFC Collateral Agreement, any and all fees of the Trustee, Paying Agent, Clearing Agencies, Master Collateral Agent, Dealers, Depository, Liquidity Agent, Placement Agents and NFC Collateral Agent, all fees payable in connection with any Series 1996-2 Enhancement and, if any, any other Enhancement relating to any Shared Collateral Series Notes, any and all fees payable to Rating Agencies and any underwriting or placement agency fees incurred in connection with the sale of any Commercial Paper Notes or, if applicable, any Shared Collateral Series Notes (all amounts with respect to any of the foregoing to be paid by the Lessee within five Business Days of demand therefor); Section 15.1.5. all reasonable out of pocket costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent, the Liquidity Agent, the Series 1996-2 Noteholder or, if any, other Noteholders of Shared Collateral Series Notes in connection with the administration, enforcement, waiver or amendment of this Agreement and any other Related Documents, and all indemnification obligations of the Lessor and NFC under the Related Documents including, without limitation, those indemnities payable pursuant to Section 11.4 of the Liquidity Agreement, Section 4.2 of the A Support Reimbursement Agreement, Section 6.2 of the B Letter of Credit Reimbursement Agreement, Section 6.2 of the B Support Letter of Credit Reimbursement Agreement, and Section 5.2 of the Reduction A Support Reimbursement Agreement (all amounts with respect to any such indemnification obligations to be paid by the Lessee within ten Business Days of demand therefor); and Section 15.1.6 any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the sale of any Commercial Paper Notes (or 14 20 otherwise of any Shared Collateral Series Notes) or with any Liquidity Advance, or the entering into, performance and enforcement of the Related Documents by any of the Indemnified Persons. All obligations provided for in this Section 15 shall survive any termination of this Agreement, and, to the extent that any of such obligations are unenforceable for any reason, the Lessee agrees to the payment and satisfaction of each such obligation which is permissible under applicable law. Notwithstanding the foregoing, the Lessee shall have no duty to indemnify any Indemnified Person for any claims, demands, liabilities, costs, or expenses to the extent such claim, demand, liability, cost or expense arises out of or is due to such Person's gross negligence or willful misconduct. Section 15.2. Indemnification of the Trustee. The Lessee agrees to indemnify and hold harmless the Trustee (and its officers, directors, employees and agents) from and against any loss, liability, expense, damage or injury suffered or sustained by reason of, or arising out of or in connection with: (i) any acts or omissions of the Lessee pursuant to this Agreement and (ii) the Trustee's appointment under the Indenture and the Trustee's performance of its obligations thereunder, or any document pertaining to any of the foregoing to which the Trustee is a signatory, including, but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, however, the Lessee shall have no duty to indemnify the Trustee to the extent such loss, liability, expense, damage or injury suffered or sustained is due to the Trustee's negligence or willful misconduct. Any such indemnification shall not be payable from the assets of NFLP. The provisions of this indemnity shall run directly to and be enforceable by the Trustee or any other Indemnified Person subject to the limitations hereof. The indemnification provided for in this Section 15.2 shall be in addition to any other indemnities available to the Trustee and shall survive the termination of the duties of the Lessee hereunder and the termination of this Agreement or a document to which the Trustee is a signatory or the resignation or removal of the Trustee. Section 15.3. Reimbursement Obligation by the Lessee. The Lessee shall forthwith upon demand reimburse each Indemnified Person or the Trustee, as the case may be, for any sum or sums expended with respect to any of the foregoing, or shall pay such amounts directly upon request from such Indemnified Person or the Trustee, as the case may be; provided, however, that, if so requested by the Lessee, such Indemnified Person or the Trustee, as the case may be, shall submit to the Lessee a statement documenting any such demand for reimbursement or payment. To the extent that the Lessee in fact indemnifies any Indemnified Person or the Trustee under the indemnity provisions of this Agreement, the Lessee shall be subrogated to the rights of such Indemnified Person or the Trustee, as the case may be, in the affected transaction and shall have a right to determine the settlement of claims therein. The obligations of the Lessee contained in this Section 15 shall survive the expiration or earlier termination of this Agreement or any lease of any Vehicle hereunder; provided, however, that the factual or legal circumstances giving rise to the Lessor's or any other Indemnified Person's 15 21 exposure to liability occur during the period that the Lease is in effect as to the Vehicle for which such exposure to liability arose. Section 15.4. Notice to Lessee of Claims. Each applicable Indemnified Person or the Trustee, as the case may be, shall promptly notify the Lessee in writing (a "Notice of Claim") of the pendency of any such claim, action or facts referred to in this Section 15 for which indemnity may be required. Section 15.5. Defense of Claims. Defense of any claim referred to in this Section 15 for which indemnity may be required shall, at the option and request of the Lessee, be conducted by the Lessee. Following receipt of any Notice of Claim, the Lessee will inform the Indemnified Person of its election to defend such claim. Such Indemnified Person may participate in any such defense at its own expense, provided such participation, in the Lessee's reasonable opinion, does not interfere with the Lessee's defense. The Lessee agrees that no Indemnified Person will be liable to the Lessee for any claim caused directly or indirectly by the inadequacy of any Vehicle for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs, servicing or adjustments thereto or any delay in providing or failure to provide such or any interruption or loss of service or use thereof or any loss of business, all of which shall be the risk and responsibility of the Lessee, except to the extent that any of the foregoing is caused by the gross negligence or willful misconduct of such Indemnified Person. The rights and indemnities of each Indemnified Person hereunder are expressly made for the benefit of, and will be enforceable by, each Indemnified Person notwithstanding the fact that such Indemnified Person is not or is no longer a party to (or entitled to receive the benefits of) this Agreement. This general indemnity shall not affect any claims of the type discussed above, or otherwise, which the Lessee may have against the Manufacturer. SECTION 16. SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall be binding upon the Lessor, the Lessee and their respective successors and assigns, and shall inure to the benefit of the Lessee, the Lessor, and the Trustee (for the benefit of the Series 1996-2 Noteholder and, if any, the other Noteholders of Shared Collateral Series Notes), the Master Collateral Agent (for the benefit of the Secured Parties), the NFC Collateral Agent (for the benefit of the NFC Secured Parties) and the Liquidity Agent as third party beneficiaries and their respective successors and assigns; provided, however, that the Lessee shall not have the right to assign its rights or delegate its duties under this Agreement without (i) the Lessor's, the Trustee's, the Liquidity Agent's, the NFC Collateral Agent's and, so long as it is an A Support Credit Enhancer, GM's prior written consent and (ii) receipt of written confirmation from each of the Rating Agencies that its then current rating will not be reduced or withdrawn with respect to any outstanding Commercial Paper Notes or, if applicable, Shared Collateral Series Notes as a result thereof; provided, further, however, the Lessee may rent such Vehicles to consumers in the ordinary course of its domestic daily rental businesses. Any purported assignment in violation of this Section 16 shall be void and of no force or effect. Nothing contained herein shall be deemed to restrict the right of the Lessee to acquire or dispose of, by purchase, lease, financing, or otherwise, motor vehicles that are not subject to the provisions of this Agreement. 16 22 SECTION 17. DEFAULT AND REMEDIES THEREFOR. Section 17.1. Events of Default. Any one or more of the following will constitute an event of default (a "Lease Event of Default") as that term is used herein: Section 17.1.1. Non-Payment of Liabilities. The occurrence of (i) a default in the payment when due of any Monthly Base Rent, Monthly Variable Rent, Monthly Finance Rent, Termination Payment, Casualty Payment, Late Return Payment or Monthly Supplemental Payment, and the continuance thereof for, except in the case of any Monthly Variable Rent or Monthly Finance Rent, two (2) Business Days and, in the case of any Monthly Variable Rent or Monthly Finance Rent, five (5) Business Days, or (ii) a default in the payment when due of any amount payable under this Agreement (other than amounts described in clause (i) above) and the continuance thereof for five (5) Business Days; Section 17.1.2. Unauthorized Assignment. Any unauthorized assignment or transfer of this Agreement by the Lessee occurs; Section 17.1.3. Non-Performance of Covenants and Obligations. The Lessee fails to comply with or perform (i) its obligations under Section 25.5 or 25.6 within the time period specified in Section 17.3(vii)(y) hereof, or (ii) any other covenant, condition, agreement or provision of this Agreement (which failure does not constitute a Lease Event of Default under any of the other provisions of this Section 17) and the continuance of such failure under this clause (ii) (other than any such failure to comply with the provisions of Section 25.1, 25.2, 25.7, 25.8, or 25.9 hereof) for 30 days after the earlier of (x) the date the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent or the NFC Collateral Agent delivers written notice thereof to the Lessee and (y) the date the Lessee obtains actual knowledge thereof; Section 17.1.4. Incorrect Warranties and Representations. Any representation or warranty made by the Lessee in this Agreement or any Related Document is incorrect in any material respect (to the extent that such representation or warranty does not incorporate a materiality limitation in its terms) as of the date such warranty or representation is made and continues to be incorrect in any material respect (to the extent that such warranty or representation does not incorporate a materiality limitation in its terms) for a period of 30 days after the earlier of (i) the date on which written notice thereof shall have been given to the Lessee by the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent or the NFC Collateral Agent and (ii) the date on which the Lessee obtains actual knowledge thereof; or any schedule, certificate, financial statement, report, notice, or other material writing furnished by the Lessee to the Lessor is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified and which continues to be incorrect in any material respect for a period of 10 days after the earlier of (a) the date on which written notice thereof shall have been given to the Lessee by the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent or the NFC Collateral Agent and (b) the date on which the Lessee obtains actual knowledge thereof; 17 23 Section 17.1.5. Event of Bankruptcy. The occurrence of an Event of Bankruptcy with respect to the Lessee; Section 17.1.6. Change in Control. The occurrence of a Change of Control; Section 17.1.7. Judgments. One or more final judgments shall be entered by any court or courts against the Lessee for the payment of money exceeding $5,000,000 in the aggregate which judgment or judgments are not fully covered by insurance or by reserves shown on the financial statements of the Lessee and its Consolidated Subsidiaries that have been delivered to the Trustee, the Liquidity Agent and the NFC Collateral Agent in accordance herewith; or a warrant of attachment or execution or similar process shall be issued or levied against property of the Lessee which, together with all other such property of the Lessee subject to other such process, exceeds in value $5,000,000 in the aggregate, and if, within thirty (30) days after the entry, issue or levy thereof, such judgment, warrant or process shall not have been paid or discharged or stayed pending appeal, or if, after the expiration of any such stay, such judgment, warrant or process shall not have been paid or discharged; Section 17.1.8. Defaults on Indebtedness. The occurrence of any default under any indenture, agreement or instrument evidencing or securing Indebtedness of the Lessee in an aggregate principal amount of $5,000,000 or more as a result of which payment of such Indebtedness shall have become due prior its stated maturity; or Section 17.1.9. Invalidity of or Default under Related Documents. (i) All or any portion of any Related Document (other than the Dealer Agreement or the Placement Agency Agreement) shall at any time and for any reason not be in full force and effect or be declared to be null and void, or a proceeding shall be commenced by the Lessee, or by any governmental authority having jurisdiction over the Lessee, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or (ii) any event shall occur and be continuing which constitutes an Amortization Event either (x) of the type set forth in Sections 9.1 through 9.1.15 (other than clause (c) of Section 9.1.11) of the Liquidity Agreement, or (y) of the type set forth in Section 9.1 of the Base Indenture or Article 6 of the Series 1996-2 Supplement, and not otherwise set forth in Sections 9.1 through 9.1.15 (other than clause (c) of Section 9.1.11) of the Liquidity Agreement, and, in the case of this clause (y), such event materially adversely affects the interest of the Lessor, the Trustee, the Secured Parties or the NFC Secured Parties. Section 17.2. Effect of Lease Event of Default, etc. (a) If any Lease Event of Default described in Section 17.1.5 or any Liquidation Event of Default (other than under Section 9.1(a), 9.1(b) or 9.1(e)(i) (other than to the extent relating to Section 17.1.5 hereof) of the Base Indenture) shall occur and be continuing, the rights of the Lessee to place Vehicle Orders pursuant to this Agreement (but not otherwise) shall immediately terminate, and if any other Lease Event of Default or Liquidation Event of Default shall occur and be continuing, the rights of the Lessee to place Vehicle Orders pursuant to this Agreement (but not otherwise) shall terminate if the Lessee is so notified in writing by the NFC Collateral Agent (if pursuant to the 18 24 Liquidity Agreement the Liquidity Agent shall have terminated the Liquidity Commitments or shall have notified the Series 1996-2 Noteholder to cease making Series 1996-2 Advances or the NFC Collateral Agent shall have notified the Trustee or the Paying Agent to cease making available to the Lessor proceeds from the NFC Collection Account pursuant to the Series 1996-2 Supplement). (b) If a Lease Event of Default described in Section 17.1.5 or a Liquidation Event of Default (other than under Section 9.1(a), 9.1(b) or 9.1(e)(i) (other than to the extent relating to Section 17.1.5 hereof) of the Base Indenture) shall occur, then the Monthly Base Rent, the Monthly Supplemental Payment, Casualty Payments (in each case calculated as if all Vehicles had become Casualties or had ceased to be Eligible Vehicles during the Related Month), the Monthly Variable Rent, the Monthly Finance Rent (in each case calculated as if the full amount of interest, principal and other charges under the Series 1996-2 Note and, if any, other Shared Collateral Series Notes were then due and payable in full), Termination Payments and Late Return Payments shall, automatically, without further action by the Lessor, the Trustee, the NFC Collateral Agent or the Liquidity Agent, become immediately due and payable. (c) If a Series 1996-2 Limited Liquidation Event of Default shall occur, then the Monthly Base Rent, the Monthly Supplemental Payment and Casualty Payments (in each case, calculated as if each Vehicle with respect to which the Lessor has terminated the Lessee's right to possession pursuant to Section 17.3(iii) had become a Casualty or had ceased to be an Eligible Vehicle during the Related Month), the Monthly Variable Rent and the Monthly Finance Rent (in each case calculated as if the full amount of interest, principal and other charges under the Series 1996-2 Note and, if any, other applicable Shared Collateral Series Notes were then due and payable in full), Termination Payments and Late Return Payments (in each case, with respect to each Vehicle with respect to which the Lessor has terminated the Lessee's right to possession pursuant to Section 17.3(iii)) shall automatically, without further action by the Lessor, the Trustee, the NFC Collateral Agent or the Liquidity Agent, become immediately due and payable. (d) If any other Lease Event of Default or Liquidation Event of Default shall occur, the NFC Collateral Agent may declare the Rent and all other charges and payments (calculated as described in paragraph (b) above) to be due and payable, whereupon such Rent and such other charges and payments (as so calculated) shall, subject to Section 17.4, become immediately due and payable. Section 17.3. Rights of Lessor, Trustee and NFC Collateral Agent Upon Lease Event of Default, Liquidation Event of Default or Series 1996-2 Limited Liquidation Event of Default. If a Lease Event of Default, Liquidation Event of Default or Series 1996-2 Limited Liquidation Event of Default shall occur: (i) In the case of a Lease Event of Default that shall have occurred and be continuing, the Lessor at its option may (or if and as directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement shall) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the Lessee of the applicable covenants and terms of this Agreement or to recover damages for the breach hereof calculated in accordance with Section 17.4; 19 25 (ii) In the case of a Liquidation Event of Default or a Series 1996-2 Limited Liquidation Event of Default that shall have occurred and be continuing, the Lessor and the Trustee, to the extent provided in the Indenture, and the NFC Collateral Agent, to the extent provided in the NFC Collateral Agreement, shall have all the rights against the Lessee and the Collateral provided in the Indenture and the NFC Collateral Agreement upon such a Liquidation Event of Default or a Series 1996-2 Limited Liquidation Event of Default, as the case may be, including the right to take (under the specified circumstances) possession of Vehicles (to the extent specified in this Agreement or the Indenture or the NFC Collateral Agreement, as applicable) immediately; (iii) In the case of a Liquidation Event of Default that has occurred, the NFC Collateral Agent may, by notice in writing to the Lessee and the other such Persons, terminate this Agreement in its entirety and/or the right of possession hereunder of the Lessee as to the Vehicles, and the Lessor (as directed by the NFC Collateral Agent) may direct delivery by the Lessee of documents of title to the Vehicles, whereupon all rights and interests of the Lessee to the Vehicles (except as otherwise provided herein) will cease and terminate (but the Lessee will remain liable hereunder as herein provided, calculated in accordance with Section 17.4); and, if a Series 1996-2 Limited Liquidation Event of Default has occurred, by notice in writing to the Lessee, terminate the right of possession hereunder of the Lessee as to such number of Vehicles as will generate proceeds from liquidation in an amount sufficient to pay all principal of and interest on the Series 1996-2 Note and, if any, all other related Shared Collateral Series Notes and the Lessor (as directed by the NFC Collateral Agent) may direct delivery by the Lessee of documents of title to such Vehicles, whereupon all right, title and interest of the Lessee to such Vehicles (except as otherwise provided herein) will cease and terminate (but the Lessee will remain liable hereunder as herein provided, calculated in accordance with Section 17.4); and thereupon, in either such case, the Lessor (as directed by the NFC Collateral Agent) or its agents may peaceably enter upon the premises of the Lessee or other premises where such Vehicles may be located and take possession of them and thenceforth hold, possess and enjoy the same free from any right of the Lessee, or its successors or assigns, to employ such Vehicles for any purpose whatsoever consistent with the mitigation of losses and damages, and the Lessor (or the NFC Collateral Agent on behalf of the Lessor) will, nevertheless, have a right to recover from the Lessee any and all amounts which under the terms of Section 17.2 (as limited by Section 17.4) of this Agreement may be then due. The Lessor (as directed by the NFC Collateral Agent) will provide the Lessee with written notice of the place and time of any sale of Financed Vehicles pursuant to this Section 17.3 at least five (5) days prior to the proposed sale, which notice period shall be deemed commercially reasonable, and the Lessee may purchase the Vehicle(s) at the sale. Each and every power and remedy hereby specifically given to the Lessor or the NFC Collateral Agent will be in addition to every other power and remedy hereby specifically given or now or hereafter existing at law, in equity or in bankruptcy and each and every power and remedy may be exercised from time to time and simultaneously and as often and in such order as may be deemed expedient by the Lessor or the NFC Collateral Agent, as applicable; provided, however, 20 26 that the measure of damages recoverable against the Lessee will in any case be calculated in accordance with Section 17.4. All such powers and remedies will be cumulative, and the exercise of one will not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Lessor or the NFC Collateral Agent, as applicable, in the exercise of any such power or remedy and no renewal or extension of any payments due hereunder will impair any such power or remedy or will be construed to be a waiver of any default or any acquiescence therein. Any extension of time for payment hereunder or other indulgence duly granted to the Lessee will not otherwise alter or affect the rights of the Lessor or the NFC Collateral Agent or the obligations hereunder of the Lessee. The acceptance by the Lessor or the NFC Collateral Agent of any payment after it will have become due hereunder will not be deemed to alter or affect the rights of the Lessor or the NFC Collateral Agent hereunder with respect to any subsequent payments or defaults therein; (iv) If the Lessee shall default in the due performance and observance of any of its obligations under Section 10, 24.5, 24.6, 24.7(iv), 24.7(vii), 24.10, 24.12, 25.3 or 25.4 hereof, and such default shall continue unremedied for a period of 30 days (other than in the case of a default under Section 24.6, for which the period will be 10 days) after notice thereof shall have been given to the Lessee by the NFC Collateral Agent, the NFC Collateral Agent or the Master Collateral Agent or the Lessor (at the direction of the NFC Collateral Agent), as applicable, shall have the ability to exercise all rights, remedies, powers, privileges and claims of the Lessee against the Manufacturers under or in connection with the Repurchase Programs with respect to (i) Vehicles the Lessee has determined to turn back to the Manufacturers under such Repurchase Programs and (ii) whether or not the Lessee shall then have determined to turn back such Vehicles, any Vehicles for which the applicable Repurchase Period will end within two months or less; (v) Upon a default in the performance (after giving effect to any grace periods provided herein) by the Lessee of its obligations under Section 23.6 or 24.21 hereof with respect to certain Vehicles, the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent shall have the right to take actions reasonably necessary to correct such default with respect to the subject Vehicles including the execution of UCC financing statements with respect to Repurchase Programs and other general intangibles and the completion of Vehicle Perfection and Documentation Requirements on behalf of the Lessee or the Lessor, as applicable; (vi) Upon the occurrence of a Liquidation Event of Default, the Servicer will return all Vehicles to the related Manufacturer, in each case in accordance with the instructions of the Lessor (as directed by the NFC Collateral Agent). Upon the occurrence of a Series 1996-2 Limited Liquidation Event of Default, the Servicer will return Vehicles to the related Manufacturer to the extent necessary to generate proceeds in an amount sufficient to pay all interest on and principal of the Series 1996-2 Note and, if any, all other related Shared Collateral Series Notes, in each case in accordance with the instructions of the Lessor (as directed by the NFC Collateral Agent). To the extent 21 27 any Manufacturer fails to accept any such Vehicles under the terms of the applicable Repurchase Program, the Lessor (as directed by the NFC Collateral Agent) shall have the right otherwise to dispose of such Vehicles and to direct the Servicer to dispose of such Vehicles in accordance with its instructions. In addition, the Lessor shall have all of the rights, remedies, powers, privileges and claims vis-a-vis the Lessee necessary or desirable to allow the Trustee to exercise the rights, remedies, powers, privileges and claims given to the Trustee pursuant to Sections 9.2 and 9.3 of the Base Indenture and/or the NFC Collateral Agent to exercise the rights, remedies, powers, privileges and claims given to the NFC Collateral Agent pursuant to Sections 4.03, 6.01 and 6.02 of the NFC Collateral Agreement, and the Lessee acknowledges that it has hereby granted the Lessor all of the rights, remedies, powers, privileges and claims granted to the Trustee pursuant to Article 9 of the Base Indenture and to the NFC Collateral Agent pursuant to Article VI of the NFC Collateral Agreement, respectively, and that, under certain circumstances set forth in the Base Indenture and the NFC Collateral Agreement, respectively, the Trustee or the NFC Collateral Agent may act in lieu of the Lessor in the exercise of such rights, remedies, powers, privileges and claims; (vii) If the Lessee shall default in the due performance and observance of any of its obligations under Section 25.5 or 25.6 hereof, (x) the rights of the Lessee to place Vehicle Orders pursuant to this Agreement (but not otherwise) shall be suspended until the Lessee is in compliance with its obligations under such Sections and (y) if at the end of the following fiscal quarter the Lessee is not in compliance with its obligations under such Sections as recalculated as of any day subsequent to the day such non-compliance occurred, such non-compliance shall be at that time deemed to be a "Lease Event of Default" as set forth in Section 17.1.3(i) hereof; (viii) By notice in writing to the Lessee, the NFC Collateral Agent may terminate the Power of Attorney (provided that, after any such termination of the Power of Attorney, the Lessor will follow the direction of the Servicer to release liens on Acquired Vehicles which liens are required to be released under the terms of this Agreement); and (ix) Notwithstanding anything to the contrary contained herein, in the event that more than one of the Lessor, the Trustee and the NFC Collateral Agent elect to exercise their respective rights or remedies hereunder or notify the Lessee of their intent to do so, and such exercise of such rights or remedies by any such party conflicts or will conflict with such exercise of such rights or remedies by any other such party, the Trustee's rights and remedies and its exercise thereof shall control over those of the Lessor, and the NFC Collateral Agent's rights and remedies and its exercise thereof shall control over those of the Lessor and the Trustee. Section 17.4. Measure of Damages. If a Lease Event of Default occurs and the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent exercises the remedies granted to the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral 22 28 Agent under this Section 17 or under Section 9.2 of the Indenture or Article VI of the NFC Collateral Agreement, the amount that the Lessor shall be permitted to recover shall be equal to: (i) all Rent and other charges and payments under this Agreement (calculated as provided in Section 17.2); plus (ii) any damages and expenses which the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent shall have sustained by reason of the Lease Event of Default, together with reasonable sums for such attorneys' fees and such expenses as will be expended or incurred in the seizure, storage, rental or sale of the Vehicles or in the enforcement of any right or privilege hereunder or in any consultation or action in such connection; plus (iii) all other amounts due and payable under this Agreement; plus (iv) interest from time to time on amounts due and unpaid under this Agreement at the VFR plus 1% per annum computed from the date of the Lease Event of Default or the date payments were originally due the Lessor under this Agreement or from the date of each expenditure by the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent, as applicable, which is recoverable from the Lessee pursuant to this Section 17, as applicable, to and including the date payments are made by the Lessee; minus (v) an amount equal to all sums realized by the Lessor, the Master Collateral Agent, the Trustee and the NFC Collateral Agent from the liquidation of the Financed Vehicles leased hereunder (either by receipt of payment from the Manufacturers under Repurchase Programs, from sales of Vehicles to third parties, or otherwise). Section 17.5. Application of Proceeds. The proceeds of any sale or other disposition of any Financed Vehicles pursuant to Section 17.3 shall be applied in the following order: (i) to the reasonable costs and expenses incurred by the Lessor or its agent in connection with such sale or disposition, including any reasonable costs associated with repairing such Vehicles, and reasonable attorneys' fees in connection with the enforcement of this Agreement, (ii) to the payment of outstanding Rent and other charges and payments under the Lease (such proceeds to be applied first, to outstanding Monthly Variable Rent and Monthly Finance Rent pro rata, second, to outstanding Base Rent and Monthly Supplemental Payments pro rata, third, to outstanding Termination Payments, Casualty Payments and Late Return Payments pro rata and fourth, to outstanding late charges pursuant to Sections 5.4 and 17.4(iv)), (iii) to the payment of all other amounts due hereunder and (iv) any remaining proceeds to the Lessee or such Person as may be lawfully entitled thereto. SECTION 18. CERTAIN LIMITED AMORTIZATION EVENTS. Upon the occurrence of a Limited Amortization Event of the type set forth in Section 9.3.1 of the 23 29 Liquidity Agreement with respect to a Manufacturer, the Lessee on behalf of the Lessor (a) shall no longer place Vehicle Orders for additional Vehicles from such Manufacturer (each, a "Defaulting Manufacturer") and (b) shall cancel any Vehicle Order for Vehicles of such Defaulting Manufacturer to which a vehicle identification number (a "VIN") has not been assigned as of the date such Limited Amortization Event occurs (to the extent such Vehicle Order is cancelable, with or without penalty). SECTION 19. CERTIFICATION OF TRADE OR BUSINESS USE. Pursuant to Section 7701 of the Code and as set forth in Attachment C hereto, the Lessee will warrant and certify that (1) the Lessee intends to use the Acquired Vehicles in a trade or business of the Lessee, and (2) the Lessee has been advised that it will not be treated as the owner of the Acquired Vehicles for federal income tax purposes. SECTION 20. SURVIVAL. In the event that, during the term of this Agreement, the Lessee becomes liable for the payment or reimbursement of any obligations, claims or taxes pursuant to any provision hereof, such liability will continue, notwithstanding the expiration or termination of this Agreement, until all such amounts are paid or reimbursed by the Lessee. SECTION 21. RIGHTS OF LESSOR PLEDGED TO MASTER COLLATERAL AGENT, TRUSTEE AND NFC COLLATERAL AGENT. Notwithstanding anything to the contrary contained in this Agreement, the Lessee acknowledges that each of the Lessee and the Lessor, pursuant to the Master Collateral Agency Agreement, has granted a security interest to the Master Collateral Agent, for the benefit of the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, in all of its right, title and interest in, to and under the Vehicles, the related Repurchase Programs, the Master Collateral Account and all other Master Collateral specified in the Master Collateral Agency Agreement as being pledged by National or NFLP, and further acknowledges that the Lessor, pursuant to the Series 1996-2 Supplement and the Indenture, has granted a security interest to the Trustee (for the benefit of the Series 1996-2 Noteholder) in all of its right, title and interest in, to and under the NFLP Agreements, the NFC Collection Account and the other Collateral described in the Series 1996-2 Supplement, and NFC, pursuant to the NFC Collateral Agreement, has granted a security interest to the NFC Collateral Agent (for the benefit of the NFC Secured Parties) in all of its right, title and interest in, to and under the Indenture, the Series 1996-2 Supplement and the Series 1996-2 Note, the NFC Collateral Account and the other Assigned Collateral described in the NFC Collateral Agreement. Accordingly, the Lessee agrees that: (i) Subject to the terms of the Indenture and the NFC Collateral Agreement, respectively, the Trustee and the NFC Collateral Agent, respectively, shall have all the rights, powers, privileges and remedies of the Lessor hereunder; provided, however, that the NFC Collateral Agent shall control the exercise of such rights, powers, privileges and remedies. Specifically, the Lessee agrees that, upon the occurrence of an Amortization Event, the NFC Collateral Agent or the Trustee (at the direction of the NFC Collateral 24 30 Agent) or, with respect to any Master Collateral, the Master Collateral Agent (for and on behalf of the Trustee and, ultimately, the NFC Collateral Agent) may exercise any right or remedy against the Lessee provided for herein or in the Indenture, the NFC Collateral Agreement or the Master Collateral Agency Agreement, as applicable, and the Lessee will not interpose as a defense that such claim should have been asserted by the Lessor; (ii) Upon the delivery by the Master Collateral Agent or the NFC Collateral Agent of any notice to the Lessee stating that a Lease Event of Default or any other Amortization Event has occurred, then the Lessee, will, if so requested by the Master Collateral Agent (with respect to the Master Collateral) or the NFC Collateral Agent (with respect to the Assigned Collateral), treat the Master Collateral Agent or the NFC Collateral Agent, as the case may be, or the designee of the Master Collateral Agent or the NFC Collateral Agent, as the case may be, for all purposes as the Lessor hereunder and in all respects comply with all obligations under this Agreement that are asserted by the Master Collateral Agent or the NFC Collateral Agent, as the case may be, as the successor to the Lessor hereunder, irrespective of whether the Lessee has received any such notice from the Lessor; (iii) The Lessee acknowledges that pursuant to the Indenture, the Lessor has irrevocably authorized and directed the Lessee to, and the Lessee shall, make payments of Rent and other charges and payments hereunder by deposit directly to the NFC Collection Account established by the Trustee for receipt of such payments pursuant to the Indenture and the Series 1996-2 Supplement (or to such other account as the NFC Collateral Agent may from time to time specify to the Lessee), and such payments shall discharge the obligation of the Lessee to the Lessor hereunder with respect to Rent and other charges and payments to the extent of such payments; (iv) Upon request made by the Master Collateral Agent at any time, the Lessee will take such actions as are requested by the Master Collateral Agent to maintain the Master Collateral Agent's perfected first priority security interest in the Vehicles leased under this Agreement, the Certificates of Title with respect thereto and the Master Collateral pursuant to the Master Collateral Agency Agreement; (v) A security interest in the Lessor's rights under this Agreement has been granted by the Lessor to the Trustee pursuant to the Series 1996-2 Supplement and the Indenture as collateral security only for the Series 1996-2 Note (but not for the benefit of any Holders of any other Notes, other than any other Shared Collateral Series Notes, if any, as contemplated by the Supplement relating thereto) and, accordingly, all references herein to "all" Series of Notes shall refer only to the Series 1996-2 Note and, if any, all other Shared Collateral Series Notes; (vi) Each of the Trustee and the NFC Collateral Agent is hereby irrevocably appointed the true and lawful attorney-in-fact of the Lessee, in its name and stead, to 25 31 make all necessary deeds, bills of sale and instruments of assignment and transfer of the property of the Lessee sold pursuant to Section 9.3 of the Base Indenture or Article VI of the NFC Collateral Agreement, respectively (including without limitation, any Financed Vehicles), and for such other purposes as are necessary or desirable to effectuate the provisions of the Indenture and the NFC Collateral Agreement, and for that purpose the Trustee (at the direction of the NFC Collateral Agent) and/or the NFC Collateral Agent, as applicable, may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, the Lessee hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof, but if so requested by the Trustee (at the direction of the NFC Collateral Agent) and/or the NFC Collateral Agent, as applicable, or by any purchaser, the Lessee shall ratify and confirm any such sale or transfer by executing and delivering to the Trustee and/or the NFC Collateral Agent, as applicable, or to such purchaser all such property, deeds, bills of sale, instruments of assignment and transfer and releases as may be designated in any such request; (vii) In the event that the Trustee (at the direction of the NFC Collateral Agent) determines to take action pursuant to the provisions of Section 9.2(e) of the Base Indenture and/or the NFC Collateral Agent determines to take action pursuant to the last sentence of Section 6.01(b) of the NFC Collateral Agreement, as applicable, the Trustee and/or the NFC Collateral Agent, as applicable, may, without notice to the Lessor (unless such notice is required by applicable state law), the Servicer or the Lessee, direct the Master Collateral Agent to take legal proceedings for the appointment of a receiver to take possession of Vehicles pending the sale thereof and in any such event the Trustee and/or the NFC Collateral Agent, as applicable, shall be entitled to the appointment of a receiver for the Vehicles, and none of the Lessor, the Servicer or the Lessee shall object to such appointment; (viii) The Lessee hereby authorizes the Lessor and the NFC Collateral Agent, as applicable, to give directions to the Master Collateral Agent to perform any obligation which the Lessee shall have failed to perform under the Related Documents, including, but not limited to, any directions permitted by Section 3.4 of the Master Collateral Agency Agreement; and (ix) Notwithstanding anything to the contrary contained herein, in the event that the Trustee and the NFC Collateral Agent elect to exercise their respective rights or remedies hereunder or notify the Lessor of their intent to do so, and such exercise of such rights or remedies by one such party conflicts or will conflict with such exercise of such rights or remedies by the other such party, the NFC Collateral Agent's rights and remedies and its exercise thereof shall control over those of the Trustee. SECTION 22. MODIFICATION AND SEVERABILITY. No delay on the part of the Lessor, the Trustee, the Liquidity Agent, the NFC Collateral Agent, the Master Collateral Agent or, so long as it is an A Support Credit Enhancer, GM in the exercise of any right, power 26 32 or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement shall in any event be effective unless (a) the same shall be in writing and signed and delivered by the Lessor and the Lessee, (b) consented to in writing by the Trustee, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM (unless (i) such amendment, modification, waiver or consent is made only to cure any apparent ambiguity or to correct or supplement any provision in this Agreement that may be inconsistent with any other provision herein, (ii) as evidenced by an Officer's Certificate from duly authorized officers of the Lessor and the Lessee, which shall have been delivered by the Lessee to the Trustee, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM, such amendment, modification, waiver or consent will not materially adversely affect the interests of the Lessor, the Trustee, the Secured Parties or the NFC Secured Parties, and (iii) a copy of such amendment, modification, waiver or consent is furnished to the Trustee, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM no later than ten days prior to the execution thereof by the Lessor and the Lessee) and (c) the Lessor shall have received in writing confirmation from each of the Rating Agencies that its then current rating with respect to any Commercial Paper Notes and, if applicable, any outstanding Shared Collateral Series Notes, respectively, will not be reduced or withdrawn as a result thereof. SECTION 23. CERTAIN REPRESENTATIONS AND WARRANTIES. National, in its capacity as Lessee and as Servicer, represents and warrants to the Lessor that as of the Series 1996-2 Closing Date and as of each Vehicle Funding Date (and each of such representations and warranties will be deemed to be remade as of the Closing Date with respect to each Series of Shared Collateral Series Notes): Section 23.1. Organization; Ownership; Power; Qualification. National (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted, and (iii) is duly qualified, in good standing and authorized to do business in each jurisdiction in which the character of its properties or the nature of its businesses requires such qualification or authorization, except where the failure to so qualify is not reasonably likely to have a Material Adverse Effect. Section 23.2. Authorization: Enforceability. National, in its capacities as Lessee and as Servicer, has the corporate power and has taken all necessary corporate action to authorize it to execute, deliver and perform this Agreement and each of the other Related Documents to which it is a party in accordance with their respective terms, and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Lessee and the Servicer and is, and each of the other Related Documents to which the Lessee or the Servicer is a party is, a legal, valid and binding obligation of the Lessee or the Servicer, as applicable, enforceable in accordance with its terms, except as the 27 33 enforceability thereof may be limited by bankruptcy, insolvency, reorganization and similar laws affecting creditors generally and by the availability of equitable remedies. Section 23.3. Compliance. (a) The execution, delivery and performance, in accordance with their respective terms, by National, in its capacities as Lessee and as Servicer, of this Agreement and each of the other Related Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) require any consent, approval, authorization or registration not already obtained or effected, except where the failure to obtain any such consent, approval or authorization or to register is not reasonably likely to have a Material Adverse Effect, (ii) violate any applicable law with respect to National, in its capacity as Lessee or as Servicer or otherwise, as applicable, which violation is reasonably likely to have a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate of incorporation or by-laws of National, or under any indenture, agreement, or other instrument to which National, in its capacity as Lessee or as Servicer or otherwise, is a party or by which its properties may be bound, which conflict, breach or default is reasonably likely to have a Material Adverse Effect, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by National, in its capacity as Lessee or as Servicer or otherwise, except Permitted Encumbrances. (b) To the knowledge of National, National, in its capacities as Lessee and as Servicer and otherwise, is in compliance with all applicable laws (including rules and regulations thereunder) of federal, state, local and foreign governments (and all agencies thereof) other than Environmental Laws, which are separately addressed in Section 23.19 hereof, except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Section 23.4. Financial Information; Financial Condition. All financial statements (including the notes thereto) referred to in the following sentence and hereafter furnished to the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent pursuant to Section 24.7 hereof have been and will be prepared in accordance with GAAP and do and will present fairly the financial condition of the entities involved as of the dates thereof and the results of their operations for the periods covered thereby, subject, in the case of all unaudited statements, to normal year-end adjustments and lack of footnotes and other presentation items. Such financial statements include the audited consolidated balance sheet of National and its Consolidated Subsidiaries as of May 31, 1996 and the related statements of income, changes in stockholders' equity and cash flow as of and for the fiscal year ending on such date, which have been furnished to the Lessor, the Trustee and the NFC Collateral Agent on or prior to the date hereof. Section 23.5. Litigation. Except for claims as to which the insurer has admitted coverage in writing and which are fully covered by insurance, no claims, litigation (including, without limitation, derivative actions), arbitration, governmental investigation or proceeding or inquiry is pending or, to the best of the Lessee's knowledge, threatened against the Lessee which is reasonably likely to have a Material Adverse Effect. 28 34 Section 23.6. Liens. The Vehicles and other Master Collateral are free and clear of all Liens other than Permitted Liens. The Lessor (or the Master Collateral Agent on behalf of the Lessor) has obtained, as security for the Liabilities, a first priority perfected Lien on all Vehicles and all the Master Collateral with respect to which the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, are designated as the Beneficiaries under the Master Collateral Agency Agreement. All Vehicle Perfection and Documentation Requirements with respect to all Vehicles on or after the date hereof have and will continue to be satisfied; except to the extent that the failure to comply with such requirements does not, in the aggregate, materially adversely affect either the interests of the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent, the Secured Parties or the NFC Secured Parties under this Agreement or the Indenture or the NFC Collateral Agreement or the likelihood of payment of all Rent and other charges and payments due under this Agreement. Section 23.7. Employee Benefit Plans. (a) During the twelve consecutive month period prior to (i) the Series 1996-2 Closing Date and (ii) each Vehicle Funding Date: (x) no steps have been taken by the Lessee or any member of the Controlled Group, or to the knowledge of the Lessee, by any Person, to terminate any Pension Plan (other than a Pension Plan with no unfunded benefit liabilities on a termination basis); and (y) no contribution failure has occurred with respect to any Pension Plan maintained by the Lessee or any member of the Controlled Group sufficient to give rise to a Lien under Section 302(f)(1) of ERISA in connection with such Pension Plan; and (b) no condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Lessee or any member of the Controlled Group of liabilities, fines or penalties in an amount that is reasonably likely to have a Material Adverse Effect. Section 23.8. Investment Company Act. The Lessee is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act, and the Lessee is not subject to any other statute which would have a material adverse effect on its ability to perform its obligations under this Agreement or the other Related Documents, and the entering into or performance by the Lessee of this Agreement does not violate any provision of such Act and does not require any consent, approval or authorization of, or registration with, the Securities and Exchange Commission or any other governmental or public body or authority. Section 23.9. Regulations G, T, U and X. The Lessee is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System). Neither the Lessee nor any Person acting on its behalf has taken or will take action to cause the execution, delivery or performance of this Agreement or the financing or acquisition of the Vehicles to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 29 35 Section 23.10. Business Locations; Trade Names. Schedule 23.10 lists where the Lessee maintains its chief executive office, principal place of business, and location of its consolidated business and financial records; and Schedule 23.10 also lists the Lessee's legal name and each name under or by which the Lessee conducts its business and each state in which the Lessee conducts business. Section 23.11. Taxes. The Lessee has filed all tax returns which have been required to be filed by it, and has paid or provided adequate reserves for the payment of all taxes, including, without limitation, all payroll taxes and federal and state withholding taxes, and all assessments payable by it that have become due, other than those that are not yet delinquent or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. As of the Series 1996-2 Closing Date, there is no ongoing audit (other than routine sales tax audits and other routine audits) or, to the Lessee's knowledge, other governmental investigation of the tax liability of the Lessee and there is no unresolved claim by a taxing authority concerning the Lessee's tax liability for any period for which returns have been filed or were due other than those contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. Section 23.12. Governmental Authorizations. National, in its capacity as the Lessee and the Servicer and otherwise, has all licenses, franchises, permits and other governmental authorizations necessary for all businesses presently carried on by it (including owning and leasing the real and personal property owned and leased by it), except where failure to obtain such licenses, franchises, permits and other governmental authorizations is not reasonably likely to have a Material Adverse Effect. Section 23.13. Absence of Default. National is in compliance with all of the provisions of its certificate of incorporation and by-laws and no event has occurred or failed to occur which has not been remedied or waived, the occurrence or non-occurrence of which constitutes (i) a Lease Event of Default or Potential Lease Event of Default, or (ii) an event of default by National, in its capacity as the Lessee or the Servicer or otherwise, under any material indenture, agreement or other instrument (other than the Related Documents) that is reasonably likely to have a Material Adverse Effect, and the Lessee is not subject to any judgment, decree or final order pursuant to which National, in its capacity as the Lessee or the Servicer or otherwise, or any of its properties may be bound or affected that is reasonably likely to have a Material Adverse Effect. Section 23.14. Compliance with Requirements of Law. Except as disclosed in Schedule 23.14 hereto, National, in its capacity as the Lessee or the Servicer or otherwise: (i) is not in violation of any law, ordinance, rule, regulation or order of any Governmental Authority applicable to it or its property, which violation is reasonably likely to have a Material Adverse Effect, and no such violation has been alleged, (ii) has filed in a timely manner all reports, documents and other materials required to be filed by it with any governmental bureau, 30 36 agency or instrumentality (and the information contained in each of such material filings is true, correct and complete in all material respects), except where failure to make such filings is not reasonably likely to have a Material Adverse Effect and (iii) has retained all records and documents required to be retained by it pursuant to any Requirement of Law, except where failure to retain such records is not reasonably likely to have a Material Adverse Effect. Section 23.15. Eligible Vehicles. Each Vehicle is or will be, on the Vehicle Funding Date therefor hereunder, an Eligible Vehicle. Section 23.16. Repurchase Programs. No Manufacturer Default or Manufacturer Ineligibility Event has occurred and is continuing. Section 23.17. Title to Assets. National has good, legal and marketable title to, or a valid leasehold interest in, all of its assets, except to the extent no Material Adverse Effect is reasonably likely to result. National's assets are in reasonably good repair and operating condition (subject to normal wear and tear and normal course reserves and accruals). Section 23.18. Accuracy of Information. All certificates, reports, statements, documents and other information furnished to the Lessor, the Trustee, the Master Collateral Agent, the Liquidity Agent or the NFC Collateral Agent, by the Lessee pursuant to any provision of any Related Document, or in connection with or pursuant to any amendment or modification of, or waiver under, any Related Document, shall, at the time the same are so furnished, be complete and correct in all material respects to the extent necessary to give the Lessor, the Trustee, the Master Collateral Agent, the Liquidity Agent or the NFC Collateral Agent, as the case may be, true and accurate knowledge of the subject matter thereof, and the furnishing of the same to the Lessor, the Trustee, the Master Collateral Agent, the Liquidity Agent or the NFC Collateral Agent, as the case may be, shall constitute a representation and warranty by the Lessee made on the date the same are furnished to the Lessor, the Trustee, the Master Collateral Agent, the Liquidity Agent or the NFC Collateral Agent, as the case may be, to the effect specified herein. Section 23.19. Environmental Matters. (a) To the knowledge of the Lessee, National, in its capacity as the Lessee and the Servicer and otherwise, is in compliance with all Environmental Laws, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect. (b) To the knowledge of the Lessee, National, in its capacity as the Lessee and the Servicer and otherwise, has obtained and is in compliance with, all permits, licenses and other authorizations that are required pursuant to Environmental Laws for the occupation of its facilities and the operation of its business, except for such failure to obtain or comply which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 31 37 (c) To the knowledge of the Lessee, National, in its capacity as the Lessee or the Servicer or otherwise, has not, since the Series 1996-2 Closing Date, received any written notice, claim, demand, report or other information that it has not provided to the Lessor, the Trustee, the Liquidity Agent, the NFC Collateral Agent and each Rating Agency regarding any violation by National, in its capacity as the Lessee or the Servicer or otherwise, or Old National of, or National Liabilities under, Environmental Laws (including without limitation liability for investigatory costs, cleanup or remediation or removal costs, governmental response costs, natural resource damages, property damage, personal injury, fines or penalties arising out of or relating to the presence, discharge, emission, release or threatened release of any Hazardous Substances at any location), except for any such violation or National Liability that would not reasonably be expected to have a Material Adverse Effect. (d) To the knowledge of the Lessee, National, in its capacity as the Lessee or the Servicer or otherwise, has not entered into, has not agreed to, and is not subject to any judgment, decree, or order under any Environmental Law, including without limitation relating to compliance or to investigation, cleanup, remediation or removal of Hazardous Substances, which judgment, decree, or order would reasonably be expected to have a Material Adverse Effect. Section 23.20. Burdensome Provisions. National, in its capacity as the Lessee or the Servicer or otherwise, is not a party to or bound by any Contractual Obligation that is reasonably likely to have a Material Adverse Effect. Section 23.21. Solvency. The Lessee is not insolvent (as such term is defined in the Bankruptcy Code), has adequate capital or assets to carry on its businesses, and intends to and believes that it will be able to pay its debts as such debts become due. Section 23.22. Stock Ownership. All common stock of the General Partner of the Lessor owned by the Lessee is owned free and clear of all Liens. Section 23.23. Necessary Actions. Upon the Servicer causing the Lien of the Master Collateral Agent to be noted on the Certificates of Title with respect to the Vehicles or as otherwise provided for by the Master Collateral Agency Agreement or the Indenture, all filings, registrations and recordings necessary or appropriate to create, preserve, protect and perfect the security interest granted to the Master Collateral Agent in respect of the Master Collateral have been accomplished and the security interest granted to the Master Collateral Agent pursuant to the Master Collateral Agency Agreement in and to the Master Collateral constitutes a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens other than Permitted Liens and is entitled to all rights, priorities and benefits afforded to perfected security interests by the UCC or other relevant law as enacted in any relevant jurisdiction. Section 23.24. Supplemental Documents True and Correct. All information contained in any Vehicle Order, any Vehicle Acquisition Schedule or any other material 32 38 Supplemental Document which has been submitted, or which may hereafter be submitted by the Lessee to the Lessor is, or will be, true, correct and complete in all material respects. Section 23.25. Initial Vehicles. As of the Series 1996-2 Closing Date, there are no Initial Vehicles that are part of the Refinanced Vehicles. SECTION 24. CERTAIN AFFIRMATIVE COVENANTS. The Lessee and, as applicable, the Servicer, each covenants and agrees that, until the expiration or termination of this Agreement, and thereafter until the obligations of the Lessee and the Servicer under this Agreement and the Related Documents are satisfied in full, unless at any time the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM shall otherwise expressly consent in writing, it will: Section 24.1. Corporate Existence; Foreign Qualification. Do and cause to be done at all times all things necessary to (i) maintain and preserve its corporate existence and corporate power and authority to own its properties and to carry on its business, (ii) be duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and the failure to so qualify is reasonably likely to have a Material Adverse Effect and (iii) comply with all Contractual Obligations and Requirements of Law binding upon it, except to the extent that the failure to comply therewith is not reasonably likely to, in the aggregate, have a Material Adverse Effect. Section 24.2. Books, Records and Inspections. (i) Maintain complete and accurate books and records with respect to Vehicles leased under this Agreement and the other Master Collateral; (ii) at any time and from time to time during regular business hours, upon not less than reasonable prior notice from the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent, permit the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent (or such other person who may be designated from time to time by the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent), or its agents or representatives to examine and make copies of such books, records and documents in the possession or under the control of the Lessee relating to the Vehicles leased under this Agreement and the other Master Collateral as the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent or such person may reasonably request (including in connection with the Lessor's, the Trustee's, the Master Collateral Agent's or the NFC Collateral Agent's satisfaction of any requests of a Manufacturer performing an audit under its Repurchase Program); and (iii) permit the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent to visit the office (which office shall be in the continental United States and, if it is not the office where such materials normally are kept, shall be accessible without unreasonable effort or expense) and properties of the Lessee for the purpose of examining such materials, and to discuss matters relating to the Vehicles leased under this Agreement and the other Master Collateral or the Lessee's (or the Servicer's) performance under this Agreement with the Lessee's independent public accountants or with any of the officers or employees of the Lessee having knowledge of such matters; provided, however, that in the case of clauses (ii) and (iii) above, any of the Master Collateral Agent, the Trustee, the NFC Collateral Agent and/or 33 39 their agents or representatives, as applicable, examining any such material shall perform such examination at the same time as the other such parties performing such examination of such material. Section 24.3. Maintenance of Properties. Maintain or cause to be maintained (i) in the ordinary course of business in good repair, working order and condition (reasonable wear and tear excepted) all properties, including, without limitation, vehicles necessary for the operation of its businesses, and from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements, additions, betterments, and improvements thereto, except to the extent no Material Adverse Effect is reasonably likely to result, and (ii) good, legal and marketable title to, or a valid leasehold interest in, all of its assets other than in the case of any Vehicles or other assets that, in the aggregate, are immaterial. Section 24.4. Accounting Methods; Financial Records. Maintain, and cause its material Subsidiaries to maintain, a system of accounting established and administered in accordance with GAAP, keep, and cause its material Subsidiaries to keep, adequate records and books of account in which complete entries will be made in accordance with such accounting principles and reflecting all transactions required to be reflected by such accounting principles and keep, and cause its material Subsidiaries to keep, accurate and complete records of their respective properties and assets. Section 24.5. Insurance. (a) Maintain or cause to be maintained, with financially sound and reputable insurers satisfactory to the Lessor, the Trustee and the NFC Collateral Agent, (i) personal injury and damage insurance (including self-insurance) with respect to the Vehicles and (ii) insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations and the Lessee shall, from time to time, deliver to the Lessor, the Trustee and the NFC Collateral Agent, as the Lessor, the Trustee or the NFC Collateral Agent, as applicable, shall request, copies of certificates describing all insurance then in effect; provided, however, that the Lessee may continue its current practices of self-insurance setting aside adequate reserves to cover any and all losses: (x) which would otherwise be covered under any standard comprehensive and collision policies of insurance; and (y) arising from liability to third parties for bodily injuries, death, and property damage in an aggregate amount up to Two Million Dollars ($2,000,000) per occurrence or such greater amount per occurrence as may be from time to time hereafter approved in writing by the Lessor, the Trustee and the NFC Collateral Agent (which approval shall not be unreasonably withheld); provided, further, however, that the Lessee shall obtain excess insurance coverage in an amount not less than Thirty Million Dollars ($30,000,000) for any claims of liability against the Lessee relating to its ownership or use of vehicles. (b) The Lessee will require that each insurance policy referred to in the foregoing clause (a) provide for at least thirty (30) days prior written notice to the Master Collateral Agent of any termination of or proposed cancellation or nonrenewal of such policy 34 40 and that each insurance policy insuring assets pledged to the Master Collateral Agent name the Master Collateral Agent as an additional insured or additional loss payee, as appropriate, pursuant to certificates in form and substance reasonably satisfactory to the Master Collateral Agent. Section 24.6. Repurchase Programs. Turn in each Vehicle leased by the Lessee to the relevant Manufacturer within the Repurchase Period therefor pursuant to Section 12.2. (unless the Lessee (i) sells such Vehicle pursuant to Section 27 and, prior to the end of the Repurchase Period therefor, causes to be deposited to the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) the sales proceeds therefor in cash in an amount pursuant to such Section, (ii) purchases such Vehicle as permitted by, and pursuant to the requirements of, this Agreement and, prior to the end of the Repurchase Period therefor, deposits to the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) the purchase price therefor in cash in the amount so required, or (iii) in the case of any Vehicle that becomes a Casualty or ceases to be an Eligible Vehicle, deposits to the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) the Casualty Payment therefor in cash pursuant to Section 7); and, with respect to each Vehicle leased by the Lessee, comply in all material respects with all of its obligations under the Repurchase Program relating to such Vehicle. Section 24.7. Reporting Requirements. Except as otherwise specified below, furnish, or cause to be furnished to the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent, and, in the case of items (iii)(b), (vi) and (x) below, each Rating Agency, and, in the case of items (i), (ii), (vi) and (xi), any Holder of any Shared Collateral Series Note that has delivered to the Lessor a written request for same: (i) Audit Report. As soon as available and in any event within 90 days after the end of each fiscal year of the Lessee, (x) consolidated and consolidating financial statements consisting of a balance sheet of the Lessee and its Subsidiaries as at the end of such fiscal year and statements of income, stockholders' equity and cash flows of the Lessee and its Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year (if applicable), certified by and containing an opinion, unqualified as to scope, of Arthur Andersen & Co. or other independent certified public accountants of nationally recognized standing selected by the Lessee and acceptable to the Lessor, the Trustee and the NFC Collateral Agent, and (y) a letter in customary form from such accountants addressed to the Lessor, the Trustee, the Master Collateral Agent and the NFC Collateral Agent stating that, in the course of their annual audit of the books and records of the Lessee and its Subsidiaries, no Potential Lease Event of Default or Lease Event of Default has come to their attention which was continuing at the close of such fiscal year or on the date of their letter, or, if such an event has come to the attention of such accountants and was continuing at the close of such fiscal year or on the date of their letter, the nature of such event, it being understood that such accountants shall have no liability to the Lessor, the Trustee, the 35 41 Master Collateral Agent or the NFC Collateral Agent by reason of the failure of such accountants to obtain knowledge of the occurrence or continuance of such a Potential Lease Event of Default or Lease Event of Default; (ii) Quarterly Statements. As soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Lessee, (x) financial statements consisting of consolidated and consolidating balance sheets of the Lessee and its Subsidiaries as at the end of such quarter and statements of income, stockholders' equity and cash flows of the Lessee and its Subsidiaries for each such quarter, setting forth in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year (if applicable), all in reasonable detail and certified (subject to normal year-end audit adjustments) by a senior financial officer of the Lessee as having been prepared in accordance with GAAP, and (y) a letter from such officer addressed to the Lessor, the Trustee, the Master Collateral Agent and the NFC Collateral Agent stating that no Potential Lease Event of Default or Lease Event of Default has come to his attention which was continuing at the end of such quarter or on the date of his letter, or, if such an event has come to his attention and was continuing at the end of such quarter or on the date of his letter, indicating the nature of such event and the action which the Lessee proposes to take with respect thereto; (iii) Lease Events of Default; Amortization Events. Promptly after becoming aware thereof, (a) notice of the occurrence of any Potential Lease Event of Default or Lease Event of Default, together with a written statement of an Authorized Officer of the Lessee describing such event and the action that the Lessee proposes to take with respect thereto, and (b) notice of any Potential Amortization Event or Amortization Event; (iv) Monthly Vehicle Statements. In the case of the Master Collateral Agent, on or before each Determination Date, a monthly vehicle statement (each, a "Monthly Vehicle Statement") in a form acceptable to the Lessor, which shall specify (i) the last eight digits of the VIN for each Vehicle leased hereunder during the Related Month by the Lessee, (ii) whether such Vehicle is leased under Annex A or Annex B hereto, (iii) the Capitalized Cost for each such Vehicle and (iv) the aggregate Net Book Value of such Vehicles as of the end of the Related Month; (v) Daily Reports. In the case of the Master Collateral Agent, within one Business Day after a request for any Daily Report (as defined below) is made by the Master Collateral Agent, a copy of such Daily Report. On each Business Day commencing on the Lease Commencement Date, the Servicer shall prepare and maintain at its office a record (each, a "Daily Report") setting forth the aggregate of the amounts deposited in the NFC Collection Account on the immediately preceding Business Day, which shall consist of: (A) the aggregate amount of payments received from Manufacturers and/or auction dealers under Repurchase Programs related to the Vehicles and deposited in the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) from the Master Collateral 36 42 Account or otherwise, plus (B) the aggregate amount of proceeds received from third parties (other than Manufacturers and auction dealers) with respect to the sale of Vehicles and deposited in the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) from the Master Collateral Account or otherwise, plus (C) the aggregate amount of other Collections deposited in the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement); (vi) Monthly Certificate. On or before each Determination Date, an Officer's Certificate of the Servicer substantially in the form of Exhibit A (each, a "Monthly Certificate") setting forth, inter alia, the following information (which, in the cases of clauses (c), (d) and (e) below, will be expressed as a dollar amount per $1,000 of the original principal amount of the Notes and as a percentage of the outstanding principal balance of the Notes as of such date): (a) the aggregate amount of payments received from the Manufacturers and/or auction dealers under Repurchase Programs and the aggregate amount of payments received from third parties (other than Manufacturers and auction dealers) with respect to the sale of Vehicles and deposited in the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) from the Master Collateral Account or otherwise and the aggregate amount of other Collections deposited in the NFC Collection Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement) for the Related Month with respect to such Determination Date; (b) the Invested Percentage on the last day of the Related Month of the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Notes and each class of each Series of Shared Collateral Series Note; (c) for the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Notes and each class of each Series of Shared Collateral Series Notes, the total amount to be distributed to Noteholders on the next succeeding Distribution Date; (d) for the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Note and each class of each Series of Shared Collateral Series Notes, the amount of such distribution allocable to principal on the Notes; (e) for the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Notes and each class of each Series of Shared Collateral Series Notes, the amount of such distribution allocable to interest on the Notes; (f) for the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Notes and each class of each Series of Shared Collateral Series Notes, the amount of Enhancement used or drawn in connection with the distribution to Noteholders of such Series or class on the next succeeding Distribution Date, together with the aggregate amount of remaining Enhancement not theretofore used or drawn; (g) for the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Notes, the Series Monthly Servicing Fee for the next succeeding Payment Date; (h) for each other Series, if any, of Shared Collateral Series Notes and each class of each Series of Shared Collateral Series Notes, the existing Carryover Controlled Amortization Amount, if any; (i) the Pool Factor with respect to such Related Month for the Series 1996-2 Note and, if any, each other Series of Shared Collateral Series Notes and each class of each Series of Shared Collateral Series Notes; (j) a list of 37 43 all Acquired Vehicles and Financed Vehicles leased hereunder at the close of business on the last day of the Related Month; (k) the Aggregate Asset Amount and the amount of the Asset Amount Deficiency, if any, at the close of business on the last day of the Related Month; (l) if Enhancement is provided for any other Series, if any, of Shared Collateral Series Notes or any class of a Series of Shared Collateral Series Notes by means of overcollateralization, the amount of recoveries and losses for the Related Month, whether an Enhancement Deficiency exists with respect to such Series or class and the amount thereof, or the amount available for such overcollateralization; and (m) whether, to the knowledge of the Servicer, any Lien exists on any of the Master Collateral, Collateral or Assigned Collateral (other than Liens granted pursuant to the Indenture and the other Related Documents or permitted thereunder) which is reasonable likely to have a Material Adverse Effect; (vii) Manufacturers. Promptly after obtaining actual knowledge thereof, notice of any Manufacturer Default, Manufacturer Ineligibility Event or termination or replacement of a Repurchase Program; (viii) Litigation. Promptly after becoming aware thereof, notice of any claims, litigation, arbitration, governmental investigation or proceeding or inquiry that is pending or, to the best of the Lessee's knowledge, threatened against the Lessee which is reasonably likely to have a Material Adverse Effect; (ix) ERISA. Promptly after becoming aware thereof, notice of (x) the termination of any Pension Plan; (y) the failure to make a contribution to any Pension Plan maintained by the Lessee or any member of the Controlled Group sufficient to give rise to a Lien under Section 302(f)(1) of ERISA; and (z) the existence or occurrence of a condition, event or transaction with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Lessee or any member of the Controlled Group of liabilities, fines or penalties in an amount that is reasonably likely to have a Material Adverse Effect; (x) Covenant Compliance. For each fiscal quarter of the Lessee, by the first date following the end of such fiscal quarter by which the Lessee is required to deliver the information described in item (i) or (ii), as applicable, above, an Officer's Certificate from a duly authorized financial officer of the Lessee certifying that the Lessee is in compliance with its covenants set forth in Sections 25.5 and 25.6 hereof with respect to the period ending on the last day of such fiscal quarter and specifying the method of calculation used in determining such compliance; and (xi) Other. Promptly, from time to time, such other information, documents, or reports respecting the Vehicles or the other Master Collateral or the condition, financial or otherwise, or operations of the Lessee or the Servicer as the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent may from time to time reasonably request in order to protect the interests of the Lessor, the Master Collateral 38 44 Agent, the Trustee or the NFC Collateral Agent under or as contemplated by this Agreement or any other Related Document. Section 24.8. Taxes and Liabilities. Pay when due all taxes, assessments and other material (determined on a consolidated basis) liabilities (including titling fees and registration fees payable with respect to Vehicles) except as contested in good faith and by appropriate proceedings with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP if and so long as forfeiture of any Vehicles or other Master Collateral will not result from the failure to pay any such taxes, assessments or other material liabilities during the period of any such contest. Section 24.9. Business. Engage only in business in substantially the same or related fields as the business conducted on the date hereof and such other lines of business which, in the aggregate, do not constitute a material part of its operations. Section 24.10. Maintenance of the Vehicles. (i) Maintain and cause to be maintained in good repair, working order, and condition all of the Vehicles in accordance with its ordinary business practices with respect to all other vehicles owned by it and will use its best efforts to maintain each such Vehicle as an eligible vehicle under the related Repurchase Program, except in each case to the extent that any such failure to comply with such requirements is not reasonably likely to, in the aggregate, materially adversely affect the interests of the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent under this Agreement, the Master Collateral Agency Agreement, the Indenture and Series 1996-2 Supplement, or the NFC Collateral Agreement or the likelihood of the Lessee's payment of Liabilities; and (ii) perform all of its obligations as Servicer as set forth in the Master Collateral Agency Agreement. Section 24.11. Maintenance of Separate Existence. (i) Maintain in place all policies and procedures, and take and continue to take all actions, described in the factual assumptions set forth in that certain opinion letter issued by Faegre & Benson LLP dated December 20, 1996 addressing the issue of substantive consolidation as it may relate to the Lessee and the Lessor (a copy of which opinion letter the Lessee hereby acknowledges it has received) and relating to it, and (ii) on a semi-annual basis, provide to the Rating Agencies, the Trustee, the Master Collateral Agent and the NFC Collateral Agent an Officer's Certificate certifying that it is in compliance with its obligations under this Section 24.11. Section 24.12. Maintenance of Enhancement. Maintain the Series 1996-2 Fronting Letters of Credit or other Enhancement for the Series 1996-2 Note and, if any, other Shared Collateral Series Notes in a stated amount equal to or greater than the amount required by Moody's and S&P in order to maintain a rating of not less than A-1 by S&P and P-1 by Moody's on the Commercial Paper Notes. Section 24.13. Repurchase Payments; Sales Proceeds. (i) Direct each Manufacturer to make all payments under the Repurchase Programs with respect to Vehicles 39 45 leased under this Agreement directly to the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement); (ii) cause all payments by any other Persons (including payments contemplated by Section 12.2) with respect to any Master Collateral (other than the Master Collateral described in the proviso to this Section) to be made directly to the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement); (iii) in the case of any such payments with respect to any Master Collateral received directly by the Lessee, except as described in the proviso to this Section, by the second Business Day following its receipt thereof, deposit such payments into the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement); and (iv) within two Business Days of the Lessee's receipt thereof, deposit all amounts representing the proceeds from sales by auction dealers under a Guaranteed Depreciation Program and sales (including amounts paid to the Lessee by a Manufacturer as a result of the Lessee's sale of such Vehicle outside such Manufacturer's Repurchase Program) of Vehicles by the Lessee to third parties (other than under any related Repurchase Program) into the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement); provided, however, that insurance proceeds with respect to Vehicles will only be deposited into the Master Collateral Account if an Amortization Event or Potential Amortization Event shall have occurred and be continuing. Section 24.14. Certificates of Title; Verification of Titles. (i) Take, or cause to be taken, such action as shall be necessary to submit all of the Certificates of Title to the appropriate state authority for notation of the Master Collateral Agent's lien thereon (it being understood and agreed that pursuant to the Master Collateral Agency Agreement, the original Certificates of Title relating to the Vehicles shall be held by the Servicer, in trust for the benefit of the Master Collateral Agent, the Trustee as assignee of the Lessor and the NFC Collateral Agent as assignee of the Series 1996-2 Noteholder, and the Certificates of Title shall be subject to all of the provisions of the Master Collateral Agency Agreement); (ii) no more than semi-annually, upon the request of any one (but not more than one) of the Lessor, the Trustee, the Master Collateral Agent or the NFC Collateral Agent, cause a title check of a representative or random sample of titles (such random sample to be compiled taking into account the multiple locations at which the Certificates of Title with respect to the Vehicles are held by the Servicer) by a Person acceptable to the NFC Collateral Agent on a reasonable number (but in no event less than 2%) of the Vehicles, including verification that the titles reflect the pledge to the Master Collateral Agent, and prepare a report of exceptions with the results of such title check and cause such report to be furnished to the Lessor, the Trustee, the Master Collateral Agent, the NFC Collateral Agent and the Rating Agencies (provided, however, if (x) any such title check reveals that 10% of such sample does not comply with the requirement that (1) the Master Collateral Agent be noted as the first lienholder on such titles or (2) the Lessor (or, in the case of Financed Vehicles, the Lessee) be listed as the registered owner on such titles or (y) a Potential Lease Event of Default or Lease Event of Default has occurred and is continuing, then upon the request of the Master Collateral Agent, the Lessor, the Trustee or the NFC Collateral Agent, the Lessee will cause additional title checks to be performed (at the Lessee's expense) on a reasonable number of the Vehicles); and (iii) at any time, upon the request of the Lessor, 40 46 the Trustee, the Master Collateral Agent or the NFC Collateral Agent, cause (at the requesting party's expense) a title check in accordance with the above stated procedures to be performed on the Vehicles. Section 24.15. Master Collateral Agency Agreement. Concurrently with each leasing of a Vehicle under this Agreement, indicate on its computer records that the Master Collateral Agent as assignee of the Lessor or the Lessee, as the case may be, is the holder of a Lien on such Vehicle for the benefit of the Trustee (and ultimately the NFC Collateral Agent) pursuant to the terms of the Master Collateral Agency Agreement. The Lessee shall not utilize selection procedures which it believes are adverse to the Lessor, the Trustee or the NFC Collateral Agent in selecting the Vehicles to be designated to NFLP and the Series 1996-2 Noteholder, respectively, as Financing Sources and the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, as Beneficiaries under the Master Collateral Agreement. Section 24.16. Compliance with Laws. (i) Not violate any law, ordinance, rule, regulation or order of any Governmental Authority applicable to it or its property, which violation is reasonably likely to have a Material Adverse Effect, (ii) file in a timely manner all reports, documents and other materials required to be filed by it with any governmental bureau, agency or instrumentality, except where failure to make such filings is not reasonably likely to have a Material Adverse Effect and (iii) retain all records and documents required to be retained by it pursuant to any Requirement of Law, except where failure to retain such records is not reasonably likely to have a Material Adverse Effect. Section 24.17. Delivery of Information. Provide the Lessor with any information or materials reasonably necessary for the Lessor to comply with its obligations under the Indenture or the Liquidity Agreement. Section 24.18. Restrictions. Insure that at least 85% of all Vehicles leased hereunder will have been manufactured by GM and not more than 15% of all Vehicles leased hereunder will have been manufactured by Chrysler. Section 24.19. Disclosure of Material Agreements. Provide to the Lessor, the Trustee, the Master Collateral Agent and the NFC Collateral Agent, promptly upon the execution or other adoption thereof by the Lessee, copies of all agreements, contracts, engagements or other types of arrangements (and any and all amendments, modifications and waivers related thereto) entered into by the Lessee with (a) any stockholder who (i) is part of a Controlling Person of the Lessee or (ii) has beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Lessee (or other securities convertible into such securities) representing 5% or more of (A) all securities of the Lessee or (B) the combined voting power of all securities of the Lessee entitled to vote in the election of directors or (b) an Affiliate of any such stockholder referred to in clause (a) pursuant to which any such stockholder or Affiliate of such stockholder may receive consideration in excess of $500,000. 41 47 Section 24.20. Cash Audit. Cause an annual retroactive cash analysis to be performed by nationally recognized independent auditors with respect to at least twenty-five Vehicles (each such twenty-five Vehicles to be a random sample compiled taking into account the multiple locations of the Lessee at which Vehicles are located) sold in each month during such annual period outside of any Repurchase Program, verifying that proceeds from such sales have been deposited into the Master Collateral Account (or as otherwise directed by the NFC Collateral Agent pursuant to the NFC Collateral Agreement), by the second Business Day following the receipt of such funds, and shall cause such auditors to prepare a report of exceptions to be delivered to the Master Collateral Agent, the Lessor, the Trustee, the NFC Collateral Agent and the Rating Agencies. Section 24.21. Deliveries; Further Assurances. At its sole expense, (i) immediately deliver or cause to be delivered to the Lessor (or the Master Collateral Agent on the Lessor's behalf), in due form for transfer (i.e., endorsed in blank), all securities, chattel paper, instruments and documents, if any, at any time representing all or any of the Master Collateral with respect to which the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, are designated as the Beneficiaries (it being understood that the Certificates of Title shall be held by the Servicer or the Master Collateral Agent, as the case may be, pursuant to the provisions of the Master Collateral Agency Agreement), and (ii) execute and deliver, or cause to be executed and delivered, to the Lessor or the Master Collateral Agent, as the case may be, in due form for filing or recording (and pay the cost of filing or recording the same in all public offices reasonably deemed necessary or advisable by the Lessor, the Master Collateral Agent, the Trustee or the NFC Collateral Agent, as the case may be), such assignments, security agreements, mortgages, consents, waivers, financing statements, and other documents, and do such other acts and things, all as may from time to time be reasonably necessary or desirable to establish and maintain to the satisfaction of the Lessor, the Master Collateral Agent, the Trustee and the NFC Collateral Agent a valid perfected first-priority Lien on and security interest in all of the Master Collateral with respect to which the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, are designated as the Beneficiaries now or hereafter existing or acquired. Section 24.22. Additional Actions. In its capacity as Servicer: (a) instruct the Trustee or the Paying Agent, as applicable, to make withdrawals and payments from the NFC Collection Account, as contemplated in the Indenture; (b) at the request of the Trustee as required or permitted upon or after the occurrence of certain events specified in the Indenture and, to the extent permitted under and in compliance with applicable laws and regulations, execute and deliver, for the benefit of the Series 1996-2 Noteholder under the Indenture, any and all instruments necessary or appropriate to commence or maintain enforcement proceedings with respect to Repurchase Programs or any Enhancement; 42 48 (c) make any filings, reports, notices, applications, or registrations with, and to seek any consents or authorizations from the Securities and Exchange Commission and any state securities laws authority on behalf of the Lessor as may be necessary to comply with any Federal or state securities laws or reporting requirements or laws; (d) upon the occurrence of a Series 1996-2 Lease Payment Deficit, deliver to the Trustee a notice in the form attached hereto as Exhibit B; and (e) perform such other functions and take such other actions as it is designated to perform or take pursuant to the terms and conditions of any Related Document. SECTION 25. CERTAIN NEGATIVE COVENANTS. Until the expiration or termination of this Agreement and thereafter until the Liabilities are paid in full, the Lessee agrees that, unless at any time the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent and, so long as it is an A Support Credit Enhancer, GM shall otherwise expressly consent in writing, it will not: Section 25.1. Mergers, Consolidations. Be a party to any merger or consolidation, other than a merger or consolidation of any Affiliate of the Lessee into or with the Lessee (provided that the Lessee is the surviving corporation). Section 25.2. Regulations G, T, U and X. Use or permit any amounts funded by the Lessor pursuant to the Financing Lease to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying margin stock" within the meaning of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, as amended from time to time. Section 25.3. Liens. Create or permit to exist any Lien with respect to any Master Collateral with respect to which the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, are designated as the Beneficiaries, whether now or hereafter existing or acquired, except Permitted Liens. Section 25.4. Use of Vehicles. Use or contractually permit any Vehicles to be used in any manner (i) that would make such Vehicles ineligible for repurchase or auction under the related Eligible Repurchase Program, (ii) for any illegal purposes or (iii) that could subject any Vehicles to confiscation. Section 25.5. Ratio of EBIT to Total Net Interest. Permit the ratio of EBIT to Total Net Interest for any period of four consecutive fiscal quarters to be less than the ratio of 1.2:1. 43 49 Section 25.6. Ratio of Cash Flow to Total Fixed Charges. Permit the ratio of Cash Flow to Total Fixed Charges for any period of four consecutive fiscal quarters to be less than the ratio of 1.0:1. Section 25.7. Other Indebtedness. Create, assume, incur, suffer to exist or otherwise become or remain liable in respect of Indebtedness, other than (i) Indebtedness incurred to finance Vehicles for use in its daily rental operations, including, without limitation, any Indebtedness incurred by the Lessee under the Related Documents, (ii) Indebtedness with respect to letters of credit and surety bonds obtained for use in the ordinary course of the Lessee's business in connection with its insurance and airport requirements, (iii) Indebtedness under the Subordinated Promissory Note and the GM Note, (iv) Indebtedness, the terms of which are reasonably satisfactory to the Liquidity Agent, of up to $50 million owed to reinsurers of insurance policies issued in favor of the Lessee and (v) additional Indebtedness in an aggregate amount not in excess of $75 million at any one time outstanding. Section 25.8. Restrictions on Distributions. (a) At any time during the 36-month period commencing with June 7, 1995, take or permit any of its Subsidiaries to take any of the following actions: (a) declare or pay any dividends (other than dividends payable solely in common stock of the Lessee or any such Subsidiary, as the case may be, or dividends payable by any direct or indirect Subsidiary directly or indirectly to the Lessee) or return any capital to, its stockholders or authorize or make any other distribution, payment or delivery of property or Cash to its stockholders as such (other than distributions by any Subsidiary to the Lessee), or subject to the last sentence of this Section, redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital stock, now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes, and the Lessee will not permit any of its Subsidiaries to purchase or otherwise acquire for consideration any shares of any class of the capital stock of the Lessee or any other Subsidiary, as the case may be, now or hereafter outstanding (or any options or warrants or stock appreciation rights, issued by such Person with respect to its capital stock) (all of the foregoing "Dividends") or (b) make any Distributions, except that during the 12-month period commencing on June 7, 1996, the Lessee may pay Dividends to its stockholders and make Distributions in an aggregate amount not to exceed 62% of the National Equity, and during the 12-month period commencing on June 7, 1997, the Lessee may pay Dividends to its stockholders and make Distributions in an aggregate amount not to exceed 100% of the National Equity less the aggregate amount of (A) all Dividends (regardless of whether such Dividends represent a return on or a return of the National Equity) previously paid to the stockholders and (B) all Distributions previously made. (b) in addition to the foregoing limitations, in no event (whether during or after the 36-month period referred to in Section 25.8(a) above) declare or pay any Dividend or make any Distribution on any date (i) if a Lease Event of Default shall have occurred and be continuing or (ii) if the aggregate amount of (A) all Dividends (regardless of whether such Dividends represent a return on or a return of the National Equity) paid by the Lessee to its stockholders as of such date (including all Dividends paid prior to such date) and (B) 44 50 Distributions made by the Lessee and its Subsidiaries as of any such date (including all Distributions made prior to such date) would exceed the cumulative net income of the Lessee from June 7, 1995 to such date. Notwithstanding Section 25.8(a) or (b), upon the death or the retirement or termination from employment with the Lessee of any stockholder of the Lessee, the Lessee may redeem, retire, purchase or otherwise acquire shares of any class of its capital stock owned by such stockholder immediately prior to his or her death, retirement or termination; provided, however, that, in any calendar year, the Lessee may not redeem, retire, purchase or otherwise acquire such shares with an aggregate value of more than that sum of (A) $500,000 and (B) the aggregate amount of consideration received by the Lessee in connection with the resale of any capital stock of the Lessee so repurchased to employees or officers of the Lessee during such calendar year. Section 25.9. Subordinated Promissory Note. Prepay prior to its original stated maturity the Subordinated Promissory Note until after all amounts due hereunder have been paid in full. Section 25.10. Swaps. Incur any indebtedness or obligations under any swap, cap, collar or other derivative instrument without the prior written consent of the Trustee and the NFC Collateral Agent. Section 25.11. Change of Location or Name. Change (a) the location of its principal place of business, chief executive office or its consolidated records concerning its business and financial affairs, or (b) its legal name or the name under or by which it conducts its business, in each case without first giving the Master Collateral Agent, the Trustee, the NFC Collateral Agent, the Rating Agencies and the Lessor at least 60 days' advance written notice thereof and having taken any and all action required to maintain and preserve the first priority perfected Lien of the Master Collateral Agent in the Master Collateral; provided, however, that notwithstanding the foregoing, the Lessee shall not change the location of its principal place of business, chief executive office or its consolidated records concerning its business and financial affairs to any place outside the United States of America. SECTION 26. SERVICING COMPENSATION. Section 26.1. As compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in Section 26.2, the Servicer shall be entitled to receive from the Lessor a monthly servicing fee (the "Monthly Servicing Fee"), payable in arrears on each Payment Date prior to the termination of this Lease, the Indenture and the Master Collateral Agency Agreement in an amount equal to the sum of the monthly servicing fees for all Series of Shared Collateral Series Notes. Except as otherwise specified in the related Supplement, the Monthly Servicing Fee for each Series of Shared Collateral Series Notes (each, a "Series Monthly Servicing Fee") on each Payment Date shall be equal to (i) the portion of the Supplemental Servicing Fee allocated to such Series of Shared Collateral Series Notes pursuant 45 51 to the related Supplement, plus (ii) one-twelfth of the product of (A) the Servicing Fee Percentage for such Series and (B) the Invested Amount of such Series as of the preceding Payment Date (after giving effect to any payments of principal on such date). The Series Monthly Servicing Fee for each Series shall be paid to the Servicer pursuant to the procedures set forth in the applicable Supplement. The supplemental servicing fee (the "Supplemental Servicing Fee") for any period shall be equal to all Carrying Charges comprising payments due from the Servicer under Section 26.2 hereof. Section 26.2. The Servicer's expenses include, and the Servicer agrees to pay, the amounts due to the Trustee pursuant to Section 10.5 of the Indenture, plus the reasonable fees and disbursements of independent accountants in connection with reports furnished pursuant to Sections 24.7(i) and (ii), plus all other fees, expenses and indemnities incurred by the Servicer or the Lessor in connection with the Servicer's activities hereunder or under the Related Documents. The Servicer, however, shall not be liable for any liabilities, costs or expenses of the Lessor, the Trustee or the Noteholders arising under any tax law, including without limitation any Federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith), except to the extent incurred as a result of the Servicer's violation of the provisions of this Lease or of the Related Documents; provided, however, the foregoing provisions of this sentence shall not affect the indemnification obligations of the Lessee under Section 15 of the Lease. In the event that the Servicer fails to pay any amount due to the Trustee pursuant to Section 10.5 of the Base Indenture, the Trustee will be entitled to receive such amounts due from the Monthly Servicing Fee prior to payment thereof to the Servicer. SECTION 27. RELEASE OF COLLATERAL. The parties agree that pursuant to the provisions of this Section 27 and Sections 2.3 and 2.7 of the Master Collateral Agency Agreement, any and all Liens for the benefit of the Lessor (including the Lien of the Trustee as assignee of the Lessor, and of the NFC Collateral Agent as assignee of the Series 1996-2 Noteholder, and in each case as Beneficiary under the Master Collateral Agency Agreement) on the Vehicles and the Certificates of Title therefor shall be released or deemed to be released, as provided below. From and after the earliest of: (a) in the case of a Vehicle subject to a Guaranteed Depreciation Program, the date of the sale of such Vehicle by an auction dealer to a third party, and in the case of any other Vehicle, the Turnback Date for such Vehicle; or (b) receipt of the purchase price by the Servicer or the Lessee for a Vehicle sold in an ordinary course sale; or (c) the payment in full of all obligations of the Servicer and the Lessee under this Agreement with respect to a Vehicle, any and all Liens for the benefit of the Lessor (including the Lien of the Trustee as assignee of the Lessor, and of the NFC Collateral Agent as assignee of the Series 1996-2 Noteholder, and 46 52 in each case as Beneficiary under the Master Collateral Agency Agreement) on such Vehicle and the Certificate of Title therefor shall be deemed to be released. The Lessor or the Servicer, acting as the agent of the Lessor, may direct the Lessee to sell any Vehicle during the Repurchase Period therefor in an ordinary course sale, provided that, if such sale is not made pursuant to the related Repurchase Program, it is made in accordance with the requirements of this Section 27. The Lessee agrees that for purposes of this Section 27 if an ordinary course sale occurs during the Repurchase Period with respect to a Vehicle, the Lessee shall only sell such Vehicle for a purchase price (including any amounts paid by the Manufacturer as an incentive for selling such Vehicle outside of the related Repurchase Program), net of all fees and expenses incurred in connection with such sale, equal to or greater than the Repurchase Price that it would have received under the related Purchase Program if it had turned back such Vehicle to the Manufacturer, net of all fees and expenses that would have been incurred in connection with such turn back less reasonably predictable Excess Mileage Charges, Excess Damage Charges, Missing Equipment Charges and other similar charges payable to the Lessee by such Manufacturer as a result of the Lessee's sale of such Vehicle. In addition, the Lessee agrees that ordinary course sales of Vehicles occurring during the Repurchase Period related to such Vehicles will be limited to a maximum number of Vehicles so sold of 10% per month of the number of Vehicles leased under this Agreement. The Lessor shall, and shall cause the Trustee, the NFC Collateral Agent and the Master Collateral Agent to, execute such documents and instruments as the Lessee may reasonably request (including a power of attorney of the Master Collateral Agent appointing the Lessee to act as the agent of the Master Collateral Agent in taking such actions as are required to evidence the release of the Lien of the Master Collateral Agent on Vehicles turned back or sold pursuant to the provisions of this Section 27, which power of attorney shall be revocable pursuant to Section 2.7(b) of the Master Collateral Agency Agreement). SECTION 28. BANKRUPTCY PETITION AGAINST LESSOR. The Lessee hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all Commercial Paper Notes Outstanding, all Series of Shared Collateral Series Notes and all other obligations of the Lessor and NFC under the Related Documents, it will not institute against, or join any other Person in instituting against, the Lessor or NFC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. In the event that the Lessee takes action in violation of this Section 28, the Lessor agrees, for the benefit of the Shared Collateral Series Noteholders, that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by the Lessee against the Lessor or the commencement of such action and raise the defense that the Lessee has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 28 shall survive the termination of this Agreement. SECTION 29. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, 47 53 OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE TRUSTEE, THE LESSOR, THE NFC COLLATERAL AGENT OR THE LESSEE SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY VEHICLE, OTHER MASTER COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LESSOR'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH VEHICLE, OTHER MASTER COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE LESSEE HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS OF THE STATE OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE LESSEE FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE LESSEE AND THE LESSOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE LESSEE HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND ANY OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY. SECTION 30. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable 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 Agreement. All obligations of the Lessee and all rights of the Lessor, the Master Collateral Agent, the Trustee, the NFC Collateral Agent or, so long as it is an A Support Credit Enhancer, GM expressed herein shall be in addition to and not in limitation of those provided by applicable law or in any other written instrument or agreement. 48 54 SECTION 31. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED TRANSACTION, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 32. NOTICES. All notices, amendments, waivers, consents and other communications provided to any party hereto under this Agreement shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted upon receipt of electronic confirmation of transmission. In each case, a copy of all notices, requests and other communications (other than any such notices, requests and other communications in the ordinary course of business) that are sent by any party or signatory hereunder shall be sent to the Trustee at the following address: THE BANK OF NEW YORK 101 Barclay Street Floor 12 East New York, New York 10286 Attention: Corporate Trust Division Telephone: (212) 815-5218 Facsimile: (212) 815-5999 and to the NFC Collateral Agent at the following address: Until January 1, 1997: CREDIT SUISSE 12 East 49th Street New York, New York 10017 Attention: Asset Finance Telephone: (212) 238-5370 Facsimile: (212) 238-5332 49 55 From and after January 1, 1997: CREDIT SUISSE FIRST BOSTON 11 Madison Avenue New York, New York 10010 Attention: Asset Finance Telephone: (212) 325-9078 Facsimile: (212) 325-6677 SECTION 33. HEADINGS. Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 34. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Agreement. SECTION 35. EFFECTIVENESS. This Agreement shall become effective on the Lease Commencement Date, subject to the satisfaction of the following conditions: (i) The prior or concurrent delivery by the Lessee to the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent of each of the following documents (in form and substance satisfactory to the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent: (a) Resolutions. Copies of resolutions of the Board of Directors of the Lessee authorizing or ratifying the execution, delivery and performance of this Agreement and the other Related Documents to which it is party and those other documents and matters required of it, in its capacity as Lessee or as Servicer or otherwise, with respect to this Agreement and such other Related Documents, duly certified by the Secretary or Assistant Secretary of the Lessee; (b) Consents, etc. Certified copies of all documents evidencing any necessary corporate action, consents and governmental approvals (if any) with respect to this Agreement and the other Related Documents to which the Lessee is party; (c) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of the Lessee certifying the names of the individual or individuals authorized to sign this Agreement and the other Related Documents to which it is party, together with a sample of the true signature of each such individual (the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein); 50 56 (d) Opinions of Counsel. The favorable opinions of Faegre & Benson LLP, counsel for the Lessee, Kaye, Scholer, Fierman, Hays & Handler LLP, special New York counsel for the Lessee, and Wesley C. Fredenburg, Esquire, the General Counsel of the Lessee, respectively, in each case addressed to the Lessor, the Trustee, the NFC Collateral Agent, the Master Collateral Agent, the Series 1996-2 Fronting Credit Enhancers, the Series 1996-2 Support Credit Enhancers, the Liquidity Agent, the Depositary, the Placement Agents, the Dealers and the Rating Agencies and satisfactory in form and substance to the addressees thereof; (e) Good Standing Certificates. Certificates of good standing for the Lessee in the jurisdiction of its organization and the jurisdiction of its principal place of business; (f) Search Reports. A written search report from a Person satisfactory to the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent listing all effective financing statements that name the Lessee as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to subsection (h) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent and the NFC Collateral Agent showing no evidence of such liens filed against the Lessee (other than in connection with any Related Documents); (g) Financing Statements. Executed, proper financing statements on Form UCC-1, (i) naming the Lessee as debtor and the Master Collateral Agent as secured party, or other, similar instruments or documents, as may be necessary or, in the reasonable opinion of the Lessor, the Master Collateral Agent, the Trustee, the Liquidity Agent or the NFC Collateral Agent, desirable under the UCC of all applicable jurisdictions to perfect the Master Collateral Agent's interest in the Master Collateral with respect to which the Trustee (for the benefit of the Series 1996-2 Noteholder) and the NFC Collateral Agent (for the benefit of the NFC Secured Parties), respectively, are designated as the Beneficiaries and (ii) naming the Lessee as debtor, the Lessor as secured party and the Master Collateral Agent as assignee, as may be necessary or desirable under the UCC of all applicable jurisdictions to perfect the precautionary security interest of the Lessor hereunder and the assignment of the same to the Master Collateral Agent; (h) Series 1996-2 Supplement. An executed copy of the Series 1996-2 Supplement; (i) Indenture. An executed copy of a supplement and amendment to the Indenture substantially in the form of Exhibit ACrompton & Knowles to the Second Amendment to Liquidity Agreement referred to below; 51 57 (j) Master Collateral Agency Agreement. An executed copy of a supplement and amendment to the Master Collateral Agency Agreement substantially in the form of Exhibit B to the Second Amendment to Liquidity Agreement referred to below; (k) Assignment Agreement. An executed copy of the Assignment Agreement of each Manufacturer; (l) Certified Copy of Repurchase Program. A copy of each Repurchase Program relating to Vehicles which will be leased hereunder and an Officer's Certificate, dated as of the Series 1996-2 Closing Date, and duly executed by an Authorized Officer of the Lessee, certifying that each such copy is true, correct and complete as of the Series 1996-2 Closing Date; and (m) Other. Such other documents as the Master Collateral Agent, the Trustee, the Lessor, the Liquidity Agent or the NFC Collateral Agent may reasonably request; (ii) All conditions to the effectiveness of the Supplement and Amendment to Base Indenture, dated as of December 20, 1996, shall have been satisfied in all respects; (iii) All conditions to the effectiveness of the Series 1996-2 Supplement and the issuance of the Series 1996-2 Notes thereunder shall have been satisfied in all respects; and (iv) All conditions to the effectiveness of the Second Amendment to Liquidity Agreement dated as of December 20, 1996, attached hereto as Exhibit C, shall have been satisfied in all respects. 52 58 IN WITNESS WHEREOF, the parties have executed this Agreement or caused it to be executed by their respective officers thereunto duly authorized as of the day and year first above written. LESSEE AND SERVICER: -------------------- NATIONAL CAR RENTAL SYSTEM, INC. By: /s/ Ed Zinter ---------------------------------------- Name: E.A. Zinter Title: EVP Address: 7700 France Avenue South Minneapolis, Minnesota 55435 Facsimile: (612) 893-6139 Telephone: (612) 830-2121 LESSOR: ------- NATIONAL CAR RENTAL FINANCING LIMITED PARTNERSHIP By: NATIONAL CAR RENTAL FINANCING CORPORATION, its General Partner By: /s/ M.J. Becker ---------------------------------------- Name: M.J. Becker Title: Asst. Secretary and Treasurer Address: 7700 France Avenue South Minneapolis, Minnesota 55435 Facsimile: (612) 893-6143 Telephone: (612) 830-2133 59 Acknowledged by: MASTER COLLATERAL AGENT: - ------------------------ CITIBANK, N.A. By: /s/ Annette Marsula -------------------------------- Name: Annette Marsula Title: Senior Trust Officer Address: 120 Wall Street, 13th Floor New York, New York 10043 Attention: Annette Marsula Telephone: 212-412-6249 Facsimile: 212-480-1615 EX-4.22 23 CREDIT FACILITIES & REIMBURSMENT AGREEMENT 1 Exhibit 4.22 CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT by and among REPUBLIC INDUSTRIES, INC., and REPUBLIC RESOURCES COMPANY, as Borrowers, NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Arranger and Administrative Agent, BANK OF AMERICA NT & SA, THE CHASE MANHATTAN BANK, CITICORP USA, INC., as Co-Arrangers, ABN AMRO BANK NV, THE BANK OF NOVA SCOTIA, THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH, CIBC INC., CREDIT SUISSE, THE FIRST NATIONAL BANK OF CHICAGO, FIRST UNION NATIONAL BANK OF FLORIDA, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, PNC BANK, KENTUCKY, INC., as Co-Agents, 2 NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), BANK OF AMERICA NT & SA, THE CHASE MANHATTAN BANK, CITICORP USA, INC., ABN AMRO BANK NV, THE BANK OF NOVA SCOTIA, THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH, CIBC INC., CREDIT SUISSE, THE FIRST NATIONAL BANK OF CHICAGO, FIRST UNION NATIONAL BANK OF FLORIDA, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, PNC BANK, KENTUCKY, INC., BANK OF MONTREAL, CAISSE NATIONALE DE CREDIT AGRICOLE, THE BANK OF NEW YORK, BARNETT BANK, N.A., COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY, BANCA MONTE DEI PASCHI DI SIENA, SpA, THE SUMITOMO BANK, LIMITED, WESTDEUTSCHE LANDESBANK GIROZENTRALE, as Lenders April 23, 1997 3 TABLE OF CONTENTS
Page ARTICLE I Definitions 1.01 Definitions..........................................................................................2 1.02 Use of Defined Terms................................................................................22 1.03 Cross References....................................................................................22 1.04 Accounting and Financial Determinations.............................................................22 1.05 General Provisions Relating to Definitions..........................................................23 ARTICLE II The Loans 2.01 Commitments; Joint and Several Liability............................................................24 2.02 Competitive Bid Loans...............................................................................27 2.03 Payment of Interest.................................................................................32 2.04 Payment of Principal................................................................................32 2.05 Non-Conforming Payments.............................................................................33 2.06 Borrowers' Accounts.................................................................................33 2.07 Notes...............................................................................................33 2.08 Pro Rata Payments...................................................................................34 2.09 Reductions..........................................................................................34 2.10 Increase and Decrease in Amounts....................................................................35 2.11 Conversions and Elections of Subsequent Interest Periods............................................35 2.12 Revolving Credit Facility Fee.......................................................................35 2.13 Deficiency Advances.................................................................................36 2.14 Use of Proceeds.....................................................................................36 2.15 Swing Line..........................................................................................36 ARTICLE III Letters of Credit 3.01 Letters of Credit...................................................................................38 3.02 Reimbursement.......................................................................................38 3.03 Letter of Credit Fee................................................................................41 3.04 Administrative Fees.................................................................................42
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Page ARTICLE IV Yield Protection and Illegality 4.01 Additional Costs....................................................................................43 4.02 Suspension of Loans.................................................................................44 4.03 Illegality..........................................................................................45 4.04 Compensation........................................................................................45 4.05 Alternate Loan and Lender...........................................................................46 4.06 Taxes...............................................................................................46 4.07 Replacement Lenders.................................................................................48 ARTICLE V Conditions to Making Loans and Issuing Letters of Credit 5.01 Conditions of Initial Advance and Issuance of Letters of Credit.....................................49 5.02 Conditions of Loans.................................................................................50 5.03 Supplements to Schedules............................................................................51 ARTICLE VI Representations and Warranties 6.01 Representations and Warranties......................................................................52 ARTICLE VII Affirmative Covenants 7.01 Financial Reports, Etc..............................................................................59 7.02 Maintain Properties.................................................................................60 7.03 Existence, Qualification, Etc.......................................................................60 7.04 Regulations and Taxes...............................................................................60 7.05 Insurance...........................................................................................60 7.06 True Books..........................................................................................61 7.07 Pay Indebtedness to Lenders and Perform Other Covenants.............................................61 7.08 Right of Inspection.................................................................................61 7.09 Observe all Laws....................................................................................61 7.10 Covenants Extending to Subsidiaries.................................................................61 7.11 Officer's Knowledge of Default......................................................................61
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Page 7.12 Suits or Other Proceedings..........................................................................62 7.13 Notice of Discharge of Hazardous Material or Environmental Complaint................................62 7.14 Environmental Compliance............................................................................62 7.15 Further Assurances..................................................................................62 7.16 Benefit Plans.......................................................................................62 7.17 Continued Operations................................................................................63 7.18 Use of Proceeds.....................................................................................63 ARTICLE VIII Negative Covenants 8.01 Indebtedness to Capitalization......................................................................64 8.02 Consolidated Fixed Charge Ratio.....................................................................64 8.03 Indebtedness........................................................................................64 8.04 Liens...............................................................................................65 8.05 Transfer of Assets..................................................................................66 8.06 Investments; Acquisitions...........................................................................66 8.07 Merger or Consolidation.............................................................................67 8.08 Transactions with Affiliates........................................................................67 8.09 Benefit Plans.......................................................................................68 8.10 Fiscal Year.........................................................................................68 8.11 Dissolution, etc....................................................................................68 8.12 Change in Control...................................................................................68 ARTICLE IX Events of Default and Acceleration 9.01 Events of Default...................................................................................69 9.02 Administrative Agent to Act.........................................................................72 9.03 Cumulative Rights...................................................................................72 9.04 No Waiver...........................................................................................73 9.05 Default.............................................................................................73 9.06 Allocation of Proceeds..............................................................................73 ARTICLE X The Administrative Agent 10.01 Appointment.........................................................................................74 10.02 Attorneys-in-fact...................................................................................74
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Page 10.03 Limitation on Liability.............................................................................74 10.04 Reliance............................................................................................74 10.05 Notice of Default...................................................................................75 10.06 No Representations..................................................................................75 10.07 Indemnification.....................................................................................76 10.08 Lender..............................................................................................76 10.09 Resignation.........................................................................................76 10.10 Sharing of Payments, etc............................................................................77 10.11 One Lender..........................................................................................77 10.12 Additional Fees.....................................................................................77 ARTICLE XI Miscellaneous 11.01 Assignments and Participations......................................................................78 11.02 Notices.............................................................................................80 11.03 Setoff..............................................................................................81 11.04 Survival............................................................................................81 11.05 Expenses............................................................................................82 11.06 Amendments..........................................................................................82 11.07 Counterparts........................................................................................83 11.08 WAIVERS BY BORROWERS................................................................................83 11.09 Termination.........................................................................................84 11.10 Governing Law.......................................................................................84 11.11 Indemnification.....................................................................................84 11.12 Headings and References.............................................................................86 11.13 Severability........................................................................................86 11.14 Entire Agreement....................................................................................86 11.15 Agreement Controls..................................................................................86 11.16 Usury Savings Clause................................................................................87 11.17 Consents to Renewals, Modifications and Other Actions and Events....................................87 11.18 Confidentiality.....................................................................................88 EXHIBIT A Applicable Commitment Percentages....................................................111 EXHIBIT B Form of Assignment and Acceptance....................................................113 SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE.........................................................118 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative.......................................................................120 EXHIBIT D-1 Form of Borrowing Notice--Revolving Credit Loans.....................................121 EXHIBIT D-2 Form of Borrowing Notice--Swing Line Loans...........................................123 EXHIBIT E Form of Competitive Bid Note.........................................................125
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Page EXHIBIT F Permitted Acquisitions Certificate...................................................129 EXHIBIT G-1 Form of Revolving Credit Notes.......................................................134 EXHIBIT G-2 Form of Swing Line Note..............................................................137 EXHIBIT H Interest Rate Selection Notice.......................................................140 EXHIBIT I Form of Competitive Bid Quote Request................................................142 EXHIBIT J Form of Competitive Bid Quote........................................................143 EXHIBIT K Form of Opinion of Borrowers' Counsel................................................145 EXHIBIT L Compliance Certificate...............................................................146 Schedule 1.01 Existing Letters of Credit...........................................................149 Schedule 6.01(d) Subsidiaries and Investments in Other Persons........................................150 Schedule 6.01(f) Contingent Liabilities...............................................................151 Schedule 6.01(g) Liens................................................................................152 Schedule 6.01(j) Litigation...........................................................................153 Schedule 6.01(p) ERISA Matters........................................................................154 Schedule 6.01(r) Environmental Issues.................................................................155 Schedule 7.05 Existing Insurance...................................................................156 Schedule 8.03 Indebtedness.........................................................................157
v 8 CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT THIS CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT, dated as of April 23, 1997 (the "Agreement"), is made by and among: REPUBLIC INDUSTRIES, INC., a Delaware corporation having its principal place of business in Ft. Lauderdale, Florida (the "Company"); and REPUBLIC RESOURCES COMPANY, a Delaware corporation having its principal place of business in Wilmington, Delaware ("RRC", and together with the Company, each a "Borrower", and collectively, the "Borrowers"); and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), a national banking association organized and existing under the laws of the United States of America and having its principal place of business in Miami, Florida ("NationsBank"), each other lender signatory hereto on the Closing Date and each Eligible Assignee which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 11.01 (hereinafter NationsBank and such other lenders may be referred to individually as a "Lender" or collectively as the "Lenders"; provided, that for purposes of any determination with respect to Citicorp USA, Inc. under Section 4.01, 4.02 or 4.03 or the definition of Regulatory Change in Section 1.01, "Lender" or "Lenders" shall be deemed to include "CitiBank, N.A."); and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), in its capacity as administrative agent for the Lenders (in such capacity, the "Administrative Agent"); W I T N E S S E T H: WHEREAS, the Borrowers have requested that the Lenders make available a revolving credit facility of $1,000,000,000 with a letter of credit sublimit of $500,000,000 and a swingline sublimit of $50,000,000; and WHEREAS, the Lenders are willing to make such revolving credit and letter of credit facilities available to the Borrowers upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrowers, the Lenders and the Administrative Agent hereby agree as follows: 9 ARTICLE I Definitions 1.01 Definitions. For the purposes of this Agreement, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: "Absolute Rate" has the meaning assigned to such term in Section 2.02(c)(ii)(C) hereof; "Advance" means a borrowing under (i) the Revolving Credit Facility, consisting of the aggregate principal amount of a Base Rate Loan or a Eurodollar Loan, as the case may be or (ii) the Swing Line consisting of Base Rate Loans or Swing Line Loans bearing interest at a rate mutually agreed upon by NationsBank and a Borrower, or (iii) the Competitive Bid Facility consisting of Competitive Bid Loans; "Affiliate" means a Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with either Borrower; (ii) which beneficially owns or holds 5% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of either Borrower; or (iii) 5% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by either Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise; "Applicable Commitment Percentage" means, for each Lender with respect to the Revolving Credit Facility (including its Participations and its obligations hereunder to any Issuing Bank or NationsBank to acquire Participations) (each a type of "credit exposure"), a fraction (expressed as a percentage), (A) the numerator of which shall be the then amount of such Lender's Revolving Credit Commitment (which Revolving Credit Commitment for each Lender as of the Closing Date is as set forth in Exhibit A attached hereto and incorporated herein by this reference), and (B) the denominator of which shall be, respectively, the Total Revolving Credit Commitment; provided that each Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 11.01 hereof and any voluntary or mandatory reductions in such committed amounts; "Applicable Margin" means that percent per annum set forth below, which shall be based upon the ratio of (X) Consolidated Funded Indebtedness to (Y) Consolidated Total Capitalization for the fiscal quarterly period of the Company most recently ended as specified below: 2 10
Funded Indebtedness/ Capitalization Applicable Margin -------------- ----------------- a) Less than or Equal to .20 to 1.00 .20% b) Less than or Equal to .30 to 1.00, but Greater than .20 to 1.00 .275% c) Equal to or Less than .40 to 1.00, but Greater than .30 to 1.00 .40%
The Applicable Margin shall be established at the end of each fiscal quarter of the Company (each a "Determination Date"). Any change in the Applicable Margin following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Administrative Agent pursuant to Section 7.01(a)(ii) and Section 7.01(b)(ii), subject to review and approval of such computations by the Administrative Agent, and shall be effective commencing on the date following the date such certificate is received (or, if earlier, the date such certificate is required to be delivered) until the date following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur. From the Closing Date to the first Determination Date, the Applicable Margin shall be .20%; "Applications and Agreements for Letters of Credit" means, collectively, the Applications and Agreements for Letters of Credit executed by the Company from time to time and delivered to the applicable Issuing Bank to support the issuance of Letters of Credit; "Assignment and Acceptance" shall mean an Assignment and Acceptance substantially in the form of Exhibit B (with blanks appropriately filled in) delivered to the Administrative Agent in connection with an assignment of a Lender's interest under this Agreement and the TROL Credit Documents pursuant to Section 11.01; "Authorized Representative" means any of the Chairman, Vice Chairmen, President, Executive Vice Presidents or Vice Presidents of either Borrower and, with respect to financial matters, the Treasurer, Vice President Finance or Chief Financial Officer of either Borrower or any other person expressly designated by the Board of Directors of either Borrower (or the appropriate committee thereof) as an Authorized Representative of such Borrower, as set forth from time to time in a certificate in the form attached hereto as Exhibit C; 3 11 "Automobile Retailing Activities" means new and used vehicle retailing, wholesaling, renting, leasing, financing, servicing and related activities; "AutoNation TROL" means, the amended and restated Tax Retention Operating Lease facility entered into as of November 18, 1996 between AutoNation USA Corporation and First Security Bank, National Association (as successor in interest to First Security Bank of Utah, N.A.) as owner trustee under the AutoNation Trust 1996-1 as such facility has been or may be amended, amended and restated, supplemented or otherwise modified from time to time; "Base Rate" means the greater of (i) the sum of the Federal Funds Effective Rate plus one-half of one percent (1/2%), or (ii) the Prime Rate; "Base Rate Loan" means a Loan for which the rate of interest is determined by reference to the Base Rate; "Base Rate Refunding Loan" means a Base Rate Loan or Swing Line Loan made either to (i) satisfy Reimbursement Obligations arising from a drawing under a Letter of Credit or (ii) pay NationsBank in respect of Swing Line Outstandings; "Board" means the Board of Governors of the Federal Reserve System (or any successor body); "Borrower's Account" means (a) with respect to the Company, demand deposit account number 3750682241, and (b) with respect to RRC, demand deposit account number 3750794553, or any respective successor accounts with the Administrative Agent, which may be maintained at one or more offices of the Administrative Agent or an agent of the Administrative Agent; "Borrowing Notice" means the notice delivered by an Authorized Representative in connection with an Advance under the Revolving Credit Facility or a Swing Line Loan, in the forms attached hereto as Exhibits D-1 and D-2, respectively; "Business Day" means (i) with respect to any Eurodollar Loan or any Competitive Bid Loan at the Eurodollar Competitive Rate, any day which is a Business Day, as described below, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in London, England and New York, New York, and (ii) with respect to any other Loan and for any other purposes hereof, any day which is not a Saturday, Sunday or a day on which banks in the States of Florida, North Carolina and New York are authorized or obligated by law, executive order or governmental decree to be closed; "Capital Leases" means all leases which have been or should be capitalized in accordance with Generally Accepted Accounting Principles as in effect from time to time 4 12 including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof; "Change in Control" means (i) if any Person or group of Persons acting in concert other than the owners of more than 35% of the outstanding voting securities of the Company as of the Closing Date having voting rights in the election of directors, shall own or control, directly or indirectly, more than 35% of the outstanding securities (on a fully diluted basis and taking into account any voting securities or contract rights exercisable, exchangeable or convertible into equity securities) of the Company having voting rights in the election of directors; or (ii) the replacement or resignation (other than by reason of death, illness or incapacity), within any two-year period, of a majority of the members of the Board of Directors of the Company (the "Board") or a change in the size of the Board, within any two-year period, which results in members of the Board who were in office at the beginning of such two-year period constituting less than a majority of the members of the Board (unless such replacement, resignation or change in size of the Board shall have been effected or initiated by a majority of the members of the Board in office at the beginning of such two-year period); "Closing Date" means the date as of which this Agreement is executed by the Borrowers, the Lenders and the Administrative Agent and on which the conditions set forth in Section 5.01 have been satisfied; "Code" means the Internal Revenue Code of 1986, as amended, any successor provision or provisions and any regulations promulgated thereunder; "Competitive Bid Borrowing" has the meaning assigned to such term in Section 2.02 hereof; "Competitive Bid Facility" means the facility described in Section 2.02 hereof providing for Competitive Bid Loans to the Borrowers; "Competitive Bid Loan Commitment" means the amount which a Lender has offered to loan to the Borrowers pursuant to a Competitive Bid Quote by such Lender, the sum of all Competitive Bid Loans not to exceed in the aggregate one hundred percent (100%) of the Total Revolving Credit Commitment; "Competitive Bid Loans" means the Loans bearing interest at an Absolute Rate or a Eurodollar Competitive Rate provided for in Section 2.02 hereof; "Competitive Bid Notes" means, collectively, the promissory notes of the Borrowers with respect to Competitive Bid Loans provided for by Section 2.02 hereof executed and delivered to the Lenders as provided in Section 2.07(c) substantially in the form attached hereto as Exhibit E and incorporated herein by reference, with appropriate insertions as to dates and names of Lenders, and all promissory notes delivered in 5 13 substitution or exchange therefor, in each case as the same shall be amended, modified or supplemented and in effect from time to time; "Competitive Bid Quote" means an offer in accordance with Section 2.02 hereof by a Lender to make a Competitive Bid Loan with one single specified interest rate; "Competitive Bid Quote Request" has the meaning assigned to such term in Section 2.02 hereof; "Compliance Certificate" means a certificate in the form of Exhibit L furnished to the Administrative Agent and Lenders by the Company pursuant to Section 7.01 hereof; "Consistent Basis" in reference to the application of Generally Accepted Accounting Principles means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Company referred to in Section 6.01(f)(i) hereof; "Consolidated EBITDA" means, with respect to the Company and its Subsidiaries for any period of computation thereof during such period, the sum of, without duplication, (i) Consolidated Net Income, plus (ii) Consolidated Interest Expense during such period, plus (iii) taxes on income during such period, plus (iv) amortization during such period, plus (v) depreciation during such period (with the exclusion of any depreciation related to Vehicles), determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; provided, however, that with respect to any Permitted Acquisition which is accounted for as a "purchase", for the Four-Quarter Period following such acquisition, the Consolidated EBITDA shall include the results of operations of the Person or assets so acquired which amounts shall be determined on an historical pro forma basis in form and substance reasonably satisfactory to the Administrative Agent so long as the Company has furnished to the Administrative Agent financial information acceptable to the Administrative Agent with respect to the Person or assets which are the subject of such Permitted Acquisition; "Consolidated Fixed Charge Ratio" means, with respect to the Company and its Subsidiaries for the Four-Quarter Period ending on the date of computation thereof, the ratio of (a) Consolidated EBITDA to (b) Consolidated Interest Expense; "Consolidated Funded Indebtedness" means Funded Indebtedness of the Company and its Subsidiaries, determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, provided, Vehicle Secured Indebtedness and Vehicle Receivables Indebtedness shall be excluded from the calculation of Consolidated Funded Indebtedness; "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Company and its Subsidiaries, including without 6 14 limitation (i) the amortization of debt discounts, (ii) the amortization of all fees payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any liabilities incurred in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, provided, however, Consolidated Interest Expense shall not include any interest expense classified as cost of goods sold in accordance with Generally Accepted Accounting Principles; "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Company and its Subsidiaries, less all operating and non-operating expenses of the Company and its Subsidiaries including taxes on income, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; but excluding all non-cash, non-recurring and extraordinary gains or losses, all as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Shareholders' Equity" means at any time as of which the amount thereof is to be determined, the sum of the following in respect of the Company and its Subsidiaries (determined on a consolidated basis and excluding intercompany items among the Company and its Subsidiaries and any upward adjustment after December 31, 1996 due to revaluation of assets): (i) the amount of issued and outstanding share capital, plus (ii) the amount of additional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), minus (iii) the amount of any foreign currency translation adjustment which is included in the equity section of the consolidated balance sheet (whether positive or negative), minus (iv) the absolute value of any treasury stock and the absolute value of any stock subscription receivables, as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Total Assets" means assets of the Company and its Subsidiaries as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Total Capitalization" means, as at any time as of which the amount thereof is to be determined, the sum of Consolidated Funded Indebtedness plus Consolidated Shareholders' Equity; "Contingent Obligation" of any Person means all contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the consolidated financial statements (including footnotes) of such Person in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: 7 15 (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof; with respect to Contingent Obligations (such as litigation, guarantees and pension plan liabilities), such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represent the present value of the amount which can reasonably be expected to become an actual or matured liability; "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder; "Determination Date" means the last day of each fiscal quarterly period of the Company; "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America; "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $500,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $500,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD (each of the foregoing being hereinafter referred to as a "Bank" for purposes of this definition); and (c) a Person that is primarily engaged in the business 8 16 of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary; "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Required Lenders: (a) Government Securities; (b) the following debt securities of the following agencies or instrumentalities of the United States of America if at all times the full faith and credit of the United States of America is pledged to the full and timely payment of all interest and principal thereof: (i) all direct or fully guaranteed obligations of the United States Treasury; and (ii) mortgage-backed securities and participation certificates guaranteed by the Government National Mortgage Association; (c) the following obligations of the following agencies or instrumentalities of the United States of America: (i) participation certificates and debt obligations of the Federal Home Loan Mortgage Corporation; (ii) consolidated debt obligations, and obligations secured by a letter of credit, of the Federal Home Loan Banks; and (iii) debt obligations and mortgage-backed securities of the Federal National Mortgage Association which have not had the interest portion thereof severed therefrom; (d) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than 92 days following the date of issuance thereof and rated in an investment grade rating category by S&P and Moody's; (e) interest bearing demand or time deposits issued by any Lender or certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and being rated A-3 or better by S&P or A or better by Moody's; 9 17 (f) Repurchase Agreements; (g) Pre-Refunded Municipal Obligations; (h) shares of mutual funds which invest in obligations described in paragraphs (a) through (g) above, the shares of which mutual funds are at all times rated "AAA" by S&P; and (i) asset-backed remarketed certificates of participation representing a fractional undivided interest in the assets of a trust, which certificates are rated at least "A-1" by S&P and "P-1" by Moody's. Obligations listed in paragraphs (a), (b) and (c) above which are in book-entry form must be held in a trust account with the Federal Reserve Bank or with a clearing corporation or chain of clearing corporations which has an account with the Federal Reserve Bank; "Eligible Special Purpose Entity" means any Person which is not a Subsidiary of the Company which has been formed by or for the benefit of the Company or any Subsidiary for the purpose of (i) financing or refinancing, leasing, selling or securitizing Vehicles or related receivables and which finances, refinances or securitizes Vehicles or related receivables of, leases Vehicles to or purchases Vehicles or related receivables from the Company or any Subsidiary; or (ii) financing or refinancing consumer receivables, leases, loans or retail installment contracts; "Eligible TROL" means the AutoNation TROL and any similar tax retention operating lease facility entered into by or for the benefit of the Company or any Subsidiary; "Environmental Laws" means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other "Superfund" or "Superlien" law or any other applicable statute, law, ordinance, code, rule, regulation, order or decree, of the United States or any foreign nation or any province, territory, state, protectorate or other political subdivision thereof, regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material; "ERISA" means, at any date, the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder, all as the same shall be in effect at such date; 10 18 "Eurodollar Competitive Rate" means, for the Interest Period for any Competitive Bid Loan at a Eurodollar Competitive Rate, the rate of interest per annum determined pursuant to the following formula: Eurodollar Interbank Offered Rate Competitive = ---------------------- Rate 1-Eurodollar Reserve +or - a margin Percentage "Eurodollar Loan" means a Loan for which the rate of interest is determined by reference to the Eurodollar Revolver Rate; "Eurodollar Reserve Percentage" means, for any day, that percentage (expressed as a decimal) which is in effect from time to time under Regulation D or any successor regulation, as the maximum reserve requirement (including, without limitation, any basic, supplemental, emergency, special, or marginal reserves) applicable with respect to Eurocurrency liabilities as that term is defined in Regulation D (or against any other category of liabilities that includes deposits by reference to which the interest rate of Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is determined), whether or not any Lender has any Eurocurrency liabilities subject to such requirements without benefits of credits or proration, exceptions or offsets that may be available from time to time to any Lender. The Eurodollar Revolver Rate and the Eurodollar Competitive Rate shall be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage; "Eurodollar Revolver Rate" means, for the Interest Period for any Eurodollar Loan, the rate of interest per annum determined pursuant to the following formula: Eurodollar Interbank Offered Rate Applicable Revolver = ---------------------- + Margin Rate 1-Eurodollar Reserve Percentage "Event of Default" means any of the occurrences set forth as such in Section 9.01 hereof, provided that any requirement for notice or lapse of time, or both, has been satisfied; "Existing Facilities" means, the revolving credit facility, the competitive bid facility and the swing line made available to the Company pursuant to the Existing Loan Documents; "Existing Issuing Banks" means those financial institutions which have issued the Existing Letters of Credit, as described on Schedule 1.01 attached hereto; 11 19 "Existing Letters of Credit" means those Letters of Credit issued by the Existing Issuing Banks, which are outstanding on the Closing Date and which are described in Schedule 1.01 attached hereto; "Existing Loan Documents" means, collectively, (i) the Credit Facilities and Reimbursement Agreement dated as of December 19, 1995, among the Company, as borrower, the Administrative Agent, as agent, The First National Bank of Boston, as co- agent, and the lenders party thereto (as such agreement has been amended, supplemented or otherwise modified from time to time, the "Existing Credit Agreement"), and (ii) all instruments, documents and agreements executed and delivered or issued in connection with the Existing Credit Agreement, as any of such documents have been amended, supplemented or otherwise modified; "Facility Fee" means that percent per annum set forth below, which shall be based upon the ratio of (X) Consolidated Funded Indebtedness to (Y) Consolidated Total Capitalization for the fiscal quarterly period of the Company most recently ended as specified below:
Funded Indebtedness/ Facility Capitalization Fee -------------- --- a) Less than or Equal to .20 to 1.00 .125% b) Less than or Equal to .30 to 1.00, but Greater than .20 to 1.00 .15% c) Equal to or Less than .40 to 1.00, but Greater than .30 to 1.00 .20%
The Facility Fee shall be established at the end of each fiscal quarter of the Company (each a "Determination Date"). Any change in the Facility Fee following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Administrative Agent pursuant to Section 7.01(a)(ii) and Section 7.01(b)(ii), subject to review and approval of such computations by the Administrative Agent and shall be effective commencing on the date following the date such certificate is received (or, if earlier, the date such certificate was required to be delivered) until the date following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur. From the Closing Date to the first Determination Date, the Facility Fee shall be .125%; 12 20 "Federal Funds Effective Rate" for any day, as used herein, means the rate per annum (rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight Federal funds transactions arranged by Federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced; "Fiscal Year" means the period of the Company beginning on the first day of January of each calendar year and ending on December 31 of such calendar year; "Four-Quarter Period" means a period of four full consecutive quarterly periods, taken together as one accounting period; "Funded Indebtedness" means, without duplication, all indebtedness in respect of money borrowed, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond or similar written obligation for the payment of money (including, but not limited to, conditional sales or similar title retention agreements), undrawn amounts of letters of credit and any Reimbursement Obligations, all determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, provided, Vehicle Secured Indebtedness and Vehicle Receivables Indebtedness shall be excluded from the calculation of Funded Indebtedness; "Generally Accepted Accounting Principles" means those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report, as such principles are from time to time supplemented and amended; "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America; "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government, any court or any arbitrator, in each case whether a state of the United States, the United States or foreign nation, state, province or other governmental instrumentality; 13 21 "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law; "Indebtedness" means with respect to any Person, without duplication, all Funded Indebtedness, all Vehicle Secured Indebtedness, all Vehicle Receivables Indebtedness, all indebtedness for the acquisition of property, all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed, all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), all Contingent Obligations and other items which in accordance with Generally Accepted Accounting Principles are classified as a liability on a balance sheet; but excluding all accounts payable and accruals, in each case in the ordinary course of business and only so long as payment therefor is due within one year; provided that in no event shall the term Indebtedness include partners' capital, surplus and retained earnings, minority interests in other Persons, lease obligations (other than pursuant to Capital Leases), reserves for deferred income taxes and investment credits, other deferred credits and reserves, and deferred compensation obligations; provided, that there shall be included in the definition of Indebtedness, for purposes of Section 9.01(e) only, any indebtedness arising under an Eligible TROL; "Interbank Offered Rate" means, with respect to any Eurodollar Loan or any Competitive Bid Loan at a Eurodollar Competitive Rate, for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Interbank Offered Rate" shall mean, for any Eurodollar Loan or any Competitive Bid Loan at the Eurodollar Competitive Rate for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates; "Interest Period" (a) for each Eurodollar Loan means a period commencing on the date such Eurodollar Loan is made or converted and each subsequent period commencing on the last day of the immediately preceding Interest Period for such Eurodollar Loan, and ending, at the Borrowers' option, on the date one week or one, two, three or six months thereafter as notified to the Administrative Agent by the Authorized Representative three (3) Business Days prior to the beginning of such Interest Period; provided, that, (i) if the Authorized Representative fails to notify the Administrative Agent of the length of an Interest Period three (3) Business Days prior to the first 14 22 day of such Interest Period, the Loan for which such Interest Period was to be determined shall be deemed to be a Base Rate Loan bearing interest at the Base Rate, as of the first day thereof; (ii) if an Interest Period for a Eurodollar Loan would end on a day which is not a Business Day such Interest Period shall be extended to the next Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding Business Day); and (iii) on any day, with respect to all Revolving Credit Loans and Competitive Bid Loans, there shall not be in effect (x) more than twenty (20) Interest Periods, and (y) more than one (1) Interest Period having a term of one (1) week; (b) for each Competitive Bid Loan at an Absolute Rate means the period commencing on the date of such Loan and ending on such date as may be mutually agreed upon by the Borrowers and the Lender or Lenders making such Competitive Bid Loan or Loans, as the case may be, comprising such Competitive Bid Loan; provided that no Interest Period for a Competitive Bid Loan at an Absolute Rate shall be for a period of less than seven or greater than 90 days; (c) for each Competitive Bid Loan at a Eurodollar Competitive Rate means the period commencing on the date such Competitive Bid Loan is made and ending, at the Borrowers' option, on the date one week or one, two, three or six months thereafter as notified by the Borrowers to such Lender by the Authorized Representative three (3) Business Days prior to the beginning of such Interest Period provided that if an Interest Period for such Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end in the next preceding Business Day); "Issuing Banks" means the Lenders who agree from time to time to issue (provided that no Lender shall be obligated to do so) Letters of Credit (including the Existing Issuing Banks) in accordance with Section 3.01 and "Issuing Bank" means any one of such Issuing Banks. On any date of determination, no more than four (4) Lenders (not including any Existing Issuing Banks) may be Issuing Banks hereunder; "LC Account Agreement" means the LC Account Agreement dated as of the date hereof between the Company and the Administrative Agent, as amended, supplemented or otherwise modified from time to time; "Lending Office" means, as to each Lender, the Lending Office of such Lender designated on the signature pages hereof or in an Assignment and Acceptance or such other 15 23 office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Borrowers and the Administrative Agent as the office by which its Loans are to be made and maintained; "Letter of Credit" means (i) a standby letter of credit issued by an Issuing Bank for the account of the Company in favor of a Person advancing credit or securing an obligation on behalf of the Company and (ii) each of the Existing Letters of Credit; "Letter of Credit Commitment" means with respect to each Lender, the obligation of such Lender to acquire Letter of Credit Participations up to an aggregate stated amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement; "Letter of Credit Facility" means the facility described in Article III hereof providing for the issuance by the Issuing Banks for the account of the Company of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment; "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Agreement, the Company and its Subsidiaries shall be deemed to be the owners of any property which either of them have acquired or hold subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes; "Loan" or "Loans" means any of the Revolving Credit Loans or Swing Line Loans or Competitive Bid Loans; "Loan Documents" means this Agreement, the Notes, the Applications and Agreements for Letters of Credit, the LC Account Agreement and all other instruments and documents heretofore or hereafter executed or delivered to and in favor of any Lender or the Administrative Agent in connection with the Loans or the Letters of Credit made, issued or created under this Agreement as the same may be amended, modified or supplemented from time to time; "Material Adverse Effect" means a material adverse effect on (i) the business, properties, operations or condition, financial or otherwise, of the Company and its Subsidiaries, taken as a whole, (ii) the ability of any Borrower to pay or perform its respective obligations, liabilities and indebtedness under the Loan Documents as such payment or performance becomes due in accordance with the terms thereof, or (iii) the 16 24 rights, powers and remedies of the Administrative Agent or any Lender under any Loan Document or the validity, legality or enforceability thereof (including for purposes of clauses (ii) and (iii) the imposition of burdensome conditions thereon); "Moody's" means Moody's Investors Service, Inc., a Delaware corporation; "Multi-employer Plan" means an employee pension benefit plan covered by Title IV of ERISA and in respect of which the Company or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA, which is also a multi-employer plan as defined in Section 4001(a)(3) of ERISA; "Notes" means, collectively, the Revolving Credit Notes, the Swing Line Note and the Competitive Bid Notes which are to be delivered to the Lenders; "Obligations" means the obligations, liabilities and Indebtedness of the Borrowers with respect to (i) the principal and interest on the Loans, (ii) the Reimbursement Obligations and (iii) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrowers to the Lenders or the Administrative Agent hereunder, under any one or more of the other Loan Documents or with respect to the Loans; "Quotation Date" has the meaning assigned to such term in Section 2.02 hereof; "Outstanding Credit Obligations" means the sum of (i) the Revolving Credit Outstandings, (ii) Outstanding Letters of Credit, (iii) Swing Line Outstandings and (iv) outstanding Competitive Bid Loans, all as at the date of determination thereof; "Outstanding Letters of Credit" means all undrawn amounts of Letters of Credit plus Reimbursement Obligations; "Participation" means, with respect to any Lender (other than NationsBank with respect to a Swing Line Loan, and other than the applicable Issuing Bank with respect to a Letter of Credit), the extension of credit represented by the participation of such Lender hereunder in (a) the liability of NationsBank in respect of a Swing Line Loan made or (b) the liability of the applicable Issuing Bank in respect of Letters of Credit issued, all in accordance with the terms hereof; "Permitted Acquisition" means an acquisition of a Person or the assets of a Person effected with the consent and approval of the Board of Directors (or the appropriate committee thereof) or other applicable governing body of such Person and the duly obtained approval of such shareholders or other holders of equity interests in such Person as may be required to be obtained under applicable law, the charter documents of or any shareholder agreements or similar agreements pertaining to such Person, which Person derives the majority of its revenues either (x) from service or service related activities or engages in other business or owns other assets which support or compliment these service 17 25 revenues or (y) from Automobile Retailing Activities, provided that after giving effect to such acquisition no Default or Event of Default exists hereunder; "Person" means an individual, partnership, corporation, limited liability company, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof; "Pre-Refunded Municipal Obligations" means obligations of any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated, based on the escrow, in the highest investment rating category by both S&P and Moody's and which have been irrevocably called for redemption and advance refunded through the deposit in escrow of Government Securities or other debt securities which are (i) not callable at the option of the issuer thereof prior to maturity, (ii) irrevocably pledged solely to the payment of all principal and interest on such obligations as the same becomes due and (iii) in a principal amount and bear such rate or rates of interest as shall be sufficient to pay in full all principal of, interest, and premium, if any, on such obligations as the same becomes due as verified by a nationally recognized firm of certified public accountants; "Prime Rate" means the rate of interest per annum announced publicly by the Administrative Agent as its prime rate from time to time. The Prime Rate is not necessarily the best or the lowest rate of interest offered by the Administrative Agent; "Principal Office" means the office of the Administrative Agent at Independence Center, Charlotte, North Carolina 28255, Attention: Corporate Loan Support or such other office and address as the Administrative Agent may from time to time designate; "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time; "Regulatory Change" means any change effective after the Closing Date in United States federal or state laws or regulations (including Regulation D and capital adequacy regulations) or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks, which includes any of the Lenders, under any United States federal or state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy, including with respect to "highly leveraged transactions," whether or not having the force of law, whether or not failure to comply therewith would be unlawful (but if not unlawful, noncompliance with which would have the effect in the good faith judgment of the affected Lender of imposing additional administrative or regulatory burdens or consequences, costs or other adverse effects on such Lenders) and, to the knowledge of the affected Lender, not published or proposed prior to the date hereof; 18 26 "Reimbursement Obligation" shall mean at any time, the obligation of the Company with respect to any Letter of Credit to reimburse the Issuing Bank and the Lenders to the extent of their respective Participations (including by the receipt by the Issuing Bank of proceeds of Loans pursuant to Section 3.02) for amounts theretofore paid by the Issuing Bank or the Lenders pursuant to a drawing under such Letter of Credit; "Repurchase Agreement" means a repurchase agreement entered into with any financial institution whose debt obligations or commercial paper are rated "A" by either of S&P or Moody's or "A-1" by S&P or "P-1" by Moody's; "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating at least 51% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal at all times (a) other than following the occurrence and during the continuance of an Event of Default, to its Revolving Credit Commitment, and (b) following the occurrence and during the continuance of an Event of Default, the aggregate principal amount of the Revolving Credit Loans and Competitive Bid Loans owing to such Lender plus the aggregate unutilized amounts of such Lender's Revolving Credit Commitment plus the amount of such Lender's Applicable Commitment Percentage of Swing Line Loans and Outstanding Letters of Credit and of the Reimbursement Obligations; provided that, if any Lender shall have failed to pay (x) to NationsBank its Applicable Commitment Percentage of any Swing Line Loan or (y) to any Issuing Bank its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to Swing Line Loans shall be deemed to be held by NationsBank for purposes of this definition, and such Lender's Credit Exposure attributable to Letters of Credit, Reimbursement Obligations and the Letter of Credit Commitment shall be deemed to be held by the applicable Issuing Bank for purposes of this definition; "Revolving Credit Commitment" means with respect to each Lender, the obligation of such Lender to make Loans to the Borrowers and purchase Participations up to an aggregate principal amount at any one time outstanding, determined with reference to such Lender's percentage as set forth on Exhibit A attached hereto of the Total Revolving Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement; "Revolving Credit Facility" means the facility described in Section 2.01(a) hereof providing for Loans to the Borrowers by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment less the aggregate amount of Swing Line Outstandings and Outstanding Letters of Credit and outstanding Competitive Bid Loans; "Revolving Credit Loan" means a Loan made pursuant to the Revolving Credit Facility; 19 27 "Revolving Credit Notes" means, collectively, the promissory notes of the Borrowers evidencing Loans executed and delivered to the Lenders as provided in Section 2.07(a) hereof substantially in the form attached hereto as Exhibit G-1, with appropriate insertions as to amounts, dates and names of Lenders; "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Revolving Credit Loans then outstanding and all interest accrued thereon; "Revolving Credit Termination Date" means (i) April 22, 2002 or (ii) such earlier date of termination of Lenders' obligations pursuant to Section 9.01 upon the occurrence of an Event of Default, or (iii) such date as the Borrowers may voluntarily permanently terminate the Revolving Credit Facility and the Competitive Bid Facility by payment in full of all Obligations (including the discharge of all Obligations of NationsBank, the Issuing Banks and the Lenders with respect to Letters of Credit, Participations and Competitive Bid Loans); "S&P" means Standard & Poor's Rating Group, a division of McGraw-Hill, Inc.; "Single Employer Plan" means any employee pension benefit plan covered by Title IV of ERISA and in respect of which the Company or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA, which is not a Multi-employer Plan; "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including, without limitation, Contingent Obligations; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by the Company and/or by one or more of the Company's Subsidiaries; "Swing Line" means the revolving line of credit established by NationsBank in favor of the Borrowers pursuant to Section 2.15; 20 28 "Swing Line Loans" means Loans made by NationsBank to the Borrowers pursuant to Section 2.15; "Swing Line Note" means the promissory note of the Borrowers evidencing Swing Line Loans executed and delivered to NationsBank as provided in Section 2.07(c) hereof substantially in the form attached hereto as Exhibit G-2, with appropriate insertions as to amounts, dates and names; "Swing Line Outstandings" means, as of any date of determination, the aggregate principal amount of all Swing Line Loans then outstanding; "Total Letter of Credit Commitment" means an amount not to exceed $500,000,000; "Total Revolving Credit Commitment" means an amount not to exceed $1,000,000,000, as reduced from time to time in accordance with Section 2.09 and Section 2.10, which shall be made available by the Lenders to the Borrowers during the period from the date hereof until the Revolving Credit Termination Date; "TROL Credit Documents" shall have the same meaning as the meaning assigned to the term 'Credit Documents' under Appendix A to that certain Amended and Restated Participation Agreement, dated as of November 18, 1996 among AutoNation USA Corporation, as construction agent and as lessee, First Security Bank, National Association, as owner trustee under the AutoNation Trust 1996-1, the various banks and other lending institutions which are parties thereto from time to time, as the holders and lenders, and the Administrative Agent, as administrative agent for the lenders thereunder, as such Participation Agreement and Appendix A thereto may be or may have been amended, modified or supplemented from time to time; "Vehicle Receivables Indebtedness" means Indebtedness incurred by any Eligible Special Purpose Entity to finance, refinance or guaranty the financing or refinancing of consumer receivables, leases, loans or retail installment contracts incurred in the sale, transfer or lease of Vehicles; provided (x) such Indebtedness shall in accordance with Generally Accepted Accounting Principles not appear as an asset or liability on the balance sheet of the Company or any of its Subsidiaries; (y) no assets other than the Vehicles, consumer receivables, leases, loans, retail installment contracts or related proceeds (including, without limitation, proceeds from insurance, Vehicles and other obligations under such receivables, leases, loans or retail installment contracts) to be financed or refinanced secure such Indebtedness; and (z) neither the Company nor any of its Subsidiaries shall incur any liability with respect to such Indebtedness other than liability arising by reason of a breach of a representation or warranty contained in any instrument relating to such Indebtedness; 21 29 "Vehicle Secured Indebtedness" means Indebtedness incurred by the Company, any Subsidiary or any Eligible Special Purpose Entity to lease, finance or refinance or guaranty the leasing, financing or refinancing of Vehicles or related receivables, which Indebtedness is secured by the Vehicles or related receivables so financed, to the extent, at any date of determination thereof, the amount of such Indebtedness does not exceed the depreciated book value of such Vehicles or the book value of such related receivables as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Vehicles" means all now existing or hereafter acquired new and used automobiles, sport utility vehicles, trucks and vans of all types and descriptions, whether held for sale, lease, rental or operational purposes, which relate to the Borrower's or any Subsidiary's Automobile Retailing Activities. 1.02 Use of Defined Terms. Terms for which meanings are provided in this Agreement shall, unless otherwise defined or the context otherwise requires, have such meanings when used in the Notes, each Borrowing Notice, each Compliance Certificate, each Loan Document and each notice and other communication delivered from time to time in connection with this Agreement or any instrument hereafter executed pursuant hereto. 1.03 Cross References. Unless otherwise specified, references in this Agreement and in each Loan Document to any Article or Section are references to such Article or Section of this Agreement or such Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Section, Article or definition. 1.04 Accounting and Financial Determinations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall, to the extent applicable, be made in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis except insofar as: (a) the Borrower shall have elected (with the concurrence of its independent public accountant and upon prior written notification to the Lenders) to adopt more recently promulgated Generally Accepted Accounting Principles (which election shall continue to be effective for subsequent years); and (b) the Administrative Agent and the Required Lenders shall have consented to such election (it being understood that such consent may be conditioned upon the implementation of such changes to Sections 8.01 and 8.02 as are appropriate to reflect such adoption of more recently promulgated Generally Accepted Accounting Principles and it being further understood that such consent shall be deemed to have been given upon the implementation of such changes). 22 30 Upon a change in Generally Accepted Accounting Principles which becomes effective after the Closing Date which would have a material effect on the Company's consolidated financial statements and the assets and liabilities reflected therein or otherwise affect the calculation or the application of the covenants contained in Article VIII hereof, such change shall not be given effect for purposes hereof until sixty (60) days from the otherwise effective date of such change. Prior to such effectiveness the Administrative Agent, the Lenders and the Borrowers shall in good faith negotiate to amend the pertinent provisions of this Agreement to account for such change to the extent appropriate to effect the substance thereof as of the Closing Date. If such an amendment is not entered into with respect to any such change, such change shall not be given effect for purposes hereof. 1.05 General Provisions Relating to Definitions. Terms for which meanings are defined in this Agreement shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The term "including" means including, without limiting the generality of any description preceding such term. Each reference herein to any Person shall include a reference to such Person's successors and assigns. References to any instrument defined in this Agreement refer to such instrument as originally executed or, if subsequently varied, replaced or supplemented from time to time, as so varied, replaced or supplemented and in effect at the relevant time of reference thereto. 23 31 ARTICLE II The Loans 2.01 Commitments; Joint and Several Liability (a) Revolving Credit Commitment. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrowers, from time to time from the Closing Date until the Revolving Credit Termination Date, on a pro rata basis as to the total borrowing requested by the Borrowers under the Revolving Credit Facility on any day determined by its Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any Advance (i) so long as not all of the conditions under Section 5.02 hereof have been fulfilled, (ii) so long as a Default or an Event of Default has occurred and is continuing or (iii) if the Administrative Agent has accelerated the maturity of the Revolving Credit Notes as a result of an Event of Default; provided further, however, that immediately after giving effect to each such Advance, the principal amount of Outstanding Credit Obligations shall not exceed the Total Revolving Credit Commitment. Within such limits, the Borrowers may borrow, repay and reborrow hereunder, on a Business Day in the case of a Base Rate Loan and on a Business Day in the case of a Eurodollar Loan, from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date; provided, however, that (x) no Eurodollar Loan that is a Revolving Credit Loan shall be made which has an Interest Period that extends beyond the Revolving Credit Termination Date and (y) each Eurodollar Loan may, subject to the provisions of Section 2.11, be repaid only on the last day of the Interest Period with respect thereto. (b) Amounts. Except as otherwise permitted by all of the Lenders from time to time, the aggregate unpaid principal amount of the Outstanding Credit Obligations shall not exceed at any time an amount equal to the Total Revolving Credit Commitment. Each Loan under the Revolving Credit Facility, other than a Swing Line Loan pursuant to Section 2.15 hereof or a Base Rate Refunding Loan, and each conversion thereof under Section 2.11 shall be in a principal amount of at least $10,000,000, and, if greater than $10,000,000, an integral multiple of $1,000,000. (c) Advances and Rate Selection. (i) An Authorized Representative shall give the Administrative Agent (1) at least three (3) Business Days' irrevocable telephonic notice of each Eurodollar Loan (whether representing an additional borrowing hereunder or the conversion of borrowing hereunder from Base Rate Loans or other Eurodollar Loans to Eurodollar Loans) prior to 10:30 A.M., Charlotte, North Carolina time; and (2) irrevocable telephonic notice of each Base Rate Loan (other than Base Rate Refunding Loans to the extent the same are effected without notice pursuant to Section 2.01(c)(iv)) representing an additional borrowing hereunder prior to 10:30 A.M. Charlotte, North Carolina time on the day of such proposed Base Rate Loan. Each such borrowing notice, which shall be effective upon receipt by the Administrative Agent, shall specify the amount of the borrowing, the type (Base or Eurodollar) of Loan, the date of borrowing 24 32 and, if a Eurodollar Loan, the Interest Period to be used in the computation of interest. The Authorized Representative shall provide the Administrative Agent written confirmation of each such telephonic notice on the same day by telefacsimile transmission in the form of a Borrowing Notice, for additional Advances, or in the form attached hereto as Exhibit H as to selection or conversion of interest rates as to outstanding Loans, in each case with appropriate insertions, but failure to provide such confirmation shall not affect the validity of such telephonic notice. The duration of the initial Interest Period for each Loan that is a Eurodollar Loan shall be as specified in the initial Borrowing Notice. The Borrowers shall have the option to elect the duration of subsequent Interest Periods and to convert the Loans (other than Swing Line Loans) in accordance with Section 2.11 hereof. If the Administrative Agent does not receive a notice of election of duration of an Interest Period or to convert by the time prescribed hereby and by Section 2.11 hereof, the Borrowers shall be deemed to have elected as to any Revolving Credit Loan, to convert such Loan to (or continue such Loan as) a Base Rate Loan bearing interest at the Base Rate until either Borrower notifies the Administrative Agent in accordance with this Section and Section 2.11. (ii) Notice of receipt of each Borrowing Notice shall be provided by the Administrative Agent to each Lender by telefacsimile or telephonic notice with reasonable promptness, but not later than 2:00 P.M., Charlotte, North Carolina time on the same day as Administrative Agent's receipt of such Borrowing Notice. (iii) Not later than 3:00 P.M., Charlotte, North Carolina time on the date specified for each Advance, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Loan or Loans to be made by it on such day available to the Administrative Agent, by depositing or transferring the proceeds thereof in immediately available funds at the Principal Office. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to either Borrower by delivery of the proceeds thereof to the applicable Borrower's Account or otherwise as shall be directed in the applicable Borrowing Notice by the Authorized Representative. (iv) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit, such drawing is honored by the Issuing Bank thereunder prior to the Revolving Credit Termination Date, and the Company shall not immediately fully reimburse such Issuing Bank in respect of such drawing, (A) provided that the conditions to making a Revolving Credit Loan as herein provided shall then be satisfied, the Reimbursement Obligation arising from such drawing shall be paid to such Issuing Bank by the Administrative Agent without the requirement of notice to or from the Company from immediately available funds which shall be advanced as a Base Rate Refunding Loan by each Lender under the Revolving Credit Facility in an amount determined with reference to such Lender's Applicable Commitment Percentage of such Reimbursement Obligation, and (B) if the conditions to making a Revolving Credit Loan as herein provided shall not then be satisfied, each of the Lenders shall fund by payment to the Administrative Agent (for the benefit of the Issuing Bank) in immediately available funds the purchase from such Issuing Bank of their respective Participations in the related Reimbursement Obligation based on their respective Applicable Commitment Percentages of the Total Letter of Credit Commitment. If a drawing is 25 33 presented under any Letter of Credit in accordance with the terms thereof and the Company shall not immediately reimburse the Issuing Bank thereunder in respect thereof, then notice of such drawing or payment shall be provided promptly by such Issuing Bank to the Administrative Agent and the Administrative Agent shall provide notice to each Lender by telephone or telefacsimile transmission. If notice to the Lenders of a drawing under any Letter of Credit is given by the Administrative Agent at or before 12:00 noon on any Business Day, each Lender shall, pursuant to the conditions specified in this Section 2.01(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its Participation in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Administrative Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. on the same Business Day. If notice to the Lenders of a drawing under a Letter of Credit is given by the Administrative Agent after 12:00 noon on any Business Day, each Lender shall, pursuant to the conditions specified in this Section 2.01(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its Participation in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Administrative Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 12:00 noon on the next following Business Day. Any such Base Rate Refunding Loans shall be advanced as, and shall continue as, a Base Rate Loan unless and until the Company converts such Base Rate Loan in accordance with the terms of Section 2.11. (d) Joint and Several Liability, Contribution Rights. (i) Notwithstanding any other provision of this Agreement, each Borrower shall be jointly and severally liable as primary obligor and not merely as surety for repayment of all Obligations arising under the Loan Documents. Such joint and several liability shall apply to each Borrower regardless of whether (x) any Loan was only requested by or made to the other Borrower or the proceeds of any Loan were used only by the other Borrower, (y) any interest rate selection was made only by the other Borrower, or (z) any indemnification obligation or any other obligation arose only as a result of the actions of the other Borrower; provided that the liability of RRC under this Agreement, the Notes and the other Loan Documents shall be limited to the amount of unpaid principal and interest of Revolving Credit Loans, Swing Line Loans and Competitive Bid Loans made to RRC and fees, cost and expenses payable by the Borrowers pursuant to this Agreement. (ii) If any Borrower makes a payment in respect of the Obligations it shall have the rights of contribution set forth below against the other Borrower; provided, that such Borrower shall not exercise its right of contribution until all the Obligations shall have been finally paid in full in cash. (iii) It is the intent of each Borrower, the Administrative Agent and the Lenders that each Borrower's maximum Obligations shall be, but not in excess of: (x) in a case or proceeding commenced by or against such Borrower under the Bankruptcy Code on or within one year from the date on which any of the Obligations are incurred, the maximum 26 34 amount that would not otherwise cause the Obligations (or any other obligations of such Borrower to the Administrative Agent and the Lenders) to be avoidable or unenforceable against such Borrower under (A) Section 548 of the Bankruptcy Code or (B) any state fraudulent transfer or fraudulent conveyance act or statute applied in any such case or proceeding by virtue of Section 544 of the Bankruptcy Code; or (y) in a case or proceeding commenced by or against such Borrower under the Bankruptcy Code subsequent to one year from the date on which any of the Obligations are incurred, the maximum amount that would not otherwise cause the Obligations (or any other obligations of such Borrower to the Administrative Agent and the Lenders) to be avoidable and unenforceable against such Borrower under any state fraudulent transfer or fraudulent conveyance act or statute applied in any such case or proceeding by virtue of Section 544 of the Bankruptcy Code; or (z) in a case or proceeding commenced by or against such Borrower under any law, statute or regulation other than the Bankruptcy Code (including, without limitation, any other bankruptcy, reorganization, arrangement, moratorium, readjustment of debt, dissolution, liquidation or similar debtor relief laws), the maximum amount that would not otherwise cause the Obligations (or any other obligations of such Borrower to the Administrative Agent and the Lenders) to be avoidable or unenforceable against such Borrower under such law, statute or regulation including, without limitation, any state fraudulent transfer or fraudulent conveyance act or statute applied in any such case or proceeding. (iv) The Borrowers acknowledge and agree that they have requested that the Lenders make credit available to the Borrowers with each Borrower expecting to derive benefit, directly and indirectly, from the Advances and other credit extended by the Lenders to the Borrowers. 2.02 Competitive Bid Loans. (a) In addition to Revolving Credit Loans, at any time prior to the Revolving Credit Termination Date and provided no Default or Event of Default exists hereunder, the Borrowers may, as set forth in this Section 2.02, request the Lenders to make offers to make Competitive Bid Loans to the Borrowers in Dollars. The Lenders may, but shall have no obligation to, make such offers and the Borrowers may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.02. There may be no more than twenty (20) different Interest Periods, plus one (1) one week Interest Period for both Revolving Credit Loans and Competitive Bid Loans outstanding at the same time (for which purpose Interest Periods for each Eurodollar Loan and each Competitive Bid Loan shall be deemed to be different Interest Periods even if they are coterminous). The aggregate principal amount of all Outstanding Credit Obligations, shall not exceed the Total Revolving Credit Commitment at any time. The aggregate principal amount of all outstanding Competitive Bid Loans shall not exceed one hundred percent (100%) of the Total Revolving Credit Commitment at any time. (b) When either Borrower wishes to request offers to make Competitive Bid Loans, it shall give the Administrative Agent and the Lenders notice (a "Competitive Bid Quote 27 35 Request") to be received no later than 11:00 a.m. Charlotte, North Carolina time on (A) the fourth Business Day prior to the date of borrowing proposed therein, in the case of a Competitive Bid Quote Request for Competitive Bid Loans at the Eurodollar Competitive Rate or (B) the Business Day prior to the date of borrowing proposed therein, in the case of a Competitive Bid Quote Request for Competitive Bid Loans at the Absolute Rate (or, in any such case, such other time and date as the Borrowers and the Administrative Agent, with the consent of the Required Lenders, may agree). The Borrowers may request offers to make Competitive Bid Loans for up to three (3) different Interest Periods in a single notice; provided that the request for each separate Interest Period shall be deemed to be a separate Competitive Bid Quote Request for a separate borrowing (a "Competitive Bid Borrowing") and there shall not be outstanding at any one time more than six (6) Competitive Bid Borrowings. Each such Competitive Bid Quote Request shall be substantially in the form of Exhibit I attached hereto and incorporated herein by reference and shall specify as to each Competitive Bid Borrowing: (i) the proposed date of such borrowing, which shall be a Business Day; (ii) the aggregate amount of such Competitive Bid Borrowing, which shall be at least $10,000,000 (or in increments of $1,000,000 in excess thereof) but shall not cause the limits specified in Section 2.02(a) hereof to be violated; (iii) the duration of the Interest Period applicable thereto; (iv) whether the Competitive Bid Quote Request for a particular Interest Period is seeking quotes for Competitive Bid Loans at the Absolute Rate or the Eurodollar Competitive Rate; (v) whether a Borrower shall have the right to prepay a requested Competitive Bid Loan; and (vi) the date on which the Competitive Bid Quotes are to be submitted if it is before the proposed date of borrowing (the date on which such Competitive Bid Quotes are to be submitted is called the "Quotation Date"). Except as otherwise provided in this Section 2.02(b), no more than two (2) Competitive Bid Quote Requests shall be given within five (5) Business Days (or such other number of days as the Borrowers and the Administrative Agent, with the consent of the Required Lenders, may agree) of any other Competitive Bid Quote Request. (c) (i) Each Lender may submit one or more Competitive Bid Quotes, each containing an offer to make a Competitive Bid Loan in response to any Competitive Bid Quote Request; provided that, if the Borrowers' request under Section 2.02(b) hereof specified more than one Interest Period, such Lender may make a single submission containing one or more Competitive Bid Quotes for each such Interest Period. Each Competitive Bid Quote must be submitted to the Borrowers not later than 9:30 a.m. Charlotte, North Carolina time on (A) the 28 36 third Business Day prior to the proposed date of borrowing, in the case of a Competitive Bid Quote Request for Competitive Bid Loans at the Eurodollar Competitive Rate or (B) the Quotation Date, in the case of a Competitive Bid Quote Request for Competitive Bid Loans at the Absolute Rate (or, in any such case, such other time and date as the Borrowers and the Administrative Agent, with the consent of the Required Lenders, may agree) provided that if NationsBank is receiving quotes as provided in Section 2.02(g), any Competitive Bid Quote may be submitted by NationsBank (or its applicable Lending Office) only if NationsBank (or such applicable Lending Office) notifies the Borrowers of the terms of the offer contained therein not later than 9:15 a.m. Charlotte, North Carolina time on the Quotation Date. Subject to Articles IV, V and IX hereof, any Competitive Bid Quote so made shall be irrevocable except with the consent of the Administrative Agent given on the instructions of the Borrowers. (ii) Each Competitive Bid Quote shall be substantially in the form of Exhibit J attached hereto and incorporated herein by reference and shall specify: (A) the proposed date of borrowing and the Interest Period therefor; (B) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount shall be at least $5,000,000 (or in increments of $1,000,000 in excess thereof); provided that the aggregate principal amount of all Competitive Bid Loans for which a Lender submits Competitive Bid Quotes may not exceed the principal amount of the Competitive Bid Borrowing for a particular Interest Period for which offers were requested; (C) in the case of a Competitive Bid Quote for Competitive Bid Loans at an Absolute Rate, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/10,000th of 1%) offered for each such Competitive Bid Loan (the "Absolute Rate"); (D) in the case of a Competitive Bid Quote for Competitive Bid Loans at the Eurodollar Competitive Rate, the positive or negative margin to be added to or deducted from the Interbank Offered Rate; and (E) the identity of the quoting Lender. Unless otherwise agreed by the Administrative Agent and the Borrowers, no Competitive Bid Quote shall contain qualifying, conditional or similar language or propose terms other than or in addition to those set forth in the applicable Competitive Bid Quote Request and, in particular, no Competitive Bid Quote may be conditioned upon acceptance by the Borrowers of all (or some specified minimum) of the principal amount of the Competitive Bid Loan for which such Competitive Bid Quote is being made. Any subsequent Competitive Bid Quote submitted by a Lender that amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Lender with respect to the same Competitive Bid Quote Request shall be 29 37 disregarded by the Borrowers unless such subsequent Competitive Bid Quote is submitted solely to correct a manifest error in such former Competitive Bid Quote. (d) The Borrowers shall (A) in the case of a Competitive Bid Loan at an Absolute Rate, as promptly as practicable after the Competitive Bid Quote is submitted (but in any event not later than 10:30 a.m. Charlotte, North Carolina time on the Quotation Date (or such other time and date as the Borrowers and the Administrative Agent, with the consent of the Required Lenders, may agree) or (B) in the case of a Competitive Bid Loan at a Eurodollar Competitive Rate, the third Business Day prior to the proposed date of borrowing), notify the Administrative Agent and Lenders of (A) the aggregate principal amount of the Competitive Bid Borrowing for which Competitive Bid Quotes have been received as well as the ranges of bids submitted for each Interest Period requested, (B) the respective principal amounts and Absolute Rates or Eurodollar Competitive Rates, as the case may be, so offered by each Lender (identifying the Lender that made each Competitive Bid Quote), and (C) its acceptance or nonacceptance of the Competitive Bid Quotes. In the case of acceptance, such notice shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrowers may accept any Competitive Bid Quote in whole or in part (provided that any Competitive Bid Quote accepted in part shall be at least $5,000,000 or in increments of $1,000,000 in excess thereof); provided that: (i) the aggregate principal amount of each Competitive Bid Borrowing may not exceed the applicable amount set forth in the related Competitive Bid Quote Request; (ii) the aggregate principal amount of each Competitive Bid Borrowing shall be at least $5,000,000 (or an increment of $1,000,000 in excess thereof) but shall not cause the limits specified in Section 2.02(a) hereof to be violated; (iii) except as provided below, acceptance of Competitive Bid Quotes for any Interest Period may be made only in ascending order of Absolute Rates or Eurodollar Competitive Rates, as the case may be, beginning with the lowest rate so offered; and (iv) the Borrowers may not accept any Competitive Bid Quote where such Competitive Bid Quote fails to comply with Section 2.02(c)(ii) hereof or otherwise fails to comply with the requirements of this Agreement (including, without limitation, Section 2.02(a) hereof). Any of the conditions above notwithstanding, the Borrowers may, in their sole discretion, accept a Competitive Bid Quote that does not contain the lowest Absolute Rate or Eurodollar Competitive Rates, as the case may be, where acceptance of the Competitive Bid Quote containing the lowest Absolute Rate or Eurodollar Competitive Rate, as the case may be, would cause the principal amount of Outstanding Credit Obligations of a Lender or Lenders offering the lowest Absolute Rate or Eurodollar Competitive Rate, as the case may be, to exceed the Total Revolving Credit Commitment. 30 38 If Competitive Bid Quotes are made by two or more Lenders with the same Absolute Rates or Eurodollar Competitive Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which Competitive Bid Quotes are accepted for the related Interest Period after the acceptance of all Competitive Bid Quotes, if any, of all lower Absolute Rates or Eurodollar Competitive Rates, as the case may be, offered by any Lender for such related Interest Period, the principal amount of Competitive Bid Loans in respect of which such Competitive Bid Quotes are accepted shall be allocated by the Borrowers among such Lenders as nearly as possible (in amounts of at least $1,000,000 or in increments of $100,000 in excess thereof) in proportion to the aggregate principal amount of such Competitive Bid Quotes. Determinations by the Borrowers of the amounts of Competitive Bid Loans and the lowest bid after adjustment as provided in Section 2.02(d)(iii) shall be conclusive in the absence of manifest error. (e) Any Lender whose offer to make any Competitive Bid Loan has been accepted shall, not later than 1:00 p.m. Charlotte, North Carolina time on the date specified for the making of such Loan, make the amount of such Loan available to the applicable Borrower at the applicable Borrower's Account or otherwise as shall be directed by the Authorized Representative in Dollars and in immediately available funds. (f) From time to time, the Borrowers shall furnish such information to the Administrative Agent as the Administrative Agent may request relating to the making of Competitive Bid Loans, including the amounts, interest rates, dates of borrowings and maturities thereof. (g) The Borrowers may request the Administrative Agent to receive the Competitive Bid Quotes, in which event the Administrative Agent shall (A) in the case of a Competitive Bid Loan at the Absolute Rate, as promptly as practicable after the Competitive Bid Quote is submitted (but in no event later than 10:00 a.m., Charlotte, North Carolina time on the Quotation Date) or (B) in the case of a Competitive Bid Loan at the Eurodollar Competitive Rate, by 10:00 a.m. Charlotte, North Carolina time on the date a Competitive Quote is submitted, notify the Borrowers of the terms of any Competitive Bid Quote submitted by a Lender that is in accordance with Section 2.02(c) hereof. The Administrative Agent's notice to the Borrowers shall specify (A) the aggregate principal amount of the Competitive Bid Borrowing for which Competitive Bid Quotes have been received and (B) the respective principal amounts and Absolute Rates or Eurodollar Competitive Rate, as the case may be, offered by each Lender (identifying the Lender that made each Competitive Bid Quote). Not later than 10:30 a.m. Charlotte, North Carolina time on (A) the third Business Day prior to the proposed date of borrowing, in the case of Competitive Bid Loans at the Eurodollar Competitive Rate or (B) the Quotation Date (or, in any such case, such other time and date as the Borrowers and the Administrative Agent, with the consent of the Required Lenders, may agree), the Borrowers shall notify the Administrative Agent of their acceptance or nonacceptance of the Competitive Bid Quotes so notified to it (and the failure of the Borrowers to give such notice by such time shall constitute nonacceptance) and the Administrative Agent shall promptly notify each affected Lender. Together with each notice of a request for Competitive Bid Quotes, which each Borrower requires the Administrative Agent 31 39 to issue pursuant to this paragraph (g), such Borrower shall pay to the Administrative Agent for the account of the Administrative Agent a bid administration fee of $1,500.00. 2.03 Payment of Interest. (a) The Borrowers shall pay interest (i) to the Administrative Agent at the Principal Office for the account of each Lender on the outstanding and unpaid principal amount of each Revolving Credit Loan made by such Lender for the period commencing on the date of such Loan until such Loan shall be due at the Eurodollar Revolver Rate or the Base Rate, as elected or deemed elected by such Borrower or otherwise applicable to such Loan as herein provided, (ii) to the Lender at its Lending Office making each Competitive Bid Loan, at the applicable Absolute Rate or Eurodollar Competitive Rate, as the case may be, and (iii) to the Administrative Agent in the case of each Swing Line Loan, at the Base Rate; provided, however, that if any amount shall not be paid when due (at maturity, by acceleration or otherwise), all amounts outstanding hereunder shall bear interest thereafter (i) in the case of a Eurodollar Loan, at a rate of interest per annum of two percent (2%) above the applicable Eurodollar Revolver Rate for such Eurodollar Loan, (ii) in the case of a Base Rate Loan, at a rate of interest per annum which shall be two percent (2%) above the Base Rate, and (iii) in the case of a Competitive Bid Loan, at a rate of interest per annum which shall be two percent (2%) above the Absolute Rate or Eurodollar Competitive Rate, as the case may be, for such Competitive Bid Loan, or (in each case) the maximum rate permitted by applicable law, whichever is lower, from the date such amount was due and payable until the date such amount is paid in full. (b) Interest on the outstanding principal balance of each Loan shall be computed on the basis of (x) in the case of a Eurodollar Loan or a Competitive Bid Loan at the Eurodollar Competitive Rate, a year of 360 days and calculated for the actual number of days elapsed and (y) in the case of a Base Rate Loan, a year of 365-366 days and calculated for the actual number of days elapsed. Interest on the outstanding principal balance of each Loan shall be paid (a) quarterly in arrears, such payment to be made not later than the third (3rd) Business Day of each April, July, October and January commencing on the third (3rd) Business Day of July 1997, on each Base Rate Loan, (b) on the last day of the applicable Interest Period for each Eurodollar Loan and Competitive Bid Loan, but in no event less frequently than at the end of each three month period and (c) upon payment in full of the principal amount of such Loan at the Revolving Credit Termination Date. 2.04 Payment of Principal. The principal amount of the Revolving Credit Outstandings and all Swing Line Outstandings shall be due and payable to the Administrative Agent for the benefit of each Lender in full on the Revolving Credit Termination Date, or earlier as herein expressly provided. The principal amount of all Competitive Bid Loans shall be due and payable to the Lender making such Competitive Bid Loan in full on the last day of the Interest Period therefor, or earlier as herein expressly provided. The principal amount of Eurodollar Loans may only be prepaid at the end of the applicable Interest Period, unless the Borrowers shall pay to the Administrative Agent for the account of the Lenders the amount, if any, required under Section 4.04. The principal amount of Competitive Bid Loans may only be prepaid at the end of the applicable Interest Period, unless (i) the applicable Borrower shall have retained in the Competitive Bid Quote Request with respect to such Competitive Bid Loans the right of prepayment, and (ii) 32 40 the applicable Borrower shall have paid to the Lender making such Competitive Bid Loans or to the Administrative Agent, as applicable, the amounts, if any, required under Section 4.04. Each Borrower shall furnish the Administrative Agent telephonic notice of its intention to make a principal payment (including Competitive Bid Loans) prior to 11:00 A.M. Charlotte, North Carolina time on the date of such payment. All payments of principal on Loans other than Competitive Bid Loans and Swing Line Loans shall be in the amount of $10,000,000 or such greater amount which is an integral multiple of $1,000,000. 2.05 Non-Conforming Payments. (a) Each payment of principal (including any prepayment) and payment of interest (other than principal and interest on Competitive Bid Loans which shall be paid to the Lender making such Loans) shall be made to the Administrative Agent at the Principal Office, for the account of each Lender's applicable Lending Office, in Dollars and in immediately available funds before 12:30 P.M. Charlotte, North Carolina time on the date such payment is due. The Administrative Agent may, but shall not be obligated to, debit the amount of any such payment which is not made by such time to any ordinary deposit account, if any, of either Borrower with the Administrative Agent. (b) The Administrative Agent shall deem any payment by or on behalf of the Borrowers hereunder that is not made both (a) in Dollars and in immediately available funds and (b) prior to 12:30 P.M. Charlotte, North Carolina time on the date payment is due to be a non-conforming payment. Any such payment shall not be deemed to be received by the Administrative Agent until the time such funds become available funds. Non-conforming payments may constitute or become a Default or Event of Default. The Administrative Agent shall give prompt telephonic notice to the Authorized Representative and each of the Lenders (confirmed in writing) if any payment is non-conforming. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding Business Day) at the respective rates of interest per annum specified in Section 2.03(a) in respect of late payments of interest, from the date such amount was due and payable until the date such amount is paid in full (but in no event less than the period from the date of such payment to the next succeeding Business Day). (c) In the event that any payment hereunder or under the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day; provided that interest shall continue to accrue during the period of any such extension. 2.06 Borrowers' Accounts. Each Borrower shall continuously maintain its Borrower's Account for the purposes herein contemplated. 2.07 Notes. (a) Revolving Credit Loans made by each Lender, shall be evidenced by, and be repayable with interest in accordance with the terms of, the Revolving Credit Note payable to the order of such Lender in the amount of its Applicable Commitment Percentage of the Total Revolving Credit Commitment, which Revolving Credit Note shall be dated the Closing Date or 33 41 such later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by each Borrower. (b) Competitive Bid Loans made by any Lender shall be evidenced by, and be repayable with interest in accordance with the terms of, the Competitive Bid Note payable to the order of such Lender in the amount of the Total Revolving Credit Commitment (but the aggregate outstanding principal amount of Competitive Bid Loans may not at any time exceed one hundred percent (100%) of the Total Revolving Credit Commitment) which shall be dated the Closing Date or such later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by each Borrower. (c) Swing Line Loans made by NationsBank shall be evidenced by the Swing Line Note in the principal amount of $50,000,000, and shall be repayable with interest in accordance with the terms of the Swing Line Note dated the Closing Date and duly executed and delivered by each Borrower. 2.08 Pro Rata Payments. Except as otherwise provided herein, (a) each payment and prepayment on account of the principal of and interest on the Loans (other than Competitive Bid Loans and Swing Line Loans) and the fees described in Sections 2.12 and 2.13 hereof shall be made to the Administrative Agent in the aggregate amount payable to the Lenders for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) each payment of principal and interest on the Competitive Bid Loans shall be made to (i) the Administrative Agent for the account of the respective Lender making such Competitive Bid Loan if the Borrowers have elected that the Administrative Agent act under Section 2.02(g) hereof and (ii) otherwise directly to the Lender making such Competitive Bid Loan, (c) each payment of principal and interest on Swing Line Loans shall be made to the Administrative Agent for the account of NationsBank, (d) all payments to be made by the Borrowers for the account of each of the Lenders on account of principal, interest and fees, shall be made without set-off or counterclaim, and (e) the Administrative Agent will distribute such payments when received to the Lenders as provided for herein and subject to Section 4.06. 2.09 Reductions. The Borrowers shall, by notice from an Authorized Representative, have the right from time to time (but not more frequently than twice during each Fiscal Year), upon not less than three (3) Business Days irrevocable written notice to the Administrative Agent to reduce the Total Revolving Credit Commitment. The Administrative Agent shall give each Lender, within one (1) Business Day, telephonic notice (confirmed in writing) of such reduction. Each such reduction shall be in the aggregate amount of $10,000,000 or such greater amount which is in an integral multiple of $1,000,000, and shall permanently reduce the Total Revolving Credit Commitment of the Lenders pro rata. No such reduction shall be permitted that results in the payment of any Eurodollar Loan other than on the last day of the Interest Period of such Loan unless such prepayment is accompanied by amounts due, if any, under Section 4.04. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Revolving Credit Notes to the extent that the aggregate principal amount of Outstanding Credit 34 42 Obligations exceeds the Total Revolving Credit Commitment after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. 2.10 Increase and Decrease in Amounts. The amount of the Total Revolving Credit Commitment which shall be available to the Borrowers shall be reduced by the aggregate amount of all Swing Line Outstandings, all Outstanding Letters of Credit and all outstanding Competitive Bid Loans. 2.11 Conversions and Elections of Subsequent Interest Periods. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the limitations set forth below and in Sections 4.01(b), 4.02 and 4.03 hereof, the Borrowers may: (a) upon notice to the Administrative Agent on or before 10:30 A.M. Charlotte, North Carolina time on any Business Day convert all or a part of Eurodollar Loans that are Revolving Credit Loans to Base Rate Loans on the last day of the Interest Period for such Eurodollar Loans; and (b) on three (3) Business Days' notice to the Administrative Agent on or before 10:30 A.M. Charlotte, North Carolina time: (i) elect a subsequent Interest Period for all or a portion of Eurodollar Loans to begin on the last day of the current Interest Period for such Eurodollar Loans; or (ii) convert Base Rate Loans (other than Swing Line Loans) to Eurodollar Loans on any Eurodollar Business Day. Notice of any such elections or conversions shall specify the effective date of such election or conversion and, with respect to Eurodollar Loans, the Interest Period to be applicable to the Loan as continued or converted. Each election and conversion pursuant to this Section 2.11 shall be subject to the limitations on Eurodollar Loans set forth in the definition of "Interest Period" herein and in Article IV hereof. All such continuations or conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 2.12 Revolving Credit Facility Fee. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Facility has terminated), the Borrowers agree to pay to the Administrative Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages of the Revolving Credit Facility, the Facility Fee. Such payments of fees provided for in this Section 2.12 shall be payable quarterly in arrears, such payments to be made not later than the third (3rd) Business Day of each April, July, October and January beginning on the third (3rd) Business Day of July 1997 to and on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Facility has terminated). Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when requested, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender 35 43 shall make available such portion. Such fee shall be calculated on the basis of a year of 365-366 days for the actual number of days elapsed. 2.13 Deficiency Advances. No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Loan hereunder nor shall the Revolving Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender shall fail to advance funds to the Borrowers as herein provided, the Administrative Agent may in its discretion, but shall not be obligated to, advance under the applicable Note in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such advance under its applicable Note; provided that, upon payment to the Administrative Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon, from the most recent date or dates interest was paid to the Administrative Agent by the Borrowers on each Loan comprising the deficiency advance at the interest rate per annum for overnight borrowing by the Administrative Agent from the Federal Reserve Bank, then such payment shall be credited against the applicable Note of the Administrative Agent in full payment of such deficiency advance and the Borrowers shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the date such deficiency advance is made. 2.14 Use of Proceeds. The proceeds of the Loans made pursuant to the Revolving Credit Facility, the Competitive Bid Facility, the Swing Line and the Letters of Credit issued pursuant to the Letter of Credit Facility shall be used by the Company and its Subsidiaries to finance Permitted Acquisitions and for working capital and general corporate needs of the Company and its Subsidiaries. 2.15 Swing Line. (a) Notwithstanding any other provision of this Agreement to the contrary, in order to administer the Revolving Credit Facility in an efficient manner and to minimize the transfer of funds between the Administrative Agent and the Lenders, NationsBank, in its individual capacity and not as Administrative Agent, and subject to the provisions of Section 2.15(c), shall make available Swing Line Loans to either Borrower prior to the Revolving Credit Termination Date. NationsBank shall not make any Swing Line Loan pursuant hereto (i) if to the actual knowledge of NationsBank the Borrowers are not in compliance with all the conditions to the making of Loans set forth in this Agreement, (ii) if after giving effect to such Swing Line Loan, the Swing Line Outstandings exceed $50,000,000, or (iii) if after giving effect to such Swing Line Loan, the principal amount of Outstanding Credit Obligations exceeds the Total Revolving Credit Commitment. Swing Line Loans shall be limited to Base Rate Loans unless NationsBank and the Borrowers shall agree otherwise. The Borrowers may borrow, repay and reborrow under this Section 2.15. Unless notified to the contrary by NationsBank, borrowings under the Swing Line shall be made in the minimum amount of $1,000,000 or, if greater, in amounts which are integral multiples of $100,000, or in the amount necessary to effect a Base Rate Refunding Loan, upon irrevocable telephonic notice, by an Authorized Representative of 36 44 Borrowers made to NationsBank not later than 12:30 P.M. on the Business Day of the requested borrowing. The applicable Borrower shall provide the Administrative Agent written confirmation of each such telephonic notice on the same day by telefacsimile transmission in the form of a Borrowing Notice. Each such Borrowing Notice shall specify the amount of the borrowing and the date of borrowing, and shall be in the form of Exhibit D-2, with appropriate insertions. Unless notified to the contrary by NationsBank, each repayment of a Swing Line Loan shall be in an amount which is an integral multiple of $100,000 or the aggregate amount of all Swing Line Outstandings. If either Borrower instructs NationsBank to debit any demand deposit account of such Borrower in the amount of any payment with respect to a Swing Line Loan, or NationsBank otherwise receives repayment, after 12:30 P.M. on a Business Day, such payment shall be deemed received on the next Business Day. (b) Swing Line Loans shall bear interest at the Base Rate or at any rate otherwise mutually agreed upon by NationsBank and the Borrowers. The interest payable on Swing Line Loans is solely for the account of NationsBank, and all accrued and unpaid interest on Swing Line Loans shall be payable on the dates and in the manner provided in Sections 2.03 and 2.04 with respect to interest on Base Rate Loans. The Swing Line Outstandings shall be evidenced by the Note delivered to NationsBank pursuant to Section 2.07(c). (c) Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from NationsBank a Participation therein in an amount determined with reference to that Lender's Applicable Commitment Percentage of such Swing Line Loan. Upon demand made by NationsBank, each Lender shall, according to its Applicable Commitment Percentage of such Swing Line Loan, promptly provide to NationsBank its purchase price therefor in an amount equal to its Participation therein. Any Advance made by a Lender pursuant to demand of NationsBank of the purchase price of its Participation shall be deemed (i) provided that the conditions to making Revolving Credit Loans shall be satisfied, a Base Rate Refunding Loan under Section 2.01 until the applicable Borrower converts such Base Rate Loan in accordance with the terms of Section 2.11, and (ii) in all other cases, the funding by each Lender of the purchase price of its Participation in such Swing Line Loan. The obligation of each Lender to so provide its purchase price to NationsBank shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other occurrence or event. Either Borrower, at its option and subject to the terms hereof, may request an Advance pursuant to Section 2.01 in an amount sufficient to repay Swing Line Outstandings on any date and the Administrative Agent shall provide from the proceeds of such Advance to NationsBank the amount necessary to repay such Swing Line Outstandings (which NationsBank shall then apply to such repayment) and credit any balance of the Advance in immediately available funds in the manner directed by the Borrowers pursuant to Section 2.01(c)(iii). The proceeds of such Advances shall be paid to NationsBank for application to the Swing Line Outstandings and the Lenders shall then be deemed to have made Loans in the amount of such Advances. The Swing Line shall continue in effect until the Revolving Credit Termination Date, at which time all Swing Line Outstandings and accrued interest thereon shall be due and payable in full. 37 45 ARTICLE III Letters of Credit 3.01 Letters of Credit. The Issuing Banks agree, subject to the terms and conditions of this Agreement, upon request and for the account of the Company, to issue from time to time Letters of Credit upon delivery to the Issuing Bank of an Application and Agreement for Letter of Credit in form and content acceptable to such Issuing Bank; provided, that the Outstanding Letters of Credit shall not exceed the Total Letter of Credit Commitment. No Letter of Credit shall be issued by an Issuing Bank with an expiry date or payment date occurring subsequent to the fifth Business Day preceding the Revolving Credit Termination Date. No Issuing Bank shall be required to issue any Letter of Credit if the principal amount of Outstanding Credit Obligations when added to the face amount of any requested Letter of Credit exceeds the Total Revolving Credit Commitment. At any one time during the term of this Agreement, not more than four (4) different Lenders (not including any Existing Issuing Banks) shall be allowed to act as an Issuing Bank. 3.02 Reimbursement. (a) The Company hereby unconditionally agrees immediately to pay to the applicable Issuing Bank on demand at its Lending Office all amounts required to pay all drafts drawn or purporting to be drawn under any Letters of Credit and all reasonable expenses incurred by an Issuing Bank in connection with the Letters of Credit and in any event and without demand to place in possession of the applicable Issuing Bank (which shall include Advances under the Revolving Credit Facility if permitted by Section 2.01 hereof) sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Company's obligations to pay an Issuing Bank under this Section 3.02, and such Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever. Each Issuing Bank agrees to give the Company prompt written notice of any request for a draw under a Letter of Credit, but failure to provide such notice shall not affect the parties' Obligations with respect thereto. Each Issuing Bank may charge any account the Company may have with it for any and all amounts such Issuing Bank pays under a Letter of Credit, plus charges and reasonable expenses as from time to time agreed to by such Issuing Bank and the Company; provided that to the extent permitted by Section 2.01(c)(iv), such amounts shall be paid pursuant to Swing Line Loans or Advances under the Revolving Credit Facility. The Company agrees that an Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or other documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. The Company agrees to pay an Issuing Bank interest on any amounts not paid when due hereunder at the Base Rate plus two percent (2%) per annum, or the maximum rate permitted by applicable law, if lower. 38 46 (b) In accordance with the provisions of Section 2.01 hereof, each Issuing Bank shall notify the Administrative Agent (and shall also notify the Company), but failure to provide such notification shall not affect the parties' Obligations with respect thereto, of any drawing under any Letter of Credit as promptly as practicable following the receipt by such Issuing Bank of such drawing. (c) Each Lender (other than the applicable Issuing Bank) shall automatically acquire on the date of issuance thereof, a Participation in the liability of such Issuing Bank in respect of each Letter of Credit in an amount determined with reference to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Company is obligated to pay such Issuing Bank under Section 3.02(a), each Lender (other than the Issuing Bank) shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to such Issuing Bank as hereinafter described, its Applicable Commitment Percentage of the liability of such Issuing Bank under such Letter of Credit. Prior to the Revolving Credit Termination Date, each Lender (including any Issuing Bank in its capacity as a Lender) shall, subject to the terms and conditions of Article II, make a Revolving Credit Loan bearing interest at the Base Rate to the Company by paying to the Administrative Agent for the account of the applicable Issuing Bank at the Principal Office in Dollars and in immediately available funds, an amount equal to its Applicable Commitment Percentage of any drawing under a Letter of Credit, all as described and pursuant to Section 2.01(c)(iv). With respect to drawings under any of the Letters of Credit, each Lender, upon receipt from the Administrative Agent of notice of a drawing in the manner described in Section 2.01(c)(iv), shall promptly pay to the Administrative Agent for the account of the applicable Issuing Bank, prior to the applicable time set forth in Section 2.01(c)(iv), its Applicable Commitment Percentage of such drawing. Simultaneously with the making of each such payment by a Lender to such Issuing Bank, such Lender shall, automatically and without any further action on the part of such Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest) in the related Reimbursement Obligation of the Company. The Reimbursement Obligations of the Company shall be immediately due and payable whether by Advances made in accordance with Section 2.01(c)(iv) or otherwise. Each Lender's obligation to make payment to the Administrative Agent for the account of an Issuing Bank pursuant to this Section 3.02(c), and the right of such Issuing Bank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender is obligated to pay but does not pay amounts to the Administrative Agent for the account of an Issuing Bank in full upon such request as required by this Section 3.02(c), such Lender shall, on demand, pay to the Administrative Agent for the account of such Issuing Bank interest on the unpaid amount for each day during the period commencing on the date of notice given to such Lender pursuant to Section 2.01(b) until such Lender pays such amount to the Administrative Agent for the account of such Issuing Bank in full at the interest rate per annum for overnight borrowing by the Administrative Agent from the Federal Reserve Bank. (d) As soon as practical following the issuance of a Letter of Credit, the applicable Issuing Bank shall notify the Administrative Agent, and the Administrative Agent shall 39 47 notify each Lender, of the date of issuance of such Letter of Credit, the stated amount and the expiry date of such Letter of Credit. Promptly following the end of each calendar quarter, each Issuing Bank shall deliver to the Administrative Agent, and the Administrative Agent shall deliver to each Lender, a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such quarter. Upon the request of any Lender from time to time, each Issuing Bank shall deliver to the Administrative Agent, and the Administrative Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to each Outstanding Letter of Credit. (e) Each issuance by an Issuing Bank of a Letter of Credit shall, in addition to the conditions precedent set forth in Section 5.01 hereof, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank consistent with the then current practices and procedures of such Issuing Bank with respect to similar letters of credit, and the Company shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as the Issuing Bank shall have reasonably requested consistent with such practices and procedures. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 and all subsequent amendments and revisions thereto. (f) Without duplication of Section 10.07 hereof, the Company hereby agrees to defend, indemnify and hold harmless each Issuing Bank, each other Lender and the Administrative Agent from and against any and all claims and damages, losses, liabilities, reasonable costs and expenses which such Issuing Bank, such other Lenders or the Administrative Agent may incur (or which may be claimed against such Issuing Bank, such other Lenders or the Administrative Agent) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Company shall not be required to indemnify an Issuing Bank, any other Lender or the Administrative Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the party to be indemnified after final adjudication thereof or (ii) caused by the failure of an Issuing Bank to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree or failure to pay is permitted under the terms of the applicable Letter of Credit. The provisions of this Section 3.02(f) shall survive repayment of the Obligations, the occurrence of the Revolving Credit Termination Date, and expiration or termination of this Agreement. (g) Without limiting the Company's rights to raise claims as set forth in Section 3.02(f) above, the obligation of the Company to immediately reimburse an Issuing Bank for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related applications for any Letter of Credit, including, under the following circumstances: 40 48 (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related Documents; (iii) the existence of any claim, setoff, defense (other than the defense of payment in accordance with the terms of this Agreement) or other rights which the Company may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Administrative Agent, the Lenders or any other person or entity, whether in connection with the Loan Documents, the Related Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Company and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), the Administrative Agent, the Lenders or any other Person; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Administrative Agent, with or without notice to or approval by the Company in respect of any of the Company's Obligations under this Agreement; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; provided, however, that nothing contained herein shall be deemed to release an Issuing Bank or any other Lender of any liability for actual loss arising as a result of its gross negligence or willful misconduct or out of the wrongful dishonor by an Issuing Bank of a proper demand for payment made under and strictly complying with the terms of any Letter of Credit. 3.03 Letter of Credit Fee. The Company agrees to pay (i) to the Administrative Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee on the aggregate amount available to be drawn on each Outstanding Letter of Credit at a rate equal to the Applicable Margin as in effect from time to time, and (ii) to the Issuing Bank, as issuer of each Letter of Credit, an issuance fee in such amount as may be agreed by an Issuing Bank and the Company from time to time. Such payments of fees provided for in this Section 3.03 shall be due with respect to each Letter of Credit quarterly in arrears, such payment to be made not later than the third (3rd) Business Day of each April, July, October and January, commencing on the 41 49 first such date following the issuance of a Letter of Credit under this Agreement. Such fees shall be calculated on the basis of a year of 365-366 days for the actual number of days elapsed. 3.04 Administrative Fees. The Company shall pay to any Issuing Bank such administrative fee and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as such Issuing Bank and the Company shall agree from time to time. 42 50 ARTICLE IV Yield Protection and Illegality 4.01 Additional Costs. (a) The Borrowers shall promptly pay to the Administrative Agent for the account of a Lender from time to time, without duplication, such amounts as such Lender may determine to be necessary to compensate it for any costs incurred by such Lender which it determines are attributable to its making or maintaining any Loan or its obligation to make any Loans, or the issuance or maintenance by an Issuing Bank of or any other Lender's Participation in any Letter of Credit issued hereunder, or any reduction in any amount receivable by such Lender under this Agreement, the Notes or the Letters of Credit in respect of any of such Loans or such obligation or the Letters of Credit, including reductions in the rate of return on a Lender's capital (such increases in costs and reductions in amounts receivable and returns being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or the Notes in respect of any of such Loans or Letters of Credit (other than taxes imposed on or measured by the income, revenues or assets of any Lender); or (ii) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (other than any such reserve, deposit or requirement reflected in the Prime Rate, the Federal Funds Effective Rate, the Eurodollar Revolver Rate or the Eurodollar Competitive Rate, in each case computed in accordance with the respective definitions of such terms set forth in Section 1.01 hereof); or (iii) has or would have the effect of reducing the rate of return on capital of any such Lender or corporation controlling such Lender to a level below that which the Lender or corporation controlling such Lender could have achieved but for such Regulatory Change (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy); or (iv) imposes any other condition adversely affecting the Administrative Agent or the Lenders under this Agreement, the Notes or the issuance or maintenance of, or any Lender's Participation in, the Letters of Credit (or any of such extensions of credit or liabilities). Each Lender will notify the Borrowers and the Administrative Agent of any event occurring after the Closing Date which would entitle it to compensation pursuant to this Section 4.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. (b) Without limiting the effect of the foregoing provisions of this Section 4.01, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of the Lender which includes deposits by reference to which the interest rate on Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is determined as provided in this Agreement or a category of extensions of credit or other assets of any Lender which includes Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate (by way of illustration only and not limitation, an increase in reserve requirements on a Lender's eurodollar deposit liabilities above a specified dollar amount percentage of its capital) or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if the Lender so elects by notice to the other Lenders and the Borrowers, the 43 51 obligation hereunder of such Lender to make, and to convert Base Rate Loans into, Eurodollar Loans that are the subject of such restrictions shall be suspended until the date such Regulatory Change ceases to be in effect and either Borrower shall, on the last day(s) of the then current Interest Period(s) for outstanding Eurodollar Loans convert such Eurodollar Loans into Base Rate Loans; provided, however, that the suspension of such obligation and the conversion of any Eurodollar Loans into Base Rate Loans shall apply only to any Lender who is affected by such restrictions and who has provided such notice to the other Lenders, and the obligation of the other Lenders to make, and to convert Base Rate Loans into Eurodollar Loans shall not be affected by such restrictions. In the event that the obligation of some, but not all of the Lenders to make, or to convert Base Rate Loans into Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is suspended, then any request by either Borrower during the pendency of such suspension for a Eurodollar Loan or Competitive Bid Loans at the Eurodollar Competitive Rate shall be deemed a request for such Eurodollar Loan or Competitive Bid Loans at the Eurodollar Competitive Rate from the Lender(s) not subject to such suspension and for a Base Rate Loan or Competitive Bid Loan at an Absolute Rate from the Lender(s) who are subject to such suspension, as to Eurodollar Loans and Base Rate Loans, in each case in the respective amounts based on the Lenders' respective Revolving Credit Commitments. (c) Determinations by any Lender for purposes of this Section 4.01 of the effect of any Regulatory Change on its costs of making or maintaining, or being committed to make, Loans or by an Issuing Bank as issuer of any Letter of Credit of the effect of any Regulatory Change on its costs in connection with the issuance or maintenance of, or any other Lender's Participation in, any Letter of Credit issued hereunder, or on amounts receivable by any Lender in respect of Loans or Letters of Credit, and of the additional amounts required to compensate the Lender in respect of any Additional Costs, shall be made on a reasonable basis taking into account such Lender's reasonable policies as to the allocation of capital, costs and other items. The Lender requesting such compensation shall furnish to the Borrowers and the Administrative Agent an explanation of the Regulatory Change and calculations, in reasonable detail, setting forth such Lender's determination of any such Additional Costs. 4.02 Suspension of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any Eurodollar Loan or Competitive Bid Loan at a Eurodollar Competitive Rate for any Interest Period, the Administrative Agent or, with respect to a Competitive Bid Loan at the Eurodollar Competitive Rate, any Lender determines (which determination made on a reasonable basis shall be conclusive absent manifest error) that: (a) quotations of interest rates for the relevant deposits referred to in the definitions of a Eurodollar Revolver Rate or Eurodollar Competitive Rate in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such Eurodollar Loan or Competitive Bid Loan as provided in this Agreement; or (b) the relevant rates of interest referred to in the definition of "Interbank Offered Rate" in Section 1.01 hereof upon the basis of which the Eurodollar Revolver Rate 44 52 or Eurodollar Competitive Rate for such Interest Period is to be determined do not adequately reflect the cost to the Lenders, or in the case of a Competitive Bid Loan, to the Lender making such Loan of making or maintaining such Eurodollar Loan or Competitive Bid Loan for such Interest Period (which determination shall be made on a reasonable basis by the Administrative Agent or such Lender, as the case may be, and the Person making such determination shall furnish the Borrowers evidence of the facts leading to such determination); then the Administrative Agent or Lender, as the case may be, shall give the Borrowers prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate that are subject to such condition, or to convert Loans into Eurodollar Loans, and either Borrower shall on the last day(s) of the then current Interest Period(s) for outstanding Eurodollar Loans, as applicable, convert such Eurodollar Loans into another Eurodollar Loan which is not subject to the same or similar condition, or Base Rate Loans. The Administrative Agent or such Lender, as the case may be, shall give the Borrowers notice describing in reasonable detail any event or condition described in this Section 4.02 promptly following the determination by the Administrative Agent or such Lender, as the case may be, that the availability of Eurodollar Loans or Competitive Bid Loans at a Eurodollar Competitive Rate is, or is to be, suspended as a result thereof. 4.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender to honor its obligation to make or maintain Eurodollar Loans or Competitive Bid Loans at a Eurodollar Competitive Rate hereunder, then such Lender shall promptly notify the Borrowers thereof (with a copy to the Administrative Agent) and such Lender's obligation to make or continue Eurodollar Loans or Competitive Bid Loans at a Eurodollar Competitive Rate, or convert Base Rate Loans into Eurodollar Loans, shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans or Competitive Bid Loans at a Eurodollar Competitive Rate, and such Lender's outstanding Eurodollar Loans shall be converted into Base Rate Loans in accordance with Section 2.11 hereof. 4.04 Compensation. The Borrowers shall promptly pay to each Lender, upon the request of such Lender, such amount or amounts as shall be sufficient (in the reasonable determination of Lender) to compensate it for any loss, cost or expense incurred by it as a result of: (a) any payment, prepayment or conversion of a Eurodollar Loan or Competitive Bid Loan at a Eurodollar Competitive Rate on a date other than the last day of the Interest Period for such Eurodollar Loan or Competitive Bid Loan at a Eurodollar Competitive Rate, including without limitation any conversion required pursuant to this Article IV, the amount of such compensation being the positive difference, if any, between the Interbank Offered Rate being paid with respect to such Loans and the Interbank Offered Rate which would be payable on a new Loan of like amount and for the remaining Interest Period made on the date of such payment, prepayment or conversion; or 45 53 (b) any failure by either Borrower to borrow, convert or prepay a Eurodollar Loan or Competitive Bid Loan at a Eurodollar Competitive Rate on the date for such borrowing, conversion or prepayment specified in the relevant Borrowing Notice, Competitive Bid Quote Request, interest rate selection notice or prepayment notice under Article II hereof, the amount of such compensation to include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount not borrowed for the period from the date of such failure to borrow to the last day of the then current Interest Period for such Loan at the applicable rate of interest for such Eurodollar Loan or Competitive Bid Loan at a Eurodollar Competitive Rate provided for herein over (ii) the Interbank Offered Rate for Dollar deposits of amounts comparable to such principal amount and maturities comparable to such period. A determination of a Lender as to the amounts payable pursuant to this Section 4.04 shall be conclusive, provided that such determinations are made on a reasonable basis. The Lender requesting compensation under this Section 4.04 shall furnish to the Borrowers and the Administrative Agent calculations in reasonable detail setting forth such Lender's determination of the amount of such compensation. 4.05 Alternate Loan and Lender. In the event any Lender suspends the making of any Eurodollar Loan or any Competitive Bid Loan at the Eurodollar Competitive Rate pursuant to this Article IV (herein a "Restricted Lender"), the Restricted Lender's Applicable Commitment Percentage of such Eurodollar Loans or such Competitive Bid Loans shall bear interest at either the Base Rate, the Eurodollar Revolver Rate or the Eurodollar Competitive Rate for which the suspension does not apply, as selected by the Borrowers, until the Restricted Lender once again makes available the applicable Eurodollar Loan or Competitive Bid Loan at the Eurodollar Competitive Rate. Notwithstanding the provisions of Section 2.03(b), interest shall be payable to the Restricted Lender at the time and manner as paid to those Lenders making available Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate. If the obligation of any Lender to make Eurodollar Loans or Competitive Bid Loans at the Eurodollar Competitive Rate is suspended, the Borrowers may, with respect to such Lender, elect to terminate this Agreement, and in connection therewith, not to borrow at the Base Rate as provided above; provided, that the Borrowers notify such Lender through the Administrative Agent of such election at least three Business Days before any date fixed for such borrowing and (i) repay all of such Lender's outstanding Loans plus all accrued interest, commitment fees and other amounts owing to, but not including, the date of repayment at the end of the respective Interest Periods applicable thereto, and (ii) selects, with the consent of the Administrative Agent, which shall not be unreasonably withheld, an assignee which shall assume all the rights and obligations of such Lender as to which this Agreement has been terminated. Upon receipt by the Administrative Agent of such notice and the assignment to and assumption of the Revolving Credit Commitment by a replacement bank, the Revolving Credit Commitment of such Lender shall terminate. 4.06 Taxes. All payments by the Borrowers of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for 46 54 any present or future excise, stamp or other taxes, fees, duties, levies, imposts, charges, deductions, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding (i) franchise taxes, (ii) any taxes (other than withholding taxes) that would not be imposed but for a connection between a Lender or the Administrative Agent and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of such Lender or the Administrative Agent pursuant to or in respect of this Agreement or any other Loan Document), (iii) any withholding taxes payable with respect to payments hereunder or under any other Loan Document under laws (including, without limitation, any statute, treaty, ruling, determination or regulation) in effect on the Closing Date, (iv) any taxes imposed on or measured by any Lender's assets, net income, receipts or branch profits and (v) any taxes arising after the Closing Date solely as a result of or attributable to Lender changing its designated lending office after the date such Lender becomes a party hereto (such non-excluded items being collectively called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrowers hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrowers will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority; and (c) pay to the Administrative Agent for the account of the Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Prior to the date that any Lender or participant organized under the laws of a jurisdiction outside the United States becomes a party hereto, such Person shall deliver to the Borrowers and the Administrative Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, properly completed, currently effective and duly executed by such Lender or participant establishing that such payment is (i) not subject to United States Federal backup withholding tax and (ii) not subject to United States Federal withholding tax under the Code because such payment is either effectively connected with the conduct by such Lender or participant of a trade or business in the United States or totally exempt from United States Federal withholding tax by reason of the application of the provisions of a treaty to which the United States is a party or such Lender is otherwise exempt. If the Borrowers shall fail to pay any Taxes when due to the appropriate taxing authority or shall fail to remit to the Administrative Agent, for the account of the respective Lender, the required receipts or other required documentary evidence, the Borrowers shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.06, a distribution hereunder by the 47 55 Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrowers. 4.07 Replacement Lenders. The Borrowers may, in their sole discretion, on ten (10) Business Days' prior written notice to the Administrative Agent and a Lender, cause such Lender to (and such Lender shall) assign pursuant to Section 11.01 hereof, all of its rights and obligations under this Agreement (other than with respect to outstanding Competitive Bid Loans) and under the TROL Credit Documents to an Eligible Assignee designated by the Borrowers which is willing to become a Lender for a purchase price equal to the sum of (i) the outstanding principal amount of the Loans payable to such Lender, together with any accrued but unpaid interest on such Loans, any accrued but unpaid fees with respect to such Lender's Revolving Credit Commitment and any other amounts payable to such Lender under this Agreement, plus (ii) the outstanding principal amounts of the Series A Loans and Series B Loans (as such terms are defined in the TROL Credit Documents, and hereinafter respectively referred to as the "Series A Loans" and "Series B Loans") payable to such Lender, together with any accrued but unpaid interest on such Series A Loans and Series B Loans, any accrued but unpaid fees with respect to such Lender's commitment under the TROL Credit Documents and any other amounts payable to such Lender under the TROL Credit Documents; provided, that any expenses or other amounts which would be owing to such Lender pursuant to any indemnification provision hereunder or under the TROL Credit Documents shall be payable by the Borrowers as if the Borrowers had prepaid the Loans, the Series A Loans and the Series B Loans of such Lender rather than such Lender having assigned its interest thereunder. The Borrowers or the Eligible Assignee under this Section shall pay the applicable processing fee under Section 11.01 and any similar processing fees under the TROL Credit Documents. 48 56 ARTICLE V Conditions to Making Loans and Issuing Letters of Credit 5.01 Conditions of Initial Advance and Issuance of Letters of Credit. The obligation of the Lenders to make Advances and of the Issuing Banks to issue Letters of Credit is subject to the conditions precedent that the Administrative Agent shall have received on or before the Closing Date, in form and substance satisfactory to the Administrative Agent and the Lenders, the following: (a) executed originals of each of this Agreement, the Notes and the other Loan Documents, together with all schedules and exhibits hereto and thereto; (b) favorable written opinions of special counsel to the Borrowers dated the Closing Date, addressed to the Administrative Agent and the Lenders and satisfactory to Smith Helms Mulliss & Moore, L.L.P., special counsel to the Administrative Agent, substantially in the form of Exhibit K attached hereto; (c) resolutions of the board of directors or other appropriate governing body (or of the appropriate committee thereof) of each Borrower certified by its secretary or assistant secretary or other appropriate official as of the Closing Date, approving and adopting the Loan Documents to be executed, and authorizing the execution and delivery thereof; (d) specimen signatures of officers of each Borrower executing the Loan Documents on behalf of such Borrower, certified by the secretary or assistant secretary or other appropriate official of such Borrower; (e) the charter documents of each Borrower certified as of a recent date by the Secretary of State of such Borrower's jurisdiction of incorporation; (f) the by-laws of each Borrower certified as of the Closing Date as true and correct by the secretary or assistant secretary of such Borrower; (g) certificates issued as of a recent date by the Secretary of State or other appropriate Governmental Authority of each Borrower's jurisdiction of incorporation as to the due existence and good standing of such Borrower therein; (h) appropriate certificates of qualification to do business, good standing and, where appropriate, authority to conduct business under assumed name, issued in respect of each Borrower as of a recent date by the Secretary of State or other appropriate Governmental Authority of each jurisdiction in which the failure to be qualified to do business or authorized so to conduct business could have a Material Adverse Effect; 49 57 (i) notice of appointment of the Authorized Representatives of each Borrower in the form of Exhibit C hereto; (j) certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in Sections 8.01 and 8.02 as of the immediately preceding calendar quarter, substantially in the form of Exhibit L attached hereto; (k) evidence of insurance required by the Loan Documents; (l) Borrowing Notices; (m) all fees payable by the Borrowers on the Closing Date to the Administrative Agent, any Issuing Banks, NationsBank and the Lenders; (n) evidence satisfactory to the Administrative Agent of the payment in full and termination of each of the Existing Facilities; and (o) such other documents, instruments, certificates and opinions as the Administrative Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby. 5.02 Conditions of Loans. The obligations of the Lenders to make any Loans, and of the Issuing Banks to issue Letters of Credit hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Administrative Agent shall have received a notice of such borrowing or request if required by Article II hereof; (b) the representations and warranties of the Company and its Subsidiaries, taken as a whole, set forth in Article VI hereof and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance or issuance of such Letters of Credit, as the case may be, with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 6.01(f)(i) shall be deemed to be those financial statements most recently delivered to the Administrative Agent and the Lenders pursuant to Section 7.01 hereof; (c) in the case of the issuance of a Letter of Credit, the Company shall have executed and delivered to the applicable Issuing Bank an Application and Agreement for Letter of Credit in form and content acceptable to such applicable Issuing Bank together with such other instruments and documents as it shall request; 50 58 (d) at the time of each such Advance, Swing Line Loan or issuance of each Letter of Credit, as the case may be, and after giving effect thereto no Default or Event of Default specified in Article IX hereof, shall have occurred and be continuing; (e) immediately after giving effect to a Swing Line Loan, the aggregate Swing Line Outstandings shall not exceed $50,000,000; and (f) immediately after giving effect to a Loan or Letter of Credit the aggregate principal balance of all outstanding Loans and Participations for each Lender and in the aggregate shall not exceed, respectively, (i) any of such Lender's Revolving Credit Commitment or Letter of Credit Commitment or (ii) any of the Total Revolving Credit Commitment or Total Letter of Credit Commitment. 5.03 Supplements to Schedules. The Borrowers may, from time to time, amend or supplement the Schedules to this Agreement by delivering (effective upon receipt) to the Administrative Agent and each Lender a copy of such revised Schedule or Schedules which shall (i) be dated the date of delivery, (ii) be certified by an Authorized Representative as true, complete and correct as of such date and as delivered in replacement for the corresponding Schedule or Schedules previously in effect, and (iii) show in reasonable detail (by blacklining or other appropriate graphic means) the changes from each such corresponding predecessor Schedule. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, in the event that the Required Lenders determine based upon such revised Schedule (whether individually or in the aggregate or cumulatively) that there has been a material adverse change since the Closing Date in the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole, the Lenders shall have no further obligation to fund additional Advances hereunder. 51 59 ARTICLE VI Representations and Warranties 6.01 Representations and Warranties. The Company represents and warrants with respect to itself and to its Subsidiaries (which representations and warranties shall survive the delivery of the documents mentioned herein and the making of Loans and issuance of Letters of Credit), that: (a) Organization and Authority. (i) the Company and each Subsidiary is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation or creation; (ii) the Company and each Subsidiary (x) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (y) is qualified to do business in every jurisdiction in which failure so to qualify would have a Material Adverse Effect; (iii) the Company and RRC have the power and authority to execute, deliver and perform this Agreement and the Notes, and to borrow hereunder, and to execute, deliver and perform each of the other Loan Documents to which they are a party; and (iv) when executed and delivered, each of the Loan Documents to which the Company and RRC are a party will be the legal, valid and binding obligation or agreement of the Company and RRC, enforceable against the Company and RRC in accordance with their terms, subject to the effect of any applicable bank ruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity); (b) Loan Documents. The execution, delivery and performance by the Company and RRC of each of the Loan Documents to which they are a party: (i) have been duly authorized by all requisite corporate action (including any required shareholder approval) of the Company and RRC required for the lawful execution, delivery and performance thereof; (ii) do not violate any provisions of (1) applicable law, rule or regulation, (2) any order of any court or other agency of government binding on 52 60 the Company or RRC or their properties, or (3) the charter documents, documents of creation or by-laws of the Company or RRC; (iii) will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time, or both, would constitute an event of default, under any indenture, agreement or other instrument to which the Company or RRC is a party, or by which the properties or assets of the Company or RRC are bound; (iv) will not result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company or RRC. (c) Solvency. The Company and each Subsidiary will remain Solvent after giving effect to the transactions contemplated by this Agreement and the other Loan Documents. (d) Subsidiaries and Stockholders. As of the date hereof, the Company has no Subsidiaries other than those Persons listed as Subsidiaries on Schedule 6.01(d) hereto; Schedule 6.01(d) to this Agreement states as of the date hereof the authorized and issued capitalization of each Subsidiary listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of each such Subsidiary and the number and/or percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of each such class of capital stock or equity interest owned by the Company or by any such Subsidiary; as of the date hereof, the outstanding shares or other equity interests of each such Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable; and, as of the date hereof, the Company and each such Subsidiary owns beneficially and of record all the shares and other interests it is listed as owning in Schedule 6.01(d), free and clear of any Lien other than the Liens permitted under Section 8.04. (e) Ownership Interests. As of the date hereof, the Company owns no interest in any Person having an aggregate book value of $1,000,000 or more other than the Persons listed in Schedule 6.01(d) hereto; (f) Financial Condition. (i) The Company has heretofore furnished to each Lender an audited consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1996 and the notes thereto and the related consolidated statements of operations, cash flows, and changes in stockholders' equity for the Fiscal Year then ended as examined and certified by Arthur Andersen L.L.P. Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Company and its Subsidiaries as of the end of such Fiscal Year and results of their operations and the changes in their stockholders' equity for the Fiscal Year then ended, all 53 61 in conformity with Generally Accepted Accounting Principles applied on a Consistent Basis; (ii) since December 31, 1996, there has been no material adverse change in the condition, financial or otherwise, of the Company and its Subsidiaries or in the businesses, properties and operations of the Company and its Subsidiaries, considered as a whole, nor have such businesses or properties, taken as a whole, been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; (iii) except as set forth in the financial statements referred to in Section 6.01(f)(i) or in Schedule 6.01(f) or Schedule 6.01(j) attached hereto, neither the Company nor any Subsidiary has incurred, other than in the ordinary course of business, any material indebtedness, obligations, commitments or other material liability contingent or otherwise which remain outstanding or unsatisfied; (g) Title to Properties. The Company and its Subsidiaries have title to all their respective owned real and personal properties, subject to no transfer restrictions or Liens of any kind, except for (x) the transfer restrictions and Liens described in Schedule 6.01(g) attached hereto, and (y) Liens permitted under Section 8.04 hereof; (h) Taxes. The Company and its Subsidiaries have filed or caused to be filed all federal, state, local and foreign tax returns which are required to be filed by them and except for taxes and assessments being contested in good faith and against which reserves satisfactory to the Company's independent certified public accountants have been established, and have paid or caused to be paid all taxes as shown on said returns or on any assessment received by them, to the extent that such taxes have become due; (i) Other Agreements. Neither the Company nor any Subsidiary is (i) a party to any judgment, order, decree or any agreement or instrument or subject to restrictions which could have a Material Adverse Effect; or (ii) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which the Company or any Subsidiary is a party, which default has, or if not remedied within any applicable grace period could have, a Material Adverse Effect; (j) Litigation. Except as set forth in Schedule 6.01(j) attached hereto, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending, or, to the knowledge of the Company or RRC, threatened by or against the Company or any Subsidiary or affecting the Company 54 62 or any Subsidiary or any properties or rights of the Company or any Subsidiary, which could reasonably be expected to have a Material Adverse Effect; (k) Margin Stock. Neither the Company nor any Subsidiary owns any "margin stock" as such term is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The proceeds of the borrowings made pursuant to Article II hereof will be used by the Company and its Subsidiaries only for the purposes set forth in Section 2.14 hereof. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrowers nor any agent acting in their behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof; (l) Investment Company. Neither the Company nor any Subsidiary is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrowers and the performance by the Borrowers of the transactions contemplated by this Agreement will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof; (m) Patents, Etc. The Company and its Subsidiaries own or have the right to use, under valid license agreements or otherwise, all material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights, trade secrets and copyrights necessary to the conduct of their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade secrets and confidential commercial or proprietary information, trade name, copyright, rights to trade secrets or other proprietary rights of any other Person; (n) No Untrue Statement. Neither this Agreement nor any other Loan Document or certificate or document executed and delivered by or on behalf of the Company or any Subsidiary in accordance with or pursuant to any Loan Document contains any misrepresentation or untrue statement of material fact or omits to state a material fact necessary, in light of the circumstance under which it was made, in order to make any such representation or statement contained herein or therein not misleading in any material respect; 55 63 (o) No Consents, Etc. Neither the respective businesses or properties of the Company or any Subsidiary, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Loan Documents and the transactions contemplated thereby is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or other authority or any other Person on the part of the Company or any Subsidiary as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by, this Agreement or the other Loan Documents or if so, such consent, approval, authorization, filing, registration or qualification has been obtained or effected, as the case may be and is in full force and effect; (p) Benefit Plans. (i) None of the employee benefit plans maintained at any time by the Company or any Subsidiary or the trusts created thereunder has engaged in a prohibited transaction which could subject any such employee benefit plan or trust to a material tax or penalty on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA; (ii) None of the employee benefit plans maintained at any time by the Company or any Subsidiary which are employee pension benefit plans and which are subject to Title IV of ERISA or the trusts created thereunder has been terminated so as to result in a material liability, fine or penalty of either Borrower under ERISA nor has any such employee benefit plan of the Company or any Subsidiary incurred any material liability, fine or penalty to the Pension Benefit Guaranty Corporation established pursuant to ERISA, other than for required insurance premiums which have been paid or are not yet due and payable; neither the Company nor any Subsidiary has withdrawn from or caused a partial withdrawal to occur with respect to any Multi-employer Plan resulting in any assessed and unpaid withdrawal liability; the Company and the Subsidiaries have made or provided for all contributions to all such employee pension benefit plans which they maintain and which are required as of the end of the most recent fiscal year under each such plan; neither the Company nor any Subsidiary has incurred any accumulated funding deficiency with respect to any such plan, whether or not waived; nor has there been any reportable event, or other event or condition, which presents a material risk of termination of any such employee benefit plan by such Pension Benefit Guaranty Corporation; (iii) Except as set forth in Schedule 6.01(p), the present value of all vested accrued benefits under the employee pension benefit plans which are subject to Title IV of ERISA, maintained by the Company or any Subsidiary, did not, as of the most recent valuation date for each such plan, exceed the then current value of the assets of such employee benefit plans allocable to such benefits; 56 64 (iv) The consummation of the Loans and the issuance of the Letters of Credit provided for in Article II and Article III will not involve any prohibited transaction under ERISA which is not subject to a statutory or administrative exemption; (v) To the best of the Company's knowledge, each employee pension benefit plan subject to Title IV of ERISA, maintained by the Company or any Subsidiary, has been administered in accordance with its terms in all material respects and is in compliance in all material respects with all applicable requirements of ERISA and other applicable laws, regulations and rules; (vi) There has been no material withdrawal liability incurred and unpaid with respect to any Multi-employer Plan to which the Company or any Subsidiary is or was a contributor; (vii) As used in this Agreement, the terms "employee benefit plan," "employee pension benefit plan," "accumulated funding deficiency," "reportable event," and "accrued benefits" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in Code Section 4975 and ERISA; (viii) Except as set forth in Schedule 6.01(p), neither the Company nor any Subsidiary has any liability not disclosed on any of the financial statements furnished to the Lenders pursuant to Section 7.01(f) hereof, contingent or otherwise, under any plan or program or the equivalent for unfunded post-retirement benefits, including pension, medical and death benefits, which liability would have a Material Adverse Effect. (q) No Default. There does not exist any Default or Event of Default hereunder; (r) Hazardous Materials. Except as set forth in Schedule 6.01(r), the Company and each Subsidiary is in compliance with all applicable Environmental Laws in all material respects and neither the Company nor any Subsidiary has been notified of any action, suit, proceeding or investigation which alleges material non-compliance by the Company or any Subsidiary with any Environmental Laws or which primarily seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Material; (s) RICO. Neither the Company nor any Subsidiary is engaged in or has engaged in any course of conduct that could subject any of their respective properties to any Lien, seizure or other forfeiture under any criminal law, racketeer influenced and corrupt organizations law, civil or criminal, or other similar laws; (t) Employment Matters. Except as disclosed on Schedule 6.01(j) hereto, the Company and all Subsidiaries are in compliance in all material respects with all applicable 57 65 laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation the noncompliance with which might have a Material Adverse Effect and there is neither pending nor, to the knowledge of either the Company or RRC, threatened any litigation, administrative proceeding or investigation, in respect of such matters, an adverse ruling or determination in which could have a Material Adverse Effect. 58 66 ARTICLE VII Affirmative Covenants Until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, the Company will: 7.01 Financial Reports, Etc. (a) as soon as practical and in any event within 120 days after the end of each Fiscal Year of the Company, deliver or cause to be delivered to the Administrative Agent and each Lender (i) the consolidated balance sheets of the Company and its Subsidiaries, with the notes thereto, the related consolidated statements of operations, cash flows, and shareholders' equity and the respective notes thereto for such Fiscal Year, setting forth comparative financial statements for the preceding Fiscal Year, all prepared in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis and containing opinions of Arthur Andersen L.L.P., or other such independent certified public accountants selected by the Company and approved by the Administrative Agent, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Company; and (ii) a certificate of an Authorized Representative as to the existence of any Default or Event of Default and demonstrating compliance with Sections 8.01 and 8.02 of this Agreement, which certificate shall be in the form attached hereto as Exhibit L; (b) as soon as practical and in any event within 60 days after the end of each quarterly period (except the last reporting period of the Fiscal Year), deliver to the Administrative Agent and each Lender (i) the consolidated balance sheet of the Company and its Subsidiaries as of the end of such reporting period, the related consolidated statements of operations, cash flows, and shareholders' equity for such reporting period and for the period from the beginning of the Fiscal Year through the end of such reporting period, accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Company and its Subsidiaries as of the end of such reporting period and the results of their operations and the changes in their financial position for such reporting period, in conformity with the standards set forth in Section 6.01(f)(i) with respect to interim financials, and (ii) a certificate of an Authorized Representative as to the existence of any Default or Event of Default and containing computations for such quarter comparable to that required pursuant to Section 7.01(a)(ii); (c) together with each delivery of the financial statements required by Section 7.01(a)(i) hereof, if the accountants specified in Section 7.01(a)(i) shall have obtained knowledge of a Default or Event of Default in the fulfillment of the terms and provisions of this Agreement insofar as they relate to financial statements (which at the date of such statements remains uncured), deliver to the Administrative Agent and the Lenders a statement specifying the nature and period of existence thereof and the action the Company has taken or proposes to take with respect thereto; 59 67 (d) promptly upon their becoming available to the Company, the Company shall deliver to the Administrative Agent and each Lender a copy of (i) all regular or special reports or effective registration statements which the Company or any Subsidiary shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange, (ii) any proxy statement distributed by the Company to its shareholders, bondholders or the financial community in general, and (iii) any management letter or other report submitted to the Company or any of its Subsidiaries by independent accountants in connection with any annual, interim or special audit of the Company or any of its Subsidiaries; and (e) promptly, from time to time but not less frequently than once during each calendar quarter but in any case promptly following a written request after the occurrence and during the continuation of a Default or Event of Default, deliver or cause to be delivered to the Administrative Agent and each Lender (x) an updated Schedule 6.01(d) in substantially the same form as provided under Section 6.01(d) hereof, and (y) such other information regarding Company's and each Subsidiary's operations, business affairs and financial condition as the Administrative Agent or such Lender may reasonably request. The Administrative Agent and the Lenders are hereby authorized to deliver a copy of any such financial information delivered hereunder to the Lenders (or any affiliate of any Lender) or to the Administrative Agent, to any regulatory authority having jurisdiction over any of the Lenders pursuant to any written request therefor, or, subject to Section 11.01(f) hereof, to any other Person who shall acquire or consider the acquisition of a participation interest in or assignment of any Loan or Letter of Credit permitted by this Agreement. 7.02 Maintain Properties. Maintain in all material respects all properties necessary to its operations in good working order and condition (ordinary wear and tear excepted) and make in all material respects all needed repairs, replacements and renewals as are necessary to conduct its business in accordance with customary business practices. 7.03 Existence, Qualification, Etc. Do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and franchises, trade names, trademarks and permits, except to the extent conveyed in connection with a transaction permitted under Section 8.05 hereof, and maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary. 7.04 Regulations and Taxes. Comply in all material respects with all statutes and governmental regulations and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, might become a Lien against any of its properties except liabilities being contested in good faith and against which adequate reserves have been established. 7.05 Insurance. (i) Keep all of its insurable properties adequately insured at all times with responsible insurance carriers against loss or damage by fire and other hazards as are customarily insured against by similar businesses owning such properties similarly situated, (ii) 60 68 maintain general public liability insurance at all times with responsible insurance carriers against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance and other provisions providing no less coverage than that specified in Schedule 7.05 attached hereto, such insurance policies to be in form reasonably satisfactory to the Administrative Agent, and (iii) maintain insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes). 7.06 True Books. Keep true books of record and account in which full, true and correct entries will be made of all of its dealings and transactions in accordance with customary business practices, and set up on its books such reserves as may be required by Generally Accepted Accounting Principles with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in interim as well as year-end financial statements. 7.07 Pay Indebtedness to Lenders and Perform Other Covenants. (a) Make full and timely payment of the principal of and interest on the Notes and all other Obligations whether now existing or hereafter arising; and (b) duly comply with all the terms and covenants contained in all Loan Documents and other instruments and documents given to the Administrative Agent or the Lenders pursuant hereto or thereto. 7.08 Right of Inspection. Permit any Person designated by any Lender or the Administrative Agent at the Lender's or Administrative Agent's expense, as the case may be, to visit and inspect any of the properties, corporate books and financial reports of the Company and its Subsidiaries, and to discuss their respective affairs, finances and accounts with their principal officers and independent certified public accountants, all at reasonable times, at reasonable intervals and with reasonable prior notice. 7.09 Observe all Laws. Conform to and duly observe in all material respects all laws, rules and regulations and all other valid requirements of any regulatory or governmental authority with respect to the conduct of its business the non-compliance with which might have a Material Adverse Effect. 7.10 Covenants Extending to Subsidiaries. Cause each of its Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Company in Sections 7.02 through 7.09, inclusive to the extent the failure to do so could have a Material Adverse Effect. 7.11 Officer's Knowledge of Default. Upon either Borrowers' obtaining knowledge of any Default or Event of Default hereunder, cause an Authorized Representative to promptly notify the Administrative Agent of the nature thereof, the period of existence thereof, and what action the Borrowers propose to take with respect thereto. 61 69 7.12 Suits or Other Proceedings. Upon either Borrowers' obtaining knowledge of any litigation or other proceedings being instituted against the Company or any Subsidiary, or any attachment, levy, execution or other process being instituted against any assets of the Company or any Subsidiary, in an aggregate stated or claimed amount greater than $10,000,000 not otherwise covered by insurance, promptly deliver to the Administrative Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. 7.13 Notice of Discharge of Hazardous Material or Environmental Complaint. Promptly provide to the Administrative Agent true, accurate and complete copies of any and all notices, complaints, orders, directives, claims, or citations received by the Company or any Subsidiary relating to any material (a) violation or alleged violation by the Company or any Subsidiary of any applicable Environmental Laws or OSHA; (b) release or threatened release by the Company or any Subsidiary of any Hazardous Material, except where occurring legally; or (c) liability or alleged liability of the Company or any Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials. 7.14 Environmental Compliance. If the Company or any Subsidiary shall receive notice from any Governmental Authority that the Company or any Subsidiary has violated any applicable Environmental Laws in any material respect, the Borrowers shall promptly (and in any event within the time period permitted by the applicable Governmental Authority) remove or remedy, or the Company shall cause the applicable Subsidiary to remove or remedy, such violation. 7.15 Further Assurances. At its cost and expense, upon request of the Administrative Agent, duly execute and deliver or cause to be duly executed and delivered, to the Administrative Agent such further instruments, documents, certificates, agreements and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Administrative Agent to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents. 7.16 Benefit Plans. Comply in all material respects with all requirements of ERISA applicable to it and furnish to the Administrative Agent as soon as possible and in any event (i) within thirty (30) days after the Borrowers know or have reason to know that any reportable event with respect to any employee benefit plan maintained by the Company or any Subsidiary which could give rise to termination or the imposition of any material tax or penalty has occurred, written statement of an Authorized Representative describing in reasonable detail such reportable event and any action which the Company or applicable Subsidiary proposes to take with respect thereto, together with a copy of the notice of such reportable event given to the Pension Benefit Guaranty Corporation or a statement that said notice will be filed with the annual report of the United States Department of Labor with respect to such plan if such filing has been authorized, (ii) promptly after receipt thereof, a copy of any notice that the Company or any Subsidiary may receive from the Pension Benefit Guaranty Corporation relating to the intention of the Pension Benefit Guaranty Corporation to terminate any employee benefit plan or plans of the Company or any Subsidiary or to appoint a trustee to administer any such plan, and (iii) within 10 days after 62 70 a filing with the Pension Benefit Guaranty Corporation pursuant to Section 412(n) of the Code of a notice of failure to make a required installment or other payment with respect to a plan, a certificate of an Authorized Representative setting forth details as to such failure and the action that the Company or its affected Subsidiary, as applicable, proposes to take with respect thereto, together with a copy of such notice given to the Pension Benefit Guaranty Corporation. 7.17 Continued Operations. Continue at all times (i) to conduct its business and engage principally in the same or complementary line or lines of business substantially as heretofore conducted (subject to the right to dispose of assets in transactions permitted under Section 8.05 hereof and to make Permitted Acquisitions), and (ii) preserve, protect and maintain free from Liens (other than Liens permitted under Section 8.04 hereof) its material patents, copyrights, licenses, trademarks, trademark rights, trade names, trade name rights, trade secrets and know-how necessary or reasonably required in the conduct of its operations. 7.18 Use of Proceeds. Use the proceeds of the Loans solely for the purposes specified in Section 2.14 hereof. 63 71 ARTICLE VIII Negative Covenants Until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, the Company will not: 8.01 Indebtedness to Capitalization. Permit at any time the ratio of Consolidated Funded Indebtedness to Consolidated Total Capitalization to be greater than .40 to 1.00. 8.02 Consolidated Fixed Charge Ratio. (i) Permit as at the end of the second, third and fourth calendar quarters of 1997 of the Company and its Subsidiaries, for any such calendar quarters then elapsed, taken together, the Consolidated Fixed Charge Ratio to be less than 2.00 to 1.00; and (ii) Permit as at the end of each calendar quarter thereafter, for the Four-Quarter Period most recently ended of the Company and its Subsidiaries, the Consolidated Fixed Charge Ratio to be less than 2.00 to 1.00. 8.03 Indebtedness. Incur, create, assume or permit to exist any Indebtedness of the Company or any of its Subsidiaries, howsoever evidenced, except (i) Indebtedness existing as of the date hereof and as set forth in Schedule 8.03 attached hereto and incorporated herein by reference and any refinancing or replacement thereof on substantially the same or more favorable terms to the Company or its Subsidiaries; (ii) the guaranty by the Company of any Indebtedness or lease obligations of its Subsidiaries, or of Indebtedness or lease obligations arising under the AutoNation TROL or any Eligible TROL; (iii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (iv) secured Indebtedness of the Company and its Subsidiaries, other than Vehicle Secured Indebtedness or Vehicle Receivables Indebtedness, in an aggregate outstanding amount not to exceed at any time fifteen percent (15%) of Consolidated Shareholders' Equity; (v) unsecured Indebtedness of the Borrowers; (vi) unsecured Indebtedness of the Subsidiaries (other than RRC) of the Company (other than Vehicle Secured Indebtedness or Vehicle Receivables Indebtedness) in an outstanding amount, when aggregated with any outstanding secured Indebtedness of 64 72 such Subsidiaries under Section 8.03(iv), not to exceed fifteen percent (15%) of Consolidated Shareholders' Equity; (vii) Vehicle Receivables Indebtedness; and (viii) Vehicle Secured Indebtedness of the Company and its Subsidiaries; provided, however, to the extent the amount of Indebtedness secured by Vehicles or related receivables of the Company and its Subsidiaries is in excess of the depreciated book value of such Vehicles or the book value of such related receivables, such excess amount will be considered for purposes of this Agreement as Indebtedness other than Vehicle Secured Indebtedness, of either the Company or such Subsidiaries. 8.04 Liens. Incur, create or permit to exist any Lien of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Company or any of its Subsidiaries, other than (i) Liens existing as of the date hereof and as set forth in Schedule 6.01(g) attached hereto; (ii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or, Liens for judgments or levies, in each case which are being contested in good faith by appropriate proceedings diligently pursued and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 120 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (iv) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), self insurance general liability insurance programs, statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (v) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Company or any Subsidiary and which do not materially detract from the value of the 65 73 property to which they attach or materially impair the use thereof to the Company or any Subsidiary; (vi) Liens on any airport concession agreements or permits maintained by the Company or any Subsidiary to secure loans extended to finance tenant improvements used in connection with the concession agreement or permit subject to such Lien; (vii) Liens to secure the refinancing of any Indebtedness permitted under Section 8.03(i) hereof to the extent such Liens encumber substantially the same assets in substantially the same manner as the Liens securing the debt being refinanced or to the extent such Liens constitute Liens permitted under this Section 8.04; (viii) Liens on claims of the Company or any Subsidiary against Persons renting or leasing Vehicles, Persons damaging Vehicles or Persons issuing applicable insurance coverage for such Persons, which claims relate to damage to Vehicles, to the extent that such damage exceeds the render's or lessee's collision damage waiver limitation or insurance deductible; and (ix) Liens securing Indebtedness permitted under Section 8.03(iv), 8.03(vii) or 8.03(viii). 8.05 Transfer of Assets. Other than in the ordinary course of business (which shall include, without limitation, sales, leases and rentals of Vehicles and sales of receivables relating to Vehicles) sell, lease, transfer or otherwise dispose of any property or assets of the Company or any Subsidiary if the aggregate book value or sales price of such property and assets so disposed of during the term of this Agreement would exceed twenty percent (20%) of the Consolidated Total Assets (determined as of the most recently ended Fiscal Year). 8.06 Investments; Acquisitions. Purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities or all or substantially all of the assets, or make or permit to exist any interest whatsoever in any other Person or permit to exist any loans or advances to any Person; provided, the Company and its Subsidiaries may maintain investments or invest in or acquire (i) Eligible Securities; (ii) all or substantially all of the stock or other equity interests, or all or substantially all of the assets of another Person (or a line of business or division of such other Person) constituting a Permitted Acquisition; provided, however, that if the Person or the assets so acquired on a pro forma historical basis as at the date of the acquisition or for the Four-Quarter Period most recently ended preceding the date of acquisition owned assets or generated income, which when consolidated with the assets and income of the Company and its Subsidiaries, constitute ten percent (10%) or more of Consolidated Total Assets or Consolidated Net Income, then the Company shall furnish to the Administrative Agent prior to completing such acquisition a certificate in the form of Exhibit F attached hereto containing information required therein demonstrating that on a historical pro forma 66 74 basis that after giving effect to such acquisition no Default or Event of Default exists hereunder; (iii) investments existing as of the date hereof and as set forth in Schedule 6.01(d) attached hereto; (iv) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; (v) loans and advances to and investments in Subsidiaries; (vi) loans and advances to and investments in Persons (other than as permitted under this Section 8.06) in an aggregate outstanding amount not exceeding at any time fifteen percent (15%) of Consolidated Shareholders' Equity; (vii) any security or debt instrument retained by the Company or any Subsidiary in connection with the creation of Vehicle Receivables Indebtedness or Vehicle Secured Indebtedness which security or debt instrument represents a residual interest in assets sold or transferred to an Eligible Special Purpose Entity; and (viii) consumer loans and leases entered into, purchased or otherwise acquired by the Company or its Subsidiaries, as lender, lessor or assignee, as applicable, related to Automobile Retailing Activities. 8.07 Merger or Consolidation. Other than as permitted under Section 8.06(ii) hereof (a) consolidate with or merge into any other Person, or (b) permit any other Person to merge into it, or (c) liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a substantial part of its assets (other than sales in the ordinary course of business); provided, however, (i) any Subsidiary of the Company may merge or transfer all or substantially all of its assets into or consolidate with any wholly-owned Subsidiary of the Company, and (ii) any Person may merge with the Company if the Company shall be the survivor thereof and such merger shall not cause, create or result in the occurrence of any Default or Event of Default hereunder. 8.08 Transactions with Affiliates. Other than transactions permitted under Section 8.07 hereof, enter into any transaction after the date hereof, including, without limitation, the purchase, sale, leasing or exchange of property, real or personal, or the rendering of any service, with any Affiliate of the Company, except (a) that such Persons may render services to the Company or its Subsidiaries for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services and (b) in the ordinary course of and pursuant to the reasonable requirements of the Company's (or any Subsidiary's) business consistent with past practice of the Company and its Subsidiaries and upon fair and reasonable terms no less favorable to the Company (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate. 67 75 8.09 Benefit Plans. With respect to all employee pension benefit plans maintained by the Company or any Subsidiary: (i) terminate any of such employee pension benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA; (ii) allow or suffer to exist any prohibited transaction involving any of such employee pension benefit plans or any trust created thereunder which would subject the Company or a Subsidiary to a tax or penalty or other liability on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA; (iii) fail to pay to any such employee pension benefit plan any contribution which it is obligated to pay under the terms of such plan; (iv) except as set forth in Schedule 6.01(p), allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee pension benefit plan; (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition, which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee pension benefit plan that is a Single Employer Plan, which termination could result in any liability to the Pension Benefit Guaranty Corporation; or (vi) incur any material withdrawal liability with respect to any Multi-employer Plan. 8.10 Fiscal Year. Change either Borrower's Fiscal Year without prior notification to the Administrative Agent. 8.11 Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking any such winding up, liquidation or dissolution, except in connection with the merger or consolidation of Subsidiaries into each other or into the Company permitted pursuant to Section 8.07. 8.12 Change in Control. Permit at any time a Change in Control. 68 76 ARTICLE IX Events of Default and Acceleration 9.01 Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), that is to say: (a) if default shall be made in the due and punctual payment of the principal of any Loan or Reimbursement Obligation, when and as the same shall be due and payable whether pursuant to any provision of Article II or Article III hereof, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any amount of interest on any Loan or of any fees or other amounts payable to the Lenders, the Administrative Agent, any Issuing Banks or NationsBank under the Loan Documents on the date on which the same shall be due and payable and such failure to pay shall continue for a period of three days; or (c) if default shall be made in the performance or observance of any covenant set forth in Sections 7.06, 7.07(a), 7.11 or Article VIII hereof; or (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in clauses (a), (b) or (c) above) and such default shall continue for 30 or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Administrative Agent or either Borrower becomes aware of such default, or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation in favor of the Administrative Agent or the Lenders or delivered to the Administrative Agent or the Lenders in connection with or pursuant to this Agreement or any of the Obligations, or if any Loan Document ceases to be in full force and effect (other than by reason of any action by the Administrative Agent), or if without the written consent of the Administrative Agent and the Lenders, this Agreement or any other Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable for any reason whatsoever (other than in accordance with its terms in the absence of default or by reason of any action by the Administrative Agent or any Lender); or (e) if a default shall occur, which is not waived, (i) in the payment of any principal, interest, premium or other amounts with respect to any Indebtedness (other than the Loans) of the Company or of any Subsidiary in an outstanding aggregate amount not less than $20,000,000, or (ii) in the performance, observance or fulfillment of any term or covenant contained in any agreement or instrument under or pursuant to which any such 69 77 Indebtedness may have been issued, created, assumed, guaranteed or secured by the Company or any Subsidiary, and such default shall continue for more than the period of grace, if any, therein specified, or if such default shall permit the holder of any such Indebtedness to accelerate the maturity thereof; provided, however, that if the Borrowers are contesting the payment amount on any such Indebtedness or the date such payment is due in good faith and the Borrowers establish reserves on their books if required by and in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, then such nonpayment, in and of itself, shall not, absent an acceleration of such Indebtedness constitute an Event of Default; or (f) if any representation, warranty or other statement of fact contained herein or any other Loan Document or in any writing, certificate, report or statement at any time furnished to the Administrative Agent or any Lender by or on behalf of the Company or any Subsidiary pursuant to or in connection with this Agreement or the other Loan Documents, or otherwise, shall be false or misleading in any material respect when given or made or deemed given or made; or (g) if the Company or any Subsidiary shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency, reorganization, bankruptcy, receivership or similar law, domestic or foreign; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute, federal, state or foreign; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Company or any Subsidiary or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against the Company or any Subsidiary seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state or foreign country, province or other political subdivision, which petition is not dismissed within sixty (60) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Company or any Subsidiary or of the whole or any substantial part of its properties, which control is not relinquished within sixty (60) days; or if there is commenced against the Company or any Subsidiary any proceeding or petition seeking reorganization, arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state or foreign country, province or other political subdivision which proceeding or petition remains undismissed for a period of thirty (30) days; or if the Company or any Subsidiary takes any action to indicate its consent to or approval of any such proceeding or petition; or (i) if (i) any judgments where the aggregate amount not covered by insurance (or the amount as to which the insurer denies liability) is in excess of $15,000,000 are 70 78 rendered against the Company or any Subsidiary, or (ii) there are attachments, injunctions or executions against any of the Company's or any Subsidiary's properties for an aggregate amount in excess of $15,000,000; and such judgments, attachments, injunctions or executions remain unpaid, unstayed, undischarged, unbonded or undismissed for a period of thirty (30) days; or (j) if the Company or any Subsidiary shall, other than as permitted under Section 8.07 hereof or in the ordinary course of business (as determined by past practices), suspend (other than for a period not to exceed twenty (20) days by reason of force majeure) all or any part of its operations material to the conduct of the business of the Company or such Subsidiaries, taken as a whole; or (k) if (i) the Company or any Subsidiary shall engage in any prohibited transaction (as described in Section 8.09(ii) hereof), which is not subject to a statutory or administrative exemption, involving any employee pension benefit plan of the Company or any Subsidiary, (ii) any accumulated funding deficiency (as referred to in Section 8.09(iv) hereof), whether or not waived, shall exist with respect to any Single Employer Plan, (iii) a reportable event (as referred to in Section 8.09(v) hereof) (other than a reportable event for which the statutory notice requirement to the Pension Benefit Guaranty Corporation has been waived by regulation) shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed to administer or to terminate, any Single Employer Plan, which reportable event or institution or proceedings is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Single Employer Plan for purposes of Title IV of ERISA, and in the case of such a reportable event, the continuance of such reportable event shall be unremedied for sixty (60) days after notice of such reportable event pursuant to Section 4043(a), (c) or (d) of ERISA is given, as the case may be, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, and such termination results in a material liability of the Company or any Subsidiary to such Single Employer Plan or the Pension Benefit Guaranty Corporation, (v) the Company or any Subsidiary shall withdraw from a Multi-employer Plan for purposes of Title IV of ERISA, and, as a result of any such withdrawal, the Company or any Subsidiary shall incur material withdrawal liability to such Multi-employer Plan, or (vi) any other event or condition shall occur or exist; and in each case in clauses (i) through (vi) of this Section 9.01(k), such event or condition, together with all other such events or conditions, if any, could subject the Company or any Subsidiary to any tax, penalty or other liabilities, and in each such case the event or condition is not remedied to the satisfaction of the Required Lenders within ninety (90) days after the earlier of (i) receipt of notice of such event or condition by the Authorized Representative from the Administrative Agent or (ii) the Company becomes aware of such event or condition; then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, (A) either or both of the following actions may be taken: (i) the Administrative Agent may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders to make further Loans or of the Issuing Banks 71 79 to issue Letters of Credit terminated, whereupon the obligation of each Lender to make further Loans or of the Issuing Banks to issue Letters of Credit, hereunder shall terminate immediately, and (ii) the Administrative Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrowers any or all of the Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrowers to the Administrative Agent, the Lenders and the Issuing Banks, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to lend and of the Issuing Banks to issue Letters of Credit hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Administrative Agent or the Required Lenders or notice to the Administrative Agent or the Lenders; (B) The Company shall, upon demand of the Administrative Agent or the Required Lenders, deposit cash with the Administrative Agent in accordance with the LC Account Agreement in an amount equal to the amount of any Letters of Credit remaining undrawn or unpaid, as collateral security for the repayment of any future drawings or payments under such Letters of Credit and the Company shall forthwith deposit and pay such amounts and such amounts shall be held by the Administrative Agent pursuant to the terms of the applicable Application and Agreement for Letter of Credit; (C) the Administrative Agent and the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. 9.02 Administrative Agent to Act. In case any one or more Events of Default shall occur and not have been waived, the Administrative Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 9.03 Cumulative Rights. No right or remedy herein conferred upon the Lenders or the Administrative Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 9.04 No Waiver. No course of dealing between the Borrowers and any Lender or the Administrative Agent or any failure or delay on the part of any Lender or the Administrative Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise of any rights 72 80 or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 9.05 Default. The Administrative Agent and the Lenders shall have no right to accelerate any of the Loans upon, or to institute any action or proceeding before any court to realize upon collateral as a result of, the occurrence of any Default which shall not also constitute an Event of Default; provided, however, nothing contained in this sentence shall in any respect impair or adversely affect the right, power and authority of the Administrative Agent and the Lenders (i) to take any action expressly required or permitted to be taken under the Loan Documents upon the occurrence of any Default (and including any action or proceeding which the Administrative Agent may determine to be necessary or appropriate in furtherance of any such expressly authorized action) and (ii) to take any action provided under the Loan Documents or otherwise available by statute, at law or in equity upon the occurrence of any Default. 9.06 Allocation of Proceeds. If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to Article IX hereof, all payments received by the Administrative Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrowers hereunder (other than amounts deposited with the Administrative Agent pursuant to Section 9.01(B) which shall be applied first to payment of draws under Letters of Credit) shall be applied by the Administrative Agent in the following order: (i) amounts due to the Issuing Banks, NationsBank and the Lenders pursuant to Sections 2.12, 2.15, 3.02(f), 3.03, 11.05 and 11.11 hereof; (ii) amounts due to (A) any Issuing Bank pursuant to Section 3.04 hereof, and (B) to any Issuing Bank, NationsBank and/or the Administrative Agent pursuant to Section 10.12 hereof; (iii) payments of interest on Loans, to be applied for the ratable benefit of the Lenders; (iv) payments of principal on Loans, to be applied for the ratable benefit of the Lenders; (v) payment of cash amounts to the Administrative Agent in respect of Outstanding Letters of Credit pursuant to Section 9.01(B) hereof; (vi) payments of all remaining Obligations, if any, to be applied for the ratable benefit of the Lenders; and (vii) any surplus remaining after application as provided for herein, to the Borrowers or otherwise as may be required by applicable law. 73 81 ARTICLE X The Administrative Agent 10.01 Appointment. Each Lender (including (x) NationsBank in its capacity as maker of Swing Line Loans and (y) any Issuing Bank, as issuer of Letters of Credit) hereby irrevocably designates and appoints NationsBank as the Administrative Agent of the Lenders under this Agreement and each other Loan Document, and each of the Lenders hereby irrevocably authorizes NationsBank as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any of the Lenders, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. 10.02 Attorneys-in-fact. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible to the Lenders for the negligence, gross negligence or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.03 Limitation on Liability. Neither the Administrative Agent nor any of its officers, directors, employees, agents or attorneys-in-fact shall be liable to the Lenders for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement except for its or their own gross negligence or willful misconduct. Neither the Administrative Agent nor any of its affiliates shall be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any of its Subsidiaries, or any officer or representative thereof contained in this Agreement or in any of the other Loan Documents, or in any certificate, report, statement or other document referred to or provided for in or received by the Administrative Agent under or in connection with this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the other Loan Documents, or for any failure of the Borrowers to perform their obligations thereunder, or for any recitals, statements, representations or warranties made, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any collateral. The Administrative Agent shall not be under any obligation to any of the Lenders to ascertain or to inquire as to the observance or performance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents on the part of the Borrowers or to inspect the properties, books or records of the Company or its Subsidiaries. 10.04 Reliance. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent certificate, affidavit, letter, cablegram, telegram, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrowers), independent accountants and other experts selected by the 74 82 Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless an Assignment and Acceptance shall have been filed with and accepted by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive advice or concurrence of the Lenders or the Required Lenders as provided in this Agreement or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all present and future holders of the Notes. 10.05 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender, an Authorized Representative or the Borrowers referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable in the best interests of the Lenders. 10.06 No Representations. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Company or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the financial condition, creditworthiness, affairs, status and nature of the Company and its Subsidiaries and made its own decision to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and to make such investigation as it deems necessary to inform itself as to the status and affairs, financial or otherwise, of the Company and its Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries which may come into the possession of the Administrative Agent or any of its affiliates. 75 83 10.07 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting any obligations of the Company or any Subsidiary so to do), including its employees, directors, officers and agents, ratably according to the respective outstanding principal amount of the Notes held by them (or, if no Notes are outstanding, ratably in accordance with their respective Applicable Commitment Percentages as then in effect) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent, including its employees, directors, officers and agents, in any way relating to or arising out of this Agreement or any other document contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Obligations and the termination of this Agreement. 10.08 Lender. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company and its Subsidiaries as though it were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. 10.09 Resignation. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders may appoint, with the consent, so long as there shall not have occurred and be continuing a Default or Event of Default, of the Borrowers, which consent shall not be unreasonably withheld, a successor Administrative Agent for the Lenders, which successor Administrative Agent shall be a commercial bank organized under the laws of the United States or any state thereof, having a combined surplus and capital of not less than $500,000,000, whereupon such successor Administrative Agent shall succeed to the rights, powers and duties of the former Administrative Agent and the obligations of the former Administrative Agent shall be terminated and canceled, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement; provided, however, that the former Administrative Agent's resignation shall not become effective until such successor Administrative Agent has been appointed and has succeeded of record to all right, title and interest in any collateral held by the Administrative Agent; provided, further, that if the Required Lenders and, if applicable, the Borrowers cannot agree as to a successor Administrative Agent within ninety (90) days after such resignation, the Administrative Agent shall appoint a successor Administrative Agent which satisfies the criteria set forth above in this Section 10.09 for a successor Administrative Agent and the parties hereto agree to execute whatever documents are necessary to effect such action under this Agreement or any other document executed pursuant to this Agreement; provided, however that in such event all provisions of this Agreement and the Loan Documents, shall remain in full force and effect. After any retiring Administrative Agent's 76 84 resignation hereunder as Administrative Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 10.10 Sharing of Payments, etc. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Obligations (other than pursuant to Article IV) which results in its receiving more than its pro rata share of the aggregate payments with respect to all of the Obligations (other than any payment pursuant to Article IV), then (A) such Lender shall be deemed to have simultaneously purchased from the other Lenders a share in their Obligations so that the amount of the Obligations held by each of the Lenders shall be pro rata and (B) such other adjustments shall be made from time to time as shall be equitable to insure that the Lenders share such payments ratably; provided, however, that for purposes of this Section 10.10 the term "pro rata" shall be determined with respect to both the Revolving Credit Commitment of each Lender and to the Total Revolving Credit Commitment after subtraction in each case of amounts, if any, by which any such Lender has not funded its share of the outstanding Revolving Credit Loans and Reimbursement Obligations. If all or any portion of any such excess payment is thereafter recovered from the Lender which received the same, the purchase provided in this Section 10.10 shall be rescinded to the extent of such recovery, without interest. The Borrowers expressly consent to the foregoing arrangements and agree that each Lender so purchasing a portion of the other Lenders' Obligations may exercise all rights of payment (including, without limitation, all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. 10.11 One Lender. Notwithstanding anything to the contrary contained herein or in any of the Loan Documents, if at any time NationsBank shall be the sole Lender, all references to and rights, powers and privileges exercisable by the "Administrative Agent" shall be deemed to refer to NationsBank. 10.12 Additional Fees. In addition to any fees otherwise described in this Agreement, the Borrowers agree to pay to the Administrative Agent, any Issuing Bank or NationsBank such other fees as may be agreed to in a separate writing or writings. 77 85 ARTICLE XI Miscellaneous 11.01 Assignments and Participations. (a) At any time after the Closing Date each Lender may, with the prior consent of the Administrative Agent, which consent shall not be unreasonably withheld, and so long as no Default or Event of Default exists or is continuing, with the prior consent of the Borrowers, which consent shall not be unreasonably withheld (it being understood that consent may be withheld by the Borrowers if such assignment would subject the Borrowers to the payment of any additional amounts pursuant to the provisions of Section 4.06 hereof), assign to an Eligible Assignee all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of any Note payable to its order), provided, each such Lender shall assign the same percentage of its interest under the TROL Credit Documents to the same Eligible Assignee; provided, further, that (i) each such assignment shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations (including Loans and Participations but excluding outstanding Competitive Bid Loans) under this Agreement, (ii) for each assignment involving the issuance and transfer of a Note, the assigning Lender shall execute an Assignment and Acceptance and the Borrowers hereby consent to execute a replacement Note or Notes to be exchanged for any surrendered Note or Notes of the assigning Lender to give effect to the assignment, (iii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement and the TROL Credit Documents, the minimum Revolving Credit Commitment, plus the prorated commitment under the TROL Credit Documents, which shall be assigned is $10,000,000 (together with which the assigning Lender's applicable portion of Participations and the Letter of Credit Commitment shall also be assigned), (iv) such Eligible Assignee shall have an office located in the United States, (v) an assignment (other than an assignment of 100% of its interest) by NationsBank shall not include any portion of the Swing Line, and (vi) an assignment (other than an assignment of 100% of its interest) by an Issuing Bank shall not include any obligation to issue Letters of Credit. Upon such execution, delivery, approval and acceptance, from and after the effective date specified in each Assignment and Acceptance, (x) the Eligible Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder or under such Note have been assigned or negotiated to it pursuant to such Assignment and Acceptance have the rights and obligations of a Lender hereunder and a holder of such Notes and (y) the assignor thereunder shall, to the extent that rights and obligations hereunder or under such Notes have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from that portion of its Obligations under this Agreement applicable to the rights so assigned; provided that such assignor shall not be released from liability to the Borrowers for any acts or omissions of such assignor prior to such assignment. Any Lender who makes an assignment shall pay to the Administrative Agent a one-time administrative fee of $3,500.00 which fee shall not be reimbursed by the Borrowers. (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the Eligible Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance 78 86 is made under such Assignment and Acceptance without recourse; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any Subsidiary or the performance or observance by the Company or any Subsidiary of any of its obligations under any Loan Document or any other instrument or document furnished pursuant hereto; (iii) such Eligible Assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements delivered pursuant to Section 6.01(f) or Section 7.01, as the case may be, and such other Loan Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such Eligible Assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such Eligible Assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such Eligible Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender and a holder of such Notes. (c) The Administrative Agent shall maintain at its address referred to herein a copy of each Assignment and Acceptance delivered to and accepted by it. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, the Administrative Agent shall give prompt notice thereof to Borrowers. (e) Nothing herein shall prohibit any Lender from pledging or assigning, without notice to or consent of the Borrowers and without the payment of the administrative fee referred to in Section 11.01(a), any Note to any Federal Reserve Bank in accordance with applicable law. (f) Each Lender may sell participations at its expense without the consent of the Borrowers or the Administrative Agent, to one or more banks or other entities as to all or a portion of its rights and obligations under this Agreement; provided, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any Notes issued to it for the purpose of this Agreement, (iv) such participations shall be in a minimum amount of $5,000,000 and, in the case of a participation in the Revolving Credit Facility, shall include an allocable portion of such Lender's Participation, (v) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and with regard to any and all payments to be made under this Agreement; provided, that the participation agreement between a Lender and its participants may provide that such Lender will obtain the approval of such participant prior to such Lender's agreeing to any amendment or waiver of any provisions of this Agreement which would (A) extend the maturity of any Note, (B) reduce the interest rate hereunder, (C) change the amount of or the due date of any scheduled payment of principal, or (D) increase the Revolving Credit Commitment of the 79 87 Lender granting the participation other than as permitted by Section 2.10, and (vi) the sale of any such participations which require the Borrowers to file a registration statement with the United States Securities and Exchange Commission or under the securities regulations or laws of any state shall not be permitted. 11.02 Notices. All notices shall be in writing, except as to telephonic notices expressly permitted or required herein, and written notices shall be delivered by hand delivery, telegram, telex, telefacsimile, overnight courier or certified or registered mail. Any notice shall be conclusively deemed to have been received by any party hereto and be effective on the day on which delivered to such party (against (except as to telephonic or telefacsimile notice) receipt therefor or, in the case of telex, verification by return) at the address set forth below or such other address as such party shall specify to the other parties in writing, or if sent prepaid by certified or registered mail return receipt requested on the third Business Day after the day on which mailed, addressed to such party at said address: (a) if to the respective Borrowers: Republic Industries, Inc. 450 E. Las Olas Boulevard Suite 1200 Ft. Lauderdale, Florida 33301 Attention: Richard L. Handley Telephone: (954) 713-5221 Telefacsimile: (954) 713-2120 Republic Resources Company 900 Market Street, Suite 200 Wilmington, Delaware 19801 Attention: Francis E. Jacobs, II Telephone: (302) 421-7432 Telefacsimile: (302) 421-7378 (b) if to the Administrative Agent: NationsBank, National Association (South) 100 S.E. Second Street, 14th Floor Miami, Florida 33131 Attention: Richard M. Starke Telephone: (305) 533-2435 Telefacsimile: (305) 533-2437 80 88 with a copy to: NationsBank, National Association (South) One Independence Center 101 North Tryon Street NC1-001-15-04 Charlotte, North Carolina 28255 Attention: Agency Services, Jamie McCotter Telephone: (704) 388-2374 Telefacsimile: (704) 386-9923 (c) if to NationsBank in its capacity as issuer of the Letters of Credit: NationsBank, National Association (South) NationsBank Corporate Center 100 North Tryon Street Charlotte, North Carolina 28255 Attention: Letter of Credit Department, Jamie McCotter Telephone: (704) 388-2374 Telefacsimile: (704) 386-9923 (d) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance. 11.03 Setoff. Upon the occurrence or continuation of a Default or Event of Default, each Lender at any time or times with or without prior notice to the Borrowers may apply any deposits or balances of the Borrowers or any part thereof held by the Administrative Agent or any Lender or any Affiliate thereof to such of the Obligations of the Borrowers to the Lenders then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this paragraph, all remittances and property shall be deemed to be in the possession of the Administrative Agent or such Lender as soon as the same may be put in transit to it by mail or carrier or by other bailee. 11.04 Survival. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the expiration of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of the Obligations remain outstanding or any Lender has any commitment hereunder. Whenever in this Agreement, any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrowers which are contained in this Agreement, the Notes and the other Loan Documents shall inure to the benefit of the successors and permitted assigns of the Lenders or any of them. 81 89 11.05 Expenses. The Borrowers agree (a) to pay or reimburse the Administrative Agent for all its reasonable and customary out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of, and any amendment, supplement or modification to, this Agreement or any of the other Loan Documents (including travel expenses relating to closing), and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable and customary fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse the Administrative Agent and the Lenders for all their reasonable costs and expenses incurred in connection with the enforcement (only from and after the occurrence of a Default or Event of Default) or preservation of any rights under this Agreement and the other Loan Documents, including without limitation, the reasonable fees and disbursements of their counsel and any payments in indemnification or otherwise payable by the Lenders to the Administrative Agent pursuant to the Loan Documents, (c) to pay, indemnify and hold the Administrative Agent and the Lenders harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of this Agreement or any other Loan Documents, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement or any other Loan Documents, and (d) to pay, indemnify, and hold the Administrative Agent and the Lenders (and their respective agents, employees, directors and officers) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the other Loan Documents or in any respect relating to the transactions contemplated hereby or thereby (all the foregoing, collectively, the "Indemnified Liabilities"); provided, however, that the Borrowers shall have no obligation hereunder with respect to Indemnified Liabilities arising from (i) the willful misconduct or gross negligence of or the willful breach of the Loan Documents by the party seeking indemnification but only after the final adjudication of willful misconduct, gross negligence or breach of Loan Documents by such Person, (ii) legal proceedings commenced against the Administrative Agent or any Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, (iii) any taxes imposed upon the Administrative Agent or any Lender other than the documentary, stamp, excise and similar taxes described in clause (c) above or any tax resulting from any Regulatory Change, which tax would be payable to Lenders by the Borrowers pursuant to Article IV hereof, or (iv) taxes imposed and costs and expenses incurred as a result of a transfer or assignment of any Note, participation or assignment of a portion of its rights. The agreements in this subsection shall survive repayment of the Notes and all other Obligations hereunder. The reimbursement obligations of the Borrowers contained in this paragraph also do not include the obligation to reimburse Lender or the Administrative Agent for any expenses and fees incurred in any dispute between any Lender and the Administrative Agent arising out of the Loans. 11.06 Amendments. No amendment, modification or waiver of any provision of this Agreement or any of the Loan Documents and no consent by the Lenders to any departure therefrom by the Borrowers shall be effective unless such amendment, modification or waiver shall be in writing and signed by the Borrowers and the Administrative Agent, but only upon having received the written consent of the Required Lenders, and the same shall then be effective only 82 90 for the period and on the conditions and for the specific instances and purposes specified in such writing; provided, however, that, no such amendment, modification or waiver (i) which changes, extends or waives any provision of Section 10.10 or this Section 11.06, the amount of or the due date of any scheduled installment of any Obligation or the amount of the Total Revolving Credit Commitment, which decreases the rate of interest payable on any Obligation, decreases fees stated herein, changes the definition of Required Lenders, which permits an assignment by the Borrowers of their Obligations hereunder, which reduces the required consent of Lenders provided hereunder, which increases, decreases or extends the Revolving Credit Maturity Date or the Revolving Credit Commitment of any Lender, which releases any Obligations, which increases or extends the Letter of Credit Facility or which waives any condition to the making of any Loan shall be effective unless in writing and signed by each of the Lenders; provided, however, the Required Lenders may in their sole discretion waive any Default or Event of Default (other than any Event of Default under Section 9.01(a), (b), (g) or (h) which shall require the agreement of each Lender); or (ii) which affects the rights, privileges, immunities or indemnities of the Administrative Agent shall be effective unless in writing and signed by the Administrative Agent. Notwithstanding any provision of the other Loan Documents to the contrary, as between the Administrative Agent and the Lenders, execution by the Administrative Agent shall not be deemed conclusive evidence that the Administrative Agent has obtained the written consent of the Required Lenders. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Administrative Agent's part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default. 11.07 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. 11.08 WAIVERS BY BORROWERS. IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE LOANS, ANY OF THE NOTES, ANY OF THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING BETWEEN THE BORROWERS AND THE LENDERS OR THE ADMINISTRATIVE AGENT; THE BORROWERS AND EACH LENDER AND THE ADMINISTRATIVE AGENT HEREBY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION. 83 91 11.09 Termination. The termination of this Agreement shall not affect any rights of the Borrowers, the Lenders or the Administrative Agent or any obligation of the Borrowers, the Lenders or the Administrative Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Administrative Agent for the benefit of the Lenders hereunder and under the other Loan Documents shall continue in full force and effect, notwith standing the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof (other than Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) or the Borrowers have furnished the Lenders and the Administrative Agent with an indemnification satisfactory to the Administrative Agent and each Lender with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment pursuant to the Loan Documents of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrowers shall be liable to, and shall indemnify and hold such Lender harmless for, the amount of such payment surrendered until such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 11.10 Governing Law. ALL DOCUMENTS EXECUTED PURSUANT TO THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT AND EACH OF THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF FLORIDA. THE BORROWERS HEREBY SUBMIT TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR FOR THE PURPOSES OF COLLECTION. 11.11 Indemnification. (a) In consideration of the execution and delivery of this Agreement by the Administrative Agent and each Lender and the extension of the Letter of Credit Commitments, the Swing Line and Revolving Credit Commitments, the Borrowers hereby indemnify, exonerate and hold the Administrative Agent, each Lender and any Affiliate thereof and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan or supported by any Letter of Credit, except for any such Indemnified Liabilities arising for the account of a particular 84 92 Indemnified Party by reason of the final adjudication of bad faith, gross negligence or willful misconduct with respect to such Indemnified Party or an officer, director, employee or agent of such Indemnified Party, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The provisions of this Section 11.11(a) shall survive repayment of the Obligations, the occurrence of the Revolving Credit Termination Date, and expiration or termination of this Agreement. (b) If a claim is to be made by a party entitled to indemnification under this Section 11.11 against the indemnifying party, the party entitled to such indemnification shall give written notice to the indemnifying party promptly after the party entitled to indemnification receives actual notice of any claim, action, suit, loss, cost, liability, damage or expense incurred or instituted for which the indemnification is sought. If requested by the Borrowers in writing, and so long as no Default or Event of Default shall have occurred and be continuing, such Indemnified Party shall contest at the expense of the Borrowers the validity, applicability and/or amount of such suit, action, or cause of action to the extent such contest may be conducted in good faith on legally supportable grounds. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity under this Section 11.11, written notice thereof shall be given to the indemnifying party as soon as practicable (and in any event within 20 days after the service of the citation or summons). Notwithstanding the foregoing, the failure so to notify the indemnifying party as provided in this Section will relieve the indemnifying party from liability hereunder only if and to the extent that such failure results in the forfeiture by the indemnifying party of any substantive rights or defenses and only to the extent of such forfeiture. After such notice, if the indemnifying party shall acknowledge in writing to the Indemnified Party that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then, so long as no Default or Event of Default shall occur and be continuing, the indemnifying party shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage counsel of its own choice reasonably acceptable to the Indemnified Party to handle and defend the same, at the indemnifying party's cost, risk and expense, provided, however, that the indemnifying party and its counsel shall proceed with diligence and in good faith with respect thereto. If (i) the engagement of such counsel by the indemnifying party would present a conflict of interest which would prevent such counsel from effectively defending such action on behalf of the Indemnified Party, (ii) the defendants in, or targets of, any such lawsuit or action include both the Indemnified Party and indemnifying party, and the Indemnified Party reasonably concludes that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party, (iii) the indemnifying party fails to assume the defense of the lawsuit or action or to employ counsel reasonably satisfactory to such Indemnified Party, in either case in a timely manner, or (iv) a Default or Event of Default shall occur and be continuing, then such Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and the indemnifying party will pay the fees and disbursements of such counsel, provided, however, that each Indemnified Party shall endeavor, but shall not be obligated, in connection with any matter covered by this Section 11.11 which also involves other Indemnified Parties, to use reasonable efforts to avoid unnecessary duplication of efforts by counsel for all Indemnified Parties and provided further, that in no event shall the Borrowers be liable for the fees and expenses of more 85 93 than one separate firm for the Indemnified Parties. The Indemnified Party shall cooperate (with all out of pocket costs and expenses associated therewith to be paid by the indemnifying party) in all reasonable respects with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost (except as set forth in, and in accordance with, the foregoing sentence), participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. If the indemnifying party has acknowledged to the Indemnified Party its obligation to indemnify hereunder, the Indemnified Party, so long as no Default or Event of Default shall have occurred and be continuing, shall not settle such lawsuit or enforcement action without the prior written consent of the indemnifying party and, if the indemnifying party has not so acknowledged its obligation, the Indemnified Party shall not settle such lawsuit or enforcement action without giving 20 days' prior written notice of such settlement and its terms to the indemnifying party. Notwithstanding anything herein to the contrary, (x) if an Indemnified Party decides to forego any right to indemnification hereunder with respect to any pending lawsuit or enforcement action, such Indemnified Party shall be entitled to settle such lawsuit or enforcement action with respect to any indemnification rights foregone, and (y) if either Borrower ,or the Borrowers jointly assume control over any pending lawsuit or enforcement action, neither Borrower shall agree to any dismissal or settlement of such litigation without the written consent of any Indemnified Party if such dismissal or settlement would require any admission or acknowledgment of culpability or wrongdoing by such Indemnified Party or provide for any non-monetary relief to be performed by such Indemnified Party. 11.12 Headings and References. The headings of the Articles and Sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of this Agreement. Words such as "hereof", "hereunder", "herein" and words of similar import shall refer to this Agreement in its entirety and not to any particular Section or provisions hereof, unless so expressly specified. As used herein, the singular shall include the plural, and the masculine shall include the feminine or a neutral gender, and vice versa, whenever the context requires. 11.13 Severability. If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto. 11.14 Entire Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments and other communications between or among the parties, both oral and written, with respect thereto. 11.15 Agreement Controls. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any term of this Agreement, the terms and provisions of this Agreement shall control. 86 94 11.16 Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under Florida law, shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrowers shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrowers to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful rate, then any such excess shall be canceled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrowers. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. 11.17 Consents to Renewals, Modifications and Other Actions and Events. This Agreement and all of the obligations of the Borrowers hereunder shall remain in full force and effect without regard to and shall not be released, affected or impaired by: (a) any amendment, assignment, transfer, modification of or addition or supplement to the Obligations, this Agreement, any Note or any other Loan Document; (b) any extension, indulgence, increase in the Obligations or other action or inaction in respect of any of the Loan Documents or otherwise with respect to the Obligations, or any acceptance of security for, or guaranties of, any of the Obligations or Loan Documents, or any surrender, release, exchange, impairment or alteration of any such security or guaranties including without limitation the failing to perfect a security interest in any such security or abstaining from taking advantage or of realizing upon any guaranties or upon any security interest in any such security; (c) any default by any Borrower under, or any lack of due execution, invalidity or unenforceability of, or any irregularity or other defect in, any of the Loan Documents; (d) any waiver by the Lenders or any other person of any required performance or otherwise of any condition precedent or waiver of any requirement imposed by any of the Loan Documents, any guaranties or otherwise with respect to the Obligations; (e) any exercise or non-exercise of any right, remedy, power or privilege in respect of this Agreement or any of the other Loan Documents; (f) any sale, lease, transfer or other disposition of the assets of any Borrower or any consolidation or merger of any Borrower with or into any other person, corporation, or entity, or any transfer or other disposition by any Borrower or any other holder of any shares of capital stock of any Borrower; (g) any bankruptcy, insolvency, reorganization or similar proceedings involving or affecting any Borrower; (h) the 87 95 release or discharge of any Borrower from the performance or observance of any agreement, covenant, term or condition under any of the Obligations or contained in any of the Loan Documents by operation of law; or (i) any other cause whether similar or dissimilar to the foregoing which, in the absence of this provision, would release, affect or impair the obligations, covenants, agreements and duties of any Borrower hereunder, including without limitation any act or omission by the Administrative Agent, any Lender or any other person which increases the scope of such Borrower's risk, and in each case described in this paragraph whether or not any Borrower shall have notice or knowledge of any of the foregoing, each of which is specifically waived by each Borrower. Each Borrower warrants to the Administrative Agent and the Lenders that it has adequate means to obtain from each other Borrower on a continuing basis information concerning the financial condition and other matters with respect to the Borrowers and that it is not relying on the Administrative Agent or the Lenders to provide such information either now or in the future. 11.18 Confidentiality. Except as provided in Section 7.01(e) hereof, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature but may, in any event, make disclosures reasonably required in connection with the contemplated transfer or assignment of any of the Loans or participations or as required or requested by any legal process or applicable regulatory agency or to its attorneys or accountants in the ordinary course of business; provided that, unless specifically prohibited by applicable law or court order, each Lender shall use all reasonable efforts to notify the Borrowers of any request under legal process by any governmental agency or representative thereof for disclosure of such information unless prohibited by such legal process but the failure to notify Borrower shall not affect the Borrowers' obligations to make payment to the Lenders hereunder and under the Notes. [Remainder of Page Intentionally Left Blank.] 88 96 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. REPUBLIC INDUSTRIES, INC. WITNESS: By: /s/ Courtland D. Peddy ------------------------------------- Name: Courtland D. Peddy Title: Vice President and Treasurer /s/ Kimberly Saltrell - ------------------------ /s/ Lucy L. Tate - ------------------------ REPUBLIC RESOURCES COMPANY WITNESS: By: /s/ Courtland D. Peddy ------------------------------------- Name: Courtland D. Peddy Title: Assistant Secretary /s/ Kimberly Saltrell - ------------------------ /s/ Lucy L. Tate - ------------------------ 89 97 NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Administrative Agent for the Lenders By: /s/ Richard M. Starke ----------------------------------------- Name: Richard M. Starke Title: Vice President NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) By: /s/ Richard M. Starke ----------------------------------------- Name: Richard M. Starke Title: Vice President Lending Office: 101 North Tryon Street Charlotte, North Carolina 28255 Wire Transfer Instructions: NationsBank, National Association (South) Charlotte, North Carolina ABA# 063100277 Reference: Republic Industries Attention: Agency Services Account No.: __________ REF: Republic Industries, Inc. 90 98 BANK OF AMERICA NT & SA By: /s/ Laurens F. Schaad, Jr. ----------------------------------------- Name: Laurens F. Schaad, Jr. --------------------------------------- Title: Vice President -------------------------------------- Lending Office: 1230 Peachtree Street Suite 3800 Atlanta, Georgia 30309 Wire Transfer Instructions: Bank of America NT & SA 231 S. LaSalle Chicago, Illinois 60690 ABA #071000039 For credit to Acct. #47-03421 Reference: Republic Industries Attention: Sheila Johnson 91 99 THE CHASE MANHATTAN BANK By: /s/ Carol A. Ulmer ----------------------------------------- Name: CAROL A. ULMER --------------------------------------- Title: VICE PRESIDENT -------------------------------------- Lending Office: 270 Park Avenue, 10th Floor New York, New York 10017 Wire Transfer Instructions: The Chase Manhattan Bank 4 New York Plaza New York, New York 10005 ABA #021000021 Reference: Republic Industries Attention: Loan Document 92 100 CITICORP USA, INC. By: /s/ Flavio Regende Barbosa ----------------------------------------- Name: Flavio Regende Barbosa --------------------------------------- Title: Vice President -------------------------------------- Lending Office: 400 Perimeter Center Terrace Suite 600 Atlanta, Georgia 30346 Wire Transfer Instructions: Citibank N.A. 399 Park Avenue New York, New York 10043 ABA #021000089 Account #4058 0628 Reference: Republic Industries, Inc. 93 101 ABN AMRO BANK NV By: /s/ Cheryl J. Steffens ----------------------------------------- Name: Chery J. Steffens --------------------------------------- Title: Vice President -------------------------------------- Lending Office: 200 S. Biscayne Boulevard Suite 200 Miami, Florida 33131 Wire Transfer Instructions: ABN AMRO Bank NV 200 S. Biscayne Boulevard Miami, Florida 33131 ABA #0660 1086 9 Account #5111 806 36610 Attention: Credit Department Reference: Republic Industries 94 102 THE BANK OF NOVA SCOTIA By: /s/ W.I. BROWN ----------------------------------------- Name: W.I. BROWN --------------------------------------- Title: VICE PRESIDENT -------------------------------------- Lending Office: 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Wire Transfer Instructions: The Bank of Nova Scotia, New York Agency 1 Liberty Plaza New York, New York 10006 ABA #026002532 Account #0606634 Attention: Atlanta Agency Reference: Republic Industries, Inc. 95 103 THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH By: /s/ Joseph P. Devoe ----------------------------------------- Name: Joseph P. Devoe --------------------------------------- Title: Attorney-in-Fact -------------------------------------- Lending Office: 1251 Avenue of the Americas, 12th Floor New York, New York 10020-1104 Wire Transfer Instructions: The Bank of Tokyo-Mitsubishi, Ltd., New York Branch ABA #0260-0963-2 Short Name: BK Tokyo Mitsubishi Ltd. Further Credit to: Loan Operations Dept. CIF #97770191 96 104 CIBC INC. By: /s/ Roger Colden ----------------------------------------- Name: Roger Colden --------------------------------------- Title: DIRECTOR, CIBC WOOD GUNDY -------------------------------------- SECURITY CORP. AS AGENT Lending Office: 2727 Paces Ferry Road Suite 1200 Atlanta, Georgia 30339 Wire Transfer Instructions: Morgan Guaranty New York, New York ABA #021-000-238 Account #630-00-480 Attention: Atlanta Operations 97 105 CREDIT SUISSE By: /s/ R. Finney /s/ E. Whalen ----------------------------------------- Name: R. Finney E. Whalen --------------------------------------- Title: MANAGING DIRECTOR ASSOCIATE -------------------------------------- Lending Office: 11 Madison Avenue New York, New York 10016 Wire Transfer Instructions: Credit Suisse 11 Madison Avenue New York, New York 10016 ABA #026009179 Account #904996-02 Attention: Loan Department Clearing Account 98 106 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Courtney R. Wood ----------------------------------------- Name: Courtney R. Wood --------------------------------------- Title: Vice President -------------------------------------- Lending Office: One First National Plaza Suite 0167 1-10 Chicago, Illinois 60670 Wire Transfer Instructions: The First National Bank of Chicago One First National Plaza Chicago, Illinois 60670 ABA #071000013 Account #7521-7653 Attention: DES Incoming Clearing Account 99 107 FIRST UNION NATIONAL BANK OF FLORIDA By: /s/ Ralph L. Kelly ----------------------------------------- Name: Ralph L. Kelly --------------------------------------- Title: Vice President -------------------------------------- Lending Office: 225 Water Street Jacksonville, Florida 32202 Wire Transfer Instructions: First Union National Bank Jacksonville, Florida ABA #063000021 Account #GL 145916 Attention: Cindy Petry 100 108 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Adam J. Silver ----------------------------------------- Name: ADAM J. SILVER --------------------------------------- Title: ASSOCIATE -------------------------------------- Lending Office: 60 Wall Street New York, New York 10260-0060 Wire Transfer Instructions: Morgan Guaranty Trust Company of New York New York, New York ABA #021000238 For Credit to: Loan Department Account #999-99-090 Attention: Module 0002 Reference: Republic Industries, Inc. 101 109 PNC BANK, KENTUCKY, INC. By: /s/ James D. Neil ----------------------------------------- Name: James D. Neil --------------------------------------- Title: Vice President -------------------------------------- Lending Office: 500 W. Jefferson Street Louisville, Kentucky 40202 Wire Transfer Instructions: PNC Bank, Kentucky, Inc. 500 W. Jefferson Street Louisville, Kentucky 40202 ABA #083000108 Account #3000991434 Attention: Commercial Loan Operations Reference: Republic Industries, Inc. 102 110 BANK OF MONTREAL By: /s/ Edward P. McGuire ----------------------------------------- Name: EDWARD P. MCGUIRE --------------------------------------- Title: DIRECTOR -------------------------------------- Lending Office: 115 S. LaSalle, 13W Chicago, Illinois 60603 Wire Transfer Instructions: Harris Bank 115 S. LaSalle Street Chicago, Illinois 60603 ABA #071000288 Account #124-856-6 N/O Bank of Montreal Reference: Republic Industries, Inc. 103 111 CAISSE NATIONALE DE CREDIT AGRICOLE By: /s/ David Bouhl ----------------------------------------- Name: DAVID BOUHL, F.V.P. --------------------------------------- Title: HEAD OF CORPORATE BANKING CHICAGO -------------------------------------- Lending Office: 555 E. Monroe Street Suite 4700 Chicago, Illinois 60603 Wire Transfer Instructions: Morgan Guaranty Trust Company New York, New York ABA #021-000-238 Reference: Republic Industries, Inc. Account #630-00-205 Account Name: CNCA--Chicago Branch Attention: James Barrett 104 112 THE BANK OF NEW YORK By: /s/ Alan F. Lyster, Jr. ----------------------------------------- Name: ALAN F. LYSTER, JR. --------------------------------------- Title: VICE PRESIENT -------------------------------------- Lending Office: One Wall Street, 22nd Floor New York, New York 10286 Wire Transfer Instructions: The Bank of New York 101 Barclay Street New York, New York 10007 ABA #021000018 Commercial Loan Servicing Department GLA #111556 Reference: Republic Industries, Inc. 105 113 BARNETT BANK, N.A. By: /s/ Michael Cooney ----------------------------------------- Name: Michael Cooney --------------------------------------- Title: Vice President -------------------------------------- Lending Office: One E. Broward Boulevard, 4th Floor Ft. Lauderdale, Florida 33301 Wire Transfer Instructions: Barnett Bank, N.A. 9000 Southside Boulevard, Bldg. 600 Jacksonville, Florida 32232-5264 ABA #063000047 Account #00900052234 Reference: Republic Industries, Inc. Attention: Commercial Loan Accounting 106 114 COMMERZBANK AKTIENGESELLSCHAFT, ATLANTA AGENCY By: /s/ Andreas Bremer /s/ Mary Smith ----------------------------------------- Name: Andreas Bremer Mary Smith --------------------------------------- Title: SVP & Manager AVB -------------------------------------- Lending Office: 1230 Peachtree Street, N.E. Suite 3500 Atlanta, Georgia 30309 Wire Transfer Instructions: Commerzbank AG Two World Financial Center New York, New York 10281-1050 ABA #026008044 For Credit to: Commerzbank AG, Atlanta Agency Reference: Republic Industries, Inc. Account #153-2000339 Trust Account #153-2000321 107 115 BANCA MONTE DEI PASCHI DI SIENA, SpA By: /s/ G. Natalicchi ----------------------------------------- Name: G. Natalicchi --------------------------------------- Title: Senior Vice President -------------------------------------- By: /s/ Brian R. Landy ----------------------------------------- Name: Brian R. Landy --------------------------------------- Title: Vice President -------------------------------------- Lending Office: 245 Park Avenue, 26th Floor New York, New York 10167 Wire Transfer Instruction: Chase Manhattan Bank -------------------------------------------- New York , New York --------- --------- ABA #021000021 --------- Attention: ---------------------------------- Reference: ---------------------------------- Credit to account of Banca Monte dei Paschi di Siena, SpA, New York Branch Account no. 544-7-78865 108 116 THE SUMITOMO BANK, LIMITED By: /s/ Masayuki Fukushima ------------------------------------------ Name: Masayuki Fukushima Title: Joint General Manager Lending Office: 277 Park Avenue New York, New York 10172 Wire Transfer Instructions: Morgan Guaranty Trust Company of New York Account #631-28-256 (The Sumitomo Bank, Ltd.) Routing Transit/ABA #021000238 Attention: Loan Operations Reference: Republic Industries, Inc. 109 117 WESTDEUTSCHE LANDESBANK GIROZENTRALE By: /s/ A. S. Bovy ----------------------------------------- Name: A. S. Bovy --------------------------------------- Title: XXXXXXXXXXXXXX -------------------------------------- By: /s/ Savatore Battinelli ----------------------------------------- Name: Savatore Battinelli --------------------------------------- Title: Vice President Credit Department -------------------------------------- Lending Office: 1211 Avenue of the Americas New York, New York 10036 Wire Transfer Instructions: Chase Manhattan Bank Chase Manhattan Plaza New York, New York ABA #021000021 WestLB New York Branch Account #9201060663 Reference: AGCO Corp. 110 EX-4.23 24 4TH AMENDMENT TO LOAN AGREEMENT 1 Exhibit 4.23 EXECUTION COPY FOURTH AMENDMENT TO LOAN AGREEMENT THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT") is dated as of March 28, 1997 among ALAMO RENT-A-CAR, INC., a Florida corporation ("ALAMO"), and ALAMO FUNDING, L.P., a limited partnership organized under the laws of the State of New York (the "LENDER"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Alamo and the Lender are parties to that certain Loan Agreement dated as of June 20, 1994 (as amended, restated or modified from time to time, the "LOAN AGREEMENT"); WHEREAS, Alamo and the Lender are parties to that certain Amendment to Loan Agreement, dated as of December 29, 1994; WHEREAS, Alamo and the Lender are parties to that certain Second Amendment to Loan Agreement, dated as of June 11, 1996; WHEREAS, Alamo and the Lender are parties to that certain Third Amendment to Loan Agreement, dated as of November 25, 1996; WHEREAS, Alamo and the Lender desire to amend certain provisions of the Loan Agreement; NOW, THEREFORE, the parties to this Amendment hereby agree as follows: Section 01. DEFINED TERMS. All capitalized terms used herein (including in the preamble and in the recitals) and not otherwise defined herein shall have the meanings set forth for such terms in the Loan Agreement. Section 02. AMENDMENTS TO THE LOAN AGREEMENT. (a) AMENDMENT TO SECTION 1.1. The following term is added to Section 1.1: 2 "REPUBLIC GUARANTY" has the meaning assigned thereto in the Definitions List annexed to the Liquidity Loan Agreement. (b) AMENDMENT TO SECTION 9.8(i). Section 9.8(i) of the Loan Agreement is hereby amended to read in its entirety as follows: "(i) QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, within sixty (60) days after the last day of each of the first three calendar quarters in each fiscal year of Alamo, the balance sheet of Alamo as at the end of such quarter, and the related statement of income, retained earnings, and cash flows of Alamo, and a reconciliation of stockholders' equity with respect to Alamo for such quarter and for the elapsed portion of the year ended with the last day of such quarter, which shall be in comparative form with respect to the financial results of Alamo for the corresponding calendar quarter of the preceding year, and which shall be certified by the president, chief financial officer, the treasurer or the comptroller of Alamo, to be, in his or her opinion, complete and correct in all material respects and to present fairly, in accordance with generally accepted accounting principles consistently applied, the financial position of Alamo, as at the end of such period and the results of operations for such period, and for the elapsed portion of the year ended with the last day of such period, subject only to the normal year-end adjustments, and which shall be accompanied by a certificate of Arthur Andersen LLP, or another "Big Six" accounting firm, stating that such accountants have reviewed such financial statements." (c) AMENDMENT TO SECTION 9.8(ii). Section 9.8(ii) of the Loan Agreement is hereby amended to read in its entirety as follows: "(ii) ANNUAL FINANCIAL STATEMENTS AND INFORMATION; CERTIFICATE OF NO DEFAULT. In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, within ninety (90) days after the end of each -2- 3 calendar year, the audited balance sheet of Alamo, as at the end of such fiscal year, and the related audited statements of income, retained earnings and cash flows of Alamo, and a reconciliation of stockholders' equity with respect to Alamo for such fiscal year, which financial statements shall set forth in comparative form such figures as at the end of and for the previous fiscal year, and shall be accompanied by an unqualified opinion of Arthur Andersen LLP or another "Big Six" accounting firm, together with a statement of such accountants certifying (i) that no default or Loan Event of Default was detected during the examination of Alamo, and (ii) that such accountants have authorized Alamo to deliver such financial statements and opinion thereon to the Agent and the Lender pursuant to this Agreement." (d) AMENDMENT TO ARTICLE XII. Article XII of the Loan Agreement is hereby amended by adding the following new Section 12.1.6 immediately following Section 12.1.5: "SECTION 12.1.6. DEFAULT UNDER THE REPUBLIC GUARANTY AND/OR OTHER AGREEMENTS OR COVENANTS. Default in the payment when due of any payments required under the Republic Guaranty, and the continuance thereof for two (2) Business Days after the occurrence thereof or the default in the performance of any other agreement or covenant (financial or otherwise) in the Republic Guaranty, and the continuance thereof for thirty (30) days after written notice thereof from the Lender." Section 03. CONDITIONS OF EFFECTIVENESS. The following constitute conditions precedent to the effectiveness of this Amendment: (a) The Lender shall have received written confirmation from the Rating Agencies that this Amendment will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes by any Rating Agency; (b) Each Liquidity Lender and the Credit Enhancer shall have delivered written consent to this Amendment evidenced by their execution of ANNEX A to the Third -3- 4 Amendment to the Liquidity Loan Agreement, dated as of March __, 1997 (the "CONSENT"); (c) Execution and delivery of this Amendment by the Lender and Alamo; (d) The Lender and Alamo shall have delivered prior written notice of this Amendment to the Rating Agencies, the Depositary, the Agent, the Liquidity Agent and each Dealer; (e) The Lender and Alamo shall have delivered fully executed copies of this Amendment to the Rating Agencies, the Depositary, the Agent, the Liquidity Agent and each Dealer; (f) The Lender shall have received from Alamo (i) a copy of the resolutions of its Board of Directors, certified as of the date hereof by the Secretary thereof, authorizing the execution, delivery and performance of this Amendment and (ii) an incumbency certificate from the Secretary thereof with respect to its officers, agents or other representatives authorized to execute this Amendment; and (g) The Lender shall have received an Opinion of Counsel to Alamo to the effect that this Amendment has been duly authorized, executed and delivered and is the legal, valid and binding obligation of Alamo, enforceable against it in accordance with its terms, subject to the exceptions set forth therein. Section 04. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. Alamo represents and warrants to the Lender as to itself and as to each Borrower, that the representations and warranties in Article VIII of the Loan Agreement, as amended by this Amendment, are true and correct on and as of the date hereof with the same effect as if made on and as of the date hereof (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date). Section 05. REFERENCE TO AND EFFECT ON THE RELATED DOCUMENTS; RATIFICATION. (a) Upon the effectiveness hereof, on and after the date hereof each reference in the Related Documents and any other document to the "Loan Agreement" or words of like import referring to the Loan Agreement shall mean and be a reference to the Loan Agreement as amended hereby and each reference to any of the defined terms referred to in this Amendment shall mean and refer to such defined terms as amended hereby. -4- 5 (b) The Loan Agreement, as amended above, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. Section 06. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. Section 07. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. ALAMO RENT-A-CAR, INC. By: /s/ Dana Egan Sullenberger ------------------------------ Name: Dana Egan Sullenberger Title: Authorized Signatory ALAMO FUNDING, L.P. By: AFL FLEET FUNDING, INC., its General Partner By: /s/ Richard L. Taiano ------------------------------ Name: Richard L. Taiano Title: Vice President EX-4.24 25 3RD. AMENDMENT TO LIQUIDITY LOAN AGREEMENT 1 Exhibit 4.24 EXECUTION COPY THIRD AMENDMENT TO LIQUIDITY LOAN AGREEMENT ------------------------ THIS THIRD AMENDMENT TO LIQUIDITY LOAN AGREEMENT (this "AMENDMENT") is dated as of March 28, 1997 among ALAMO FUNDING, L.P., a limited partnership organized under the laws of the State of New York ("AFL"), AFL FLEET FUNDING, INC., a New York corporation (the "GENERAL PARTNER"), and CITIBANK, N.A., as the Liquidity Agent for the Liquidity Lenders (the "LIQUIDITY AGENT"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, AFL, the General Partner, the Liquidity Agent and the Liquidity Lenders are parties to that certain Liquidity Loan Agreement dated as of June 20, 1994 (as amended, restated, or modified from time to time, the "LIQUIDITY LOAN AGREEMENT"); WHEREAS, AFL, the General Partner, the Liquidity Agent and the Liquidity Lenders are parties to that certain Amendment to the Liquidity Loan Agreement dated as of June 11, 1996; WHEREAS, AFL, the General Partner, the Liquidity Agent and the Liquidity Lenders are parties to that certain Second Amendment to the Liquidity Loan Agreement dated as of November 25, 1996; WHEREAS, AFL, the General Partner, the Liquidity Agent and the Liquidity Lenders desire to amend certain provisions of the Liquidity Loan Agreement; NOW, THEREFORE, the parties to this Amendment hereby agree as follows: Section 1. DEFINED TERMS. All capitalized terms used herein (including in the preamble and in the recitals) and not otherwise defined herein shall have the meanings set forth for such terms in the Definitions List dated as of June 20, 1994 and annexed to the Liquidity Loan Agreement as ANNEX A, as such Definitions List may be further amended, supplemented, restated or otherwise modified from time to time. -1- 2 Section 2. AMENDMENTS TO THE LIQUIDITY LOAN AGREEMENT. (a) AMENDMENT TO SECTION 1.1. ANNEX A to the Liquidity Loan Agreement as referenced in Section 1.1 thereto is hereby amended as follows: (1) The following term is hereby added: "REPUBLIC GUARANTY" means the Guaranty dated March 27, 1997 by Republic Industries, Inc. in favor of AFL, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof." (2) The definition of "SCHEDULED LIQUIDITY COMMITMENT TERMINATION DATE" is hereby deleted in its entirety and replaced with the following: "SCHEDULED LIQUIDITY COMMITMENT TERMINATION DATE" means, for any Liquidity Lender, the date that is 364 days from the date of the Third Amendment to Liquidity Loan Agreement, as such date may be extended from time to time." (3) The definition of "RELATED DOCUMENTS" is hereby amended by adding the phrase "the Republic Guaranty," immediately following the phrase "the Loan Agreement,". (b) AMENDMENT TO SECTION 8.1.1(a). Section 8.1.1(a) of the Liquidity Loan Agreement is hereby amended to read in its entirety as follows: "(a) In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, as soon as available and in any event within 90 days after the end of each fiscal year of Alamo, a copy of the consolidated and consolidating balance sheets of Alamo and its Subsidiaries as at the end of such fiscal year, together with the related statements of earnings, stockholders' equity and cash flows for such fiscal year, prepared in reasonable detail and in accordance with GAAP, certified without a going concern or like qualification by Arthur Andersen LLP & Co. (or such other independent certified public accountants of recognized national standing as shall be selected by Alamo);" -2- 3 (c) AMENDMENT TO SECTION 8.1.1(b). Section 8.1.1(b) of the Liquidity Loan Agreement is hereby amended to read in its entirety as follows: "(b) In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, as soon as available, but in any event within 60 days after the end of each fiscal quarter (except the fourth fiscal quarter) of Alamo, copies of the unaudited consolidated and consolidating balance sheets of Alamo and its Subsidiaries as at the end of such fiscal quarter and the related unaudited statements of earnings, stockholders' equity and cash flows for the portion of the fiscal year through such fiscal quarter and as to the statements of earnings for such fiscal quarter, in each case setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, prepared in reasonable detail and in accordance with GAAP and certified by the chief financial or accounting officer of Alamo as presenting fairly the financial condition and results of operations of Alamo (subject to normal year-end adjustments);" (d) AMENDMENT TO SECTION 8.1.1(d). Section 8.1.1(d) of the Liquidity Loan Agreement is hereby amended to read in its entirety as follows: "(d) In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, at the time of delivery of the items described in clauses (a) and (b) above, a consolidating balance sheet and statement of earnings in respect of Alamo and its Subsidiaries as of such date or for the year to date period ending on such date;" Section 3. CONDITIONS OF EFFECTIVENESS. The following constitute conditions precedent to the effectiveness of this Amendment: (a) Execution and delivery of this Amendment by AFL, the General Partner and the Liquidity Agent; (b) The Liquidity Agent and AFL shall have received as of the date hereof a copy of the written confirmation delivered to AFL by each of S&P and Moody's to the effect -3- 4 that this Amendment will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes; (c) Each Liquidity Lender and the Credit Enhancer shall each have delivered written consent to this Amendment evidenced by their execution of ANNEX A hereto; (d) AFL shall have delivered prior written notice of this Amendment to the Rating Agencies, the Depositary, the Agent, the Liquidity Agent and each Dealer; (e) AFL shall have delivered a fully executed copy of this Amendment to the Rating Agencies, the Depositary, the Agent, the Liquidity Agent and each Dealer; (f) The Liquidity Agent shall have received (i) from AFL evidence that all necessary partnership action has been taken to authorize the execution, delivery and performance of this Amendment and (ii) from the General Partner (x) a copy of the resolutions of its Board of Directors, certified as of the date hereof by the Secretary thereof, authorizing the execution, delivery and performance of this Amendment and (y) an incumbency certificate thereof with respect to its officers, agents or other representatives authorized to execute this Amendment; and (g) The Liquidity Agent shall have received an Opinion of Counsel to AFL to the effect that this Amendment has been duly authorized, executed and delivered and is the legal, valid and binding obligation of AFL, enforceable against it in accordance with its terms, subject to the exceptions set forth therein. Section 4. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. AFL represents and warrants to the Liquidity Agent and each Liquidity Lender that the representations and warranties in Article VII of the Liquidity Loan Agreement, as amended by this Amendment, are true and correct on and as of the date hereof with the same effect as if made on and as of the date hereof (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date). Section 5. REFERENCE TO AND EFFECT ON THE RELATED DOCUMENTS; RATIFICATION. (a) Upon the effectiveness hereof, on and after the date hereof each reference in the Related Documents and any other document to the "Liquidity Loan Agreement" or words of like import referring to the Liquidity Loan Agreement shall -4- 5 mean and be a reference to the Liquidity Loan Agreement as amended hereby and each reference to any of the defined terms referred to in this Amendment shall mean and refer to such defined terms as amended hereby. (b) The Liquidity Loan Agreement, as amended above, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. Section 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. Section 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. ALAMO FUNDING, L.P. By: AFL FLEET FUNDING, INC., its General Partner By: /s/ Richard L. Taiano -------------------------------- Name: Richard L. Taiano Title: Vice President AFL FLEET FUNDING, INC. By: /s/ Richard L. Taiano -------------------------------- Name: Richard L. Taiano Title: Vice President CITIBANK, N.A., as Liquidity Agent By: /s/ Jenny Cheng -------------------------------- Name: Jenny Cheng Title: Assistant Vice President 7 ANNEX A CONSENT OF LIQUIDITY LENDERS AND CREDIT ENHANCER TO THIRD AMENDMENT TO LIQUIDITY LOAN AGREEMENT, THIRD AMENDMENT TO LETTER OF CREDIT REIMBURSEMENT AGREEMENT, AND FOURTH AMENDMENT TO LOAN AGREEMENT The undersigned, as Liquidity Lenders under the Liquidity Loan Agreement dated as of June 20, 1994 among Alamo Funding, L.P., AFL Fleet Funding, Inc., certain financial institutions party thereto and Citibank, N.A., as Liquidity Agent, as amended from time to time prior to the date hereof (the "LIQUIDITY AGREEMENT"), and as Credit Enhancer under the Letter of Credit Reimbursement Agreement, dated as of June 20, 1994, among Alamo Rent-A-Car, Inc., AFL Fleet Funding, Inc., Alamo Funding, L.P. and Credit Enhancer, as amended from time to time prior to the date hereof (the "L/C AGREEMENT"), hereby consent to the execution and delivery by the parties thereto of (i) the Fourth Amendment, dated March 28, 1997, to the Loan Agreement, dated as of June 20, 1994, between Alamo Rent-A-Car, Inc. and Alamo Funding, L.P., as such Loan Agreement has been amended from time to time prior to the date hereof (the "LOAN AGREEMENT"), (ii) the Third Amendment to the L/C Agreement, dated as of March 28, 1997 and (iii) the Third Amendment to the Liquidity Loan Agreement, dated as of March 28, 1997. 8 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March __, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $15,000,000 BANK BRUSSELS LAMBERT, NEW YORK BRANCH By:_________________________ Name: Title: By:_________________________ Name: Title: 9 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 BANK OF MONTREAL By: /s/ Edward P. McGuire ------------------------ Name: Edward P. McGuire Title: Director 10 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 THE BANK OF NEW YORK By: /s/ David C. Siegal ------------------------------- Name: David C. Siegal Title: Assistant Vice President 11 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $200,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH By: /s/ ----------------------------- Name: Title: 12 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $30,000,000 BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH By: /s/ Ron Vogel -------------------------- Name: Ron Vogel Title: By: /s/ R.G. Pankuch -------------------------- Name: R.G. Pankuch Title: FVP 13 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $25,000,000 BOATMEN'S NATIONAL BANK OF ST. LOUIS By: /s/ Richard M. Starke -------------------------- Name: Richard M. Starke Title: Vice President 14 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $421,000,000 CITIBANK, N.A. By: /s/ John Scheng ----------------------- Name: John Scheng Title: Attorney-in-fact 15 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 COMMERZBANK AG, ATLANTA AGENCY By: /s/ Andreas Bremer ------------------------------- Name: Andreas Bremer Title: SVP & Manager By: /s/ Mary Smith ------------------------------- Name: Mary Smith Title: AVP 16 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $30,000,000 COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Angela R. Reilly ------------------------- Name: Angela R. Reilly Title: Vice President By: /s/ ------------------------- Name: Title: Deputy General Manager 17 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March __, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 DRESDNER BANK AG NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: ________________________ Name: Title: By: ________________________ Name: Title: 18 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March __, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 FIRST UNION NATIONAL BANK OF FLORIDA By: ________________________ Name: Title: 19 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $10,000,000 KREDIETBANK N.V. By: /s/ ---------------------------- Name: Title: 20 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 ING (U.S.) CAPITAL CORPORATION By: /s/ Michael G. Plunkett ------------------------------ Name: Michael G. Plunkett Title: Vice President 21 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $50,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Jeffrey Hwang ------------------------ Name: Jeffrey Hwang Title: Vice President 22 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER - ------------------------- ---------------- $15,000,000 SOCIETE GENERALE By: /s/ Ralph Saheb -------------------------- Name: Ralph Saheb Title: Vice President, Manager 23 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. CREDIT SUISSE NEW YORK BRANCH, as Credit Enhancer By: /s/ Roger W. Saylor -------------------------- Name: Roger W. Saylor Title: Associate By: /s/ R.N. Finney -------------------------- Name: R.N. Finney Title: Managing Director 24 IN WITNESS WHEREOF, the undersigned have caused this Consent to be executed and delivered as of March 28, 1997 by their respective officers thereunto duly authorized. $271,000,000 NATIONSBANK, N.A. (SOUTH) By: /s/ Richard M. Starke ----------------------------- Name: Richard M. Starke Title: Vice President EX-4.25 26 3RD. AMDT. TO LETTER OF CREDIT REIMBST. AGREEMENT 1 Exhibit 4.25 EXECUTION COPY THIRD AMENDMENT TO LETTER OF CREDIT REIMBURSEMENT AGREEMENT ---------------------------------------- THIS THIRD AMENDMENT TO LETTER OF CREDIT REIMBURSEMENT AGREEMENT (this "AMENDMENT") is dated as of March 28, 1997 among ALAMO RENT-A-CAR, INC., a Florida corporation ("ALAMO"), ALAMO FUNDING, L.P., a New York limited partnership ("AFL"), AFL FLEET FUNDING, INC., a New York corporation (the "GENERAL PARTNER"), and CREDIT SUISSE, a Swiss banking corporation acting through its New York Branch (the "CREDIT ENHANCER"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Alamo, AFL, the General Partner and the Credit Enhancer are parties to that certain Letter of Credit Reimbursement Agreement dated as of June 20, 1994 (as amended, restated or modified from time to time, the "LETTER OF CREDIT REIMBURSEMENT AGREEMENT"); WHEREAS, Alamo, AFL, the General Partner and the Credit Enhancer are parties to that certain Amendment to the Letter of Credit Reimbursement Agreement, dated as of December 29, 1994; WHEREAS, Alamo, AFL, the General Partner and the Credit Enhancer are parties to that certain Second Amendment to the Letter of Credit Reimbursement Agreement, dated as of November 25, 1996; WHEREAS, Alamo, AFL, the General Partner and the Credit Enhancer desire to amend certain provisions of the Letter of Credit Reimbursement Agreement; NOW, THEREFORE, the parties to this Amendment hereby agree as follows: Section 01. DEFINED TERMS. As used in this Amendment and unless the context requires a different meaning, capitalized terms used but not defined herein shall have the meanings assigned to such terms in (i) the Definitions List, dated as of June 20, 1994, attached as ANNEX A to the Liquidity Loan Agreement dated as of June 20, 1994, as such ANNEX A may be amended or modified and (ii) the Letter of Credit Reimbursement Agreement. 2 Section 02. AMENDMENTS TO THE LETTER OF CREDIT REIMBURSEMENT AGREEMENT. (a) AMENDMENT TO SECTION 3.2(h)(i). Section 3.2(h)(i) of the Letter of Credit Reimbursement Agreement is hereby amended to read in its entirety as follows: "(i) QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, within sixty (60) days after the last day of each of the first three calendar quarters in each fiscal year of Alamo, the balance sheet of Alamo as at the end of such quarter, and the related statements of income, retained earnings, and cash flows of Alamo, and a reconciliation of stockholders' equity with respect to Alamo for such quarter and for the elapsed portion of the year ended with the last day of such quarter, which shall be in comparative form with respect to the financial results of Alamo for the corresponding calendar quarter of the preceding year, and which shall be certified by the president, chief financial officer, the treasurer or the comptroller of Alamo, to be, in his or her opinion, complete and correct in all material respects and to present fairly, in accordance with generally accepted accounting principles consistently applied, the financial position of Alamo, as at the end of such period and the results of operations for such period, and for the elapsed portion of the year ended with the last day of such period, subject only to normal year-end adjustments, and which shall be accompanied by a report of Arthur Andersen LLP, or another "Big Six" accounting firm, stating that such accountants have reviewed such financial statements." (b) AMENDMENT TO SECTION 3.2(h)(ii). Section 3.2(h)(ii) of the Letter of Credit Reimbursement Agreement is hereby amended to read in its entirety as follows: "(ii) ANNUAL FINANCIAL STATEMENTS AND INFORMATION; CERTIFICATE OF NO DEFAULT. In the event the Republic Guaranty is terminated in accordance with Section 13 thereof, within ninety (90) days after the end of each calendar year, the audited balance sheet of Alamo, as at the end of such fiscal year, and the related audited statements of income, retained earnings and cash flows of Alamo, and a -2- 3 reconciliation of stockholders' equity with respect to Alamo for such fiscal year, which financial statements shall set forth in comparative form such figures as at the end of and for the previous fiscal year, and shall be accompanied by an unqualified opinion of Arthur Andersen LLP or another "Big Six" accounting firm, together with a statement of such accountants certifying (A) that no Event of Default was detected during the examination of Alamo and (B) that such accountants have authorized Alamo to deliver such financial statements and opinion thereon to the Credit Enhancer pursuant to this Agreement." (c) AMENDMENT TO SECTION 3.2(h)(iii). Section 3.2(h)(iii) of the Letter of Credit Reimbursement Agreement is hereby amended by deleting the section in its entirety and not replacing it. Section 03. CONDITIONS OF EFFECTIVENESS. The following constitute conditions precedent to the effectiveness of this Amendment: (a) Execution and delivery of this Amendment by Alamo, AFL, the General Partner and the Credit Enhancer; (b) AFL shall have received as of the date hereof a copy of the written confirmation delivered to AFL by each of S&P and Moody's to the effect that this Amendment will not result in the downgrading or withdrawal of the then current ratings of the Commercial Paper Notes; (c) Each Liquidity Lender shall have delivered written consent to this Amendment evidenced by their execution of ANNEX A to the Third Amendment to the Liquidity Loan Agreement, dated March 28, 1997; (d) AFL shall have delivered prior written notice of this Amendment to the Rating Agencies, the Depositary, the Agent, the Liquidity Agent and each Dealer; (e) AFL shall have delivered a fully executed copy of this Amendment to the Rating Agencies, the Depositary, the Agent, the Liquidity Agent and each Dealer and shall have delivered to each Dealer a revised Private Placement Memorandum (as such term is defined in the Dealer Agreement) which reflects this Amendment; (f) AFL shall have received from Alamo (i) a copy of the resolutions of its Board of Directors, certified as of -3- 4 the date hereof by the Secretary thereof, authorizing the execution, delivery and performance of this Amendment and (ii) an incumbency certificate from the Secretary thereof with respect to its officers, agents or other representatives authorized to execute this Amendment; and (g) AFL shall have received an Opinion of Counsel to Alamo to the effect that this Amendment has been duly authorized, executed and delivered and is the legal, valid and binding obligation of Alamo, enforceable against it in accordance with its terms, subject to the exceptions set forth therein. Section 04. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. Alamo represents and warrants to the Credit Enhancer that the representations and warranties in Article III of the Letter of Credit Reimbursement Agreement, as amended by this Amendment, are true and correct on and as of the date hereof with the same effect as if made on and as of the date hereof (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date). Section 05. REFERENCE TO AND EFFECT ON THE RELATED DOCUMENTS; RATIFICATION. (a) Upon the effectiveness hereof, on and after the date hereof each reference in the Related Documents and any other document to the "Letter of Credit Reimbursement Agreement" or words of like import referring to the Letter of Credit Reimbursement Agreement shall mean and be a reference to the Letter of Credit Reimbursement Agreement as amended hereby and each reference to any of the defined terms referred to in this Amendment shall mean and refer to such defined terms as amended hereby. (b) The Letter of Credit Reimbursement Agreement, as amended above, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. Section 06. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. -4- 5 Section 07. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. -5- 6 IN WITNESS WHEREOF, Alamo, AFL, the General Partner and the Credit Enhancer have caused this Amendment to be duly executed by their duly authorized officers, as of the day and year first above written. ALAMO RENT-A-CAR, INC. By: /s/ Dana Egan Sullenberger ------------------------------ Name: Dana Egan Sullenberger Title: Authorized Signatory ALAMO FUNDING, L.P. By: AFL FLEET FUNDING, INC., its General Partner By: /s/ Richard L. Taiano ---------------------------- Name: Richard L. Taiano Title: Vice President AFL FLEET FUNDING, INC. By: /s/ Richard L. Taiano ---------------------------- Name: Richard L. Taiano Title: Vice President CREDIT SUISSE NEW YORK BRANCH, the Credit Enhancer By: /s/ Roger V. Saylor ---------------------------- Name: Roger V. Saylor Title: Associate By: /s/ R.N. Finney ---------------------------- Name: R.N. Finney Title: Managing Director EX-23.1 27 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our reports included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, June 10, 1997. EX-23.2 28 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the previously filed Registration Statements of Republic Industries, Inc. on Form S-3 (Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (No. 333-17915), and Form S-8 (Nos. 33-93742, 333-07623, 333-19453 and 333-20669) of our report dated March 31, 1997, with respect to the combined financial statements of Grubb Automotive, Inc., Jack Sherman Chevrolet, Inc., Lou Grubb Chevrolet, Inc., Lou Grubb Ford, Inc., Lou Grubb Saturn, Inc., and Saturn of Tempe, Inc. as of and for the year ended December 31, 1996 included in this Current Report on Form 8-K. ERNST & YOUNG LLP Phoenix, Arizona June 10, 1997 EX-23.3 29 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Shad Management Company and Consolidated Investees: We consent to the incorporation by reference in the registration statements (Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415) on Form S-3, (No. 333-17915) on Form S-4 and (Nos. 33-93742, 333-07623, 333-19453 and 333-20669) on Form S-8 of Republic Industries, Inc. of our report dated February 12, 1997 (except as to note 7, which is as of February 23, 1997) with respect to the consolidated balance sheet of Shad Management Company and Consolidated Investees as of December 31, 1996, and the related consolidated statements of operations, retained earnings and cash flows for the period April 1, 1996 to December 31, 1996, which report appears in the Form 8-K of Republic Industries, Inc. dated June 13, 1997. KPMG PEAT MARWICK LLP Jacksonville, Florida June 13, 1997 EX-23.4 30 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation of our report dated February 21, 1997 of our audits of Bledsoe Dodge, Inc. as of and for the years ended December 31, 1996 and 1995 included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Form S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). COOPERS & LYBRAND L.L.P. Fort Worth, Texas, June 10, 1997 EX-23.5 31 CONSENT OF COHEN & COMPANY 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report in this Form 8-K into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). COHEN & COMPANY Cleveland, Ohio June 10, 1997 EX-23.6 32 CONSENT OF BAILEY SAETVEIT & CO. PC 1 EXHIBIT 23.6 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). BAILEY SAETVEIT & CO. P.C. Englewood, Colorado June 10, 1997 EX-23.7 33 CONSENT OF TURNER & VEDRENNE CPA 1 EXHIBIT 23.7 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). TURNER & VEDRENNE CPA Dallas, Texas June 10, 1997 EX-23.8 34 CONSENT OF EHRENKRANTZ, STERLING 1 EXHIBIT 23.8 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Form S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Form S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669). EHRENKRANTZ, STERLING & CO. LLC Roseland, NJ June 10, 1997 EX-23.9 35 CONSENT OF GEORGE B. JONES & CO. 1 EXHIBIT 23.9 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report included in this Form 8-K, into the previously filed Registration Statements of Republic Industries, Inc. on Forms S-3 (Registration No. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479, 333-18009, 333-20667 and 333-23415), Form S-4 (Registration No. 333-17915) and Forms S-8 (Registration No. 33-93742, 333-07623, 333-19453 and 333-20669). GEORGE B. JONES & CO., P.C. Memphis, TN June 10, 1997 EX-27.1 36 FINANCIAL DATA SCHEDULE - 1995
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 345,600 0 438,700 10,000 178,700 4,021,600 1,071,500 281,500 5,040,800 3,818,700 293,700 0 0 2,500 715,300 5,040,800 1,000,300 3,386,900 872,300 2,717,400 3,300 0 33,500 56,000 31,300 24,700 (25,100) 0 0 (400) 0 0
EX-27.2 37 FINANCIAL DATA SCHEDULE - 1996
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 299,500 0 551,700 16,000 185,400 4,913,100 1,463,700 398,700 6,370,300 3,660,000 1,147,600 0 0 3,000 1,349,000 6,370,300 1,410,500 4,764,100 1,269,900 3,881,000 38,300 0 43,900 42,000 43,000 (1,000) 0 (31,600) 0 (32,600) (.12) (.12)
EX-99 38 FINANCIAL INFORMATION 1 EXHIBIT 99 INDEX TO FINANCIAL INFORMATION
Page ---- (a) HISTORICAL FINANCIAL INFORMATION REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES Report of Independent Certified Public Accountants........................ F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995 (Restated)... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 (Restated)............................. F-4 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 (Restated)............................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 (Restated)............................. F-6 Notes to Consolidated Financial Statements (Restated)..................... F-7 Supplemental Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996 and 1995.............................. F-28 Supplemental Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996, 1995 and 1994........................................ F-29 Supplemental Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994............................ F-30 Supplemental Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996, 1995 and 1994........................................ F-31 Notes to Supplemental Consolidated Financial Statements................... F-32 AUTONATION INCORPORATED AND SUBSIDIARIES Report of Independent Certified Public Accountants........................ F-53 Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995....................................................... F-54 Consolidated Statements of Operations for the 52-Week Period Ended December 29, 1996 and for the Period from Inception (September 12, 1995) to December 31, 1995.............................................. F-55 Consolidated Statements of Stockholders' (Deficit) Equity for the 52-Week Period Ended December 29, 1996 and for the Period from Inception (September 12, 1995) to December 31, 1995............................... F-56 Consolidated Statements of Cash Flows for the 52-Week Period Ended December 29, 1996 and for the Period from Inception (September 12, 1995) to December 31, 1995.................................................... F-57 Notes to Consolidated Financial Statements................................ F-58 GRUBB AUTOMOTIVE Report of Independent Auditors............................................ F-66 Combined Balance Sheets as of December 31, 1996 and 1995.................. F-67 Combined Statements of Income for the Years Ended December 31, 1996 and 1995................................................................ F-68 Combined Statements of Shareholders' Equity for the Years Ended December 31, 1996 and 1995.............................................. F-69 Combined Statements of Cash Flows for the Years Ended December 31, 1996 and 1995.............................................. F-70 Notes to Combined Financial Statements.................................... F-71 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Independent Auditors' Report.............................................. F-85 Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996....................................................... F-86 Consolidated Statements of Operations and Retained Earnings for the Period from January 1, to March 31, 1997 and 1996 (Unaudited) and for the Period from April 1, 1996 to December 31, 1996...................... F-88 Consolidated Statements of Cash Flows for the Period from January 1, to March 31, 1997 and 1996 (Unaudited) and for the Period from April 1, 1996 to December 31, 1996............................................... F-89 Notes to Consolidated Financial Statements................................ F-91 BLEDSOE DODGE, INC. Report of Independent Accountants......................................... F-97 Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996 and 1995.............................................. F-98 Statements of Operations for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and 1995................................................................ F-99 Statements of Shareholders' Equity for the Years Ended December 31, 1996 and 1995................................................................ F-100 Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and 1995................................................................ F-101 Notes to Financial Statements............................................. F-102 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY Independent Auditors' Report.............................................. F-108 Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996 and 1995.......................................... F-109 Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and 1995................................................................ F-110 Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 1997 (Unaudited) and for the Years Ended December 31, 1996 and 1995................................................................ F-111 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Years Ended December 31, 1996 and 1995.............................................. F-112 Notes to the Consolidated Financial Statements............................ F-113 CHESROWN AUTOMOTIVE GROUP Independent Auditors' Report.............................................. F-118 Balance Sheets as of December 31, 1996 and March 31, 1997 (Unaudited)..... F-119 Statements of Income and Accumulated Deficit for the Year Ended December 31, 1996 and for the Three Months Ended March 31, 1997 and 1996 (Unaudited).................................................... F-120 Statements of Cash Flows for the Year Ended December 31, 1996 and for the Three Months Ended March 31, 1997 and 1996 (Unaudited).................. F-121 Notes to Financial Statements............................................. F-122 BANKSTON AUTOMOTIVE GROUP Report of Independent Auditors............................................ F-129 Combined Balance Sheet as of March 31, 1997............................... F-130 Combined Statement of Operations for the Year Ended March 31, 1997........ F-132 Combined Statement of Owners' Deficit for the Year Ended March 31, 1997... F-133 Combined Statement of Cash Flows for the Year Ended March 31, 1997........ F-134 Notes to Combined Financial Statements.................................... F-135 DITSCHMAN/FLEMINGTON FORD-LINCOLN-MERCURY, INC. AND RELATED ENTITIES Report of Independent Public Accountants.................................. F-141 Combined Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996....................................................... F-142 Combined Statements of Income for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and for the Year Ended December 31, 1996........... F-143 Combined Statements of Changes In Owners' Equity for the Three Months Ended March 31, 1997 (Unaudited) and the Year Ended December 31, 1996....................................................... F-144 Combined Statement of Cash Flows for the Three Months Ended March 31, 1997 and 1996 (Unaudited) and the Year Ended December 31, 1996............... F-145 Notes to Combined Financial Statements.................................... F-146 JOHN LANCE COMPANY Independent Auditors' Report.............................................. F-156 Combined Balance Sheets as of March 31, 1997 (Unaudited) and December 31, 1996....................................................... F-157 Combined Statements of Operations for the Three Month Periods Ended March 31, 1997 and 1996 (Unaudited) and for the Year Ended December 31, 1996....................................................... F-159 Combined Statement of Stockholders' and Members' Equity for the Three Month Period Ended March 31, 1997 (Unaudited) and for the Year Ended December 31, 1996........................................................ F-160 Combined Statements of Cash Flows for the Three Month Periods Ended March 31, 1997 and 1996 (Unaudited) and for the Year Ended December 31, 1996....................................................... F-161 Notes to Combined Financial Statements.................................... F-163 (b) PRO FORMA FINANCIAL INFORMATION REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP AND JOHN LANCE COMPANY Unaudited Condensed Consolidated Pro Forma Financial Statements........... F-169 Unaudited Condensed Consolidated Pro Forma Balance Sheet as of March 31, 1997.......................................................... F-170 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Three Months Ended March 31, 1997................................... F-171 Unaudited Condensed Consolidated Pro Forma Statement of Operations for the Year Ended December 31, 1996........................................ F-172 Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.. F-173 (c) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (RESTATED).................................... F-174
2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Republic Industries, Inc.: We have audited the accompanying consolidated balance sheets (restated) of Republic Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows (restated) for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. We have also made similar audits of the accompanying supplemental consolidated balance sheets of Republic Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related supplemental consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. The supplemental consolidated statements give retroactive effect to the mergers with Flemington Car and Truck Country and certain related dealerships on May 29, 1997, Spirit Rent-A-Car, Inc. and subsidiary on May 9, 1997, Chesrown Automotive Group on May 12, 1997 and Bledsoe Dodge, Inc. on May 8, 1997, which have been accounted for under the pooling of interests method of accounting as described in Note 1. These supplemental financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Republic Industries, Inc. and its subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, after giving retroactive effect to the mergers with Flemington Car and Truck Country and certain related dealerships, Spirit Rent-A-Car, Inc. and subsidiary, Chesrown Automotive Group and Bledsoe Dodge, Inc. as described in Note 1, all in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, June 10, 1997. F-2 3 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (RESTATED) AS OF DECEMBER 31, (IN MILLIONS, EXCEPT SHARE DATA)
1996 1995 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 299.5 $ 345.6 Receivables, net.......................................... 535.7 428.7 Revenue earning vehicles, net............................. 3,495.2 2,922.8 Advances to affiliate..................................... 247.5 -- Inventory................................................. 185.4 178.7 Other current assets...................................... 149.8 145.8 -------- -------- Total Current Assets.............................. 4,913.1 4,021.6 PROPERTY AND EQUIPMENT, NET................................. 1,065.0 790.0 INTANGIBLE ASSETS, NET...................................... 260.1 156.9 INVESTMENT IN SUBSCRIBER ACCOUNTS, NET...................... 92.4 42.2 OTHER ASSETS................................................ 39.7 30.1 -------- -------- $6,370.3 $5,040.8 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 270.7 $ 221.2 Accrued liabilities....................................... 200.0 158.4 Estimated liability insurance claims...................... 222.2 119.2 Revenue earning vehicle debt.............................. 2,688.8 3,040.7 Notes payable and current maturities of long-term debt.... 184.1 197.7 Other current liabilities................................. 94.2 81.5 -------- -------- Total Current Liabilities......................... 3,660.0 3,818.7 LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 348.0 293.7 LONG-TERM REVENUE EARNING VEHICLE DEBT...................... 799.6 -- OTHER LIABILITIES........................................... 210.7 210.6 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, par value $.01 per share; 5,000,000 shares authorized; none issued......................... -- -- Common stock, par value $.01 per share; 500,000,000 and 350,000,000 shares authorized, respectively; 296,829,054 and 248,013,006 shares issued and outstanding, respectively.............................. 3.0 2.5 Additional paid-in capital................................ 1,343.0 629.1 Retained earnings......................................... 6.0 86.2 -------- -------- Total Shareholders' Equity........................ 1,352.0 717.8 -------- -------- $6,370.3 $5,040.8 ======== ========
The accompanying notes are an integral part of these statements. F-3 4 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED) FOR THE YEARS ENDED DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA)
1996 1995 1994 -------- -------- -------- REVENUE: Automotive rentals....................................... $2,567.1 $1,886.4 $1,222.3 Automotive sales......................................... 1,410.5 1,000.3 858.3 Solid waste services..................................... 701.2 450.4 317.9 Electronic security services............................. 85.3 49.8 41.9 -------- -------- -------- 4,764.1 3,386.9 2,440.4 EXPENSES: Automotive rental operating expenses..................... 2,061.4 1,517.0 910.3 Cost of automotive sales................................. 1,269.9 872.3 743.7 Cost of solid waste services............................. 512.4 307.5 213.6 Cost of electronic security services..................... 37.3 20.6 20.6 Selling, general and administrative...................... 795.2 602.8 467.4 Restructuring and merger expenses........................ 38.3 3.3 -- -------- -------- -------- OPERATING INCOME .......................................... 49.6 63.4 84.8 INTEREST INCOME............................................ 30.8 21.0 6.4 INTEREST EXPENSE........................................... (43.9) (33.5) (20.2) OTHER INCOME (EXPENSE), NET................................ 5.5 5.1 (2.6) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE........................... 42.0 56.0 68.4 PROVISION FOR INCOME TAXES................................. 43.0 31.3 29.8 -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY CHARGE..................................... (1.0) 24.7 38.6 EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF DEBT, NET OF BENEFIT FOR INCOME TAXES OF $15.0........... (31.6) -- -- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS................... (32.6) 24.7 38.6 -------- -------- -------- DISCONTINUED OPERATIONS: Income (loss) from discontinued operations, net of income taxes................................................. -- 5.4 (2.8) Loss on disposal of segment, net of income tax benefit... -- (30.5) -- -------- -------- -------- Loss from discontinued operations........................ -- (25.1) (2.8) -------- -------- -------- NET INCOME (LOSS).......................................... $ (32.6) $ (.4) $ 35.8 ======== ======== ======== FULLY DILUTED INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Income (loss) from continuing operations before extraordinary charge.................................. $ -- $ .11 $ .25 Extraordinary charge..................................... (.12) -- -- Discontinued operations.................................. -- (.12) (.02) -------- -------- -------- Net income (loss)........................................ $ (.12) $ -- $ .23 ======== ======== ========
The accompanying notes are an integral part of these statements. F-4 5 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (RESTATED) FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN MILLIONS)
COMMON ADDITIONAL RETAINED STOCK PAID-IN CAPITAL EARNINGS ------ --------------- --------- BALANCE AT DECEMBER 31, 1993................................ $1.5 $ 230.3 $103.6 Sales of common stock..................................... .1 16.5 -- Distributions to former owners of pooled companies........ -- -- (25.7) Other..................................................... -- 21.1 1.2 Net income................................................ -- -- 35.8 ---- -------- ------ BALANCE AT DECEMBER 31, 1994................................ 1.6 267.9 114.9 Sales of common stock and warrants........................ .4 262.0 -- Stock issued in acquisitions.............................. .2 83.9 -- Exercise of stock options and warrants.................... -- 15.7 -- Reclassification of additional paid-in capital to effect the spin-off........................................... -- (36.3) 36.3 Spin-off of Republic Environmental Systems, Inc........... -- -- (23.6) Contributions to capital from former owners of pooled companies.................................... -- 29.8 -- Distributions to former owners of pooled companies........ -- -- (41.0) Other..................................................... .3 6.1 -- Net loss.................................................. -- -- (.4) ---- -------- ------ BALANCE AT DECEMBER 31, 1995................................ 2.5 629.1 86.2 Sales of common stock..................................... .2 550.7 -- Stock issued in acquisitions.............................. .2 101.2 -- Exercise of stock options and warrants.................... .1 43.7 -- Contributions to capital from former owners of pooled companies.............................................. -- 21.9 -- Distributions to former owners of pooled companies........ -- -- (48.2) Other..................................................... -- (3.6) .6 Net loss.................................................. -- -- (32.6) ---- -------- ------ BALANCE AT DECEMBER 31, 1996................................ $3.0 $1,343.0 $ 6.0 ==== ======== ======
The accompanying notes are an integral part of these statements. F-5 6 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) FOR THE YEARS ENDED DECEMBER 31, (IN MILLIONS)
1996 1995 1994 --------- --------- --------- CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Income (loss) from continuing operations.............. $ (32.6) $ 24.7 $ 38.6 Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operations: Restructuring, merger and other non-recurring expenses......................................... 95.5 3.3 -- Loss on extinguishment of debt, net of income taxes............................................ 31.6 -- -- Depreciation and amortization...................... 847.6 629.7 415.2 Changes in assets and liabilities, net of effects from business acquisitions: Receivables...................................... (102.3) (29.3) (37.2) Inventory........................................ (1.4) (41.5) (12.0) Other assets..................................... (47.9) 3.0 9.7 Accounts payable and accrued liabilities......... 68.9 84.4 6.0 Other liabilities................................ 128.7 22.8 8.8 --------- --------- --------- 988.1 697.1 429.1 --------- --------- --------- CASH PROVIDED BY DISCONTINUED OPERATIONS................ -- 6.1 12.2 --------- --------- --------- CASH USED IN INVESTING ACTIVITIES: Purchases of revenue earning vehicles from third party suppliers.......................................... (3,999.1) (2,806.0) (2,762.6) Purchases of revenue earning vehicles from related party suppliers.................................... (631.3) (351.7) (551.2) Sales of revenue earning vehicles..................... 3,356.4 2,841.6 2,673.7 Purchases of property and equipment................... (251.7) (221.9) (153.4) Advances to affiliate................................. (243.4) -- -- Investment in subscriber accounts..................... (41.4) (16.0) (17.5) Cash used in business acquisitions.................... (47.0) (1,331.7) (11.8) Other................................................. 46.5 90.7 147.1 --------- --------- --------- (1,811.0) (1,795.0) (675.7) --------- --------- --------- CASH PROVIDED BY FINANCING ACTIVITIES: Payments of revenue earning vehicle financing......... (17,414.3) (9,972.4) (3,071.3) Proceeds from revenue earning vehicle financing....... 17,732.5 11,094.3 3,348.8 Payments of long-term debt and notes payable.......... (563.7) (211.4) (200.2) Proceeds from long-term debt and notes payable........ 512.1 188.2 129.0 Sales of common stock................................. 550.9 262.4 16.5 Other................................................. (40.7) 31.0 11.9 --------- --------- --------- 776.8 1,392.1 234.7 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (46.1) 300.3 .3 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 345.6 45.3 45.0 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 299.5 $ 345.6 $ 45.3 ========= ========= =========
The accompanying notes are an integral part of these statements. F-6 7 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) (ALL TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Consolidated Financial Statements include the accounts of Republic Industries, Inc. and its subsidiaries ("Republic" or the "Company"). All significant intercompany accounts and transactions have been eliminated. In 1995, the Company implemented a formal plan to dispose of all of its mining and citrus operations. In 1994, the Board of Directors authorized management to pursue a plan to distribute its hazardous waste services segment, Republic Environmental Systems, Inc. ("RESI"), now known as International Alliance Services, Inc., to Republic shareholders. Accordingly, as discussed in Note 11, Discontinued Operations, these segments have been accounted for as discontinued operations and the accompanying Consolidated Financial Statements presented herein have been restated to report separately the operating results of these discontinued operations. In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported financial statements in order to conform with the financial statement presentation of the current period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The accompanying Consolidated Financial Statements include the financial position and results of operations of National Car Rental System, Inc. ("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries, Inc. ("Taormina"), which the Company acquired in February 1997, and Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January 1997. These transactions were accounted for under the pooling of interests method of accounting and, accordingly, the Consolidated Financial Statements have been restated as if the Company and National, Maroone, Wallace, Taormina and Carlisle had operated as one entity since inception. See Note 2, Business Combinations, for further discussion of these transactions. All per share data and numbers of shares of the Company's common stock, par value $.01 per share ("Common Stock") for all periods included in the financial statements and notes thereto have been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend that became effective in June 1996, as more fully described in Note 6, Shareholders' Equity. RECEIVABLES Receivables include trade accounts receivable from the Company's various operating business segments which consist of amounts due from retail and service customers and travel agents and tour operators. Receivables also include vehicle receivables from automobile manufacturers which consist of amounts due under vehicle repurchase and incentive programs and from vehicle renters for damages incurred on revenue earning vehicles. F-7 8 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The components of receivables, net of allowance for doubtful accounts at December 31 are as follows:
1996 1995 -------- -------- Trade....................................................... $286.3 $219.7 Vehicle..................................................... 226.6 185.2 Contracts in transit........................................ 19.3 16.9 Other....................................................... 19.5 16.9 ------ ------ 551.7 438.7 Less: allowance for doubtful accounts....................... (16.0) (10.0) ------ ------ $535.7 $428.7 ====== ======
INVESTMENTS Investments have a maturity of one year or less, are classified as held-to-maturity securities and are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts, which approximate market value. Investments are included in other current assets in the accompanying Consolidated Balance Sheets. Investments at December 31 are as follows:
1996 1995 ------- ------- Eurodollar deposits......................................... $ -- $26.7 Repurchase agreements....................................... 20.2 24.0 Certificates of deposit..................................... 1.0 13.5 Other....................................................... 1.7 3.8 ----- ----- $22.9 $68.0 ===== =====
Repurchase agreements are restricted for the settlement of specific estimated auto liability claims. REVENUE EARNING VEHICLES AND DEPRECIATION Revenue earning vehicles are stated at cost less accumulated depreciation and allowances for stolen vehicles. The straight-line method is used to depreciate revenue earning vehicles to their estimated residual values over the anticipated periods of use based on the Company's fleet plan, typically ranging from four to twenty months in the United States and from four to nine months in Canada and Europe. Depreciation expense also includes those costs relating to losses from damaged vehicles, and gains and losses on revenue earning vehicle sales in the ordinary course of business. Depreciation expense related to revenue earning vehicles was $732.3 million, $545.7 million, and $352.5 million for the years ended December 31, 1996, 1995 and 1994, respectively, and is included as a component of vehicle rental operating expenses in the accompanying Consolidated Statements of Operations. A summary of revenue earning vehicles at December 31 is as follows:
1996 1995 ---------- ---------- Revenue earning vehicles.................................... $3,906.4 $3,245.2 Less: accumulated depreciation.............................. (411.2) (322.4) -------- -------- $3,495.2 $2,922.8 ======== ========
Revenue earning vehicles with depreciated cost of $2.9 billion at December 31, 1996 were acquired under programs that allow the Company to require counterparties to repurchase vehicles held for periods of up to twenty-four months. The agreements contain varying mileage and damage limitations. F-8 9 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The Company also leases vehicles under operating lease agreements which require the Company to provide normal maintenance and liability coverage. The agreements generally have terms of four to twelve months. Many agreements provide for an option to terminate the leases early and allow for the purchase of leased vehicles subject to certain restrictions. Most leases provide for an initial minimum monthly charge, with contingent rental charges for changes in interest rates and adjustments for wear, damage and mileage in excess of stipulated amounts. Contingent rental charges were $1.8 million, $13.2 million and $2.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. INVENTORY Inventory consists primarily of retail vehicles held for sale valued using the specific identification method. Cost includes acquisition expenses, including reconditioning and transportation costs. Parts and accessories are valued at the lower of cost or market, using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Consolidated Statements of Operations. The Company revises the estimated useful lives of property and equipment acquired through its business acquisitions to conform with its policies regarding property and equipment. Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. The estimated useful lives are: twenty to forty years for buildings and improvements, three to fifteen years for trucks and equipment and five to ten years for furniture and fixtures. Landfills are stated at cost and are depleted based on consumed airspace. Landfill improvements include direct costs incurred to obtain a landfill permit and direct costs incurred to construct and develop the site. These costs are depleted based on consumed airspace. No general and administrative costs are capitalized as landfills and landfill improvements. Interest costs are capitalized in connection with the construction of automotive rental facilities and landfill sites. Interest capitalized was $2.4 million, $3.3 million, and $2.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Depreciation, amortization and depletion expense related to property and equipment was $93.2 million, $71.4 million and $54.6 million in 1996, 1995 and 1994, respectively. A summary of property and equipment at December 31 is as follows:
1996 1995 ---------- --------- Land, landfills and improvements............................ $ 451.5 $ 376.0 Furniture, fixtures, trucks and equipment................... 657.1 408.3 Buildings and improvements.................................. 355.1 287.2 -------- -------- 1,463.7 1,071.5 Less: accumulated depreciation, amortization and depletion................................................. (398.7) (281.5) -------- -------- $1,065.0 $ 790.0 ======== ========
F-9 10 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) INTANGIBLE ASSETS Intangible assets consist primarily of the cost of acquired businesses in excess of the fair value of net tangible assets acquired. The cost in excess of the fair value of net tangible assets is amortized over periods ranging from fifteen to forty years on a straight-line basis. Amortization expense related to intangible assets was $12.8 million, $8.2 million and $4.7 million, in 1996, 1995 and 1994, respectively. Accumulated amortization of intangible assets was $47.6 million and $30.4 million at December 31, 1996 and 1995, respectively. The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of intangible assets or whether the remaining balance of intangible assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the intangible assets in measuring their recoverability. INVESTMENT IN SUBSCRIBER ACCOUNTS Investment in subscriber accounts consists of certain capitalized costs associated with new monitoring systems installed by the Company's electronic security service business and the cost of acquired subscriber accounts. The costs are amortized over ten years (based on estimated and historical customer attrition rates) on a straight-line basis. Amortization expense related to investment in subscriber accounts was $9.3 million, $4.4 million and $3.4 million in 1996, 1995 and 1994, respectively. Accumulated amortization of investment in subscriber accounts was $20.7 million and $11.4 million at December 31, 1996 and 1995, respectively. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS Accrued environmental and landfill costs are included in other liabilities and include landfill site closure and post-closure costs. Landfill site closure and post-closure costs include estimated costs to be incurred for final closure of the landfills and estimated costs for providing required post-closure monitoring and maintenance of landfills. These costs are accrued based on consumed airspace. Estimated aggregate closure and post-closure costs are to be fully accrued for these landfills at the time that such facilities cease to accept waste and are closed. Excluding existing accruals at December 31, 1996, approximately $53.7 million of such costs are to be expensed over the remaining lives of these facilities. The Company estimates its future cost requirements for closure and post-closure monitoring and maintenance for its solid waste facilities based on its interpretation of the technical standards of the United States Environmental Protection Agency's Subtitle D regulations. These estimates do not take into account discounts for the present value of such total estimated costs. In addition to the Company's solid waste collection and disposal operations, the Company's vehicle rental operations also involve the storage and dispensing of petroleum products, primarily gasoline. The Company records as expense, on a current basis, costs associated with remediation of environmental pollution. The Company also accrues for its proportionate share of costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and the amount can be reasonably estimated. Estimated costs include anticipated site testing, consulting, remediation, disposal, post-remediation monitoring and legal fees, as appropriate. The liability does not reflect possible recoveries from insurance companies or reimbursement of remediation costs. The Company periodically reassesses its method and assumptions used to estimate such accruals for environmental and landfill costs and adjusts such accruals accordingly. Such factors considered are changing regulatory requirements, the effects of inflation, changes in operating climates in the regions in which the Company's facilities are located and the expectations regarding costs of securing environmental services. F-10 11 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) As discussed in Note 8, Commitments and Contingencies, the Company is involved in litigation and is subject to ongoing environmental investigations by certain regulatory agencies, as well as other claims and disputes that could result in additional litigation which are in the normal course of business. LIABILITY INSURANCE The Company retains up to $1.0 million of risk per claim under its various liability insurance programs for property damage and bodily injury claims. Costs in excess of $1.0 million per claim are insured under various contracts with insurance carriers. The costs of these retained insurance risks are estimated by management and by actuarial evaluation based on historical claims experience, adjusted for current trends and changes in claims-handling procedures. In 1996, the Company changed its method of accounting for estimated auto rental liability insurance claims by no longer discounting such liability. The effect of this change was not material to the Company's consolidated financial position or results of operations. REVENUE RECOGNITION Revenue from the Company's automotive rental operations consists primarily of fees from rentals and the sale of related rental products from the leisure and business travel segments. Revenue from the Company's automotive retailing operations consists of sales of new and used vehicles, parts and service. Revenue from the Company's solid waste services operations consists of collection fees from residential, commercial and industrial customers and landfill disposal fees charged to third parties. Revenue from the Company's electronic security services business results from monitoring contracts for security systems and fees charged for the sale and installation of such systems. The Company recognizes revenue over the period vehicles are rented, services are provided or products are sold. FINANCIAL INSTRUMENTS The Company utilizes interest rate swaps in the management of interest rate risk. The differentials between the amounts paid and received from these swaps are recognized over the terms of the agreements and are recorded as adjustments to interest expense. Amounts receivable or payable under the agreements are included in receivables or accrued liabilities in the Consolidated Balance Sheets and were not material at December 31, 1996 or 1995. ADVERTISING The Company expenses the cost of advertising as incurred or when such advertising initially takes place. No advertising costs were capitalized at December 31, 1996 or 1995. Advertising expense was $138.6 million, $108.4 million and $78.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. STATEMENTS OF CASH FLOWS The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents unless the investments are legally or contractually restricted for more than three months. The effect of non-cash transactions related to business combinations, as discussed in Note 2, Business Combinations, and other non-cash transactions are excluded from the Statements of Cash Flows. NEW ACCOUNTING PRONOUNCEMENT In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities," effective for fiscal years beginning after December 15, 1996. This statement provides that environmental remediation liabilities should be accrued when the criteria of Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," F-11 12 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) are met, and it includes benchmarks to aid in the determination of when environmental remediation liabilities should be recognized. SOP 96-1 also states that an accrual for environmental liabilities should include incremental direct costs of the remediation effort and costs of compensation and benefits for those employees who are expected to devote a significant amount of time directly to the remediation effort. The Company early adopted SOP 96-1 in 1996 without material impact on its consolidated results of operations or financial position. 2. BUSINESS COMBINATIONS PENDING ACQUISITIONS In June 1997, the Company signed a definitive agreement to acquire the Appleway Automotive Group ("Appleway"), which owns and operates eight franchised automotive dealerships. The Company will issue Common Stock valued at approximately $42.6 million in this transaction, which will be accounted for under the purchase method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In May 1997, the Company signed a definitive agreement to acquire Desert Buick-GMC Automotive Group ("Desert"), which owns and operates four franchised automotive dealerships. The Company will issue Common Stock valued at approximately $38.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In May 1997, the Company signed a definitive agreement to acquire Gulf Management, Inc. ("Gulf"), which owns and operates two franchised automotive dealerships. The Company will issue Common Stock valued at approximately $45.0 million in this transaction, which will be accounted for under the purchase method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In April 1997, the Company signed a definitive agreement to acquire De La Cruz Auto Group ("De La Cruz"), which owns and operates four franchised automotive dealerships. The Company will issue Common Stock valued at approximately $40.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In March 1997, the Company signed a definitive agreement to acquire Tempe Toyota and related entities ("Tempe"), which operate one franchised automotive dealership and two used automotive dealerships. The Company will issue Common Stock valued at approximately $48.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. Additionally, the Company has signed definitive agreements to acquire various other businesses in the automotive retail industry which are not material to the Company. The Company will issue cash and/or Common Stock valued in the aggregate at approximately $129.8 million in such transactions which will be accounted for under the purchase method of accounting. These transactions are subject to customary conditions, including manufacturer and regulatory approvals. COMPLETED ACQUISITIONS Significant businesses acquired through March 31, 1997 and accounted for under the pooling of interests method of accounting have been included retroactively in the Supplemental Consolidated Financial Statements as if the companies had operated as one entity since inception. Businesses acquired through December 31, 1996 and accounted for under the purchase method of accounting are included in the Supplemental Consolidated Financial Statements from the date of acquisition. In May 1997, the Company acquired Flemington Car and Truck Country and certain related dealerships ("Flemington"), which own and operate twelve franchised automotive dealerships. The Company issued approximately 2.3 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Spirit Rent-A-Car, Inc. ("Spirit"), which operates a vehicle rental business. The Company issued 3.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Chesrown Automotive Group ("Chesrown"), which owns and operates seven franchised automotive dealerships. The Company issued approximately 2.5 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Bledsoe Dodge, Inc. ("Bledsoe"), which operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. The Company's unaudited pro forma consolidated results of operations assuming the acquisitions of Flemington, Spirit, Chesrown and Bledsoe had been consummated as of December 31, 1996 are as follows: Years Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Revenue ................. $5,644.1 $4,088.1 $3,039.3 ======== ======== ======== Net income (loss) ....... $ (29.5) $ 6.4 $ 38.8 ======== ======== ======== Net income (loss) per common and common equivalent share...... $ (.10) $ .03 $ .23 ======== ======== ======== In May 1997, the Company acquired Bankston Automotive Group ("Bankston"), which owns and operates four franchised automotive dealerships. The Company issued approximately 1.4 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In February 1997, the Company acquired National, which operates a vehicle rental business. The Company issued approximately 21.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. National was formed in April 1995 to acquire the operating assets and certain liabilities of a predecessor company ("Old National") from General Motors Corporation as further discussed below. In February 1997, the Company acquired Maroone, which owns and operates five franchised automotive dealerships. The Company issued approximately 6.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Wallace, which owns and operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Taormina, which provides waste collection services and owns and operates a materials recycling facility. The Company issued approximately 7.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Kendall Automotive Group ("Kendall"), which owns and operates three franchised automotive dealerships. The Company issued approximately 1.2 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, following approval by the Company's stockholders at a special meeting, the Company acquired AutoNation Incorporated ("AutoNation"), which is developing a chain of used vehicle megastores. The Company issued approximately 17.5 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. F-12 13 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) In January 1997, the Company acquired Carlisle which owns and operates three franchised automotive dealerships. The Company issued approximately 1.0 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In January 1997, the Company acquired Grubb Automotive ("Grubb"), which owns and operates seven franchised automotive dealerships. The Company issued approximately 4.0 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries ("Mullinax"), which owns and operates six franchised automotive dealerships. The Company issued approximately 3.6 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In addition, subsequent to December 31, 1996, the Company acquired various other businesses in the automotive retail, solid waste services and electronic security services industries which were not material to the Company. The Company issued an aggregate of approximately 3.0 million shares of Common Stock and paid approximately $40.4 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 8.9 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. Details of the results of operations of the Company and National, Maroone, Wallace, Taormina and Carlisle (collectively, the "Pooled Entities") for the periods before the pooling of interests combinations were consummated are as follows for the years ended December 31:
1996 1995 1994 ---------- ---------- ---------- Revenue: The Company.................................. $2,365.5 $1,791.4 $1,595.8 Pooled Entities.............................. 2,398.6 1,595.5 844.6 -------- -------- -------- $4,764.1 $3,386.9 $2,440.4 ======== ======== ======== Net income (loss): The Company.................................. $ (59.5) $ (26.6) $ 27.2 Pooled Entities.............................. 26.9 26.2 8.6 -------- -------- -------- $ (32.6) $ (.4) $ 35.8 ======== ======== ========
In December 1996, the Company acquired Addington Resources, Inc. ("Addington"), which primarily provides solid waste disposal services. The Company issued approximately 13.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In December 1996, the Company acquired Continental Waste Industries, Inc. ("Continental"), which provides integrated solid waste services. The Company issued approximately 12.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In November 1996, the Company acquired Alamo Rent-A-Car, Inc. ("Alamo"), which operates a vehicle rental business. The Company issued approximately 22.6 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In August 1996, the Company acquired the net assets of CarChoice, Inc. ("CarChoice"), which operates used vehicle superstores similar to those being developed by AutoNation. The Company issued approximately 3.9 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired Incendere, Inc. ("Incendere"), which provides solid waste collection, recycling and medical waste hauling services. The Company issued approximately 3.3 million shares of Common Stock in connection with this acquisition which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired The Denver Fire Reporter and Protective Co. ("Denver Alarm"), which provides electronic security services. The Company issued approximately 2.5 million shares of Common F-13 14 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. During the year ended December 31, 1996, the Company also acquired various other businesses in the solid waste services, electronic security services and automotive retailing industries which were not material to the Company. The Company issued an aggregate of approximately 9.1 million shares of Common Stock and paid $47.0 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 13.0 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. These acquisitions accounted for under the pooling of interests method of accounting were not material in the aggregate and, consequently, prior period financial statements were not restated for such acquisitions. In November 1995, the Company acquired J.C. Duncan Company, Inc. ("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc. ("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste collection and recycling services and also operates two landfills. GDS provides solid waste collection and recycling services. Fennell provides solid waste collection and recycling services and also owns a landfill. Scott provides electronic security services. In October 1995, the Company acquired United Waste Service, Inc. ("United") and Southland Environmental Services, Inc. ("Southland"). United provides solid waste collection, transfer and recycling services. Southland provides solid waste collection services. In August 1995, the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides electronic security services. The Company issued an aggregate of approximately 36.3 million shares of Common Stock for the above acquisitions. These acquisitions have been accounted for under the pooling of interests method of accounting and, accordingly, the accompanying Consolidated Financial Statements have previously been restated as if the Company and Duncan, GDS, Fennell, Scott, United, Southland and Kertz had operated as one entity since inception. In August 1995, the Company acquired Hudson Management Corporation and Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and recycling services. The Company issued 16.0 million shares of Common Stock to acquire HMC. The acquisition of HMC has been accounted for under the purchase method of accounting. The pro forma effect of this acquisition is not material to the Company's Consolidated Results of Operations. In June 1995, National acquired all of the operating assets and assumed certain liabilities of Old National for a total cash purchase price of approximately $1.3 billion. This acquisition was accounted for under the purchase method of accounting. The Company's unaudited pro forma consolidated results of operations for the years ended December 31, assuming the acquisition of Old National had occurred on January 1, 1994 are as follows:
1995 1994 ---------- ---------- Revenue........................................ $3,732.4 $3,187.8 ======== ======== Income from continuing operations.............. $ 23.9 $ 54.8 ======== ======== Fully diluted income from continuing operations per common and common equivalent share........................................ $ .10 $ .31 ======== ========
The unaudited pro forma consolidated results of operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what results of operations would have been had the Company owned and operated Old National as of January 1, 1994. During the years ended December 31, 1995 and 1994, the Company entered into several other business combinations which have been accounted for under the purchase method of accounting, which were not material to the Company. F-14 15 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The preliminary purchase price allocations for business combinations accounted for under the purchase method of accounting (including historical accounts of immaterial acquisitions accounted for under the pooling of interests method of accounting) for the years ended December 31 were as follows:
1996 1995 1994 ------- -------- ------ Revenue earning vehicles.............................. $ 79.3 $1,455.2 $ -- Property and equipment................................ 114.2 99.3 45.3 Investment in subscriber accounts..................... 18.1 -- -- Intangible assets..................................... 105.0 100.1 18.8 Working capital (deficiency), net of cash acquired.... (19.1) 16.8 (10.5) Long-term debt assumed................................ (127.5) (124.3) (15.5) Other liabilities, net................................ (21.6) (131.3) (17.9) Common stock issued................................... (101.4) (84.1) (8.4) ------- -------- ------ Cash used in acquisitions............................. $ 47.0 $1,331.7 $ 11.8 ======= ======== ======
3. REVENUE EARNING VEHICLE DEBT Revenue earning vehicle debt at December 31 consists of the following:
1996 1995 --------- --------- Amounts under $1.4 billion loan agreement with termination date of March 1998; secured by eligible vehicle collateral and vehicle receivable balances; interest based on market dictated commercial paper rates................. $ 1,396.9 $ 579.0 Senior secured notes payable with interest at fixed rates ranging from 5.58% to 7.08% with various maturity dates secured by eligible vehicle collateral and vehicle receivable balances; repaid in 1996....................... -- 445.5 Amounts under $1.1 billion ($1.5 billion at December 31, 1995) commercial paper program terminating May 1998; secured by eligible vehicle collateral and vehicle receivable balances; weighted average interest rate was 5.47% and 5.81% in 1996 and 1995, respectively........ 856.3 1,429.2 Medium term notes payable, interest payable monthly at floating or fixed rates (average fixed rate at December 31, 1996 was 7.12% and floating rate based on 3 month LIBOR plus .5% was 5.97% at December 31, 1996), due in July 2001................................................. 799.6 -- Amounts under $250.0 million loan agreement with termination date of September 19, 1997; secured by eligible vehicle collateral and vehicle receivable balances; interest based on market dictated commercial paper rates; repaid in 1996...................................................... -- 236.4 Amounts under various uncommitted revolving lease facilities with financing institutions in United Kingdom; secured by eligible vehicle collateral; interest based on an as quoted basis dictated by market competition; no stated expiration dates, reviewed annually....................... 143.5 157.1 Other, including amounts to be financed after period end, under various revolving credit agreements and lease facilities................................................ 292.1 193.5 --------- -------- 3,488.4 3,040.7 Less: long-term portion..................................... (799.6) -- --------- -------- $ 2,688.8 $3,040.7 ========= ========
In November 1996, the Company refinanced a substantial portion of Alamo's notes payable and lines of credit secured by revenue earning vehicles through an increase in its commercial paper loan agreement from $580.0 million to $1.4 billion. Certain of the notes payable and lines of credit secured by revenue earning vehicles contain various restrictive covenants, including provisions relating to the maintenance of tangible net worth F-15 16 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) and debt to tangible net worth ratios, incurrence of additional indebtedness, and limitations on the payment of dividends and certain investments. The effective economic interest rate on notes payable and lines of credit secured by revenue earning vehicles was 6.66%, 6.78% and 6.02% at December 31, 1996, 1995 and 1994, respectively. Interest expense on notes payable and lines of credit secured by revenue earning vehicles is included as a component of vehicle rental operating expenses in the accompanying Consolidated Statements of Operations. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. Interest protection agreements with several counterparties are used to manage the impact of interest rate changes. At December 31, 1996 and 1995, the Company effectively converted interest rates on the following notional principal amounts:
LATEST 1996 1995 MATURITY -------- -------- ----------- Variable-rate (capped) into fixed-rate obligations....................................... $150.0 $175.0 August 1998 Variable-rate into fixed-rate obligations........... 651.9 350.0 December 2006 ------ ------ Aggregate notional principal........................ $801.9 $525.0 ====== ======
4. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt and notes payable at December 31 is as follows:
1996 1995 -------- -------- $250.0 million revolving credit facility; interest payable monthly using either a competitive bid feature or LIBOR based rate; matures December 1998; unsecured........................ $ 150.0 $ -- Mortgages payable to GMAC and predecessor agreements with interest at 9.19% or 1% above prime; payable in monthly installments; secured by real property; repaid in 1997............. 25.2 110.5 Revolving credit facility, secured by the stock of certain of the Company's subsidiaries, interest at prime or at a Eurodollar rate plus 0% to 2.75%, repaid in 1996.................... -- 16.4 Amounts under United Kingdom $17.1 million revolving credit commitment due on demand with 90-day notice; interest based on Sterling LIBOR plus 125 basis points or base rate plus 125 basis points; secured by non-vehicle equipment and leaseholds...................................................... 6.0 11.4 Bonds payable under loan agreements with California Pollution Control Financing Authority; interest varies weekly as determined by remarketing agent (3.15% at December 31, 1996)............................................................... 44.0 29.7 Note payable to Ford Motor Credit Company; interest at 2.75%-3.00% above commercial paper rate or 1.25% above prime; secured by assets of certain of the Company's subsidiaries; due 2000-2004....................................................... 26.6 28.2 Amounts due under line of credit with Ford Motor Credit Company; interest at 1%-1.75% above prime or commercial paper rate; collateralized by the assets of certain of the Company's subsidiaries........................................................ 19.7 4.0 Mortgages payable to Ford Motor Credit Company; interest at .75% above prime or 3.0% above commercial paper rate; secured by assets of certain of the Company's subsidiaries; maturing through 2011........................................................ 8.5 3.8 Notes to banks and financial institutions, secured by real property, equipment and other assets, interest ranging from 4.8% to 14.0%, maturing through 2015........................... 99.0 99.6 Vehicle inventory credit facilities secured by the Company's vehicle inventory, interest at LIBOR plus 2.75% or 1% above prime......................................................... 114.3 130.7 Note payable to bank with interest based on LIBOR or prime paid quarterly; secured by a building; repaid in 1996............... -- 8.7 Other notes, secured by equipment and other assets, interest ranging from 0% to 21%, maturing through 2010....................... 38.8 48.4 ------- ------- 532.1 491.4 Less: current portion................................................. (184.1) (197.7) ------- ------- $ 348.0 $ 293.7 ======= =======
F-16 17 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) In December 1996, the Company completed a tender offer and consent solicitation resulting in the repurchase of approximately $100.0 million aggregate principal amount 11.75% senior notes due 2006 ("Senior Notes"), which were issued in February 1996. The Company recorded an extraordinary charge of $31.6 million, net of income taxes, during 1996 related to the early extinguishment of the Senior Notes and certain other debt. Included in this charge are bond redemption premiums, the write-off of debt issue costs, prepayment penalties and other fees related to the tender offer and the repayment of other debt. In December 1995, the Company entered into a credit agreement (the "Credit Agreement") with certain banks pursuant to which such banks have agreed to advance the Company on an unsecured basis an aggregate of $250.0 million for a term of 36 months. Outstanding advances, if any, are payable at the expiration of the 36-month term. The Credit Agreement requires, among other items, that the Company maintain certain financial ratios and comply with certain financial covenants. Interest is payable monthly and generally determined using either a competitive bid feature or a LIBOR based rate. As of December 31, 1996, $150.0 million was outstanding and the Company was in compliance with all covenants under the Credit Agreement. At December 31, 1996, aggregate maturities of long-term debt were as follows: 1997........................................................ $184.1 1998........................................................ 180.1 1999........................................................ 20.3 2000........................................................ 28.7 2001........................................................ 14.7 Thereafter.................................................. 104.2 ------ $532.1 ======
The Company made interest payments on revenue earning vehicle financing and notes payable and long-term debt of approximately $274.2 million, $204.4 million, and $129.0 million in 1996, 1995 and 1994, respectively. In April 1997, the Company replaced its existing $250.0 million credit facility with a new $1.0 billion unsecured revolving credit facility (the "Credit Facility") with certain banks for a term of five years. Outstanding advances, if any, are payable at the expiration of the five year term. The Credit Facility requires, among other items, that the Company maintain certain financial ratios and comply with certain financial covenants. Interest is determined using either a competitive bid feature or a LIBOR based rate. In March 1997, the Company entered into a $300.0 million unsecured credit facility with a bank. The proceeds from this facility were used to acquire 15.0 million common shares of ADT Limited ("ADT") as discussed in Note 12. In April 1997, the Company refinanced amounts borrowed under this facility with proceeds from the Credit Facility. 5. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company files a consolidated federal income tax return which includes the operations of businesses acquired for periods subsequent to the dates of the acquisitions. Certain businesses acquired which were accounted for under the pooling of interests method of accounting were subchapter S corporations for income tax purposes prior to their acquisition by the Company. For purposes of these Consolidated Financial Statements, federal and state income taxes have been provided as if these companies had filed subchapter C corporation tax returns for the pre-acquisition periods, and the current income tax expense is reflected as an increase to additional paid-in capital. The subchapter S corporation status of these companies was terminated effective with the closing date of the acquisitions. F-17 18 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The components of the provision (benefit) for income taxes related to continuing operations for the years ended December 31 are as follows:
1996 1995 1994 ------ ----- ----- Current: Federal................................................... $ 41.8 $11.2 $12.3 State..................................................... 4.0 2.5 2.9 Federal and state deferred.................................. (11.9) 15.7 17.2 Foreign deferred............................................ (8.9) (1.4) (2.6) Change in valuation allowance............................... 18.0 3.3 -- ------ ----- ----- Provision for income taxes.................................. $ 43.0 $31.3 $29.8 ====== ===== =====
A reconciliation of the statutory federal income tax rate to the Company's effective tax rate for the years ended December 31 is shown below:
1996 1995 1994 ----- ----- ----- Statutory federal income tax rate........................... 35.0% 35.0% 35.0% Amortization of intangible assets........................... 3.0 1.3 .4 Non-deductible expenses..................................... 14.6 1.9 1.3 State income taxes, net of federal benefit.................. 6.0 4.4 4.7 Change in valuation allowance............................... 42.8 5.9 -- Foreign income tax benefit at other than U.S. rates......... (3.0) (.1) -- Other, net.................................................. 4.0 7.5 2.2 ----- ----- ----- Effective tax rate........................................ 102.4% 55.9% 43.6% ===== ===== =====
Components of the net deferred income tax liability included in other liabilities in the accompanying Consolidated Balance Sheets at December 31 are as follows:
1996 1995 ------- ------- Deferred income tax liabilities: Book basis in property over tax basis..................... $ 260.8 $213.7 Deferred costs............................................ 15.9 17.8 Deferred income tax assets: Net operating losses...................................... (102.1) (43.6) Deferred revenue.......................................... (14.4) (14.9) Accruals not currently deductible......................... (91.1) (89.6) Valuation allowance......................................... 62.1 41.9 ------- ------ Net deferred income tax liability........................... $ 131.2 $125.3 ======= ======
At December 31, 1996, the Company had available domestic net operating loss carryforwards of approximately $253.9 million which begin to expire in the year 2006 and foreign net operating loss carryforwards of approximately $47.9 million, the majority of which have an indefinite carryforward. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has provided a valuation allowance to offset a portion of the deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets. The Company adjusts the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. F-18 19 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The foreign component of income (loss) from continuing operations before income taxes and extraordinary charge for the years ended December 31, 1996, 1995 and 1994 was $(22.0) million, $(20.8) million and $.8 million, respectively. The Company made income tax payments of approximately $13.5 million, $11.6 million and $2.6 million in 1996, 1995 and 1994, respectively. 6. SHAREHOLDERS' EQUITY In May 1997, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of Common Stock from 500.0 million shares to 1.5 billion shares. In January 1997, the Company sold 15.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $552.7 million. In November 1996, the Company sold 12.1 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $353.3 million. In May 1996, the Company sold 9.9 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $197.6 million. In May 1996, the Board of Directors declared a two-for-one split of the Company's Common Stock in the form of a 100% stock dividend, payable June 8, 1996, to holders of record on May 28, 1996. In May 1996, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of Common Stock from 350.0 million shares to 500.0 million shares. In October 1995, Continental completed a secondary public offering of approximately 2.6 million equivalent shares of Common Stock resulting in net proceeds of approximately $30.1 million. In September 1995, the Company sold 10.0 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $99.0 million. In August 1995, the Company sold an aggregate of 16.7 million shares of Common Stock and warrants to purchase an additional 33.4 million shares of Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Michael G. DeGroote, former Chairman of the Board, President and Chief Executive Officer of Republic), Harris W. Hudson, and certain of their assigns for an aggregate purchase price of $37.5 million. Mr. Huizenga is the Chairman of the Board and Co-Chief Executive Officer of the Company; Mr. DeGroote is a Director of the Company and Mr. Hudson is Vice Chairman of the Board of the Company. The warrants are exercisable at prices ranging from $2.25 to $3.50 per share. In August 1995, the Company issued and sold an additional 2.0 million shares of Common Stock each to Mr. Huizenga and John J. Melk (a Director of the Company) for aggregate proceeds of approximately $26.5 million. In July 1995, the Company sold 10.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $69.3 million. The Company has 5.0 million authorized shares of preferred stock, par value $.01 per share, none of which are issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences and dividends. 7. STOCK OPTIONS AND WARRANTS The Company has various stock option plans under which shares of Common Stock may be granted to key employees and directors of the Company. Options granted under the plans are non-qualified and are granted at a price equal to the fair market value of the Common Stock at the date of grant. Generally, options granted will have a term of ten years from the date of grant, and will vest in increments of 25% per year over a four year period on the yearly anniversary of the grant date. F-19 20 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) A summary of stock option and warrant transactions for the years ended December 31 is as follows:
1996 1995 1994 ----------------------- ----------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------ -------------- ------ -------------- ------ -------------- Options and warrants outstanding at beginning of year.................. 49.6 $ 4.87 8.1 $4.54 7.2 $ 4.45 Granted.................... 8.7 21.86 45.1 4.92 1.3 4.96 Exercised.................. (5.6) 4.03 (2.9) 4.14 -- -- Canceled................... (.2) 9.44 (.7) 7.49 (.4) 4.07 ---- ---- --- Options and warrants outstanding at end of year..................... 52.5 7.63 49.6 4.87 8.1 4.54 ==== ==== === Options and warrants exercisable at year-end................. 38.5 4.12 39.9 3.50 4.3 4.33 Options available for future grants............ 7.9 4.3 5.7
The following table summarizes information about outstanding and exercisable stock options and warrants at December 31, 1996:
OUTSTANDING EXERCISABLE -------------------------------------------- ------------------------- WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE - ------------------------ ------ ---------------- ---------------- ------ ---------------- $ 1.05 - $ 2.75.......... 24.1 1.22 $ 2.37 23.3 $ 2.40 2.95 - 12.38.......... 17.8 5.15 7.28 14.1 6.10 12.88 - 33.75.......... 10.6 9.38 20.21 1.1 15.76 ---- ---- 1.05 - 33.75.......... 52.5 4.20 7.63 38.5 4.12 ==== ====
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income (loss). Had compensation cost for the Company's stock option plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's pro forma net loss and pro forma net loss per share would have increased accordingly. Using the Black-Scholes option pricing model for all options granted after December 31, 1994, the Company's pro forma net loss, pro forma net loss per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows for the years ended December 31:
1996 1995 ------------- ------------- Pro forma net loss................................... $(50.4) $ (8.4) Pro forma net loss per share......................... (.18) (.04) Pro forma weighted average fair value of options granted............................................ 9.80 5.28 Risk free interest rates............................. 5.98% - 6.17% 5.98% - 6.17% Expected lives....................................... 5-7 years 5-7 years Expected volatility.................................. 40% 40%
F-20 21 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS In 1992, the Company received notices from Imperial County, California (the "County") and the California Department of Toxic Substances Control ("DTSC") that spent filter elements (the "Filters") from geothermal power plants, which had been deposited at the Company's Imperial Landfill for approximately five years, were classified as hazardous waste under California environmental regulations. Under United States EPA regulations, the Filters are not deemed hazardous waste as they are associated with the production of geothermal energy. The Company is currently conducting active discussions with all appropriate California regulatory agencies in order to obtain a variance under California regulations to reclassify the Filters as a special waste so they may be left in the landfill. If this occurs, the State, regional and local regulatory agencies may nevertheless require that the affected area of the landfill be capped and closed. In the event that the variance is not granted, remedial measures may be required based on the Filters' classification as a California hazardous waste. One of those measures could include the removal of the Filters or the closure of a portion of the landfill. Management is currently unable to determine (i) whether the waste will ultimately be classified as hazardous, (ii) if so, what action, if any, will be required as a result of this issue or (iii) what liability, if any, the Company will have as a result of this inquiry. In January 1994, the Company filed suit in the United States District Court for the Southern District of California against the known past and present owners and operators of the geothermal power plants for all losses, fines and expenses incurred by the Company associated with the resolution of this matter. This suit was settled in November 1996 without material impact on the Company's consolidated financial position, results of operations or cash flows. The Company's solid waste and environmental services activities are conducted in the context of a developing and changing statutory and regulatory framework, aggressive government enforcement and a highly visible political environment. Governmental regulation of the waste management industry requires the Company to obtain and retain numerous governmental permits to conduct various aspects of its operations. These permits are subject to revocation, modification or denial. The costs and other capital expenditures which may be required to obtain or retain the applicable permits or comply with applicable regulations could be significant. By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The Auto Superstore, ("CarMax") accused AutoNation of infringing CarMax's trademark rights by using the marks AutoNation USA and "The Better Way to Buy a Car." AutoNation denied such allegations and on February 5, 1996, filed suit in the U.S. District Court for the Southern District of Florida seeking a declaratory judgment that AutoNation's use and registration of such marks do not violate any of the rights of CarMax. On or about October 11, 1996, CarMax filed a counterclaim against AutoNation seeking unspecified damages and an order enjoining AutoNation from using certain marks, including the marks AutoNation USA and "The Better Way to Buy a Car." In February 1997, AutoNation filed a motion for partial summary judgment on CarMax's dilution claim under Florida law. A trial has been set for June 1998. Although it is impossible to predict the outcome of this litigation, the Company believes that AutoNation has a valid basis for its complaint and that CarMax's allegations and counterclaims are without merit. While the results of the legal and environmental proceedings described above and other proceedings which arose in the normal course of business cannot be predicted with certainty, management believes that losses, if any, resulting from the ultimate resolution of these matters will not have a material adverse effect on the Company's consolidated results of operations, consolidated cash flows or consolidated financial position. However, unfavorable resolution of each matter individually or in the aggregate could affect the consolidated results of operations or cash flows for the quarterly periods in which they are resolved. F-21 22 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The Company maintains general liability and property insurance and an umbrella and excess liability policy in amounts it considers adequate and customary for businesses of its kind. However, there can be no assurance that the Company will not experience legal claims in excess of its insurance coverage or claims which are ultimately not covered by insurance. LEASE COMMITMENTS The Company and its subsidiaries lease real property, equipment and software under various operating leases with terms from 1 to 20 years. The Company has also entered into various airport concession and permit agreements which generally provide for payment of a percentage of revenue from vehicle rentals with a guaranteed minimum lease obligation. Expenses under real property, equipment and software leases and airport concession agreements (excluding amounts charged through to customers) for the years ended December 31 are as follows:
1996 1995 1994 ------ ------ ------ Real property.......................................... $ 45.6 $ 36.1 $ 25.6 Equipment and software................................. 23.8 24.9 22.9 Airport concession and permit fees: Minimum fixed obligations............................ 89.6 68.0 36.3 Additional amounts, based on revenue from vehicle rentals........................................... 94.5 60.1 27.6 ------ ------ ------ Total........................................ $253.5 $189.1 $112.4 ====== ====== ======
Future minimum lease obligations under noncancelable real property, equipment and software leases and airport agreements with initial terms in excess of one year at December 31, 1996 are as follows: Year Ending December 31: 1997................................................... $ 99.6 1998................................................... 80.5 1999................................................... 53.7 2000................................................... 33.7 2001................................................... 20.6 Thereafter............................................. 117.6 ------ $405.7 ======
In August 1995, the Company entered into a ten-year lease agreement for Alamo's Fort Lauderdale, Florida corporate headquarters facility. In December 1996, the Company acquired the headquarters facility for approximately $23.5 million, including the assumption of debt totaling approximately $22.7 million which was repaid by the Company in January 1997. OTHER MATTERS In the normal course of business, the Company is required to post performance bonds, letters of credit, and/or cash deposits as a financial guarantee of the Company's performance. To date, the Company has satisfied financial responsibility requirements for regulatory agencies by making cash deposits, obtaining bank letters of credit or by obtaining surety bonds. At December 31, 1996, letters of credit and surety bonds totaling $283.3 million expire through October 1999. 9. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Income (loss) per common and common equivalent share are based on the combined weighted average number of common shares and common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of warrants and options. In computing income per common and common equivalent share from continuing operations before extraordinary charge, the Company has utilized the treasury stock method. F-22 23 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) The computation of weighted average common and common equivalent shares used in the calculation of fully diluted income per share from continuing operations before extraordinary charge, which is substantially the same as the computation used to calculate primary income per share from continuing operations before extraordinary charge, for the years ended December 31 is as follows:
1996 1995 1994 ------- ------- ------- Common shares outstanding................................. 296.8 248.0 157.8 Common equivalent shares.................................. 58.1 53.8 1.2 Weighted average treasury shares purchased................ (15.2) (7.6) .3 Effect of using weighted average common and common equivalent shares outstanding........................... (25.8) (74.1) (3.3) ----- ----- ----- 313.9 220.1 156.0 ===== ===== =====
For the years ended December 31, 1996 and 1995, the weighted-average effect of common stock equivalents of approximately 37.1 million and 17.4 million shares, respectively, has been excluded from the computations of the extraordinary charge per share and net loss per share in 1996 and the net loss from discontinued operations per share in 1995 since they are anti-dilutive. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which establishes standards for computing and presenting earnings per share ("EPS"). This Statement replaces primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average common shares outstanding during the period. Diluted EPS is computed similar to fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15. SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. The Company's pro forma basic and diluted EPS computed under SFAS No. 128 are as follows for the years ended December 31:
1996 1995 1994 ------- ------- ------- Basic: Income (loss) from continuing operations ..... $(.12) $.12 $.25 Net income (loss)............................. (.12) -- .23 Diluted: Income (loss) from continuing operations...... $(.12) $.11 $.25 Net income (loss)............................. (.12) -- .23
10. RESTRUCTURING, MERGER AND OTHER NON-RECURRING EXPENSES During the year ended December 31, 1996, the Company recorded one-time pre-tax charges of approximately $95.5 million related primarily to the integration of the operations of Alamo into those of the Company. Also included in these charges are merger expenses associated with the acquisitions of Alamo, Addington and Continental. Approximately $38.3 million of such expenses appear as restructuring and merger expenses with the remainder of approximately $57.2 million included in automotive rental operating expenses and selling, general and administrative expenses in the Company's Consolidated Statements of Operations for the year ended December 31, 1996. These costs primarily include asset write-offs, severance benefits, accounting and legal merger costs and changes in various estimated reserve requirements. In 1995, the Company recorded a $3.3 million pre-tax charge related to the closing of a subsidiary's headquarters office in Indianapolis, Indiana. The major components of the charge include severance costs, future contractual payments required under pre-existing contracts and other costs related to the write-off of equipment and other obligations related to the physical closure of the office. 11. DISCONTINUED OPERATIONS In 1995, the Company implemented a formal plan to dispose of all of its mining and citrus operations. These discontinued operations consisted primarily of the following: coal mining, mining equipment manufacturing and licensing, citrus properties in Belize, precious and industrial metals mining and incidental limestone properties. The Company initially recorded a loss on the disposal of the discontinued operations of approximately $30.5 million (net of income tax benefits of approximately $10.0 million) which represents the estimated loss on the disposal of such operations and a provision of approximately $2.0 million for expected operating losses through the final disposition of such operations. See Note 14, Related Party Transactions, for discussion of the disposition of the Company's mining and citrus operations. In 1994, the Company announced the contemplation of a plan to spin-off RESI, its hazardous waste services segment. In April 1995, Republic shareholders received one share of common stock of RESI for every ten shares of Common Stock of Republic owned in connection with the spin-off of RESI. Approximately 5.4 million RESI shares were distributed to Republic shareholders (the "Distribution"). In connection with the Distribution, the Company contributed the intercompany balance to RESI's equity and contributed approximately $2.5 million to RESI to repay RESI's indebtedness and to provide working capital to RESI. Additionally, the Company reclassified approximately $36.3 million to retained earnings from additional paid-in capital to effect the spin-off under Delaware law. As a result of these transactions, the Company's equity at the date of the Distribution was reduced by approximately $23.6 million. The Company has sold or spun-off all of its subsidiaries included in discontinued operations, hence fully disposing of all mining and citrus and hazardous waste operations. Upon ultimate disposal of its discontinued operations, the Company determined its initial estimates did not require adjustment. The recorded transactions reflect the disposal of all of the Company's hazardous waste and mining and citrus segments and, F-23 24 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) accordingly, the operating results of these segments have been classified as discontinued operations for all periods presented in the accompanying Consolidated Financial Statements. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, investments, receivables, other assets (excluding goodwill, intangibles and deferred costs), accounts payable and accrued liabilities (nonderivatives) approximates fair value because of the short maturity of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. The assumptions used have a significant effect on the estimated amounts reported. The Company has interest protection agreements with several counterparties to manage the impact of interest rate changes. The estimated fair values of the interest protection agreements were determined from dealer quotations and represent the discounted future cash flows through maturity or expiration using current rates, and are effectively the amounts the Company would pay or receive to terminate the agreements. The estimated fair values of the interest rate protection agreements at December 31, 1996 and 1995 was a net payable position of $.7 million and $9.7 million, respectively. The estimated fair value of mortgages payable at December 31, 1996 and 1995 was approximately $34.0 million and $114.0 million, respectively which approximates the carrying value. The estimated fair values were derived by discounting expected cash flows at the rates then offered to the Company for debt of similar terms and remaining maturities. The fair value of the Company's medium-term notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair value of the medium-term notes payable was $792.8 million as of December 31, 1996. The carrying amount of the remaining debt approximates fair value because interest rates are variable and, accordingly, approximate current market rates. In September 1996, the Agreement and Plan of Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the Company, R.I./Triangle, Ltd. and ADT, which provided for the acquisition of ADT by the Company, was terminated by mutual agreement of the parties. In connection with the execution of the ADT Agreement, ADT granted to the Company a warrant (the "ADT Warrant") to purchase 15.0 million common shares of ADT at a purchase price $20 per share (which approximated fair market value). The Company estimated the fair value of the ADT Warrant at December 31, 1996 to be approximately $5.7 million based upon an option pricing model calculation, which approximated the carrying value. In March 1997, the Company exercised the ADT Warrant resulting in the purchase of 15.0 million common shares of ADT at $20 per share. In May 1997, the Company sold the ADT common shares to certain institutional investors for $27.50 per share resulting in a gain of approximately $100.0 million, net of fees and expenses. 13. BUSINESS AND CREDIT CONCENTRATIONS AUTOMOTIVE RENTAL INDUSTRY At December 31, 1996 the Company had 406 corporate owned vehicle rental facilities throughout the United States. The Company also had 31 corporate owned vehicle rental facilities in the United Kingdom, 25 in Germany, 4 in Switzerland, 82 in Canada, 1 in Belgium and 2 in The Netherlands. In addition to its corporate owned locations, the Company's licensee network operates 284 locations throughout Europe, Latin America, the Caribbean, and the Pacific. The automotive rental industry in which the Company operates is highly seasonal. Trade receivables at December 31, 1996 and 1995 include $68.3 million and $59.3 million, respectively from travel agents and tour operators. Of the travel agent and tour operator receivable balances, $25.4 million F-24 25 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) and $25.6 million at December 31, 1996 and 1995, respectively, are maintained outside the United States. The Company holds minimum collateral in the form of cash, letters of credit or insurance from most of these vendors. The Company continually evaluates the credit risk of these customers and believes that the allowance for doubtful accounts relative to its trade receivables is adequate. At December 31, 1996 and 1995, the Company had vehicle receivables from manufacturers of $125.4 million and $65.0 million, respectively. Of the receivable balances from manufacturers, $16.9 million and $12.7 million are maintained outside the United States. Vehicle receivables also include amounts due from renters for damages incurred on revenue earning vehicles. The Company enters into vehicle repurchase programs with one principal vehicle manufacturer, as well as other vehicle manufacturers. During model year 1996, the Company purchased 71% of its vehicle fleet under repurchase programs with one vehicle manufacturer. AUTOMOTIVE RETAIL, SOLID WASTE SERVICES AND ELECTRONIC SECURITY SERVICES INDUSTRIES Concentrations of credit risk with respect to trade receivables related to the Company's automotive retail, solid waste services and electronic security services segments are limited due to the wide variety of customers and markets in which the Company's products are sold and services are provided as well as their dispersion across many different geographic areas in the United States. As a result, at December 31, 1996, the Company does not consider itself to have any significant concentrations of credit risk in the solid waste services, electronic security services and automotive retailing segments. 14. RELATED PARTY TRANSACTIONS As of December 31, 1996, approximately $247.5 million was due from AutoNation pursuant to a loan agreement whereby the Company agreed to provide advances at an interest rate of LIBOR plus 2% to fund AutoNation's cash flow requirements. Interest income recognized on such advances was approximately $5.6 million for the year ended December 31, 1996. In addition, on behalf of AutoNation, the Company has guaranteed certain lease obligations and the residual value related to a portfolio of properties leased by AutoNation under a $150.0 million operating lease facility. At December 31, 1996, annual lease obligations were approximately $2.6 million through the year 2001 and the residual value guaranty was approximately $37.6 million. In April 1997, the operating lease facility was increased to $500.0 million. The Company purchased approximately $631.3 million, $351.7 million and $551.2 million of revenue earning vehicles from a group of automotive dealerships owned primarily by a former director of Alamo during the years ended December 31, 1996, 1995 and 1994, respectively. Pursuant to an automobile purchase agreement, the Company agreed to purchase and/or lease a minimum number of vehicles and pay to these automotive dealerships a specific amount (in addition to the manufacturer's sales price) for each vehicle purchased. In September 1995, the Company entered into a stock purchase agreement with Addington Enterprises, Inc. (a company f/k/a Addington Acquisition Company, Inc., owned by certain former shareholders of Addington; collectively, the "Addington Brothers") whereby the Company would receive $30.0 million, subject to a working capital adjustment, in exchange for all the issued and outstanding shares of common stock of its subsidiaries, Addington Mining, Inc., Mining Technologies Inc., Addwest Mining, Inc. and Addington Coal Holding, Inc. This transaction closed in November 1995, at which time the proceeds received were used by the Company to pay down certain borrowings under a revolving line of credit. Included in the transaction described above and pursuant to an option agreement, in August 1995 the Company sold to the Addington Brothers all the issued and outstanding shares of common stock of its subsidiary, Tennessee Mining, Inc. According to the terms of the option agreement, the Addington Brothers will pay the Company a royalty based on tons of coal delivered under a certain coal sales contract, up to a maximum aggregate royalty of $12.5 million. F-25 26 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) In September 1995, the Company entered into an agreement to sell all of the issued and outstanding shares of common stock of its subsidiary, Belize River Fruit Co., to the Addington Brothers in exchange for .9 million shares of Common Stock of the Company owned by such shareholders. This transaction was consummated in November 1995, at which time the Company acquired and retired the .9 million shares valued at $13.6 million. The Company retained no obligations in connection with the sales and has fully divested its investment in its citrus operations. 15. OPERATIONS BY INDUSTRY SEGMENT The Company is a diversified holding company with major business operations in the automotive rental, automotive retail, solid waste services and electronic security services industries. The Company operates primarily in the United States. The following table presents financial information regarding the Company's different industry segments as of and for the years ended December 31:
1996 1995 1994 -------- -------- -------- Revenue: Automotive rental................................ $2,567.1 $1,886.4 $1,222.3 Automotive retail................................ 1,410.5 1,000.3 858.3 Solid waste services............................. 701.2 450.4 317.9 Electronic security services..................... 85.3 49.8 41.9 -------- -------- -------- $4,764.1 $3,386.9 $2,440.4 ======== ======== ======== Operating income (loss): Automotive rental................................ $ (30.7) $ (19.3) $ 30.2 Automotive retail................................ 3.9 15.3 12.4 Solid waste services............................. 93.7 63.1 42.7 Electronic security services..................... 14.5 8.6 2.4 Corporate........................................ (31.8) (4.3) (2.9) -------- -------- -------- $ 49.6 $ 63.4 $ 84.8 ======== ======== ======== Depreciation and amortization: Automotive rental................................ $ 772.9 $ 576.2 $ 372.6 Automotive retail................................ 4.9 4.0 3.5 Solid waste services............................. 59.0 44.6 35.0 Electronic security services..................... 10.8 4.9 4.1 -------- -------- -------- $ 847.6 $ 629.7 $ 415.2 ======== ======== ======== Capital expenditures, purchases of revenue earning vehicles and investment in subscriber accounts: Automotive rental................................ $4,691.3 $3,197.3 $3,347.9 Automotive retail................................ 38.0 34.8 5.8 Solid waste services............................. 141.2 146.0 112.7 Electronic security services..................... 53.0 17.5 18.3 -------- -------- -------- $4,923.5 $3,395.6 $3,484.7 ======== ======== ======== Assets: Automotive rental................................ $4,625.4 $3,838.2 $2,310.4 Automotive retail................................ 392.1 318.6 230.3 Solid waste services............................. 1,309.2 840.2 466.1 Electronic security services..................... 43.6 43.8 34.5 Net assets of discontinued operations............ -- -- 86.2 -------- -------- -------- $6,370.3 $5,040.8 $3,127.5 ======== ======== ========
F-26 27 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED) 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The Company's automotive rental operations and particularly the leisure travel segment is highly seasonal. In these operations, the third quarter which includes the peak summer travel months has historically been the strongest quarter of the year. During the peak season the Company increases its rental fleet and workforce to accommodate increased rental activity. As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of this segment. The first quarter for the Company's automotive rental operations is generally the weakest, when there is limited leisure family travel and a greater potential for adverse weather conditions. Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand. The third and fourth quarters of 1996 included one-time pre-tax charges of approximately $7.6 million and $87.9 million, respectively, as described in Note 10, Restructuring, Merger and Other Non-Recurring Expenses. The fourth quarter of 1996 also included an extraordinary charge of approximately $31.6 million, net of income tax benefit, related to the early extinguishment of debt as described in Note 4, Long-Term Debt and Notes Payable. The following is an analysis of certain items in the Consolidated Statements of Operations by quarter for 1996 and 1995. Quarterly amounts have been restated from amounts previously reported in Form 10-Q for significant business combinations accounted for under the pooling of interests method of accounting.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- -------- ------- --------- Revenue................................. 1996 $1,016.0 $1,210.3 $1,254.7 $ 1,283.1 1995 618.1 745.3 1,010.0 1,013.5 Operating income (loss)................. 1996 $ 25.8 $ 46.3 $ 70.3 $ (92.8) 1995 (7.9) 11.2 69.1 (9.0) Income (loss) from continuing operations before extraordinary charge........... 1996 $ 12.4 $ 23.7 $ 37.4 $ (74.5) 1995 (8.1) 3.1 37.1 (7.4) Income (loss) per share from continuing operations before extraordinary charge.................. 1996 $ .04 $ .08 $ .12 $ (.26) 1995 (.05) .02 .16 (.03) Net income (loss)....................... 1996 $ 12.4 $ 23.7 $ 37.4 $ (106.1) 1995 (6.6) 5.4 9.3 (8.5)
F-27 28 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA)
December 31, March 31, ----------------------- 1997 1996 1995 ----------- ---------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 222.7 $ 321.4 $ 361.8 Marketable securities..................................... 375.0 -- -- Receivables, net.......................................... 543.5 558.5 448.4 Revenue earning vehicles, net............................. 4,018.2 3,583.3 2,977.7 Advances to affiliate..................................... -- 247.5 -- Inventory................................................. 607.4 298.6 276.0 Other current assets...................................... 151.5 151.3 146.8 -------- -------- -------- Total Current Assets.............................. 5,918.3 5,160.6 4,210.7 PROPERTY AND EQUIPMENT, NET................................. 1,542.5 1,106.1 813.5 INTANGIBLE ASSETS, NET...................................... 736.7 262.0 158.8 INVESTMENT IN SUBSCRIBER ACCOUNTS, NET...................... 108.6 92.4 42.2 OTHER ASSETS................................................ 30.9 42.4 32.4 -------- -------- -------- $8,337.0 $6,663.5 $5,257.6 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 279.2 $ 277.1 $ 228.1 Accrued liabilities....................................... 309.8 217.5 165.8 Estimated liability insurance claims...................... 222.5 222.2 119.3 Revenue earning vehicle debt.............................. 2,834.2 2,732.0 3,070.0 Notes payable and current maturities of long-term debt.... 686.6 294.7 290.6 Other current liabilities................................. 81.3 96.5 84.1 -------- -------- -------- Total Current Liabilities......................... 4,413.6 3,840.0 3,957.9 LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 344.3 367.2 304.3 LONG-TERM REVENUE EARNING VEHICLE DEBT...................... 860.1 844.8 26.6 OTHER LIABILITIES........................................... 231.0 237.4 226.8 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, par value $.01 per share; 5,000,000 shares authorized; none issued......................... -- -- -- Common stock, par value $.01 per share; 500,000,000, 500,000,000 and 350,000,000 shares authorized, respectively; 358,747,632, 306,336,304 and 257,520,256 shares issued and outstanding, respectively........................................... 3.6 3.1 2.6 Additional paid-in capital................................ 2,412.4 1,361.3 643.8 Unrealized gain on marketable securities.................. 43.7 -- -- Retained earnings......................................... 28.3 9.7 95.6 -------- -------- -------- Total Shareholders' Equity........................ 2,488.0 1,374.1 742.0 -------- -------- -------- $8,337.0 $6,663.5 $5,257.6 ======== ======== ========
The accompanying notes are an integral part of these statements. F-28 29 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ---------------------------- ---------------------------------- 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) REVENUE: Automotive rentals....................................... $ 649.9 $ 565.9 $2,618.4 $1,919.5 $1,245.2 Automotive sales......................................... 865.2 500.1 2,239.2 1,668.4 1,434.3 Solid waste services..................................... 175.4 136.9 701.2 450.4 317.9 Electronic security services............................. 26.6 15.5 85.3 49.8 41.9 -------- -------- -------- -------- -------- 1,717.1 1,218.4 5,644.1 4,088.1 3,039.3 EXPENSES: Automotive rental operating expenses..................... 495.4 443.7 2,092.2 1,517.0 924.0 Cost of automotive sales................................. 764.7 437.5 2,001.3 1,482.6 1,253.9 Cost of solid waste services............................. 148.1 97.4 512.4 307.5 213.6 Cost of electronic security services..................... 11.6 6.1 37.3 20.6 20.7 Selling, general and administrative...................... 251.6 199.7 892.8 677.5 527.9 Restructuring and merger expenses........................ -- -- 38.3 3.3 -- -------- -------- -------- -------- -------- OPERATING INCOME .......................................... 45.7 34.0 69.8 79.6 99.2 INTEREST INCOME............................................ 7.3 5.1 30.9 21.1 6.4 INTEREST EXPENSE........................................... (4.9) (9.5) (49.3) (37.0) (22.4) OTHER INCOME (EXPENSE), NET................................ 2.4 2.9 4.4 8.3 (1.9) -------- -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE........................... 50.5 32.5 55.8 72.0 81.3 PROVISION FOR INCOME TAXES................................. 18.6 15.8 53.7 40.5 39.7 -------- -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY CHARGE..................................... 31.9 16.7 2.1 31.5 41.6 EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF DEBT, NET OF BENEFIT FOR INCOME TAXES OF $15.0........... -- -- (31.6) -- -- -------- -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS................... 31.9 16.7 (29.5) 31.5 41.6 -------- -------- -------- -------- -------- DISCONTINUED OPERATIONS: Income (loss) from discontinued operations, net of income taxes................................................. -- -- -- 5.4 (2.8) Loss on disposal of segment, net of income tax benefit... -- -- -- (30.5) -- -------- -------- -------- -------- -------- Loss from discontinued operations........................ -- -- -- (25.1) (2.8) -------- -------- -------- -------- -------- NET INCOME (LOSS).......................................... $ 31.9 $ 16.7 $ (29.5) $ 6.4 $ 38.8 ======== ======== ======== ======== ======== FULLY DILUTED INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Income from continuing operations before extraordinary charge.................................. $ .08 $ .06 $ .01 $ .14 $ .25 Extraordinary charge..................................... -- -- (.11) -- -- Discontinued operations.................................. -- -- -- (.12) (.02) -------- -------- -------- -------- -------- Net income (loss)........................................ $ .08 $ .06 $ (.10) $ .03 $ .23 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements. F-29 30 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN MILLIONS)
COMMON ADDITIONAL RETAINED STOCK PAID-IN CAPITAL EARNINGS ------ --------------- --------- BALANCE AT DECEMBER 31, 1993................................ $1.6 $ 235.8 $116.0 Sales of common stock..................................... .1 16.5 -- Distributions to former owners of pooled companies........ -- -- (29.7) Other..................................................... -- 24.2 1.1 Net income................................................ -- -- 38.8 ---- -------- ------ BALANCE AT DECEMBER 31, 1994................................ 1.7 276.5 126.2 Sales of common stock and warrants........................ .4 262.0 -- Stock issued in acquisitions.............................. .2 83.9 -- Exercise of stock options and warrants.................... -- 15.7 -- Reclassification of additional paid-in capital to effect the spin-off........................................... -- (36.3) 36.3 Spin-off of Republic Environmental Systems, Inc........... -- -- (23.6) Contributions to capital from former owners of pooled companies.................................... -- 29.8 -- Distributions to former owners of pooled companies........ -- -- (49.7) Other..................................................... .3 12.2 -- Net income................................................ -- -- 6.4 ---- -------- ------ BALANCE AT DECEMBER 31, 1995................................ 2.6 643.8 95.6 Sales of common stock..................................... .2 550.7 -- Stock issued in acquisitions.............................. .2 101.2 -- Exercise of stock options and warrants.................... .1 43.7 -- Contributions to capital from former owners of pooled companies.............................................. -- 21.9 -- Distributions to former owners of pooled companies........ -- -- (57.7) Other..................................................... -- -- 1.3 Net loss.................................................. -- -- (29.5) ---- -------- ------ BALANCE AT DECEMBER 31, 1996................................ $3.1 $1,361.3 $ 9.7 ==== ======== ======
The accompanying notes are an integral part of these statements. F-30 31 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
Three Months Ended March 31, Years Ended December 31, ------------------------- --------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Income (loss) from continuing operations.............. $ 31.9 $ 16.7 $ (29.5) $ 31.5 $ 41.6 Adjustments to reconcile income (loss) from continuing operations to net cash provided by continuing operations: Restructuring, merger and other non-recurring expenses......................................... -- -- 95.5 3.3 -- Loss on extinguishment of debt, net of income taxes............................................ -- -- 31.6 -- -- Depreciation and amortization...................... 209.0 174.0 866.1 641.7 423.5 Changes in assets and liabilities, net of effects from business acquisitions: Receivables...................................... 83.4 (19.3) (107.3) (36.2) (40.5) Inventory........................................ (33.0) 22.8 (9.7) (38.1) (21.3) Other assets..................................... 33.0 (14.1) (50.4) 1.2 8.5 Accounts payable and accrued liabilities......... (89.3) 55.1 78.7 88.4 8.1 Other liabilities................................ 16.6 23.9 141.3 30.4 18.2 --------- --------- --------- --------- --------- 251.6 259.1 1,016.3 722.2 438.1 --------- --------- --------- --------- --------- CASH PROVIDED BY DISCONTINUED OPERATIONS................ -- -- -- 6.1 12.2 --------- --------- --------- --------- --------- CASH USED IN INVESTING ACTIVITIES: Purchases of revenue earning vehicles from third party suppliers.......................................... (1,465.4) (1,271.4) (4,064.0) (2,843.7) (2,790.8) Purchases of revenue earning vehicles from related party suppliers.................................... -- (200.0) (631.3) (351.8) (551.2) Sales of revenue earning vehicles..................... 844.0 864.6 3,356.4 2,841.6 2,673.7 Purchases of property and equipment................... (115.0) (44.5) (240.8) (214.9) (143.6) Purchases of marketable securities.................... (300.0) -- -- -- -- Advances to affiliate................................. (50.0) -- (243.4) -- -- Investment in subscriber accounts..................... (13.1) -- (41.4) (16.0) (17.5) Cash used in business acquisitions.................... (40.4) (2.2) (47.0) (1,333.7) (11.8) Other................................................. 1.2 1.4 34.8 81.6 143.3 --------- --------- --------- --------- --------- (1,138.7) (652.1) (1,876.7) (1,836.9) (697.9) --------- --------- --------- --------- --------- CASH PROVIDED BY FINANCING ACTIVITIES: Payments of revenue earning vehicle financing......... (3,033.8) (3,449.0) (17,452.0) (9,990.9) (3,087.1) Proceeds from revenue earning vehicle financing....... 3,160.4 3,774.9 17,802.7 11,134.4 3,379.4 Payments of long-term debt and notes payable.......... (770.2) (77.1) (568.0) (225.3) (204.5) Proceeds from long-term debt and notes payable........ 874.4 125.2 536.1 200.6 140.8 Sales of common stock................................. 552.7 -- 550.9 262.4 16.6 Other................................................. 4.9 .3 (49.7) 31.5 8.5 --------- --------- --------- --------- --------- 788.4 374.3 820.0 1,412.7 253.7 --------- --------- --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (98.7) (18.7) (40.4) 304.1 6.1 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 321.4 361.8 361.8 57.7 51.6 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 222.7 $ 343.1 $ 321.4 $ 361.8 $ 57.7 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements. F-31 32 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (ALL TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Supplemental Consolidated Financial Statements include the accounts of Republic Industries, Inc. and its subsidiaries ("Republic" or the "Company"). All significant intercompany accounts and transactions have been eliminated. In 1995, the Company implemented a formal plan to dispose of all of its mining and citrus operations. In 1994, the Board of Directors authorized management to pursue a plan to distribute its hazardous waste services segment, Republic Environmental Systems, Inc. ("RESI"), now known as International Alliance Services, Inc., to Republic shareholders. Accordingly, as discussed in Note 11, Discontinued Operations, these segments have been accounted for as discontinued operations and the accompanying Supplemental Consolidated Financial Statements presented herein have been restated to report separately the operating results of these discontinued operations. In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported financial statements in order to conform with the financial statement presentation of the current period. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the Unaudited Supplemental Consolidated Financial Statements contain all material adjustments, consisting of only normal recurring adjustments, necessary to present fairly the supplemental consolidated financial position of the Company at March 31, 1997, and the supplemental consolidated results of its operations and cash flows for the three months ended March 31, 1997 and 1996. Operating results for these interim periods are not necessarily indicative of the results that can be expected for a full year. The accompanying Supplemental Consolidated Financial Statements include the financial position and results of operations of National Car Rental System, Inc. ("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries, Inc. ("Taormina") which the Company acquired in February 1997, and Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January 1997. These transactions were accounted for under the pooling of interests method of accounting and, accordingly, the Supplemental Consolidated Financial Statements have been previously restated as if the Company and National, Maroone, Wallace, Taormina and Carlisle had operated as one entity since inception. See Note 2, Business Combinations, for further discussion of these transactions. All per share data and numbers of shares of the Company's common stock, par value $.01 per share ("Common Stock") for all periods included in the financial statements and notes thereto have been adjusted to reflect a two-for-one stock split in the form of a 100% stock dividend that became effective in June 1996, as more fully described in Note 6, Shareholders' Equity. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS The accompanying Supplemental Consolidated Financial Statements give retroactive effect to the acquisitions of Flemington Car and Truck Country and certain related dealerships ("Flemington"), Spirit Rent-A-Car, Inc. ("Spirit"), Chesrown Automotive Group ("Chesrown") and Bledsoe Dodge, Inc. ("Bledsoe") all of which the Company acquired in May 1997. The acquisitions of Flemington, Spirit, Chesrown and Bledsoe have been accounted for under the pooling of interests method of accounting. See Note 2, Business Combinations, for further discussion of these transactions. RECEIVABLES Receivables include trade accounts receivable from the Company's various operating business segments which consist of amounts due from retail and service customers and travel agents and tour operators. Receivables also include vehicle receivables from automobile manufacturers which consist of amounts due under vehicle repurchase and incentive programs and from vehicle renters for damages incurred on revenue earning vehicles. F-32 33 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of receivables, net of allowance for doubtful accounts are as follows:
December 31, March 31, ----------------------- 1997 1996 1995 ----------- -------- -------- (Unaudited) Trade....................................................... $272.5 $294.9 $226.7 Vehicle..................................................... 174.2 226.6 185.2 Contracts in transit........................................ 53.7 27.8 23.7 Other....................................................... 63.5 26.5 23.7 ------ ------ ------ 563.9 575.8 459.3 Less: allowance for doubtful accounts....................... (20.4) (17.3) (10.9) ------ ------ ------ $543.5 $558.5 $448.4 ====== ====== ======
MARKETABLE SECURITIES Marketable securities at March 31, 1997 consist of 15.0 million common shares of ADT Limited ("ADT") which were acquired in March 1997 upon exercise of a warrant (the "ADT Warrant") to purchase such shares at a purchase price of $20 per share. The ADT Warrant, which was received in July 1996 upon execution of a definitive agreement to acquire ADT, became exercisable upon termination of such agreement in September 1996. The ADT shares are classified as available-for-sale and are stated at fair value with unrealized gains, net of tax, reported as a separate component of shareholders' equity. As of March 31, 1997, the cost, unrealized gain and market value of the ADT common shares were $305.7 million, $69.3 million and $375.0 million, respectively. In May 1997, the Company sold the ADT common shares to certain institutional investors for $27.50 per share resulting in a gain of approximately $100.0 million, net of fees and expenses. INVESTMENTS Investments have a maturity of one year or less, are classified as held-to-maturity securities and are recorded at amortized cost adjusted for the amortization or accretion of premiums or discounts, which approximate market value. Investments are included in other current assets in the accompanying Supplemental Consolidated Balance Sheets. Investments at December 31 are as follows:
1996 1995 ----- ----- Eurodollar deposits......................................... $ -- $26.7 Repurchase agreements....................................... 20.2 24.0 Certificates of deposit..................................... 1.0 13.5 Other....................................................... 1.7 3.8 ----- ----- $22.9 $68.0 ===== =====
Repurchase agreements are restricted for the settlement of specific estimated auto liability claims. REVENUE EARNING VEHICLES AND DEPRECIATION Revenue earning vehicles are stated at cost less accumulated depreciation and allowances for stolen vehicles. The straight-line method is used to depreciate revenue earning vehicles to their estimated residual values over the anticipated periods of use based on the Company's fleet plan, typically ranging from four to twenty months in the United States and from four to nine months in Canada and Europe. Depreciation expense also includes those costs relating to losses from damaged vehicles, and gains and losses on revenue earning vehicle sales in the ordinary course of business. Depreciation expense related to revenue earning vehicles was $747.8 million, $555.0 million and $358.6 million for the years ended December 31, 1996, 1995 and 1994, respectively, and is included as a component of vehicle rental operating expenses in the accompanying Supplemental Consolidated Statements of Operations. A summary of revenue earning vehicles is as follows:
December 31, March 31, -------------------- 1997 1996 1995 ----------- --------- --------- (Unaudited) Revenue earning vehicles.................................... $ 4,446.2 $ 4,011.5 $ 3,311.2 Less: accumulated depreciation.............................. (428.0) (428.2) (333.5) --------- --------- --------- $ 4,018.2 $ 3,583.3 $ 2,977.7 ========= ========= =========
Revenue earning vehicles with depreciated cost of $2.9 billion at December 31, 1996 were acquired under programs that allow the Company to require counterparties to repurchase vehicles held for periods of up to twenty-four months. The agreements contain varying mileage and damage limitations. F-33 34 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company also leases vehicles under operating lease agreements which require the Company to provide normal maintenance and liability coverage. The agreements generally have terms of four to twelve months. Many agreements provide for an option to terminate the leases early and allow for the purchase of leased vehicles subject to certain restrictions. Most leases provide for an initial minimum monthly charge, with contingent rental charges for changes in interest rates and adjustments for wear, damage and mileage in excess of stipulated amounts. Contingent rental charges were $1.8 million, $13.2 million and $2.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. INVENTORY Inventory consists primarily of retail vehicles held for sale valued using the specific identification method. Cost includes acquisition expenses, including reconditioning and transportation costs. Parts and accessories are valued at the lower of cost or market, using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the Supplemental Consolidated Statements of Operations. The Company revises the estimated useful lives of property and equipment acquired through its business acquisitions to conform with its policies regarding property and equipment. Depreciation is provided over the estimated useful lives of the assets involved using the straight-line method. The estimated useful lives are: twenty to forty years for buildings and improvements, three to fifteen years for trucks and equipment and five to ten years for furniture and fixtures. Landfills are stated at cost and are depleted based on consumed airspace. Landfill improvements include direct costs incurred to obtain a landfill permit and direct costs incurred to construct and develop the site. These costs are depleted based on consumed airspace. No general and administrative costs are capitalized as landfills and landfill improvements. Interest costs are capitalized in connection with the construction of automotive rental facilities and landfill sites. Interest capitalized was $2.6 million, $3.3 million and $2.7 million for the years ended December 31, 1996, 1995 and 1994, respectively. Depreciation, amortization and depletion expense related to property and equipment was $96.2 million, $74.0 million and $56.8 million in 1996, 1995 and 1994, respectively. A summary of property and equipment is as follows:
December 31, March 31, -------------------- 1997 1996 1995 ----------- --------- --------- (Unaudited) Land, landfills and improvements............................ $ 633.8 $ 464.5 $ 383.5 Furniture, fixtures, trucks and equipment................... 780.6 675.5 422.2 Buildings and improvements.................................. 565.4 377.7 300.9 --------- --------- --------- 1,979.8 1,517.7 1,106.6 Less: accumulated depreciation, amortization and depletion................................................. (437.3) (411.6) (293.1) --------- --------- --------- $ 1,542.5 $ 1,106.1 $ 813.5 ========= ========= =========
F-34 35 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTANGIBLE ASSETS Intangible assets consist primarily of the cost of acquired businesses in excess of the fair value of net tangible assets acquired. The cost in excess of the fair value of net tangible assets is amortized over periods ranging from fifteen to forty years on a straight-line basis. Amortization expense related to intangible assets was $12.8 million, $8.3 million and $4.7 million, in 1996, 1995 and 1994, respectively. Accumulated amortization of intangible assets was $47.6 million and $30.5 million at December 31, 1996 and 1995, respectively. The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful life of intangible assets or whether the remaining balance of intangible assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the intangible assets in measuring their recoverability. INVESTMENT IN SUBSCRIBER ACCOUNTS Investment in subscriber accounts consists of certain capitalized costs associated with new monitoring systems installed by the Company's electronic security service business and the cost of acquired subscriber accounts. The costs are amortized over ten years (based on estimated and historical customer attrition rates) on a straight-line basis. Amortization expense related to investment in subscriber accounts was $9.3 million, $4.4 million and $3.4 million in 1996, 1995 and 1994, respectively. Accumulated amortization of investment in subscriber accounts was $20.7 million and $11.4 million at December 31, 1996 and 1995, respectively. ACCRUED ENVIRONMENTAL AND LANDFILL COSTS Accrued environmental and landfill costs are included in other liabilities and include landfill site closure and post-closure costs. Landfill site closure and post-closure costs include estimated costs to be incurred for final closure of the landfills and estimated costs for providing required post-closure monitoring and maintenance of landfills. These costs are accrued based on consumed airspace. Estimated aggregate closure and post-closure costs are to be fully accrued for these landfills at the time that such facilities cease to accept waste and are closed. Excluding existing accruals at December 31, 1996, approximately $53.7 million of such costs are to be expensed over the remaining lives of these facilities. The Company estimates its future cost requirements for closure and post-closure monitoring and maintenance for its solid waste facilities based on its interpretation of the technical standards of the United States Environmental Protection Agency's Subtitle D regulations. These estimates do not take into account discounts for the present value of such total estimated costs. In addition to the Company's solid waste collection and disposal operations, the Company's vehicle rental operations also involve the storage and dispensing of petroleum products, primarily gasoline. The Company records as expense, on a current basis, costs associated with remediation of environmental pollution. The Company also accrues for its proportionate share of costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and the amount can be reasonably estimated. Estimated costs include anticipated site testing, consulting, remediation, disposal, post-remediation monitoring and legal fees, as appropriate. The liability does not reflect possible recoveries from insurance companies or reimbursement of remediation costs. The Company periodically reassesses its method and assumptions used to estimate such accruals for environmental and landfill costs and adjusts such accruals accordingly. Such factors considered are changing regulatory requirements, the effects of inflation, changes in operating climates in the regions in which the Company's facilities are located and the expectations regarding costs of securing environmental services. F-35 36 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As discussed in Note 8, Commitments and Contingencies, the Company is involved in litigation and is subject to ongoing environmental investigations by certain regulatory agencies, as well as other claims and disputes that could result in additional litigation which are in the normal course of business. LIABILITY INSURANCE The Company retains up to $1.0 million of risk per claim under its various liability insurance programs for property damage and bodily injury claims. Costs in excess of $1.0 million per claim are insured under various contracts with insurance carriers. The costs of these retained insurance risks are estimated by management and by actuarial evaluation based on historical claims experience, adjusted for current trends and changes in claims-handling procedures. In 1996, the Company changed its method of accounting for estimated auto rental liability insurance claims by no longer discounting such liability. The effect of this change was not material to the Company's supplemental consolidated financial position or results of operations. REVENUE RECOGNITION Revenue from the Company's automotive rental operations consists primarily of fees from rentals and the sale of related rental products from the leisure and business travel segments. Revenue from the Company's automotive retailing operations consists of sales of new and used vehicles, parts and service. Revenue from the Company's solid waste services operations consists of collection fees from residential, commercial and industrial customers and landfill disposal fees charged to third parties. Revenue from the Company's electronic security services business results from monitoring contracts for security systems and fees charged for the sale and installation of such systems. The Company recognizes revenue over the period vehicles are rented, services are provided or products are sold. FINANCIAL INSTRUMENTS The Company utilizes interest rate swaps in the management of interest rate risk. The differentials between the amounts paid and received from these swaps are recognized over the terms of the agreements and are recorded as adjustments to interest expense. Amounts receivable or payable under the agreements are included in receivables or accrued liabilities in the Supplemental Consolidated Balance Sheets and were not material at December 31, 1996 or 1995. ADVERTISING The Company expenses the cost of advertising as incurred or when such advertising initially takes place. No advertising costs were capitalized at December 31, 1996 or 1995. Advertising expense was $149.0 million, $116.6 million and $85.3 million for the years ended December 31, 1996, 1995 and 1994, respectively. STATEMENTS OF CASH FLOWS The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents unless the investments are legally or contractually restricted for more than three months. The effect of non-cash transactions related to business combinations, as discussed in Note 2, Business Combinations, and other non-cash transactions are excluded from the Statements of Cash Flows. NEW ACCOUNTING PRONOUNCEMENT In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities," effective for fiscal years beginning after December 15, 1996. This statement provides that environmental remediation liabilities should be accrued when the criteria of Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," F-36 37 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) are met, and it includes benchmarks to aid in the determination of when environmental remediation liabilities should be recognized. SOP 96-1 also states that an accrual for environmental liabilities should include incremental direct costs of the remediation effort and costs of compensation and benefits for those employees who are expected to devote a significant amount of time directly to the remediation effort. The Company early adopted SOP 96-1 in 1996 without material impact on its supplemental consolidated results of operations or financial position. 2. BUSINESS COMBINATIONS PENDING ACQUISITIONS In June 1997, the Company signed a definitive agreement to acquire the Appleway Automotive Group ("Appleway"), which owns and operates eight franchised automotive dealerships. The Company will issue Common Stock valued at approximately $42.6 million in this transaction, which will be accounted for under the purchase method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In May 1997, the Company signed a definitive agreement to acquire Desert Buick-GMC Automotive Group ("Desert"), which owns and operates four franchised automotive dealerships. The Company will issue Common Stock valued at approximately $38.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In May 1997, the Company signed a definitive agreement to acquire Gulf Management, Inc. ("Gulf"), which owns and operates two franchised automotive dealerships. The Company will issue Common Stock valued at approximately $45.0 million in this transaction, which will be accounted for under the purchase method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In April 1997, the Company signed a definitive agreement to acquire De La Cruz Auto Group ("De La Cruz"), which owns and operates four franchised automotive dealerships. The Company will issue Common Stock valued at approximately $40.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In March 1997, the Company signed a definitive agreement to acquire Tempe Toyota and related entities ("Tempe"), which operate one franchised automotive dealership and two used automotive dealerships. The Company will issue Common Stock valued at approximately $48.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. Additionally, the Company has signed definitive agreements to acquire various other businesses in the automotive retail industry which are not material to the Company. The Company will issue cash and/or Common Stock valued in the aggregate at approximately $129.8 million in such transactions which will be accounted for under the purchase method of accounting. These transactions are subject to customary conditions, including manufacturer and regulatory approvals. COMPLETED ACQUISITIONS Significant businesses acquired and accounted for under the pooling of interests method of accounting have been included retroactively in the Supplemental Consolidated Financial Statements as if the companies had operated as one entity since inception. Businesses acquired through March 31, 1997 and accounted for under the purchase method of accounting are included in the Supplemental Consolidated Financial Statements from the date of acquisition. In May 1997, the Company acquired Flemington, which owns and operates twelve franchised automotive dealerships. The Company issued approximately 2.3 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Spirit, which operates a vehicle rental business. The Company issued 3.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Chesrown, which owns and operates seven franchised automotive dealerships. The Company issued approximately 2.5 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Bledsoe, which operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Bankston Automotive Group ("Bankston"), which owns and operates four franchised automotive dealerships. The Company issued approximately 1.4 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In February 1997, the Company acquired National, which operates a vehicle rental business. The Company issued approximately 21.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. National was formed in April 1995 to acquire the operating assets and certain liabilities of a predecessor company ("Old National") from General Motors Corporation as further discussed below. In February 1997, the Company acquired Maroone, which owns and operates five franchised automotive dealerships. The Company issued approximately 6.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Wallace, which owns and operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Taormina, which provides waste collection services and owns and operates a materials recycling facility. The Company issued approximately 7.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Kendall Automotive Group ("Kendall"), which owns and operates three franchised automotive dealerships. The Company issued approximately 1.2 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, following approval by the Company's stockholders at a special meeting, the Company acquired AutoNation Incorporated ("AutoNation"), which is developing a chain of used vehicle megastores. The Company issued approximately 17.5 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. F-37 38 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In January 1997, the Company acquired Carlisle which owns and operates three franchised automotive dealerships. The Company issued approximately 1.0 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In January 1997, the Company acquired Grubb Automotive ("Grubb"), which owns and operates seven franchised automotive dealerships. The Company issued approximately 4.0 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries ("Mullinax"), which owns and operates six franchised automotive dealerships. The Company issued approximately 3.6 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In addition, subsequent to December 31, 1996, the Company acquired various other businesses in the automotive retailing, solid waste services and electronic security services industries which were not material to the Company. The Company issued an aggregate of approximately 3.0 million shares of Common Stock and paid approximately $40.4 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 8.9 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. Details of the results of operations of the Company and Flemington, Spirit, Chesrown, Bledsoe, National, Maroone, Wallace, Taormina and Carlisle (collectively, the "Pooled Entities") for the periods before the pooling of interests combinations were consummated are as follows:
Three Months Ended March 31, Years Ended December 31, ---------------------- ------------------------------------ 1997 1996 1996 1995 1994 -------- -------- -------- -------- -------- (Unaudited) Revenue: The Company.................................. $ 908.1 $ 446.1 $2,365.5 $1,791.4 $1,595.9 Pooled Entities.............................. 809.0 772.3 3,278.6 2,296.7 1,443.4 -------- -------- -------- -------- -------- $1,717.1 $1,218.4 $5,644.1 $4,088.1 $3,039.3 ======== ======== ======== ======== ======== Net income (loss): The Company.................................. $ 15.7 $ 3.5 $ (59.5) $ (26.6) $ 27.2 Pooled Entities.............................. 16.2 13.2 30.0 33.0 11.6 -------- -------- -------- -------- -------- $ 31.9 $ 16.7 $ (29.5) $ 6.4 $ 38.8 ======== ======== ======== ======== ========
In December 1996, the Company acquired Addington Resources, Inc. ("Addington"), which primarily provides solid waste disposal services. The Company issued approximately 13.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In December 1996, the Company acquired Continental Waste Industries, Inc. ("Continental"), which provides integrated solid waste services. The Company issued approximately 12.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In November 1996, the Company acquired Alamo Rent-A-Car, Inc. ("Alamo"), which operates a vehicle rental business. The Company issued approximately 22.6 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In August 1996, the Company acquired the net assets of CarChoice, Inc. ("CarChoice"), which operates used vehicle superstores similar to those being developed by AutoNation. The Company issued approximately 3.9 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired Incendere, Inc. ("Incendere"), which provides solid waste collection, recycling and medical waste hauling services. The Company issued approximately 3.3 million shares of Common Stock in connection with this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired the Denver Fire Reporter and Protective Co. ("Denver Alarm"), which provides electronic security services. The Company issued approximately 2.5 million shares of Common F-38 39 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. During the year ended December 31, 1996, the Company also acquired various other businesses in the solid waste services, electronic security services and automotive retailing industries which were not material to the Company. The Company issued an aggregate of approximately 9.1 million shares of Common Stock and paid $47.0 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 13.0 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. These acquisitions accounted for under the pooling of interests method of accounting were not material in the aggregate and, consequently, prior period financial statements were not restated for such acquisitions. In November 1995, the Company acquired J.C. Duncan Company, Inc. ("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc. ("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste collection and recycling services and also operates two landfills. GDS provides solid waste collection and recycling services. Fennell provides solid waste collection and recycling services and also owns a landfill. Scott provides electronic security services. In October 1995, the Company acquired United Waste Service, Inc. ("United") and Southland Environmental Services, Inc. ("Southland"). United provides solid waste collection, transfer and recycling services. Southland provides solid waste collection services. In August 1995, the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides electronic security services. The Company issued an aggregate of approximately 36.3 million shares of Common Stock for the above acquisitions. These acquisitions have been accounted for under the pooling of interests method of accounting and, accordingly, the accompanying Supplemental Consolidated Financial Statements have previously been restated as if the Company and Duncan, GDS, Fennell, Scott, United, Southland and Kertz had operated as one entity since inception. In August 1995, the Company acquired Hudson Management Corporation and Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and recycling services. The Company issued 16.0 million shares of Common Stock to acquire HMC. The acquisition of HMC has been accounted for under the purchase method of accounting. The pro forma effect of this acquisition is not material to the Company's Supplemental Consolidated Results of Operations. In June 1995, National acquired all of the operating assets and assumed certain liabilities of Old National for a total cash purchase price of approximately $1.3 billion. This acquisition was accounted for under the purchase method of accounting. The Company's unaudited pro forma supplemental consolidated results of operations for the years ended December 31, assuming the acquisition of Old National had occurred on January 1, 1994 are as follows:
1995 1994 -------- -------- Revenue........................................ $4,433.6 $3,786.6 ======== ======== Income from continuing operations.............. $ 30.8 $ 57.7 ======== ======== Fully diluted income from continuing operations per common and common equivalent share........................................ $ .13 $ .31 ======== ========
The unaudited pro forma supplemental consolidated results of operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what results of operations would have been had the Company owned and operated Old National as of January 1, 1994. During the years ended December 31, 1995 and 1994, the Company entered into several other business combinations which have been accounted for under the purchase method of accounting, which were not material to the Company. F-39 40 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The preliminary purchase price allocations for business combinations accounted for under the purchase method of accounting (including historical accounts of immaterial acquisitions accounted for under the pooling of interests method of accounting) were as follows:
Three Months Ended March 31, Years Ended December 31, --------------------- ---------------------------------- 1997 1996 1996 1995 1994 ---- ---- ------- -------- ---- (Unaudited) Revenue earning vehicles.............................. $ -- $ -- $ 79.4 $1,455.2 $ -- Property and equipment................................ 350.7 22.5 114.2 99.3 45.3 Investment in subscriber accounts..................... 6.9 3.3 18.0 -- -- Intangible assets..................................... 480.2 49.5 105.0 101.3 18.8 Working capital deficiency, net of cash acquired...... (18.9) (7.9) (19.1) 16.8 (10.5) Long-term debt assumed................................ (284.2) (11.7) (127.5) (123.5) (15.5) Other liabilities, net................................ (14.6) (.7) (21.6) (131.3) (17.9) Common stock issued................................... (479.7) (52.8) (101.4) (84.1) (8.4) ------- ----- ------- -------- ------ Cash used in acquisitions............................. $ 40.4 $ 2.2 $ 47.0 $1,333.7 $ 11.8 ======= ===== ======= ======== ======
The Company's unaudited pro forma supplemental consolidated results of operations assuming the acquisitions of Kendall, AutoNation, Grubb and Mullinax, all of which have been accounted for under the purchase method of accounting, had occurred on January 1, 1996 are as follows:
Three Months Ended March 31, Year Ended --------------------- December 31, 1997 1996 1996 ---- ---- ------------ Revenue ................................................. $1,842.9 $1,586.9 $7,180.4 ======== ======== ======== Net income (loss) ....................................... $ 25.5 $ 17.0 $ (23.4) ======== ======== ======== Fully diluted net income (loss) per common and common equivalent share ......................... $ .07 $ .05 $ (.06) ======== ======== ========
The unaudited pro forma supplemental results of operations are presented for informational purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated these businesses as of January 1, 1996. 3. REVENUE EARNING VEHICLE DEBT Revenue earning vehicle debt consists of the following:
December 31, March 31, -------------------------- 1997 1996 1995 ----------- ---------- ---------- (Unaudited) Amounts under $1.4 billion loan agreement with termination date of March 1998; secured by eligible vehicle collateral and vehicle receivable balances; interest based on market dictated commercial paper rates................. $ 1,397.0 $ 1,396.9 $ 579.0 Senior secured notes payable with interest at fixed rates ranging from 5.58% to 7.08% with various maturity dates secured by eligible vehicle collateral and vehicle receivable balances; repaid in 1996....................... -- -- 445.5 Amounts under $1.1 billion ($1.5 billion at December 31, 1995) commercial paper program terminating May 1998; secured by eligible vehicle collateral and vehicle receivable balances; weighted average interest rate was 5.47% and 5.81% in 1996 and 1995, respectively............ 963.0 856.3 1,429.2 Medium term notes payable, interest payable monthly at floating or fixed rates (average fixed rate at December 31, 1996 was 7.12% and floating rate based on 3 month LIBOR plus .5% was 5.97% at December 31, 1996), due in July 2001................................................. 799.6 799.6 -- Amounts under $250.0 million loan agreement with termination date of September 19, 1997; secured by eligible vehicle collateral and vehicle receivable balances; interest based on market dictated commercial paper rates; repaid in 1996...................................................... -- -- 236.4 Amounts under various uncommitted revolving lease facilities with financing institutions in United Kingdom; secured by eligible vehicle collateral; interest based on an as quoted basis dictated by market competition; no stated expiration dates, reviewed annually....................... 195.4 143.5 157.1 Other, including amounts to be financed after period end, under various revolving credit agreements and lease facilities................................................ 339.3 380.5 249.4 --------- --------- -------- 3,694.3 3,576.8 3,096.6 Less: long-term portion..................................... (860.1) (844.8) (26.6) --------- --------- -------- $ 2,834.2 $ 2,732.0 $3,070.0 ========= ========= ========
In November 1996, the Company refinanced a substantial portion of Alamo's notes payable and lines of credit secured by revenue earning vehicles through an increase in its commercial paper loan agreement from $580.0 million to $1.4 billion. Certain of the notes payable and lines of credit secured by revenue earning vehicles contain various restrictive covenants, including provisions relating to the maintenance of tangible net worth F-40 41 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and debt to tangible net worth ratios, incurrence of additional indebtedness, and limitations on the payment of dividends and certain investments. The effective economic interest rate on notes payable and lines of credit secured by revenue earning vehicles was 6.69%, 6.81% and 6.07% at December 31, 1996, 1995 and 1994, respectively. Interest expense on notes payable and lines of credit secured by revenue earning vehicles is included as a component of vehicle rental operating expenses in the accompanying Supplemental Consolidated Statements of Operations. The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. Interest protection agreements with several counterparties are used to manage the impact of interest rate changes. At December 31, 1996 and 1995, the Company effectively converted interest rates on the following notional principal amounts:
LATEST 1996 1995 MATURITY -------- -------- ----------- Variable-rate (capped) into fixed-rate obligations....................................... $150.0 $175.0 August 1998 Variable-rate into fixed-rate obligations........... 651.9 350.0 December 2006 ------ ------ Aggregate notional principal........................ $801.9 $525.0 ====== ======
4. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt and notes payable is as follows:
December 31, March 31, ------------------ 1997 1996 1995 --------- -------- ------ (Unaudited) $300.0 million revolving credit facility; interest payable quarterly at LIBOR plus 30 basis points, repaid in April 1997.......................................................... $ 300.0 $ -- $ -- $250.0 million revolving credit facility; interest payable monthly using either a competitive bid feature or LIBOR based rate; matures December 1998; unsecured........................ 190.0 150.0 -- Mortgages payable to GMAC and predecessor agreements with interest at 9.19% or 1% above prime; payable in monthly installments; secured by real property............................. 8.6 32.1 115.4 Revolving credit facility, secured by the stock of certain of the Company's subsidiaries, interest at prime or at a Eurodollar rate plus 0% to 2.75%, repaid in 1996.................... -- -- 16.4 Amounts under United Kingdom $17.1 million revolving credit commitment due on demand with 90-day notice; interest based on Sterling LIBOR plus 125 basis points or base rate plus 125 basis points; secured by non-vehicle equipment and leaseholds...................................................... -- 6.0 11.4 Bonds payable under loan agreements with California Pollution Control Financing Authority; interest varies weekly as determined by remarketing agent (3.15% at December 31, 1996)............................................................... 43.8 44.0 29.7 Note payable to Ford Motor Credit Company; interest at 2.75%-3.00% above commercial paper rate or 1.25% above prime; secured by assets of certain of the Company's subsidiaries; due 2000-2004....................................................... -- 26.6 28.2 Amounts due under line of credit with Ford Motor Credit Company; interest at 0%-1.75% above prime or commercial paper rate; collateralized by the assets of certain of the Company's subsidiaries........................................................ 1.2 20.9 4.0 Mortgages payable to Ford Motor Credit Company; interest at .75% above prime or 2.75%-3.0% above commercial paper rate; secured by assets of certain of the Company's subsidiaries; maturing through 2011........................................................ 1.2 9.8 5.2 Notes to banks and financial institutions, secured by real property, equipment and other assets, interest ranging from 4.8% to 14.0%, maturing through 2015........................... 78.0 110.0 102.5 Vehicle inventory credit facilities secured by the Company's vehicle inventory and certain accounts receivable, interest at LIBOR plus 2.75% or 1% above prime.................................. 338.4 218.0 218.0 Note payable to bank with interest based on LIBOR or prime paid quarterly; secured by a building; repaid in 1996............... -- -- 8.7 Other notes, secured by equipment and other assets, interest ranging from 0% to 21%, maturing through 2010....................... 69.7 44.5 55.4 -------- ------- ------- 1,030.9 661.9 594.9 Less: current portion................................................. (686.6) (294.7) (290.6) -------- ------- ------- $ 344.3 $ 367.2 $ 304.3 ======== ======= =======
F-41 42 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In December 1996, the Company completed a tender offer and consent solicitation resulting in the repurchase of approximately $100.0 million aggregate principal amount 11.75% senior notes due 2006 ("Senior Notes"), which were issued in February 1996. The Company recorded an extraordinary charge of $31.6 million, net of income taxes, during 1996 related to the early extinguishment of the Senior Notes and certain other debt. Included in this charge are bond redemption premiums, the write-off of debt issue costs, prepayment penalties and other fees related to the tender offer and the repayment of other debt. In December 1995, the Company entered into a credit agreement (the "Credit Agreement") with certain banks pursuant to which such banks have agreed to advance the Company on an unsecured basis an aggregate of $250.0 million for a term of 36 months. Outstanding advances, if any, are payable at the expiration of the 36-month term. The Credit Agreement requires, among other items, that the Company maintain certain financial ratios and comply with certain financial covenants. Interest is payable monthly and generally determined using either a competitive bid feature or a LIBOR based rate. As of December 31, 1996, $150.0 million was outstanding and the Company was in compliance with all covenants under the Credit Agreement. At December 31, 1996, aggregate maturities of long-term debt were as follows: 1997........................................................ $ 294.7 1998........................................................ 183.9 1999........................................................ 23.0 2000........................................................ 31.6 2001........................................................ 16.3 Thereafter.................................................. 112.4 ------- $ 661.9 =======
The Company made interest payments on revenue earning vehicle financing and notes payable and long-term debt of approximately $289.2 million, $213.2 million, and $135.6 million in 1996, 1995 and 1994, respectively. In April 1997, the Company replaced its existing $250.0 million credit facility with a new $1.0 billion unsecured revolving credit facility (the "Credit Facility") with certain banks for a term of five years. Outstanding advances, if any, are payable at the expiration of the five year term. The Credit Facility requires, among other items, that the Company maintain certain financial ratios and comply with certain financial covenants. Interest is determined using either a competitive bid feature or a LIBOR based rate. In March 1997, the Company entered into a $300.0 million unsecured credit facility with a bank. The proceeds from this facility were used to acquire 15.0 million common shares of ADT as discussed in Note 1. In April 1997, the Company refinanced amounts borrowed under this facility with proceeds from the Credit Facility. 5. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company files a consolidated federal income tax return which includes the operations of businesses acquired for periods subsequent to the dates of the acquisitions. Certain businesses acquired which were accounted for under the pooling of interests method of accounting were subchapter S corporations for income tax purposes prior to their acquisition by the Company. For purposes of these Consolidated Financial Statements, federal and state income taxes have been provided as if these companies had filed subchapter C corporation tax returns for the pre-acquisition periods, and the current income tax expense is reflected as an increase to additional paid-in capital. The subchapter S corporation status of these companies was terminated effective with the closing date of the acquisitions. F-42 43 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the provision (benefit) for income taxes related to continuing operations for the years ended December 31 are as follows:
1996 1995 1994 -------- ------- ------- Current: Federal................................................... $44.9 $15.9 $16.3 State..................................................... 4.7 3.1 3.6 Federal and state deferred.................................. (7.5) 19.7 20.7 Foreign deferred............................................ (8.7) (1.4) (2.6) Change in valuation allowance............................... 20.3 3.2 1.7 ----- ----- ----- Provision for income taxes.................................. $53.7 $40.5 $39.7 ===== ===== =====
A reconciliation of the statutory federal income tax rate to the Company's effective tax rate for the years ended December 31 is shown below:
1996 1995 1994 ----- ----- ----- Statutory federal income tax rate........................... 35.0% 35.0% 35.0% Amortization of intangible assets........................... 2.3 1.0 .4 Non-deductible expenses..................................... 11.2 1.6 1.2 State income taxes, net of federal benefit.................. 6.2 4.4 4.8 Change in valuation allowance............................... 36.3 4.5 2.2 Foreign income tax benefit at other than U.S. rates......... (2.3) (.1) -- Other, net.................................................. 7.5 9.9 5.2 ---- ---- ---- Effective tax rate........................................ 96.2% 56.3% 48.8% ==== ==== ====
Components of the net deferred income tax liability included in other liabilities in the accompanying Supplemental Consolidated Balance Sheets at December 31 are as follows:
1996 1995 -------- -------- Deferred income tax liabilities: Book basis in property over tax basis..................... $ 282.9 $228.5 Deferred costs............................................ 17.7 19.0 Deferred income tax assets: Net operating losses...................................... (103.3) (43.8) Deferred revenue.......................................... (14.4) (14.9) Accruals not currently deductible......................... (96.1) (92.2) Valuation allowance......................................... 66.3 43.7 ------- ------ Net deferred income tax liability........................... $ 153.1 $140.3 ======= ======
At December 31, 1996, the Company had available domestic net operating loss carryforwards of approximately $253.9 million which begin to expire in the year 2006 and foreign net operating loss carryforwards of approximately $47.9 million, the majority of which have an indefinite carryforward. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has provided a valuation allowance to offset a portion of the deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets. The Company adjusts the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. F-43 44 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The foreign component of income (loss) from continuing operations before income taxes and extraordinary charge for the years ended December 31, 1996, 1995 and 1994 was $(22.0) million, $(20.8) million and $.8 million, respectively. The Company made income tax payments of approximately $15.1 million, $13.2 million and $3.6 million in 1996, 1995 and 1994, respectively. 6. SHAREHOLDERS' EQUITY In May 1997, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of Common Stock from 500.0 million to 1.5 billion shares. In January 1997, the Company sold 15.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $552.7 million. In November 1996, the Company sold 12.1 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $353.3 million. In May 1996, the Company sold 9.9 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $197.6 million. In May 1996, the Board of Directors declared a two-for-one split of the Company's Common Stock in the form of a 100% stock dividend, payable June 8, 1996, to holders of record on May 28, 1996. In May 1996, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of Common Stock from 350.0 million shares to 500.0 million shares. In October 1995, Continental completed a secondary public offering of approximately 2.6 million equivalent shares of Common Stock resulting in net proceeds of approximately $30.1 million. In September 1995, the Company sold 10.0 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $99.0 million. In August 1995, the Company sold an aggregate of 16.7 million shares of Common Stock and warrants to purchase an additional 33.4 million shares of Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Michael G. DeGroote, former Chairman of the Board, President and Chief Executive Officer of Republic), Harris W. Hudson, and certain of their assigns for an aggregate purchase price of $37.5 million. Mr. Huizenga is the Chairman of the Board and Co-Chief Executive Officer of the Company; Mr. DeGroote is a Director of the Company and Mr. Hudson is Vice Chairman of the Board of the Company. The warrants are exercisable at prices ranging from $2.25 to $3.50 per share. In August 1995, the Company issued and sold an additional 2.0 million shares of Common Stock each to Mr. Huizenga and John J. Melk (a Director of the Company) for aggregate proceeds of approximately $26.5 million. In July 1995, the Company sold 10.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $69.3 million. The Company has 5.0 million authorized shares of preferred stock, par value $.01 per share, none of which are issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to establish the rights, preferences and dividends. 7. STOCK OPTIONS AND WARRANTS The Company has various stock option plans under which shares of Common Stock may be granted to key employees and directors of the Company. Options granted under the plans are non-qualified and are granted at a price equal to the fair market value of the Common Stock at the date of grant. Generally, options granted will have a term of ten years from the date of grant, and will vest in increments of 25% per year over a four year period on the yearly anniversary of the grant date. F-44 45 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of stock option and warrant transactions is as follows:
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ----------------------- --------------------------------------------------------------------------- 1997 1996 1995 1994 ----------------------- ----------------------- ----------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------ -------------- ------ -------------- ------ -------------- ------ -------------- (Unaudited) Options and warrants outstanding at beginning of period................ 52.5 $ 7.63 49.6 $ 4.87 8.1 $4.54 7.2 $ 4.45 Granted.................... 9.1 27.70 8.7 21.86 45.1 4.92 1.3 4.96 Exercised.................. (4.3) 3.87 (5.6) 4.03 (2.9) 4.14 -- -- Canceled................... (.1) 18.16 (.2) 9.44 (.7) 7.49 (.4) 4.07 ---- ---- ---- --- Options and warrants outstanding at end of period................... 57.2 11.26 52.5 7.63 49.6 4.87 8.1 4.54 ==== ==== ==== === Options and warrants exercisable at period-end............... 36.4 5.33 38.5 4.12 39.9 3.50 4.3 4.33 Options available for future grants............ 19.3 7.9 4.3 5.7
The following table summarizes information about outstanding and exercisable stock options and warrants at December 31, 1996:
OUTSTANDING EXERCISABLE -------------------------------------------- ------------------------- WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE - ------------------------ ------ ---------------- ---------------- ------ ---------------- $ 1.05 - $ 2.75.......... 24.1 1.22 $ 2.37 23.3 $ 2.40 2.95 - 12.38.......... 17.8 5.15 7.28 14.1 6.10 12.88 - 33.75.......... 10.6 9.38 20.21 1.1 15.76 ---- ---- 1.05 - 33.75.......... 52.5 4.20 7.63 38.5 4.12 ==== ====
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income (loss). Had compensation cost for the Company's stock option plans been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's supplemental pro forma net loss and pro forma net loss per share would have increased accordingly. Using the Black-Scholes option pricing model for all options granted after December 31, 1994, the Company's supplemental pro forma net loss, supplemental pro forma net loss per share and supplemental pro forma weighted average fair value of options granted, with related assumptions, are as follows for the years ended December 31:
1996 1995 ------------- ------------- Supplemental pro forma net loss.... ................. $(47.3) $(1.6) Supplemental pro forma net loss per share ........... (.17) (.01) Supplemental pro forma weighted average fair value of options granted................................. 9.80 5.28 Risk free interest rates............................. 5.98% - 6.17% 5.98% - 6.17% Expected lives....................................... 5-7 years 5-7 years Expected volatility.................................. 40% 40%
F-45 46 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS In 1992, the Company received notices from Imperial County, California (the "County") and the California Department of Toxic Substances Control ("DTSC") that spent filter elements (the "Filters") from geothermal power plants, which had been deposited at the Company's Imperial Landfill for approximately five years, were classified as hazardous waste under California environmental regulations. Under United States EPA regulations, the Filters are not deemed hazardous waste as they are associated with the production of geothermal energy. The Company is currently conducting active discussions with all appropriate California regulatory agencies in order to obtain a variance under California regulations to reclassify the Filters as a special waste so they may be left in the landfill. If this occurs, the State, regional and local regulatory agencies may nevertheless require that the affected area of the landfill be capped and closed. In the event that the variance is not granted, remedial measures may be required based on the Filters' classification as a California hazardous waste. One of those measures could include the removal of the Filters or the closure of a portion of the landfill. Management is currently unable to determine (i) whether the waste will ultimately be classified as hazardous, (ii) if so, what action, if any, will be required as a result of this issue or (iii) what liability, if any, the Company will have as a result of this inquiry. In January 1994, the Company filed suit in the United States District Court for the Southern District of California against the known past and present owners and operators of the geothermal power plants for all losses, fines and expenses incurred by the Company associated with the resolution of this matter. This suit was settled in November 1996 without material impact on the Company's supplemental consolidated financial position, results of operations or cash flows. The Company's solid waste and environmental services activities are conducted in the context of a developing and changing statutory and regulatory framework, aggressive government enforcement and a highly visible political environment. Governmental regulation of the waste management industry requires the Company to obtain and retain numerous governmental permits to conduct various aspects of its operations. These permits are subject to revocation, modification or denial. The costs and other capital expenditures which may be required to obtain or retain the applicable permits or comply with applicable regulations could be significant. By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The Auto Superstore, ("CarMax") accused AutoNation of infringing CarMax's trademark rights by using the marks AutoNation USA and "The Better Way to Buy a Car." AutoNation denied such allegations and on February 5, 1996, filed suit in the U.S. District Court for the Southern District of Florida seeking a declaratory judgment that AutoNation's use and registration of such marks do not violate any of the rights of CarMax. On or about October 11, 1996, CarMax filed a counterclaim against AutoNation seeking unspecified damages and an order enjoining AutoNation from using certain marks, including the marks AutoNation USA and "The Better Way to Buy a Car." In February 1997, AutoNation filed a motion for partial summary judgment on CarMax's dilution claim under Florida law. A trial has been set for June 1998. Although it is impossible to predict the outcome of this litigation, the Company believes that AutoNation has a valid basis for its complaint and that CarMax's allegations and counterclaims are without merit. While the results of the legal and environmental proceedings described above and other proceedings which arose in the normal course of business cannot be predicted with certainty, management believes that losses, if any, resulting from the ultimate resolution of these matters will not have a material adverse effect on the Company's supplemental consolidated results of operations, cash flows or financial position. However, unfavorable resolution of each matter individually or in the aggregate could affect the supplemental consolidated results of operations or cash flows for the quarterly periods in which they are resolved. F-46 47 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company maintains general liability and property insurance and an umbrella and excess liability policy in amounts it considers adequate and customary for businesses of its kind. However, there can be no assurance that the Company will not experience legal claims in excess of its insurance coverage or claims which are ultimately not covered by insurance. LEASE COMMITMENTS The Company and its subsidiaries lease real property, equipment and software under various operating leases with terms from 1 to 20 years. The Company has also entered into various airport concession and permit agreements which generally provide for payment of a percentage of revenue from vehicle rentals with a guaranteed minimum lease obligation. Expenses under real property, equipment and software leases and airport concession agreements (excluding amounts charged through to customers) for the years ended December 31 are as follows:
1996 1995 1994 ------ ------ ------ Real property.......................................... $ 51.6 $ 40.2 $ 28.9 Equipment and software................................. 23.8 24.9 22.9 Airport concession and permit fees: Minimum fixed obligations............................ 89.6 68.0 36.3 Additional amounts, based on revenue from vehicle rentals........................................... 94.5 60.1 27.6 ------ ------ ------ Total........................................ $259.5 $193.2 $115.7 ====== ====== ======
Future minimum lease obligations under noncancelable real property, equipment and software leases and airport agreements with initial terms in excess of one year at December 31, 1996 are as follows: Year Ending December 31: 1997................................................... $102.6 1998................................................... 83.2 1999................................................... 55.5 2000................................................... 35.0 2001................................................... 21.8 Thereafter............................................. 125.4 ------ $423.5 ======
In August 1995, the Company entered into a ten-year lease agreement for Alamo's Fort Lauderdale, Florida corporate headquarters facility. In December 1996, the Company acquired the headquarters facility for approximately $23.5 million, including the assumption of debt totaling approximately $22.7 million which was repaid by the Company in January 1997. OTHER MATTERS In the normal course of business, the Company is required to post performance bonds, letters of credit, and/or cash deposits as a financial guarantee of the Company's performance. To date, the Company has satisfied financial responsibility requirements for regulatory agencies by making cash deposits, obtaining bank letters of credit or by obtaining surety bonds. At December 31, 1996, letters of credit and surety bonds totaling $284.1 million expire through October 1999. 9. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Income (loss) per common and common equivalent share are based on the combined weighted average number of common shares and common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of warrants and options. In computing income per common and common equivalent share from continuing operations before extraordinary charge, the Company has utilized the treasury stock method. F-47 48 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The computation of weighted average common and common equivalent shares used in the calculation of fully diluted income per share from continuing operations before extraordinary charge, which is substantially the same as the computation used to calculate primary income per share from continuing operations before extraordinary charge is as follows:
Three Months Ended March 31, Years Ended December 31, ------------------ ------------------------- 1997 1996 1996 1995 1994 ------- ------- ----- ----- ----- (Unaudited) Common shares outstanding................................. 358.7 265.4 306.3 257.5 167.3 Common equivalent shares.................................. 61.6 49.6 58.1 53.8 1.2 Weighted average treasury shares purchased................ (22.6) (16.5) (15.2) (7.6) .3 Effect of using weighted average common and common equivalent shares outstanding........................... (14.3) (5.7) (25.8) (74.1) (3.2) ----- ----- ----- ----- ----- 383.4 292.8 323.4 229.6 165.6 ===== ===== ===== ===== =====
For the years ended December 31, 1996 and 1995, the weighted-average effect of common stock equivalents of approximately 37.1 million and 17.4 million shares, respectively, has been excluded from the computations of the extraordinary charge per share and net loss per share in 1996 and the net loss from discontinued operations per share in 1995 since they are anti-dilutive. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which establishes standards for computing and presenting earnings per share ("EPS"). This Statement replaces primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average common shares outstanding during the period. Diluted EPS is computed similar to fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15. SFAS No. 128 is effective for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. The Company's pro forma basic and diluted EPS computed under SFAS No. 128 are as follows:
Three Months Ended March 31, Years Ended December 31, ------------------ ------------------------- 1997 1996 1996 1995 1994 ----- ----- ------ ----- ----- (Unaudited) Basic: Income (loss) from continuing operations................ $ .09 $ .06 $ (.10) $ .15 $ .25 Net income (loss)....................................... .09 .06 (.10) .03 .24 Diluted: Income (loss) from continuing operations................ $ .08 $ .06 $ (.10) $ .14 $ .25 Net income (loss)....................................... .08 .06 (.10) .03 .23
10. RESTRUCTURING, MERGER AND OTHER NON-RECURRING EXPENSES During the year ended December 31, 1996, the Company recorded one-time pre-tax charges of approximately $95.5 million related primarily to the integration of the operations of Alamo into those of the Company. Also included in these charges are merger expenses associated with the acquisitions of Alamo, Addington and Continental. Approximately $38.3 million of such expenses appear as restructuring and merger expenses with the remainder of approximately $57.2 million included in automotive rental operating expenses and selling, general and administrative expenses in the Company's Supplemental Consolidated Statements of Operations for the year ended December 31, 1996. These costs primarily include asset write-offs, severance benefits, accounting and legal merger costs and changes in various estimated reserve requirements. In 1995, the Company recorded a $3.3 million pre-tax charge related to the closing of a subsidiary's headquarters office in Indianapolis, Indiana. The major components of the charge include severance costs, future contractual payments required under pre-existing contracts and other costs related to the write-off of equipment and other obligations related to the physical closure of the office. 11. DISCONTINUED OPERATIONS In 1995, the Company implemented a formal plan to dispose of all of its mining and citrus operations. These discontinued operations consisted primarily of the following: coal mining, mining equipment manufacturing and licensing, citrus properties in Belize, precious and industrial metals mining and incidental limestone properties. The Company initially recorded a loss on the disposal of the discontinued operations of approximately $30.5 million (net of income tax benefits of approximately $10.0 million) which represents the estimated loss on the disposal of such operations and a provision of approximately $2.0 million for expected operating losses through the final disposition of such operations. See Note 14, Related Party Transactions, for discussion of the disposition of the Company's mining and citrus operations. In 1994, the Company announced the contemplation of a plan to spin-off RESI, its hazardous waste services segment. In April 1995, Republic shareholders received one share of common stock of RESI for every ten shares of Common Stock of Republic owned in connection with the spin-off of RESI. Approximately 5.4 million RESI shares were distributed to Republic shareholders (the "Distribution"). In connection with the Distribution, the Company contributed the intercompany balance to RESI's equity and contributed approximately $2.5 million to RESI to repay RESI's indebtedness and to provide working capital to RESI. Additionally, the Company reclassified approximately $36.3 million to retained earnings from additional paid-in capital to effect the spin-off under Delaware law. As a result of these transactions, the Company's equity at the date of the Distribution was reduced by approximately $23.6 million. The Company has sold or spun-off all of its subsidiaries included in discontinued operations, hence fully disposing of all mining and citrus and hazardous waste operations. Upon ultimate disposal of its discontinued operations, the Company determined its initial estimates did not require adjustment. The recorded transactions reflect the disposal of all of the Company's hazardous waste and mining and citrus segments and, F-48 49 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accordingly, the operating results of these segments have been classified as discontinued operations for all periods presented in the accompanying Supplemental Consolidated Financial Statements. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, investments, receivables, other assets (excluding goodwill, intangibles and deferred costs), accounts payable and accrued liabilities (nonderivatives) approximates fair value because of the short maturity of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. The assumptions used have a significant effect on the estimated amounts reported. The Company has interest protection agreements with several counterparties to manage the impact of interest rate changes. The estimated fair values of the interest protection agreements were determined from dealer quotations and represent the discounted future cash flows through maturity or expiration using current rates, and are effectively the amounts the Company would pay or receive to terminate the agreements. The estimated fair values of the interest rate protection agreements at December 31, 1996 and 1995 was a net payable position of $.7 million and $9.7 million, respectively. The estimated fair value of fixed rate mortgages payable at December 31, 1996 and 1995 was approximately $34.0 million and $114.0 million, respectively which approximates the carrying value. The estimated fair values were derived by discounting expected cash flows at the rates then offered to the Company for debt of similar terms and remaining maturities. The fair value of the Company's medium-term notes payable is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair value of the medium-term notes payable was $792.8 million as of December 31, 1996. The carrying amount of the remaining debt approximates fair value because interest rates are variable and, accordingly, approximate current market rates. In September 1996, the Agreement and Plan of Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the Company, R.I./Triangle, Ltd. and ADT, which provided for the acquisition of ADT by the Company, was terminated by mutual agreement of the parties. In connection with the execution of the ADT Agreement, ADT granted to the Company the ADT Warrant to purchase 15.0 million common shares of ADT at a purchase price $20 per share (which approximated fair market value). The Company estimated the fair value of the ADT Warrant at December 31, 1996 to be approximately $5.7 million based upon an option pricing model calculation, which approximated the carrying value. In March 1997, the Company exercised the ADT Warrant. See Note 1, Summary of Significant Accounting Policies--Marketable Securities. 13. BUSINESS AND CREDIT CONCENTRATIONS AUTOMOTIVE RENTAL INDUSTRY At December 31, 1996 the Company had 491 corporate owned vehicle rental facilities throughout the United States. The Company also had 31 corporate owned vehicle rental facilities in the United Kingdom, 25 in Germany, 4 in Switzerland, 82 in Canada, 1 in Belgium and 2 in The Netherlands. In addition to its corporate owned locations, the Company's licensee network operates 284 locations throughout Europe, Latin America, the Caribbean, and the Pacific. The automotive rental industry in which the Company operates is highly seasonal. Trade receivables at December 31, 1996 and 1995 include $68.3 million and $59.3 million, respectively from travel agents and tour operators. Of the travel agent and tour operator receivable balances, $25.4 million F-49 50 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and $25.6 million at December 31, 1996 and 1995, respectively, are maintained outside the United States. The Company holds minimum collateral in the form of cash, letters of credit or insurance from most of these vendors. The Company continually evaluates the credit risk of these customers and believes that the allowance for doubtful accounts relative to its trade receivables is adequate. At December 31, 1996 and 1995, the Company had vehicle receivables from manufacturers of $125.4 million and $65.0 million, respectively. Of the receivable balances from manufacturers, $16.9 million and $12.7 million are maintained outside the United States. Vehicle receivables also include amounts due from renters for damages incurred on revenue earning vehicles. The Company enters into vehicle repurchase programs with one principal vehicle manufacturer, as well as other vehicle manufacturers. During model year 1996, the Company purchased 71% of its vehicle fleet under repurchase programs with one vehicle manufacturer. AUTOMOTIVE RETAIL, SOLID WASTE SERVICES AND ELECTRONIC SECURITY SERVICES INDUSTRIES Concentrations of credit risk with respect to trade receivables related to the Company's automotive retail, solid waste services and electronic security services segments are limited due to the wide variety of customers and markets in which the Company's products are sold and services are provided as well as their dispersion across many different geographic areas in the United States. As a result, at December 31, 1996, the Company does not consider itself to have any significant concentrations of credit risk in the solid waste services, electronic security services and automotive retailing segments. 14. RELATED PARTY TRANSACTIONS As of December 31, 1996, approximately $247.5 million was due from AutoNation pursuant to a loan agreement whereby the Company agreed to provide advances at an interest rate of LIBOR plus 2% to fund AutoNation's cash flow requirements. Interest income recognized on such advances was approximately $5.6 million for the year ended December 31, 1996. In addition, on behalf of AutoNation, the Company has guaranteed certain lease obligations and the residual value related to a portfolio of properties leased by AutoNation under a $150.0 million operating lease facility. At December 31, 1996, annual lease obligations were approximately $2.6 million through the year 2001 and the residual value guaranty was approximately $37.6 million. In April 1997, the operating lease facility was increased to $500.0 million. The Company purchased approximately $631.3 million, $351.8 million and $551.2 million of revenue earning vehicles from a group of automotive dealerships owned primarily by a former director of Alamo during the years ended December 31, 1996, 1995 and 1994, respectively. Pursuant to an automobile purchase agreement, the Company agreed to purchase and/or lease a minimum number of vehicles and pay to these automotive dealerships a specific amount (in addition to the manufacturer's sales price) for each vehicle purchased. In September 1995, the Company entered into a stock purchase agreement with Addington Enterprises, Inc. (a company f/k/a Addington Acquisition Company, Inc., owned by certain former shareholders of Addington; collectively, the "Addington Brothers") whereby the Company would receive $30.0 million, subject to a working capital adjustment, in exchange for all the issued and outstanding shares of common stock of its subsidiaries, Addington Mining, Inc., Mining Technologies Inc., Addwest Mining, Inc. and Addington Coal Holding, Inc. This transaction closed in November 1995, at which time the proceeds received were used by the Company to pay down certain borrowings under a revolving line of credit. Included in the transaction described above and pursuant to an option agreement, in August 1995 the Company sold to the Addington Brothers all the issued and outstanding shares of common stock of its subsidiary, Tennessee Mining, Inc. According to the terms of the option agreement, the Addington Brothers will pay the Company a royalty based on tons of coal delivered under a certain coal sales contract, up to a maximum aggregate royalty of $12.5 million. F-50 51 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In September 1995, the Company entered into an agreement to sell all of the issued and outstanding shares of common stock of its subsidiary, Belize River Fruit Co., to the Addington Brothers in exchange for .9 million shares of Common Stock of the Company owned by such shareholders. This transaction was consummated in November 1995, at which time the Company acquired and retired the .9 million shares valued at $13.6 million. The Company retained no obligations in connection with the sales and has fully divested its investment in its citrus operations. 15. OPERATIONS BY INDUSTRY SEGMENT The Company is a diversified holding company with major business operations in the automotive rental, automotive retail, solid waste services and electronic security services industries. The Company operates primarily in the United States. The following table presents financial information regarding the Company's different industry segments as of and for the years ended December 31:
1996 1995 1994 ---------- ---------- ---------- Revenue: Automotive rental................................ $ 2,618.4 $ 1,919.5 $ 1,245.2 Automotive retail................................ 2,239.2 1,668.4 1,434.3 Solid waste services............................. 701.2 450.4 317.9 Electronic security services..................... 85.3 49.8 41.9 ---------- ---------- ---------- $ 5,644.1 $ 4,088.1 $ 3,039.3 ========== ========== ========== Operating income (loss): Automotive rental................................ $ (20.6) $ (11.1) $ 36.2 Automotive retail................................ 14.0 23.3 20.9 Solid waste services............................. 93.7 63.1 42.7 Electronic security services..................... 14.5 8.6 2.4 Corporate........................................ (31.8) (4.3) (3.0) ---------- ---------- ---------- $ 69.8 $ 79.6 $ 99.2 ========== ========== ========== Depreciation and amortization: Automotive rental................................ $ 789.3 $ 586.0 $ 379.0 Automotive retail................................ 7.1 6.2 5.4 Solid waste services............................. 58.9 44.6 35.0 Electronic security services..................... 10.8 4.9 4.1 ---------- ---------- ---------- $ 866.1 $ 641.7 $ 423.5 ========== ========== ========== Capital expenditures, purchases of revenue earning vehicles and investment in subscriber accounts: Automotive rental................................ $ 4,740.4 $ 3,217.8 $ 3,363.6 Automotive retail................................ 55.9 45.1 8.5 Solid waste services............................. 128.2 146.0 112.7 Electronic security services..................... 53.0 17.5 18.3 ---------- ---------- ---------- $ 4,977.5 $ 3,426.4 $ 3,503.1 ========== ========== ========== Assets: Automotive rental................................ $ 4,736.0 $ 3,906.5 $ 2,352.5 Automotive retail................................ 1,309.2 467.1 357.3 Solid waste services............................. 574.7 840.2 466.1 Electronic security services..................... 43.6 43.8 34.4 Net assets of discontinued operations............ -- -- 86.2 ---------- ---------- ---------- $ 6,663.5 $ 5,257.6 $ 3,296.5 ========== ========== ==========
F-51 52 REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 16. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The Company's automotive rental operations and particularly the leisure travel segment is highly seasonal. In these operations, the third quarter which includes the peak summer travel months has historically been the strongest quarter of the year. During the peak season the Company increases its rental fleet and workforce to accommodate increased rental activity. As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of this segment. The first quarter for the Company's automotive rental operations is generally the weakest, when there is limited leisure family travel and a greater potential for adverse weather conditions. Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand. The third and fourth quarters of 1996 included one-time pre-tax charges of approximately $7.6 million and $87.9 million, respectively, as described in Note 10, Restructuring, Merger and Other Non-Recurring Expenses. The fourth quarter of 1996 also included an extraordinary charge of approximately $31.6 million, net of income tax benefit, related to the early extinguishment of debt as described in Note 4, Long-Term Debt and Notes Payable. The following is an analysis of certain items in the Supplemental Consolidated Statements of Operations by quarter for 1996 and 1995. Quarterly amounts have been restated from amounts previously reported in Form 10-Q for significant business combinations accounted for under the pooling of interests method of accounting.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Revenue................................. 1996 $ 1,218.4 $ 1,422.8 $ 1,440.0 $ 1,562.9 1995 771.9 922.6 1,198.0 1,195.6 Operating income (loss)................. 1996 $ 34.0 $ 56.6 $ 78.9 $ (99.7) 1995 (3.1) 17.2 75.2 (9.7) Income (loss) from continuing operations before extraordinary charge........... 1996 $ 16.7 $ 28.7 $ 41.2 $ (84.5) 1995 (7.8) 4.7 38.9 (4.3) Income (loss) per share from continuing operations before extraordinary charge.................. 1996 $ .06 $ .09 $ .13 $ (.28) 1995 (.05) .02 .16 (.02) Net income (loss)....................... 1996 $ 16.7 $ 28.7 $ 41.2 $ (116.1) 1995 (6.3) 7.0 11.1 (5.4)
F-52 53 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To AutoNation Incorporated: We have audited the accompanying consolidated balance sheets of AutoNation Incorporated (a Florida corporation and wholly owned subsidiary of Republic Industries, Inc.) and subsidiaries as of December 29, 1996 and December 31, 1995 and the related consolidated statements of operations, stockholders' (deficit) equity and cash flows for the 52-week period ended December 29, 1996 and for the period from inception (September 12, 1995) to December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AutoNation Incorporated and subsidiaries as of December 29, 1996 and December 31, 1995 and the results of their operations and their cash flows for the 52-week period ended December 29, 1996 and for the period from inception (September 12, 1995) to December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, February 28, 1997. F-53 54 AUTONATION INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS ------ December 29, December 31, 1996 1995 --------------- -------------- CURRENT ASSETS: Cash and cash equivalents $ 1,545,787 $ 11,486,865 Accounts receivable 12,096,256 - Vehicle inventories, net 66,257,779 - Other current assets 547,533 - --------------- ------------- Total current assets 80,447,355 11,486,865 PROPERTY and EQUIPMENT, at cost: Land 96,474,167 - Buildings and improvements 51,830,652 - Furniture, fixtures and equipment 27,896,787 444,480 Construction in progress 21,660,776 1,395,407 --------------- ------------- 197,862,382 1,839,887 Less: accumulated depreciation and amortization (1,197,714) - --------------- ------------- Net property and equipment 196,664,668 1,839,887 --------------- ------------- $ 277,112,023 $ 13,326,752 =============== ============= LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY ---------------------------------------------- CURRENT LIABILITIES: Cash overdraft $ 18,760,740 $ - Accounts payable 5,495,512 741,230 Accrued liabilities 11,678,586 44,754 Loan payable to related party 247,472,082 - --------------- ------------- Total current liabilities 283,406,920 785,984 STOCKHOLDERS' (DEFICIT) EQUITY: Common stock, $.001 par value per share; 200,000,000 shares authorized and 80,200,000 and 79,300,000 shares issued and outstanding as of December 29, 1996 and December 31, 1995, respectively 80,200 79,300 Additional paid-in capital 52,049,800 79,220,700 Accumulated deficit (58,424,897) (3,063,732) --------------- ------------- (6,294,897) 76,236,268 Less: Subscription receivable - (63,695,500) --------------- ------------- (6,294,897) 12,540,768 --------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 8) $ 277,112,023 $ 13,326,752 =============== =============
The accompanying notes are an integral part of these consolidated balance sheets. F-54 55 AUTONATION INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Period From Inception 52-Week (September 12, Period Ended 1995) to December 29, December 31, 1996 1995 ------------- ------------- SALES $ 31,464,424 $ - COSTS OF SALES, including floor plan interest expense for the 52-week period ended December 29, 1996 of $583,721 42,801,095 - ------------- ------------- Gross margin (11,336,671) - OPERATING EXPENSES Selling and store operating 11,837,751 - Store pre-opening 1,759,928 - General and administrative 24,863,967 3,063,732 ------------- ------------- Total operating expenses 38,461,646 3,063,732 ------------- ------------- Operating loss (49,798,317) - ------------- ------------- INTEREST EXPENSE 5,562,848 - ------------- ------------- NET LOSS $ (55,361,165) $ (3,063,732) ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-55 56 AUTONATION INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY FOR THE 52-WEEK PERIOD ENDED DECEMBER 29, 1996 AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 12, 1995) TO DECEMBER 31, 1995
Common Stock Additional --------------------------- Paid-In Accumulated Subscription Shares Amount Capital Deficit Receivable Total ------------ ------------ ------------ ----------- ------------ ------------- INITIAL CAPITALIZATION, September 12, 1995 79,300,000 $ 79,300 $ 79,220,700 $ -- $(79,300,000) $ -- CAPITAL CONTRIBUTIONS -- -- -- -- 15,604,500 15,604,500 NET LOSS -- -- -- (3,063,732) -- (3,063,732) ----------- ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1995 79,300,000 79,300 79,220,700 (3,063,732) (63,695,500) 12,540,768 ADDITIONAL CONTRIBUTIONS 900,000 900 899,100 -- (900,000) -- CAPITAL CONTRIBUTIONS -- -- -- -- 36,525,500 36,525,500 CANCELLATION OF SUBSCRIPTION RECEIVABLE -- -- (28,070,000) -- 28,070,000 -- NET LOSS -- -- -- (55,361,165) -- (55,361,165) ----------- ------------ ------------ ------------ ------------ ------------ BALANCE, December 29, 1996 80,200,000 $ 80,200 $ 52,049,800 $(58,424,897) $ -- $ (6,294,897) =========== ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-56 57 AUTONATION INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Period From Inception 52-Week (September 12, Period Ended 1995) to December 29, December 31, 1996 1995 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (55,361,165) $ (3,063,732) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,197,714 - Increase in vehicle inventories (66,257,779) - Increase in accounts receivable (12,096,256) - Increase in other current assets (547,533) - Increase in cash overdraft 18,760,740 - Increase in accounts payable 4,754,282 741,230 Increase in accrued liabilities 15,705,914 44,754 ------------- ------------- Net cash used in operating activities (93,844,083) (2,277,748) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (196,022,495) (1,839,887) ------------- ------------- Net cash used in investing activities (196,022,495) (1,839,887) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loan payable to related party 243,400,000 - Capital contributions 36,525,500 15,604,500 Proceeds from vehicle financing with related party 40,309,941 - Repayment of vehicle financing with related party (40,309,941) - ------------- ------------- Net cash provided by financing activities 279,925,000 15,604,500 ------------- ------------- Net increase(decrease) in cash and equivalents (9,941,078) 11,486,865 ------------- ------------- CASH AND EQUIVALENTS, beginning of period 11,486,865 - ------------- ------------- CASH AND EQUIVALENTS, end of period $ 1,545,787 $ 11,486,865 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-57 58 AUTONATION INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 29, 1996 (1) ORGANIZATION: AutoNation Incorporated and subsidiaries (collectively, the "Company") is a Florida corporation, which had been in the development stage during the period September 12, 1995 ("Inception") to March 1, 1996. The Company was formed pursuant to a Stockholders' Agreement among the Company, H. Wayne Huizenga ("Huizenga"), JM Family Enterprises, Inc. ("Enterprises") and Steven R. Berrard ("Berrard"), collectively, the "Shareholders", and certain subscribers discussed further in Note 4. The Company is engaged in developing, establishing and operating a nationwide chain of retail stores to purchase, recondition, sell, finance and service used vehicles. Since Inception, the Company has been principally engaged in organizational and business activities associated with the opening of several retail stores in the future, the first opening of which occurred in March 1996. In connection with these activities, the Company has purchased and/or entered into lease agreements for certain land sites which will serve as locations for future retail stores. As of December 29, 1996, the Company had eight retail locations in operation. The eight sites that have opened and are operating as of December 29, 1996 are as follows: Type Location Date Opened ---- -------- ----------- ValuStop Orlando, FL 1st Quarter, 1996 ValuStop Arlington, TX 2nd Quarter, 1996 ValuStop Ft. Lauderdale, FL 3rd Quarter, 1996 AutoNation USA (TM) Ft. Lauderdale, FL 4th Quarter, 1996 AutoNation USA (TM) Houston, TX 4th Quarter, 1996 AutoNation USA (TM) Houston, TX 4th Quarter, 1996 AutoNation USA (TM) Dallas, TX 4th Quarter, 1996 AutoNation USA (TM) Phoenix, AZ 4th Quarter, 1996 In May 1996, the Company and the Shareholders' entered into a definite Merger Agreement (the "Agreement") with Republic Industries, Inc. ("Republic") and a wholly owned subsidiary of Republic. Republic's Chairman and Co-Chief Executive Officers and certain other officers and directors of Republic are stockholders of the Company. On January 16, 1997, a Special Meeting of Stockholders of Republic was held in which the merger of the Company into Republic was approved. Pursuant to the Agreement, an aggregate of 17,467,248 shares of $.01 par value per share, Republic common stock was issued in exchange for all of the issued and outstanding shares of common stock of the Company. Based on 80,200,000 shares of the Company's common stock issued and outstanding as of the Closing, each share of the Company's common stock has been converted into a 0.217796 share of Republic's common stock. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: FISCAL YEAR The Company's fiscal year is a 52- or 53-week period ending on the Sunday nearest to December 31. Fiscal year 1996, which ended December 29, 1996, consisted of 52 weeks. F-58 59 BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances have been eliminated in consolidation. CASH EQUIVALENTS The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents. VEHICLE INVENTORIES Vehicle inventories consist of retail vehicles held for sale using the specific identification method. Cost includes the cost of the vehicle, including acquisition, reconditioning and transportation costs. Parts and accessories are valued at the lower of cost or market, using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance and repairs are charged to expense as incurred. The Company's buildings and improvements, and furniture, fixtures and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated lives are: 40 years for buildings and improvements, and 5 to 10 years for furniture, fixtures and equipment. The cost of purchased software and associated consulting fees is amortized on a straight-line basis over periods ranging from 3 to 10 years, the estimated useful lives of the related software. REVENUE RECOGNITION Revenue consists of sales of used vehicles and parts and service. The Company recognizes revenue when products are sold or services are provided. STORE PRE-OPENING COSTS Non-capital expenditures associated with opening new stores are charged to expense as incurred. ADVERTISING The Company expenses the cost of advertising as incurred or when such advertising initially takes place. No advertising costs were capitalized at December 29, 1996 or December 31, 1995. Advertising expense was $6,396,925 for the 52-week period ended December 29, 1996. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-59 60 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments primarily consist of cash, accounts receivable, accounts payable, accrued liabilities and loan payable to related party, each of which approximates fair market value due to their short-term nature. RECLASSIFICATIONS Certain reclassifications have been made to the consolidated balance sheet as of December 31, 1995 to conform to the December 29, 1996 presentation. (3) CAPITALIZATION: Pursuant to the Stockholders' Agreement and related subscription agreements discussed in Note 4, the Board of Directors (the "Board") of the Company determined the amount of capital required by the Company to commence operations. The Stockholders and the Subscribers (see Note 4) (together, the "Investors") were obligated to make capital contributions not to exceed $80,200,000 in the aggregate, consistent with the business plan budgets adopted by the Stockholders. The Investors have made capital contributions of $52,130,000 and $15,604,500 for the 52-week period ended December 29, 1996 and for the period from inception to December 31, 1995, respectively. In the event any investor failed to make any additional capital contributions described above (the "Defaulting Investor"), the Stockholders (other than a Stockholder which is a Defaulting Investor) had the right, but not the obligation, to contribute, in proportion to their respective common shares or as mutually agreed, the additional funds required to be contributed by the Defaulting Investor. If such default occurred when the total capital of the Company contributed by the Investors was less than $80,200,000 (and with respect to all required additional capital up to $80,200,000), all funds then contributed to the Company by the contributing Investors were treated as equity and/or debt, as determined by the Board. The Company legally issued 80,200,000 and 79,300,000 shares of common stock which were outstanding at December 29, 1996 and December 31, 1995, respectively. The Stockholders were obligated to make capital contributions for 58,195,000 of the issued and outstanding shares, of which 20,368,250 and 45,756,250 at December 29, 1996 and December 31, 1995, respectively, of such issued and outstanding shares were being held in escrow pursuant to subscription agreements to be released from escrow to the respective Stockholders as payments were made. The Subscribers signed subscription commitments for 22,005,000 and 21,105,000 shares (see Note 4). (4) CAPITAL SUBSCRIPTION COMMITMENTS: The Stockholders of the Company assigned to certain subscribers a portion of their rights to acquire shares of the Company's common stock at the same price paid by the assigning Stockholder. In addition to these subscribers, certain key executive officers, management and consultants (collectively, the "Subscribers") signed Subscription Agreements to acquire shares of the Company's common stock. F-60 61 As of December 29, 1996 and December 31, 1995, the Subscribers had subscription commitments for 22,005,000 and 21,105,000 shares, respectively, of which 7,701,750 and 17,939,250 at December 29, 1996 and December 31, 1995, respectively, of such issued and outstanding shares were being held in escrow pursuant to subscription agreements and were released from escrow to the respective subscribers as payments are made. The Subscribers were required to pay 15% of the commitment at the time the Subscription Agreement was finalized. At December 29, 1996 and December 31, 1995, all Subscription Agreements have been signed and the Company has received $14,303,250 and $3,165,750, respectively. As a result of the consummation of the Agreement, these subscription commitments were no longer required and are reflected as canceled as of December 29, 1996. (5) STOCK OPTION PLAN: The Company adopted the 1995 Employee Stock Option Plan (the "Plan") which is a qualified, incentive stock option plan offering certain present and future key employees and officers and independent contractors an opportunity to become Investors of the Company. The Board is responsible for the administration of the Plan and may grant options to purchase shares of the Company's common stock and issue shares upon exercise of such options as provided in the Plan. The Board may grant options to purchase up to 3,200,000 shares of common stock. The maximum number of shares subject to option that can be granted to any executive officer is 1,000,000 during the first ten years after the effective date of the Plan and 500,000 shares per year thereafter. The Plan also provides that the option price will not be less than the fair market value at the time the option is granted. Each option shall have a term of not less than five nor more than ten years and shall become exercisable with respect to 25% of the total number of shares subject to the options twelve months after the date of its grant and with respect to each additional 25% at the end of each twelve month period thereafter during the succeeding three years. A summary of stock option transactions for the 52-week period ended December 29, 1996 is as follows:
Weighted- Average Shares Exercise Price --------------- ---------------- Options outstanding at beginning of period 1,105,000 $ 1.00 Granted 872,891 3.37 Exercised - - Canceled 85,700 3.00 ------------- Options outstanding at end of period 1,892,191 1.96 ============= Options exercisable at period-end 284,500 1.02 Options available for future grants 1,222,109
F-61 62 The following table summarizes information about outstanding and exercisable stock options at December 29, 1996:
Outstanding Exercisable --------------------------------------------------------------------------------- Weighted- Average Remaining Weighted- Weighted- Contractual Average Average Shares Life Exercise Price Shares Exercise Price ------------- ----------- ---------------- ----------- ---------------- Exercise price: $1.00 1,340,000 8.82 $ 1.00 282,000 $ 1.00 $3.00 253,866 9.20 3.00 2,500 3.00 $5.36 298,325 9.58 5.36 - 0.00 ------------- ----------- $1.00 - $5.36 1,892,191 8.99 1.96 284,500 1.02 ============= ===========
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income (loss). Had compensation cost for the Company's stock option plan been determined pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's pro forma net loss would have increased accordingly. Using the Black-Scholes option pricing model for all options granted after December 31, 1994, the Company's pro forma loss and pro forma weighted average fair value of options granted, with related assumptions, are as follows for the 52-week period ended December 29, 1996: Pro forma net loss $(55,668,194) Pro forma weighted average fair value of options granted $1.62 Risk free interest rates 5.98% - 6.17% Expected lives 5 - 7 years Expected volatility 40% In connection with the Merger Agreement, each option granted under the Plan shall be converted into an option to acquire 0.217796 of a share of Republic Common Stock. The exercise price per share of Republic Common Stock for all such converted options equals the product of the exercise price of each option multiplied by 4.59145. Pursuant to the Merger Agreement, the Plan shall continue with the same provisions, including vesting schedules, that were in effect prior to the merger. As of January 16, 1997, in connection with the approval of the merger of the Company with Republic, all outstanding options to acquire shares of the Company's common stock were converted to options to acquire Republic common stock. (6) INCOME TAXES: The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. F-62 63 Components of the net deferred income tax asset as of December 29, 1996 and December 31, 1995 are as follows:
1996 1995 ------------- ------------- Deferred income tax liabilities: Book basis of property over tax basis $ (174,118) $ - Deferred income tax assets: Start-up costs not currently deductible 1,152,750 820,000 Accruals not currently deductible 3,386,225 - Net operating losses 17,387,841 308,566 ------------- ------------- 21,752,698 1,128,566 Valuation allowance (21,752,698) (1,128,566) ------------- ------------- Net deferred income tax asset $ - $ - ============= =============
At December 29, 1996, the Company had available federal net operating loss carryforwards of approximately $47 million which begin to expire in the year 2010. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has provided a valuation allowance to offset all of the deferred tax assets due to the uncertainty surrounding the future realization of such deferred tax assets. Accordingly, no income tax benefit has been recorded in the accompanying consolidated statements of operations. The Company adjusts the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. (7) RELATED PARTY TRANSACTIONS: In connection with the Agreement (see Note 1), the Company has entered into a Loan Agreement with Republic to provide advances to the Company up to the amounts specified in a cash flow needs projection delivered by the Company to Republic. Such advances carry an interest rate of LIBOR plus 2%. The advances are collateralized by the common stock of AutoNation USA Corporation pledged by the Company to Republic, all trademarks and other intellectual property of the Company, and the Company's subscription commitments discussed in Notes 3 and 4. The advances pursuant to the Loan Agreement mature on June 30, 1997. At December 29, 1996, the Company had outstanding $247,472,082 pursuant to the Loan Agreement, including accrued interest payable at $4,072,082 and has incurred $5,562,848 of interest expense since inception of the Loan Agreement. The Company made interest payments on these advances of $1,490,766 during the 52-week period ended December 29, 1996. Pursuant to a management agreement with Republic, the Company manages the operations of CarChoice, Inc., ("CarChoice") a subsidiary of Republic engaged in developing and operating used car superstores. In connection with Republic's acquisition of CarChoice, Republic entered into a Management Agreement with the Company to manage and operate CarChoice and use the CarChoice facilities for certain developmental activities until the acquisition of CarChoice was consummated. Also, pursuant to the Management Agreement, the Company is required to absorb certain expenses relating to the operations of CarChoice. For the 52-week period ended December 29, 1996, the Company earned $250,000 in management fees from Republic and absorbed $1,276,306 of expenses from CarChoice. Such Agreement was terminated upon consummation of the merger between the Company and Republic. F-63 64 The accounts receivable balance in the accompanying consolidated balance sheet includes $6,201,331 due from CarChoice, resulting from the procurement of vehicles on behalf of CarChoice and vehicle sales in the ordinary course of business. Enterprises is a diversified automotive corporation engaged in the distribution of Toyota vehicles in the southeastern United States and other automotive related services, including retail automotive leasing, retail installment lending, wholesale floor plan and commercial lending, third-party servicing, warranty and maintenance contracts, direct write and reinsurance of credit life and accident and health policies. Pursuant to the Stockholders' Agreement and the Agreement discussed in Note 1, Enterprises, or its affiliates, has a two year arrangement to be the "preferred" provider and servicer to the Company of all retail finance products, vehicle service contracts and insurance products sold by or through the Company and the preferred provider of wholesale inventory financing to the Company. Enterprises and its affiliates will continue to be the preferred provider of these products and services so long as such products and services are provided on terms which are competitive with those of third-party providers. During 1996, the Company entered into a financing arrangement with World Omni Financial Corp., a wholly owned subsidiary of Enterprises. The financing arrangement provided up to $50 million in financing at LIBOR plus 2.75% to be used to finance vehicle inventory and is required to be repaid within a maximum of 120 days. On October 24, 1996, the Company repaid $40,309,941, to World Omni Financial Corp., the entire amount due under their vehicle financing arrangement as of that date. Interest paid under this financing arrangement totaled $583,721 during the 52-week period ended December 29, 1996. This financing arrangement has been terminated and the Company intends to finance its vehicle inventory through the Republic Loan Agreement. Through December 31, 1995, Enterprises did not provide to the Company any of the products or services described above. Prior to the formation and capitalization of the Company, Huizenga and Enterprises incurred direct expenses in connection with the development of the business. Such expenses of $774,663 have been reimbursed by the Company and are included in the accompanying consolidated financial statements. (8) COMMITMENTS AND CONTINGENCIES: Lease Agreements The approximate future minimum lease payments under operating leases at December 29, 1996 are as follows: 1997 $ 2,259,930 1998 2,313,820 1999 2,211,453 2000 2,098,367 2001 1,675,594 Thereafter 2,325,760 -------------- $ 12,884,924 ============== Rent expense for the 52-week period ended December 29, 1996 totaled $962,988. F-64 65 During 1996, the Company entered into nine operating lease agreements in which the Company will lease certain retail locations. The initial lease terms are two years, with three annual renewal options. Lease payments will began once the related assets are placed into service and will be equal to the financing costs of the related leased assets. No locations under these agreements were placed in service as of December 29, 1996. These leases provide for substantial residual value guarantees by both the Company and Republic and include purchase options at the cost of the related leased assets. At December 31, 1996, based upon current the finance costs of the related leased assets, annual lease obligations are projected to be $2.6 million and the residual value guarantee was approximately $37.6 million. The maximum amount of the residual value guarantees relative to the assets under these leases is projected to be $88 million. In February 1997, the operating lease facility was increased to $150 million. LAND PURCHASE AGREEMENTS The Company has entered into commitments to purchase land sites. At December 29, 1996 these commitments totaled $149,145,229, all of which are contracted to close in 1997. LITIGATION By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The Auto Superstore, ("CarMax") accused the Company of infringing CarMax's trademark rights by using the marks AutoNation USA and "The Better Way to Buy a Car." The Company denied such allegations and on February 5, 1996, filed suit in the U.S. District Court for the Southern District of Florida seeking a declaratory judgment that the Company's use and registration of such marks do not violate any of the rights of CarMax. On or about October 11, 1996, CarMax filed a counterclaim against the Company seeking unspecified damages and an order enjoining the Company from using certain marks, including the marks AutoNation USA and "The Better Way to Buy a Car." In February 1997, the Company filed a motion for partial summary judgment on CarMax's dilution claim under Florida law. A trial has been set for June 1998. Although it is impossible to predict the outcome of this litigation, the Company believes it has a valid basis for its complaint and that CarMax's allegations and counterclaims are without merit. F-65 66 REPORT OF INDEPENDENT AUDITORS The Board of Directors Grubb Automotive, Inc. Jack Sherman Chevrolet, Inc. Lou Grubb Chevrolet, Inc. Lou Grubb Ford, Inc. Lou Grubb Saturn, Inc. Saturn of Tempe, Inc. We have audited the accompanying combined balance sheets of the corporations listed in Note 1 (the Company) as of December 31, 1996 and 1995 and the related combined statements of income, shareholders' equity and cash flows for the years then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the corporations listed in Note 1 at December 31, 1996 and 1995, and the combined results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Phoenix, Arizona, March 31, 1997 F-66 67 Grubb Automotive Combined Balance Sheets
DECEMBER 31, 1996 1995 -------------------------- (In thousands) ASSETS Current assets: Cash and cash equivalents $ 5,864 $ 7,471 Receivables, net 10,586 11,817 Due from shareholders -- 654 Inventories 47,586 45,255 Advances to affiliates -- 200 Other current assets 82 152 -------- -------- Total current assets 64,118 65,549 Land, buildings, equipment, and rental and lease vehicles, net 13,685 11,584 Land held for development 875 1,755 Cash surrender value of officers' life insurance, less policy loans of approximately $294,000 in 1996 and $240,000 in 1995 598 550 Other assets 203 103 -------- -------- $ 79,479 $ 79,541 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 47,718 $ 51,306 Accounts payable 2,448 2,444 Accrued expenses 5,455 4,020 Notes payable to shareholders due within one year 3,650 3,250 Long-term debt due within one year 381 370 -------- -------- Total current liabilities 59,652 61,390 Deferred compensation 740 550 Notes payable to shareholders due after one year 2,575 2,575 Long-term debt due after one year 3,794 4,127 Shareholders' equity: Common stock 3,025 3,025 Additional paid-in capital 646 646 Retained earnings 10,347 8,528 Less treasury stock, at cost (1,300) (1,300) -------- -------- Total shareholders' equity 12,718 10,899 -------- -------- $ 79,479 $ 79,541 ======== ========
See accompanying notes. F-67 68 Grubb Automotive Combined Statements of Income
YEAR ENDED DECEMBER 31, 1996 1995 -------------------------- (In thousands) REVENUES Vehicle sales $ 375,338 $ 339,087 Parts and service sales 56,811 51,084 Finance fees and insurance commissions 5,792 5,176 Other revenue 2,410 2,463 --------- --------- 440,351 397,810 COSTS AND EXPENSES Vehicles cost of sales 349,225 317,448 Parts and service cost of sales 36,282 32,988 Selling, general and administrative expenses 45,752 40,744 Depreciation and amortization 1,501 1,451 --------- --------- 432,760 392,631 OTHER INCOME (EXPENSE) Interest income 2,636 2,784 Interest expense (4,669) (4,704) --------- --------- (2,033) (1,920) --------- --------- Net income $ 5,558 $ 3,259 ========= =========
See accompanying notes. F-68 69 Grubb Automotive Combined Statements of Shareholders' Equity Years ended December 31, 1996 and 1995 (In thousands)
GRUBB LOU GRUBB AUTOMOTIVE, INC. JACK SHERMAN CHEVROLET, INC. CHEVROLET, INC. ------------------ ------------------------------------------ -------------------- ADDITIONAL COMMON RETAINED COMMON PAID-IN RETAINED TREASURY COMMON RETAINED STOCK EARNINGS STOCK CAPITAL EARNINGS STOCK STOCK EARNINGS ------ -------- ------ ---------- -------- -------- ------ -------- Balances at January 1, 1995 $ 11 $ (1) $ 1 $ 403 $ 2,229 $(1,300) $ 463 $ 3,949 Net income (loss) -- (8) -- -- 395 -- -- 84 Shareholder distributions -- -- -- -- (1,079) -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Balances at December 31, 1995 11 (9) $ 1 403 1,545 (1,300) 463 4,033 Net income -- 8 -- -- 1,097 -- -- 1,169 Shareholder distributions -- -- -- -- (659) -- -- (824) ------- ------- ------- ------- ------- ------- ------- ------- Balances at December 31, 1996 $ 11 $ (1) $ 1 $ 403 $ 1,983 $(1,300) $ 463 $ 4,378 ======= ======= ======= ======= ======= ======= ======= ======= LOU GRUBB LOU GRUBB SATURN OF FORD, INC. SATURN, INC. TEMPE, INC. ---------------------------- ----------------- ------------------- ADDITIONAL COMMON PAID-IN RETAINED COMMON RETAINED COMMON RETAINED STOCK CAPITAL EARNINGS STOCK EARNINGS STOCK EARNINGS TOTAL ----- ------- -------- ----- -------- ----- -------- ----- Balances at January 1, 1995 $ 750 $ 243 $ 95 $ 800 $ 706 $ 1,000 $ 741 $10,090 Net income (loss) -- -- 959 -- 602 -- 1,227 3,259 Shareholder distributions -- -- (645) -- (246) -- (480) (2,450) ------ ---- ------- ------ ------- ------- ------ ------- Balances at December 31, 1995 750 243 409 800 1,062 1,000 1,488 10,899 Net income -- -- 1,288 -- 663 -- 1,333 5,558 Shareholder distributions -- -- (623) -- (667) -- (966) (3,739) ------ ---- ------- ------ ------- ------- ------ ------- Balances at December 31, 1996 $ 750 $243 $ 1,074 $ 800 $ 1,058 $ 1,000 $1,855 $12,718 ====== ==== ======= ====== ======= ======= ====== =======
See accompanying notes. F-69 70 Grubb Automotive Combined Statements of Cash Flows
YEAR ENDED DECEMBER 31, 1996 1995 ----------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,558 $ 3,259 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,501 1,451 Provision for chargeback allowances 2,501 1,704 Loss on sale of assets 128 3 Increase in cash surrender value of officers' life insurance (48) (47) Changes in operating assets and liabilities: Receivables 1,231 (3,570) Inventories (1,738) (7,703) Other current assets 70 8 Other assets (100) 12 Accounts payable 4 753 Accrued expenses (1,066) 583 Deferred compensation 190 50 ------- -------- Net cash provided by (used in) operating activities 8,231 (3,497) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of land, buildings, equipment, and rental and lease vehicles (3,477) (1,280) Purchase of land held for development -- (875) Proceeds from disposal of land, buildings, equipment, and rental and lease vehicles 34 222 Decrease (increase) in advances to affiliates 200 (200) ------- -------- Net cash used in investing activities (3,243) (2,133) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (payments) on short-term borrowings (3,588) 14,030 Repayment of long-term debt (322) (345) Increase in notes payable to shareholders 400 -- Shareholder distributions (3,085) (2,450) ------- -------- Net cash provided by (used in) financing activities (6,595) 11,235 ------- -------- Increase (decrease) in cash and cash equivalents (1,607) 5,605 Cash and cash equivalents, beginning of year 7,471 1,866 ------- -------- Cash and cash equivalents, end of year $ 5,864 $ 7,471 ======= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 4,714 $ 4,665 ======= ========
See accompanying notes. F-70 71 Grubb Automotive Notes to Combined Financial Statements December 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying combined financial statements reflect the combined operations of Grubb Automotive, Inc. (Grubb), Jack Sherman Chevrolet, Inc. (JSC), Lou Grubb Chevrolet, Inc. (LGC), Lou Grubb Ford, Inc. (LGF), Lou Grubb Saturn, Inc. (LGS), and Saturn of Tempe, Inc. (SOT) (collectively, the Company or Grubb Automotive). The Company operates in one business segment - the retail sales of new and used automobiles and the service thereof. The company has two Chevrolet dealerships, two Saturn dealerships and a Ford dealership. The dealerships are located in metropolitan Phoenix, Arizona, except for one Chevrolet dealership which is located in Midland, Texas. The accompanying combined financial statements include the accounts of the corporations listed above. All material intercompany accounts and transactions have been eliminated. The financial information included in the combined financial statements may not necessarily reflect the financial position, results of operations and cash flows of the Company in the future or what the financial position, results of operations and cash flows would have been if the separate dealerships had continued to be separate, stand-alone dealerships during the period presented. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, cash on deposit with a manufacturer, and all highly liquid investments with maturities of three months or less when purchased. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by last-in, first-out (LIFO) for new and used vehicles, and factory list price for parts and accessories, which approximates first-in, first-out (FIFO). F-71 72 Grubb Automotive Notes to Combined Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LAND, BUILDINGS, EQUIPMENT, AND RENTAL AND LEASE VEHICLES Land, buildings, equipment, and rental and lease vehicles are stated at cost. Depreciation is provided using the straight-line method for buildings and improvements and declining-balance methods for equipment, furniture and fixtures, and vehicles. The estimated useful lives of the assets for depreciation purposes are: Buildings and improvements 15 to 39 years Parts equipment 5 to 8 years Machinery and shop equipment 5 to 8 years Furniture and fixtures 5 to 8 years Service vehicles 3 to 5 years Rental and lease vehicles 3 to 5 years When depreciable assets are sold or retired, the related cost and accumulated depreciation are removed from the accounts. Major additions and betterments are capitalized. Maintenance and repairs which do not materially improve or extend the lives of the respective assets are charged to operating expenses as incurred. LAND HELD FOR DEVELOPMENT Land held for development, which represents land acquired for development of additional dealerships in metropolitan Phoenix, Arizona, is carried at cost, which is not in excess of fair value. UNEARNED INCOME Unearned income on receivables is recognized over the term of the receivable on the interest method. REVENUES Revenues from vehicle and parts sales and from service operations are recognized at the time the vehicle is delivered to the customer or service is completed. F-72 73 Grubb Automotive Notes to Combined Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCE FEES AND INSURANCE COMMISSIONS Finance fees represent revenue earned by the Company for notes placed with financial institutions in connection with customer vehicle financing. Finance fees are recognized in income upon acceptance of the credit by the financial institution. Insurance income represents commissions earned on credit life, accident and disability insurance sold in connection with the vehicle on behalf of third-party insurance companies. Insurance commissions are recognized in income upon customer acceptance of the insurance terms as evidenced by contract execution. The Company is charged back for a portion of these fees and commissions should the customer terminate the finance contract prior to its scheduled maturity. The estimated allowance for these chargebacks (chargeback allowance) is based upon the Company's historical experience for prepayments or defaults on the finance contracts. OTHER REVENUE Other revenue consists primarily of license and title fees. ADVERTISING AND PROMOTIONAL COSTS Advertising and promotional costs are expensed as incurred and are included in selling, general and administrative expense in the accompanying combined statements of income. Total advertising and promotional expenses were approximately $4,263,000 and $3,874,000 in 1996 and 1995, respectively. INCOME TAXES The Company elected, with the consent of its shareholders, to have its income taxed directly to its shareholders as S corporations under the provisions of the Internal Revenue Code. Accordingly, the Company is generally not subject to income taxes as the taxable income and related losses are allocated and taxed directly to the shareholders. F-73 74 Grubb Automotive Notes to Combined Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS In 1996, the Company adopted Financial Accounting Standard (FAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (FAS 121), which requires that long-lived assets (i.e., property, plant and equipment and goodwill) held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable. An impairment loss will be recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the asset is less than the net book value of the asset. Generally, the amount of the impairment loss is measured as the difference between the net book value of the assets and the estimated fair value of the related assets. The adoption of this statement did not have a significant impact on the Company's results of operations or its financial position. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments is determined by reference to various market data and other valuation techniques, as appropriate. Unless otherwise disclosed, the fair value of financial instruments approximates their recorded values due primarily to the short-term nature of their maturities. 2. RECEIVABLES Receivables are comprised of the following:
DECEMBER 31 1996 1995 -------------------------- (In thousands) Contracts in transit and vehicle receivables $ 6,454 $ 7,450 Trade receivables 2,383 2,354 Due from automakers 1,361 1,716 Note receivables from customers 732 867 Other 300 261 ------- ------- 11,230 12,648 Less: allowance for doubtful accounts (521) (708) Less: unearned income (123) (123) ------- ------- $10,586 $11,817 ======= =======
F-74 75 Grubb Automotive Notes to Combined Financial Statements (continued) 2. RECEIVABLES (CONTINUED) Contracts in transit and vehicle receivables primarily represent receivables from financial institutions such as General Motor Acceptance Corporation (GMAC), and regional banks which provide funding for customer vehicle financing. These receivables are normally collected in less than 30 days of the sale of the vehicle. Trade receivables primarily relate to the sale of parts to commercial customers. Due from automakers represent receivables for parts and service work performed on vehicles pursuant to the automakers' warranty coverages and amounts due in connection with the purchase of vehicles (holdbacks) pursuant to the dealership agreement. Such holdbacks are generally remitted to the Company on a quarterly basis. Note receivables from customers are derived from certain sales of used vehicles at JSC under which the dealership finances the sale and carries the related note. 3. DUE FROM SHAREHOLDERS Due from shareholders represents cash advances made to shareholders of the Company. The due from shareholder amounts were paid in 1996 by the offset of shareholder distributions. 4. INVENTORIES The components of inventory are as follows:
DECEMBER 31 1996 1995 --------------------------- (In thousands) New vehicles, at cost determined under the specific identification method $ 46,170 $ 45,799 Used vehicles, at cost determined under the specific identification method 10,659 9,475 Parts and accessories, at cost determined by the latest factory invoice price, which approximates the FIFO method 7,456 6,208 --------- --------- 64,285 61,482 Less adjustment to reduce new vehicles inventories to cost determined under the LIFO method (14,422) (13,852) Less adjustment to reduce used vehicles inventories to cost determined under the LIFO method (2,277) (2,375) --------- --------- $ 47,586 $ 45,255 ========= =========
F-75 76 Grubb Automotive Notes to Combined Financial Statements (continued) 4. INVENTORIES (CONTINUED) While the Company believes that the LIFO method of accounting provides a better matching of costs and revenues, if the FIFO method of accounting had been used by the Company, net income would have increased by approximately $472,000 and $2,418,000 in 1996 and 1995, respectively. During the year ended December 31, 1996, the Company realized a liquidation of certain LIFO inventory pools which resulted in an increase to net income of approximately $1,200,000. 5. LAND, BUILDINGS, EQUIPMENT, AND RENTAL AND LEASE VEHICLES Land, buildings, equipment, and rental and lease vehicles, consist of the following:
DECEMBER 31 1996 1995 ------------------------- (In thousands) Land $ 5,295 $ 5,295 Buildings and improvements 6,221 6,192 Furniture and fixtures 3,067 2,897 Machinery and shop equipment 1,236 1,212 Parts equipment 937 762 Rental and lease vehicles 758 695 Service vehicles 951 880 Construction in progress 2,589 - ------- ------- 21,054 17,933 Less accumulated depreciation and amortization (7,369) (6,349) ------- ------- $13,685 $11,584 ======= =======
During the year ended December 31, 1996, the Company transferred approximately $593,000 at net book value in service vehicles previously included in land, buildings, equipment, and rental and lease vehicles to used inventories. At December 31, 1996, the construction in progress amount includes land and building and related construction costs for the addition of a new dealership in metropolitan Phoenix, Arizona. F-76 77 Grubb Automotive Notes to Combined Financial Statements (continued) 6. SHORT-TERM BORROWINGS Short-term borrowings consist of the following:
DECEMBER 31 1996 1995 ------------------------ (In thousands) $24,000,000 line of credit with a bank, interest payable monthly at the lower of the bank's prime rate plus 0.50 percent or the 30-day LIBOR rate plus 2.50 percent, maturing July 1997, and collateralized by all inventories and accounts receivable of LGF. The line of credit is guaranteed by a shareholder of LGF up to $3,000,000. $15,387 $18,349 $18,000,000 line of credit with a bank, interest payable monthly at the lower of the bank's prime rate plus 0.50 percent or the 30-day LIBOR rate plus 2.50 percent, maturing July 1997, and collateralized by all inventories and accounts receivable of LGC. The line of credit is guaranteed by a shareholder of LGC up to $3,000,000. 16,265 17,574 $14,000,000 line of credit with General Motors Acceptance Corporation, interest payable monthly at prime plus 1.00 percent on new stock vehicles and prime plus 1.50 percent on demo vehicles, no stated maturity date, and collateralized by new vehicles inventories of JSC. 5,383 10,160 $6,000,000 line of credit with a bank, interest payable monthly at the lower of the bank's prime rate plus 0.50 percent or the 30-day LIBOR rate plus 2.50 percent, maturing July 1997, and collateralized by all inventories and accounts receivable of SOT. The line of credit is guaranteed by a shareholder of SOT up to $4,700,000. 4,997 2,307 $5,000,000 line of credit with a bank, interest payable monthly at the lower of the bank's prime rate plus 0.50 percent or the 30-day LIBOR rate plus 2.50 percent, maturing July 1997, and collateralized by all inventories and accounts receivable of LGS. The line of credit is guaranteed by a shareholder of LGS up to $2,000,000. 4,722 1,910 $700,000 line of credit with Ford Motor Credit Company, interest payable monthly at prime plus 1.00 percent on new vehicles and prime plus 1.50 percent on demo vehicles, no stated maturity date, and collateralized by new vehicles inventories of JSC. The line of credit was overdrawn on the allowable line of credit at December 31, 1996 and such amounts are immediately due and payable upon the request of Ford Motor Credit Company. 896 918 Other 68 88 ------- ------- $47,718 $51,306 ======= =======
F-77 78 Grubb Automotive Notes to Combined Financial Statements (continued) 6. SHORT-TERM BORROWINGS (CONTINUED) As a result of the dealership acquisition described in Note 16, the guaranties of the above line of credits by a shareholder of the various dealerships were waived by the bank. LGF has an additional $1,500,000 line of credit available for the acquisition of used vehicles and other short-term needs. The line of credit is at prime and expires July 1997. LGC has $500,000 and $250,000 lines of credit available at prime plus 0.50 percent and prime plus 1.50 percent, respectively. The lines expire July 1997. At December 31, 1996 and 1995, no amounts had been drawn on these lines of credit. The weighted average interest rate on short-term borrowings outstanding as of December 31, 1996 and 1995 was approximately 7.73 percent and 8.70 percent, respectively. Interest expense on short-term borrowings during 1996 and 1995 was approximately $3,468,000 and $3,496,000, respectively. 7. NOTES PAYABLE TO SHAREHOLDERS Notes payable to shareholders consist of the following:
DECEMBER 31 1996 1995 ------------------------- (In thousands) Unsecured note payable to shareholder, interest payable monthly at prime, due on demand $ 1,750 $ 1,750 Unsecured notes payable to shareholders, interest payable monthly at prime plus 1.00 percent, due on demand 1,900 1,500 Unsecured notes payable to shareholder, interest payable monthly at 8.50 percent, due on demand 2,575 2,575 ------- ------- 6,225 5,825 Less portion due within one year (3,650) (3,250) ------- ------- $ 2,575 $ 2,575 ======= =======
At December 31, 1996, the $2,575,000 unsecured notes payable to shareholder is classified as noncurrent as the shareholder has represented that there were no intentions to require payment within one year. In connection with the subsequent event discussed in Note 16, these notes were paid off. Since current assets of the Company were not used to pay these notes, the $2,575,000 has continued to be classified as noncurrent. F-78 79 Grubb Automotive Notes to Combined Financial Statements (continued) 7. NOTES PAYABLE TO SHAREHOLDERS (CONTINUED) Interest expense on notes payable to shareholders during 1996 and 1995 was approximately $622,000 and $567,000, respectively. 8. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31 1996 1995 ------------------------- (In thousands) Mortgage note payable to a bank payable in monthly installments of $12,500 plus interest at prime, due and payable in full in January 1998, and collateralized by first deed of trust on property. Guaranteed by a shareholder of SOT. $ 2,113 $ 2,263 $3,500,000 line of credit with a bank, interest payable monthly at prime, maturing July 1997 at which time the amount outstanding will be termed out over five years, and collateralized by all assets of LGF until July 2002 at which time the line of credit will be collateralized by a first deed of trust on the property. Guaranteed by a shareholder of the LGF. 1,626 1,626 Mortgage note payable to a bank payable in 60 monthly installments of $15,667 plus interest at prime through October 1998, and collateralized by all inventories and accounts receivable of LGC, second behind the $18,000,000 line of credit. 345 533 Other 91 75 -------- -------- 4,175 4,497 Less portion due within one year (381) (370) -------- -------- $ 3,794 $ 4,127 ======== ========
At December 31, 1996, the aggregate maturities on long-term debt are as follows: 1997 $ 381 1998 3,775 1999 19 ------ $4,175 ====== F-79 80 Grubb Automotive Notes to Combined Financial Statements (continued) 8. LONG-TERM DEBT (CONTINUED) Interest expense on long-term debt during 1996 and 1995 was approximately $579,000 and $641,000, respectively. 9. SHAREHOLDERS' EQUITY The common stock par value and authorized, issued, and outstanding shares for each of the corporations is summarized as of December 31, 1996 and 1995 as follows:
NUMBER OF SHARES ----------------------------------------------- PAR VALUE AUTHORIZED ISSUED OUTSTANDING --------- ---------- ------ ----------- (In thousands, except par value) Grubb Automotive, Inc. $ 1.00 1,000 11 11 Jack Sherman Chevrolet, Inc. 0.01 1,500 40 40 Lou Grubb Chevrolet, Inc. 100.00 250 5 5 Lou Grubb Ford, Inc. 1.00 2,000 750 750 Lou Grubb Saturn, Inc. 1.00 1,000 800 800 Saturn of Tempe, Inc. 1.00 2,000 1,000 1,000
At December 31, 1996 and 1995, JSC holds $1,300,000 in treasury stock resulting from the purchase of 16,800 shares common stock, at cost, from a previous shareholder. 10. PENSION AND DEFERRED COMPENSATION PLANS The Company has a 401(k) defined contribution retirement savings plan for employees. The Company is required to contribute an amount equal to 50 percent of each participating employee's deferred cash contribution, limited to a maximum deferred contribution of two percent. The Company's funding policy is to make quarterly contributions to the plan. Participants may elect to contribute to the plan. Total expense recognized by the Company was $786,000 and $624,000 in 1996 and 1995, respectively. F-80 81 Grubb Automotive Notes to Combined Financial Statements (continued) 10. PENSION AND DEFERRED COMPENSATION PLANS (CONTINUED) The Company has executed a deferred compensation agreement with an officer of the Company. The agreement provides supplemental salary continuation benefits to this officer or his beneficiaries upon normal retirement for 15 years at $8,333 per month. Upon death, early retirement or termination, the officer will receive a reduced level of benefits as defined in the agreement. Subsequent to year-end, the agreement was amended whereby upon death of the officer, the officer's beneficiaries will receive full benefits. The agreement also amended the normal retirement date of the officer with no loss of benefits from September 1, 2004 to September 1, 1999, which resulted in an increase of approximately $140,000 to the deferred compensation liability. At December 31, 1996 and 1995, the benefits are unfunded and the Company has accrued $740,000 and $550,000, respectively, discounted at 7.50 percent, as a long-term liability. The projected benefit obligation was estimated using the 1980 Commissioners Standard Ordinary Mortality table. Total expense recognized by the Company was approximately $190,000 and $50,000 in 1996 and 1995, respectively. The agreement also provides for disability benefits should the officer become permanently and totally disabled and the amount of benefits will be determined by the Board of Directors at the time of disability. 11. MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS The Company owns and operates two Chevrolet, two Saturn, and one Ford automobile dealerships. The Company enters into agreements (Dealer Agreements) with the automakers that supply new vehicles and parts to its dealerships. The Company's overall sales could be impacted by the automakers' ability or unwillingness to supply the dealerships with an adequate supply of popular models. The Company's existing Chevrolet Dealer Agreements have remaining terms of approximately four years expiring in October 2000. The Saturn and Ford Dealership Agreements have no stated expiration date. Management currently believes that it will be able to renew all the Chevrolet Dealer Agreements upon expiration; however, there can be no assurance that the Chevrolet Dealer Agreements will be renewed. The Dealer Agreements generally limit locations of dealerships and retain automaker approval rights over changes in dealership management. The Dealer Agreement with Chevrolet stipulates that the Company could lose its Chevrolet dealership upon any change in ownership of a controlling number of shares in the Company. Each automaker also is entitled to terminate the dealership agreement if the dealership is in material breach of the terms. The Company's ability to expand operations depends, in part, on obtaining the consent of the automakers to the acquisition or establishment of additional dealerships. F-81 82 Grubb Automotive Notes to Combined Financial Statements (continued) 12. CONCENTRATIONS OF CREDIT RISK Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents and receivables. The Company invests a substantial portion of its excess cash with GMAC and, to a lesser extent, with financial institutions with strong credit ratings. Cash investments with GMAC can be withdrawn at any time. At December 31, 1996 and 1995, amounts invested with GMAC approximated $2,050,000 and $1,500,000, respectively, with an interest rate of prime plus one percent. At times, amounts invested with financial institutions may be in excess of FDIC insurance limits. As of December 31, 1996 and 1995, the Company has not experienced any losses on its cash equivalents. Concentrations of credit risk with respect to customer receivables are limited primarily to automakers and financial institutions such as GMAC and regional banks. Credit risk arising from receivables from commercial customers is minimal due to the large number of customers comprising the Company's customer base. However, they are concentrated in the Company's two market areas in metropolitan Phoenix, Arizona and Midland, Texas. 13. PROVISION FOR FINANCE FEES AND INSURANCE COMMISSION CHARGEBACKS Presented below is the change in the allowance for estimated finance fees and insurance commission chargebacks: YEAR ENDED DECEMBER 31 1996 1995 ------------------------- (In thousands) Beginning balance $ 1,593 $ 1,406 Provision 2,501 1,704 Actual chargebacks (2,145) (1,517) ------- ------- Ending balance $ 1,949 $ 1,593 ======= ======= 14. COMMITMENTS AND CONTINGENCIES The Company is a party to various legal actions arising in the ordinary course of its business. The liability, if any, associated with these matters was not determinable at December 31, 1996 and 1995. While it is not feasible to determine the outcome of these actions, the Company's information, including discussions with legal counsel, at this time does not indicate that these matters will have a material adverse effect upon financial condition, results of operations or cash flows. F-82 83 Grubb Automotive Notes to Combined Financial Statements (continued) 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company is also subject to federal and state environmental regulations, including rules relating to air and water pollution and the storage and disposal of gasoline, oil, other chemicals and waste. Local, state and federal regulations also affect automobile dealerships' advertising, sales, service and financing activities. The Company believes that it complies with all applicable laws relating to its business. In general, the Company is required to pay for all vehicles purchased from the automakers upon completion of the vehicle, upon which time a draw upon the Company's available bank lines of credit is made directly by the automakers. A regional bank provides the financing for all new vehicles except at JSC where GMAC and Ford Motor Credit Company provide financing for all new vehicles and certain used vehicles. These types of financings are known as "floor plan financing" or "flooring." Under the arrangement with GMAC, the Company may deposit funds with GMAC in an amount up to 75 percent of the amount of the floor plan financing. Such funds earn interest at the same rate charged by GMAC to the Company for its flooring. From time to time, certain shareholders will advance funds to the Company primarily for the purpose of investing their excess cash with GMAC. The Company acts only as an intermediary in this process. Aggregate amounts outstanding pursuant to these arrangements at December 31, 1996 and 1995 are included in notes payable to shareholders in the accompanying combined balance sheets. 15. LEASES The Company leases from outside parties, under operating leases, land and buildings relating to certain of its dealership properties and certain computer equipment. The property and equipment leases expire in 1997 through 1999. Total related rental expense with outside parties was approximately $502,000 and $499,000 in 1996 and 1995, respectively. LGF leases land and buildings from a shareholder under an operating lease for $690,000 per annum. The lease is currently under an extension period through 1998 and can be extended through 2013. LGS also leases land and holdings from a shareholder under an operating lease for $118,800 per annum expiring in 2001. Total related rental expense with shareholders was approximately $846,000 and $837,000 in 1996 and 1995, respectively. F-83 84 Grubb Automotive Notes to Combined Financial Statements (continued) 15. LEASES (CONTINUED) The aggregate minimum rental commitments for all noncancelable operating leases are as follows: LEASES WITH LEASES WITH OTHERS SHAREHOLDERS ----------------------------- (In thousands) 1997 $ 294 $ 809 1998 201 809 1999 22 119 2000 34 119 2001 - 119 ------- ------ $ 551 $1,975 ======= ====== 16. SUBSEQUENT EVENT In January 1997, an unrelated third party purchased the assets, properties, and business of Grubb, JSC and LGC; LGF and SOT were merged with and into a subsidiary of the acquiring company with the dealerships being the surviving corporations in the merger and becoming a wholly owned subsidiary of the acquiring company; and 50 percent of the outstanding capital stock of LGS was sold to the acquiring company in exchange for common stock of the acquiring company. The Company has received approval for the acquisitions and mergers from all manufacturers except Saturn, and there can be no assurance as to whether this manufacturer's approval can be obtained and what impact it will have on the transaction. In connection with the transaction, the acquiring company paid off the outstanding balances of long-term debt and notes payable to shareholders in stock and cash. In addition, certain of the properties leased to the Company by a shareholder were purchased by the acquiring Company directly from the shareholder and the related leases were terminated. Also as a result of the acquisitions and mergers, the guaranties by a shareholder on the short-term borrowings were waived by the bank. F-84 85 Independent Auditors' Report ---------------------------- The Board of Directors Shad Management Company: We have audited the accompanying consolidated balance sheets of Shad Management Company and consolidated investees as of December 31, 1996, and the related consolidated statements of operations and retained earnings, and cash flows for the period from April 1, 1996 to December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shad Management Company and consolidated investees as of December 31, 1996, and the results of their operations and their cash flows for the period from April 1, 1996 to December 31, 1996 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Jacksonville, Florida February 12, 1997, except as to note 7, which is as of February 23, 1997 F-85 86 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Consolidated Balance Sheets March 31, 1997 (UNAUDITED) and December 31, 1996
Assets 1997 1996 ------ ---- ---- (UNAUDITED) Current assets: Cash $ 1,724,287 1,225,408 Accounts receivable: Customers 3,975,474 3,739,963 Factory 661,715 928,128 Finance contracts 111,006 77,983 Officers, employees and other 447,838 129,697 ------------ ------------ 5,196,033 4,875,771 Less allowance for doubtful accounts 7,675 9,058 ------------ ------------ 5,188,358 4,866,713 ------------ ------------ Notes receivable, current portion, net of unearned interest and allowance for doubtful accounts of $108,806 and $109,905, respectively 487,861 561,968 Inventories, less LIFO reserve of $4,406,686 and $4,607,318, respectively 10,471,245 15,252,387 Prepaid expenses 213,117 156,611 ------------ ------------ Total current assets 18,084,868 22,063,087 ------------ ------------ Property, plant and equipment: Land 3,402,886 3,417,437 Buildings 3,482,818 3,475,907 Leasehold improvements 823,103 838,302 Furniture and fixtures 1,990,301 1,790,034 Construction in progress 213,364 224,465 ------------ ------------ 9,912,472 9,746,145 Less accumulated depreciation (1,866,172) (1,767,663) ------------ ------------ Net property, plant and equipment 8,046,300 7,978,482 ------------ ------------ Notes receivable, noncurrent portion, net of unearned interest and allowance for doubtful accounts of $46,631 and $47,102, respectively 209,066 240,844 Cash surrender value of life insurance -- 446,060 Goodwill and other assets 1,185,374 1,263,988 ------------ ------------ 1,394,440 1,950,892 ------------ ------------ Total assets $ 27,525,608 31,992,461 ============ ============
(Continued) F-86 87 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Consolidated Balance Sheets, Continued March 31, 1997 (UNAUDITED) and December 31, 1996
Liabilities and Stockholders' Equity 1997 1996 - ------------------------------------ ---- ---- (UNAUDITED) Current liabilities: Notes payable - floor plan $16,750,295 20,250,115 Current installments of long-term debt 792,723 1,004,971 Accounts payable 990,248 971,868 Accrued expenses and other current liabilities 1,278,117 1,332,693 ----------- ----------- Total current liabilities 19,811,383 23,559,647 ----------- ----------- Long-term debt, excluding current installments: Mortgage notes payable 6,003,352 6,093,852 Notes payable to bank 245,004 262,500 Notes payable, related party -- 426,603 Notes payable, other 177,190 172,039 ----------- ----------- Total long-term debt 6,425,546 6,954,994 ----------- ----------- Minority interest 446,477 452,362 Deferred compensation -- 555,120 ----------- ----------- Total liabilities 26,683,406 31,522,123 ----------- ----------- Stockholders' equity: Common stock, $.10 par value; 70,000 shares authorized, 1,000 issued and outstanding 100 100 Additional paid-in capital 369,391 369,391 Retained earnings 472,711 100,847 ----------- ----------- Total stockholders' equity 842,202 470,338 ----------- ----------- Commitments (notes 5, 6 and 7) $27,525,608 31,992,461 =========== ===========
See accompanying notes to consolidated financial statements. F-87 88 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Consolidated Statements of Operations and Retained Earnings For the period from January 1, to March 31, 1997 and 1996 (UNAUDITED) and April 1, 1996 to December 31, 1996
April 1, to January 1, to March 31, December 31, ---------------------------- ------------ 1997 1996 1996 ---- ---- ---- (UNAUDITED) Sales: Vehicles $30,774,470 24,875,182 81,852,983 Parts and service 3,386,558 2,741,383 9,633,792 ----------- ----------- ----------- 34,161,028 27,616,565 91,486,775 ----------- ----------- ----------- Cost of goods sold 30,343,303 24,931,685 82,777,591 ----------- ----------- ----------- Gross profit 3,817,725 2,684,880 8,709,184 ----------- ----------- ----------- Finance company income: Finance charges, fees and other interest 36,591 104,846 286,614 Interest expense 13,080 16,307 45,372 ----------- ----------- ----------- Net interest income 23,511 88,539 241,242 Provision for credit losses 6,000 44,000 138,032 ----------- ----------- ----------- Net interest income after provision for credit losses 17,511 44,539 103,210 ----------- ----------- ----------- Other operating income: Finance and insurance income, net 175,587 295,403 825,291 Other income 50,016 50,528 189,917 ----------- ----------- ----------- Gross profit, finance company and other operating income 4,060,839 3,075,350 9,827,602 ----------- ----------- ----------- Operating expenses 3,694,860 3,040,084 9,383,431 ----------- ----------- ----------- Income from operations 365,979 35,266 444,171 ----------- ----------- ----------- Minority interest 5,885 -- (21,301) ----------- ----------- ----------- Income before income tax expense 371,864 35,266 422,870 Income tax expense -- (12,424) (408,035) ----------- ----------- ----------- Net income 371,864 22,842 14,835 Retained earnings, beginning of period 100,847 63,170 86,012 ----------- ----------- ----------- Retained earnings, end of period $ 472,711 86,012 100,847 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-88 89 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Consolidated Statement of Cash Flows For the period from January 1, to March 31, 1997 and 1996 (UNAUDITED) and April 1, 1996 to December 31, 1996
April 1, to January 1, to March 31, December 31, ------------------------------- ------------ 1997 1996 1996 ---- ---- ---- (UNAUDITED) Cash flows from operating activities: Cash received from customers $ 33,259,379 27,616,565 92,740,514 Cash paid to suppliers and employees (28,032,378) (27,556,989) (90,587,425) Interest paid (318,928) (215,208) (491,228) Income taxes paid -- -- (35,049) ------------ ------------ ------------ Net cash provided by (used in) operating activities 4,908,073 (155,632) 1,626,812 ------------ ------------ ------------ Cash flows from investing activities: Payments for purchase of equipment and leasehold improvements (167,678) (129,819) (2,509,462) Cash paid for assets of automobile dealership -- -- (1,378,887) Loss on sale of fixed assets -- -- 19,236 Gain on sale of marketable securities -- -- 294,487 ------------ ------------ ------------ Net cash used in investing activities (167,678) (129,819) (3,574,626) ------------ ------------ ------------ Cash flows from financing activities: Proceeds (payments) under notes payable to bank (12,345) (476,397) 3,442,280 Proceeds (payments) under notes payable to related party (426,603) (98,916) 300,000 Repayment of long-term debt (302,748) (95,490) (1,324,391) Net increase (decrease) in notes payable - floor plan (3,499,820) 1,525,458 (616,688) Contributed capital -- -- 353,000 ------------ ------------ ------------ Net cash provided by (used in) financing activities (4,241,516) 854,655 2,154,201 ------------ ------------ ------------ Net increase in cash 498,879 569,204 206,387 Cash at beginning of period 1,225,408 449,817 1,019,021 ------------ ------------ ------------ Cash at end of period $ 1,724,287 1,019,021 1,225,408 ============ ============ ============ Supplemental disclosures - non-cash transactions: Direct financed equipment purchases $ -- -- 126,466 ============ ============ ============ Note receivable contributed by Shad General Partner, Inc. $ -- -- 78,061 ============ ============ ============
(Continued) F-89 90 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Consolidated Statements of Cash Flows, Continued For the period from January 1, to March 31, 1997 and 1996 (UNAUDITED) and April 1, 1996 to December 31, 1996
April 1, to January 1, to March 31, December 31, ---------------------------- ------------ 1997 1996 1996 ---- ---- ---- (UNAUDITED) Reconciliation of net income to net cash provided by (used in) operating activities: Net income $ 371,864 22,842 14,835 Minority interest (5,885) -- 21,301 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 85,691 81,627 250,682 Increase (decrease) in LIFO reserve (200,632) 168,179 169,801 Gain on sale of investment -- -- (44,489) Provision for deferred income tax -- 10,512 408,035 Changes in assets and liabilities: Accounts receivable (321,645) (98,649) (864,204) Inventories, at current cost 4,981,774 (1,028,982) 368,825 Prepaid expenses (56,506) 48,677 163,926 Notes receivable 105,885 43,380 912,287 Cash surrender value of life insurance 446,060 -- (52,440) Other assets, net 92,783 175,142 56,294 Accounts payable and accrued expenses (36,196) 421,640 72,839 Deferred compensation (555,120) -- 55,512 Income taxes receivable -- -- 93,608 ----------- ----------- ----------- Net cash provided by (used in) operating activities $ 4,908,073 (155,632) 1,626,812 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-90 91 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Notes to Consolidated Financial Statements March 31, 1997 (UNAUDITED) and December 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) ORGANIZATION Shad Management Company (the Company) was organized on April 1, 1986 and incorporated under the laws of the State of Florida. Its principal activity is to provide management services to its subsidiaries. On March 20, 1996, Shad General Partner, Inc., an S Corporation, was created. On March 27, 1996, the Company's former subsidiaries, Southside Motor Company, Inc. (d/b/a Mike Shad Ford), and North Florida Financial Services, Inc. (North Florida), contributed all of their net assets to newly formed partnerships in exchange for limited partnership interests. Immediately thereafter, these two former subsidiaries were liquidated into the Company, resulting in the Company becoming the owner of the limited partnership interests. Shad General Partner, Inc. also contributed assets to the newly formed partnerships in exchange for limited partnership interests. On June 30, 1996, North Florida ceased to provide financing for used vehicles purchased at Mike Shad Ford. Also effective October 13, 1996, North Florida purchased certain assets and assumed certain liabilities of a competing automobile dealership for approximately $3,222,000 and will operate the franchise d/b/a Mike Shad Chrysler Plymouth Jeep-Eagle. The acquisition was financed from internal cash, debt and the sale of approximately 27% of North Florida partnership interests for $353,000. Goodwill of approximately $1.1 million was recorded in connection with the acquisition. (b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Shad Management Company and the following limited partnerships (former subsidiaries) in which it holds a controlling interest (with ownership percentages): o Mike Shad Ford, Ltd., a franchised Ford dealership operating in Jacksonville, Florida (99%). o North Florida Financial Services, Ltd., a franchised Chrysler Plymouth Jeep Eagle dealership also operating in Jacksonville (72% effective October 1996). All significant intercompany transactions and balances have been eliminated in consolidation. F-91 92 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Notes to Consolidated Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued (c) INVENTORIES Inventories are stated at the lower of cost or market. Cost of new and used vehicles and parts is determined on a last-in, first-out (LIFO) basis. (d) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is calculated over the useful lives of the assets using a method which approximates the straight-line method. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the asset. (e) GOODWILL Goodwill is amortized on a straight-line basis over 15 years. (f) REVENUE RECOGNITION Revenue from the sale of vehicles is recognized on customer acceptance and completed financing arrangements. Revenue from parts sales and service are recognized as the service is completed. Finance income represents the difference between the interest rate negotiated with a customer and that granted by the financial institution underwriting the finance contract, and is recognized upon the assignment of the finance contract to the financial institution which occurs at the time of sale of the underlying vehicle. Insurance and warranty income represents commissions recognized upon the sale of such contracts. Chargebacks of finance, insurance and warranty income result from customers who default or pay off their loans before maturity. The Company recognizes a reserve for chargebacks based on past operating history. During April of 1994, the Company negotiated a new contract with its primary financial institutions, whereby the financial institutions accept full responsibility for all future finance contracts, thus eliminating all future related chargebacks to the Company. F-92 93 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Notes to Consolidated Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued (g) INCOME TAXES Effective April 1, 1996, the Company made an election for a voluntary change in tax status from a taxable C Corporation to an S Corporation. As a result, the taxes on income of the Company became the responsibility of the Stockholders. The change in tax status is reflected in the December 31, 1996 financial statements. This change has resulted in the elimination of all deferred tax assets and liabilities and a net charge to income tax expense of $408,035 effective April 1, 1996. (h) ESTIMATES The preparation of financial statements in conformity with generally acceptable accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (i) RECLASSIFICATION Certain amounts in the 1996 financial statements have been reclassified to conform with the 1997 presentation. (2) INVENTORIES Inventories consist of the following:
December 31, 1996 ---------------------------------------------- Current LIFO Inventory at cost reserve LIFO value ----------- ----------- ------------ New vehicles and demonstrators $16,555,564 3,677,391 12,878,173 Used vehicles 2,541,219 668,933 1,872,286 Parts, accessories and other 762,922 260,994 501,928 ----------- ----------- ----------- $19,859,705 4,607,318 15,252,387 =========== =========== ===========
F-93 94 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Notes to Consolidated Financial Statements (2) INVENTORIES, Continued
March 31, 1997 (UNAUDITED) ---------------------------------------------- Current LIFO Inventory at cost reserve LIFO value ----------- ---------- ------------ New vehicles and demonstrators $11,798,269 3,490,098 8,308,171 Used vehicles 2,310,699 657,778 1,652,921 Parts, accessories and other 768,963 258,810 510,153 ----------- ---------- ---------- $14,877,931 4,406,686 10,471,245 =========== ========== ==========
(3) NOTES PAYABLE - FLOOR PLAN Notes payable - floor plan consists of a line of credit with Ford Motor Credit Company and a line of credit with Chrysler Financial for new and reconditioned vehicles. Principal payments are due as associated vehicles are sold and interest is payable monthly at prime plus 1%. The notes are collateralized by new and reconditioned vehicles, customer receivables arising from the sale of new and reconditioned vehicles and new vehicle factory discounts receivable. (4) LONG-TERM DEBT Long-term debt at March 31, 1997 and December 31, 1996 consist of the following:
1997 1996 ---- ---- (UNAUDITED) Mortgage note payable to bank, bearing interest at 3.5% over the commercial paper rate, due in monthly installments of $46,263 including interest $ 4,152,039 4,232,319 Mortgage note payable to bank, bearing interest at 8.125%, due in monthly installments of $16,884 including interest, secured by land and building with a net book value of $1,842,805 1,983,525 1,993,744 Note payable to bank, bearing interest at prime plus 1.00%, due in monthly installments of $5,833 including interest, collateralized by parts inventory and furniture and fixtures 316,410 332,500
F-94 95 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Notes to Consolidated Financial Statements (4) LONG-TERM DEBT, Continued
1997 1996 ---- ---- (UNAUDITED) Note payable to bank, bearing interest at prime, due in monthly installments of $75,000, collateralized by notes receivable in the amount of $802,812 $ 484,999 710,000 Unsecured demand notes payable to related parties, bearing interest at prime plus 1.00% - 426,603 Other notes payable on equipment purchases payable in monthly installments of $7,739 including interest; collateralized by equipment 281,296 264,799 ----------- ---------- Total long-term debt 7,218,269 7,959,965 Less current installments 792,723 1,004,971 ----------- ---------- Long-term debt excluding current installments $ 6,425,546 6,954,994 =========== ==========
The aggregate maturities of long-term debt over the next five years are as follows: 1997 $ 792,723 1998 320,691 1999 234,912 2000 234,912 2001 234,912 Thereafter 5,400,119 ---------- $7,218,269 ========== F-95 96 SHAD MANAGEMENT COMPANY AND CONSOLIDATED INVESTEES Notes to Consolidated Financial Statements (5) OPERATING LEASES The Company has a noncancellable operating lease for an off-site Ford AutoCare Service facility that expires February 1, 2005. Rent is payable in monthly installments of $6,632. The Company also has a noncancellable operating lease for an off-site office facility that expires in May 1997. Rent is payable in monthly installments of $1,098. The operating expenses for 1996 include $92,764 for rental of such facilities. Future minimum lease payments, prior to such adjustment, over the next five fiscal years are as follows: 1997 $ 85,074 1998 79,584 1999 79,584 2000 79,584 2001 79,584 -------- $403,410 ======== (6) DEFERRED COMPENSATION PLAN At December 1996, the Company had deferred compensation agreements with certain officers of the consolidated investees. Under the terms of these agreements the Company was to pay, upon normal retirement or death, certain benefits to the named employee or beneficiary for a period of ten years. A liability of $555,120 as of December 31, 1996 has been recorded. Although the Company is not required to fund these agreements, it has purchased universal life insurance contracts that may be used for such purposes. Prior to closing of the agreement described in note 7, the deferred compensation agreements were terminated and participants forgave all claims to receive future benefits in exchange for the distribution of the related life insurance policies. The net effect of these transactions resulted in a reduction in operating expenses of approximately $109,000 during the period from January 1, to March 31, 1997 (UNAUDITED). (7) CHANGE IN OWNERSHIP On February 23, 1997, stockholders of the Company signed a definitive agreement to sell the stock of Shad Management Company to Republic Industries. F-96 97 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors Bledsoe Dodge, Inc. Arlington, Texas We have audited the accompanying balance sheets of Bledsoe Dodge, Inc. as of December 31, 1996 and 1995, and the related statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bledsoe Dodge, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Fort Worth, Texas February 21, 1997 F-97 98 BLEDSOE DODGE, INC. BALANCE SHEETS MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996 AND 1995
December 31, March 31, ---------------------------- 1997 1996 1995 ----------- ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 7,295,544 $ 4,901,958 $ 4,870,543 Accounts receivable 2,857,943 3,797,801 3,255,272 Inventories 16,122,873 15,244,019 12,137,437 Prepaid expenses 125,737 161,018 166,872 ----------- ----------- ----------- Total current assets 26,402,097 24,104,796 20,430,124 ----------- ----------- ----------- Property, equipment and leasehold improvements: Buildings 33,390 33,390 36,120 Equipment 2,063,066 2,066,894 1,925,854 Leasehold improvements 890,471 885,816 823,602 ----------- ----------- ----------- 2,986,927 2,986,100 2,785,576 Less accumulated depreciation and amortization (1,507,905) 1,431,853 1,228,938 ----------- ----------- ----------- 1,479,022 1,554,247 1,556,638 ----------- ----------- ----------- Other assets 135,326 135,537 122,434 ----------- ----------- ----------- Total assets $28,016,445 $25,794,580 $22,109,196 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,376,952 $ 1,689,075 $ 1,259,017 Customer deposits and other advances 17,394 23,605 31,742 Accrued expenses 2,421,316 1,407,496 1,404,919 Notes payable, flooring 14,526,074 13,384,712 9,440,766 Notes payable -- -- 1,975,000 ----------- ----------- ----------- Total current liabilities 18,341,736 16,504,888 14,111,444 ----------- ----------- ----------- Commitments and contingencies (Notes 6 and 7) Shareholders' equity: Common stock, $100 par value; 2,500 shares authorized; 560 shares issued and outstanding 56,000 56,000 56,000 Paid-in capital in excess of par value 567,682 567,682 567,682 Retained earnings 9,051,027 8,666,010 7,374,070 ----------- ----------- ----------- Total shareholders' equity 9,674,709 9,289,692 7,997,752 ----------- ----------- ----------- Total liabilities and shareholders' equity $28,016,445 $25,794,580 $22,109,196 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-98 99 BLEDSOE DODGE, INC. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Three Months Ended Years Ended March 31, December 31, ---------------------------------- ------------------------------ 1997 1996 1996 1995 --------------- ------------- ------------ ------------ (UNAUDITED) Revenues: Sales 37,360,974 35,576,346 $148,659,966 $130,231,299 Cost of sales 33,659,397 31,528,134 131,196,561 113,617,636 ---------- ---------- ------------ ------------ Gross profit 3,701,577 4,048,212 17,463,405 16,613,663 Dealer finance, insurance, and service contract income 1,307,741 1,127,321 5,386,441 4,779,732 Interest income, net 28,292 80,779 450,241 193,547 ---------- ---------- ------------ ------------ 5,037,610 5,256,312 23,300,087 21,586,942 Expenses: Selling, general and administrative expenses 4,605,657 4,421,482 18,884,862 17,254,687 ---------- ---------- ------------ ------------ Income before state franchise taxes 431,953 834,830 4,415,225 4,332,255 Provision for state franchise taxes 46,936 37,567 198,285 178,262 ---------- ---------- ------------ ------------ Net income 385,017 797,263 $ 4,216,940 $ 4,153,993 ========== ========== ============ ============
The accompanying notes are an integral part of these financial statements. F-99 100 BLEDSOE DODGE, INC. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Paid-in Common Stock Capital in Total ----------------------------- Excess of Retained Shareholders' Shares Amount Par Value Earnings Equity ----------- ----------- ----------- ----------- ------------- Balance, December 31, 1994 560 $ 56,000 $567,682 $ 6,520,524 $ 7,144,206 Distributions to shareholders (3,300,447) (3,300,447) Net income for the year ended December 31, 1995 4,153,993 4,153,993 ----------- ----------- -------- ----------- ----------- Balance, December 31, 1995 560 56,000 567,682 7,374,070 7,997,752 Distributions to shareholders (2,925,000) (2,925,000) Net income for the year ended December 31, 1996 4,216,940 4,216,940 ----------- ----------- -------- ----------- ----------- Balance, December 31, 1996 560 56,000 567,682 8,666,010 9,289,692 Net income for the period ended March 31, 1997 (unaudited) 385,017 385,017 ----------- ----------- -------- ----------- ----------- Balance, March 31, 1997 (unaudited) 560 $ 56,000 $567,682 $ 9,051,027 $ 9,674,709 =========== =========== ======== =========== ===========
The accompanying notes are an integral part of these financial statements. F-100 101 BLEDSOE DODGE, INC. STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Three Months Years Ended Ended March 31, December 31, ------------------------- -------------------------- 1997 1996 1996 1995 ---------- ----------- ----------- ----------- (UNAUDITED) Cash flows provided by operating activities: Net income $ 385,017 $ 797,263 $ 4,216,940 $ 4,153,993 ---------- ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 76,052 51,834 331,534 337,994 Loss on disposal of assets -- -- 27,501 4,322 Changes in assets and liabilities: Accounts receivable 939,858 308,333 (542,529) (1,017,662) Inventories (878,854) (3,166,256) (2,865,926) 560,785 Prepaid expenses 35,281 127,840 5,854 9,348 Other assets 211 6,240 (13,103) (32,535) Accounts payable (312,123) (151,490) 430,058 305,232 Customer deposits and other advances (6,211) (5,751) (8,137) 21,617 Accrued expenses 1,013,820 890,307 2,577 407,257 Notes payable, flooring (net) 1,141,362 5,079,409 3,609,182 (2,025,625) ---------- ----------- ----------- ----------- Total adjustments 2,009,396 3,140,466 977,011 (1,429,267) ---------- ----------- ----------- ----------- Net cash provided by operating activities 2,394,413 3,937,729 5,193,951 2,724,726 ---------- ----------- ----------- ----------- Cash flows used in investing activities: Capital expenditures (827) (168,348) (262,536) (368,682) ---------- ----------- ----------- ----------- Net cash flows used in investing activities (827) (168,348) (262,536) (368,682) ---------- ----------- ----------- ----------- Cash flows used in financing activities: Distributions to shareholders -- -- (2,925,000) (3,300,447) Principal payments on notes payable -- -- (1,975,000) -- Proceeds from issuance of notes payable -- -- -- 1,975,000 ---------- ----------- ----------- ----------- Net cash used in financing activities -- -- (4,900,000) (1,325,447) ---------- ----------- ----------- ----------- Net increase in cash and cash equivalents 2,393,586 3,769,381 31,415 1,030,597 Cash and cash equivalents, beginning of year 4,901,958 4,870,543 4,870,543 3,839,946 ---------- ----------- ----------- ----------- Cash and cash equivalents, end of year 7,295,544 8,639,924 $ 4,901,958 $ 4,870,543 ========== =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for interest 337,082 323,516 $ 1,000,710 $ 1,080,206 Cash paid during the period for state franchise taxes -- -- 201,458 142,328 Supplemental schedule of noncash activity: Transfers to inventories from equipment -- -- 240,656 347,425 Equipment additions via notes payable, flooring -- -- 334,764 358,011
The accompanying notes are an integral part of these financial statements. F-101 102 BLEDSOE DODGE, INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: OPERATIONS Bledsoe Dodge, Inc. (the "Company") is primarily engaged in the business of selling and servicing automobiles, vans and trucks, principally in the greater Dallas-Fort Worth market. The Company is a franchised dealer for Chrysler Motor Corporation and maintains three franchises located in the Dallas-Fort Worth metroplex. The Company purchases substantially all of its new vehicles and parts and accessories from Chrysler Motor Corporation. In the opinion of management, the unaudited consolidated financial statements contain all material adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company at March 31, 1997, and the consolidated results of its operations and cash flows for the three months ended March 31, 1997 and 1996. Operating results for these interim periods are not necessarily indicative of the results that can be expected for a full year. CASH AND CASH EQUIVALENTS The Company considers cash and cash equivalents to include cash on hand, cash in banks, and contracts in transit. INVENTORIES Inventories are valued at the lower of cost or market with cost determined using the last-in, first-out (LIFO) method. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS AND RELATED DEPRECIATION AND AMORTIZATION Property, equipment, and leasehold improvements are carried at cost less accumulated depreciation. Renewals and betterments which extend the useful lives of the assets are capitalized. Maintenance and repairs are charged against operations as incurred. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition, and any resulting gain or loss is included in operations. Depreciation and amortization expense is provided using the straight-line method over the estimated useful lives of the related assets. These lives are 3-5 years for furniture, equipment, company and rental vehicles, 15 years for buildings, and 31.5 years or the remaining life of the lease, whichever is less, for leasehold improvements. REVENUE RECOGNITION OF FINANCE AND INSURANCE INCOME The Company includes income from finance and insurance commissions in dealer finance, insurance, and service contract income, and maintains a reserve for future finance and insurance chargebacks based on past history of the Company. F-102 103 BLEDSOE DODGE, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued: FEDERAL AND STATE INCOME TAXES The Company's shareholders have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Accordingly, the financial statements do not include a provision for federal income taxes because the Company does not incur federal income taxes. Instead, the shareholders include their respective shares of the Company's taxable income on their individual federal income tax returns. The Company incurs state franchise taxes and the financial statements include a provision for the franchise tax effect of transactions reported in the financial statements. ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the reporting period. Actual results could differ from those estimates. 2. ACCOUNTS RECEIVABLE: Accounts receivable consist of the following at December 31, 1996 and 1995: 1996 1995 ---------- ---------- Trade accounts $2,586,121 $2,072,842 Chrysler Corporation 300,997 440,880 Financial institutions and insurance companies 422,583 410,098 Factory and warranty claims 488,100 331,452 ---------- ---------- $3,797,801 $3,255,272 ========== ========== The Company earns a portion of the interest charged on consumer contracts that are assigned to financial institutions. The financial institutions retain a percentage of the interest earned by the Company against which repossession charges and the Company's share of interest on contracts paid off prior to maturity are charged. F-103 104 BLEDSOE DODGE, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED 3. INVENTORIES: Inventories consist of the following at December 31, 1996 and 1995: 1996 1995 ----------- ----------- Demonstrators $ 1,413,014 $ 912,806 New vehicles 9,880,738 6,593,944 Used vehicles 2,673,853 3,348,513 Parts and accessories and other 1,276,414 1,282,174 ----------- ----------- $15,244,019 $12,137,437 =========== =========== The cost of new and demonstrator vehicles using the LIFO method was less than the approximate current cost of new vehicles by $2,483,000 and $2,213,000 as of December 31, 1996 and 1995, respectively. The cost of used vehicles using the LIFO method was less than approximate current cost of used vehicles by $72,000 and $32,000 as of December 31, 1996 and 1995, respectively. The cost of parts and accessories using the LIFO method was less than the approximate current cost of parts and accessories by $127,000 and $77,400 as of December 31, 1996 and 1995, respectively. During 1996, used vehicle inventories were reduced resulting in the liquidation of LIFO inventory layers carried at lower costs in prior years as compared to the current cost of inventory. These inventory liquidations reduced cost of sales by approximately $9,000 for 1996. 4. NOTES PAYABLE, FLOORING: Notes payable, flooring are amounts payable to a financial institution for financing purchases of new, demonstrator, used, and dealer lease vehicles, and are collateralized by the underlying vehicles purchased via this financing arrangement. The notes are due when the vehicles are sold. The difference between the notes payable, flooring and the F-104 105 BLEDSOE DODGE, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED 4. NOTES PAYABLE, FLOORING, Continued: related vehicle inventories collateralizing the notes payable, flooring is primarily due to accessories added at the dealership and the LIFO reserve. The amount due to the financial institution as of December 31, 1996 and 1995 is summarized as follows:
1996 1995 ----------- ---------- Obligations, bearing interest of 8.78% and 10% at December 31, 1996 and 1995, respectively, to a financial institution for financed new vehicles and demonstrators which are included in inventory as of year-end. $12,950,405 $8,872,756 Obligations, bearing interest of 9.10% and 10% at December 31, 1996 and 1995, respectively, to a financial institution for financed used vehicles which are included in inventory as of year-end. 53,475 193,325 Obligations, bearing interest of 9.25% to 9.75% and 8.75% to 10% at December 31, 1996 and 1995, respectively, to a financial institution for financed dealer lease vehicles, which are included in equipment as of year-end. 380,832 374,685 ----------- ---------- $13,384,712 $9,440,766 =========== ==========
Interest expense on the notes payable, flooring for the year ended December 31, 1996 and 1995, was approximately $1,096,108 and $1,088,700, respectively. The Company receives assistance on its notes payable, flooring from Chrysler Motor Corporation. Assistance amounts received from Chrysler Motor Corporation are recorded as a reduction of interest expense. The total assistance received in 1996 and 1995 was approximately $1,453,248 and $1,242,300, respectively. F-105 106 BLEDSOE DODGE, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED 5. NOTES PAYABLE: Notes payable consists of the following at December 31, 1995: Capital loan payable to a financial institution. The loan represents outstanding principal on a $2,500,000 line of credit, which bears interest at prime plus 1% (the rate was 9.5% at December 31, 1995), requires monthly interest-only payments, is collateraIized by certain life insurance policies owned by the Company, is guaranteed by the shareholders and is due on demand. $1,500,000 Promissory note bearing interest at 10.5%, payable to shareholder, due on demand. 150,000 Promissory note bearing interest at 10.5%, payable to shareholder, due on demand. 325,000 ---------- Notes payable $1,975,000 ==========
These notes payable were paid in full during 1996. As of December 31, 1996, the Company had no borrowings under the line of credit. 6. COMMITMENTS AND CONTINGENCIES: The Company leases all of its dealership facilities in the Dallas-Fort Worth metroplex and substantially all of its computer equipment under operating leases. The original lease terms range from five to twenty years. Under the lease agreements, the Company is to pay for all maintenance, taxes and insurance for the dealership facilities. The Company leases equipment under several operating leases expiring through 1999. In addition, two of the Company's facilities are leased from Bledsoe Properties, Ltd., which is owned by several of the Company's shareholders. Rent expense under all leases totaled approximately $969,600 in 1996 and $942,100 in 1995, of which $328,105 and $228,000 for 1996 and 1995, respectively, was paid to this related party. Future minimum rental commitments under the noncancelable, operating leases are as follows: Nonrelated Related Party Party Total ---------- ---------- ----------- 1997 $ 620,225 $ 468,252 $ 1,088,477 1998 618,265 506,252 1,124,517 1999 213,877 513,852 727,729 2000 20,425 513,852 534,277 2001 513,852 513,852 Thereafter 6,233,135 6,233,135 ---------- ---------- ----------- Total $1,472,792 $8,749,195 $10,221,987 ========== ========== =========== F-106 107 BLEDSOE DODGE, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED 6. COMMITMENTS AND CONTINGENCIES, Continued: There are various claims incident to the business operations of the Company. In the opinion of management, the Company's potential liability in all pending claims, in the aggregate, is not material. 7. CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company has cash on deposit with financial institutions and limits the amount of credit exposure to any one financial institution. The Company regularly maintains deposits in excess of federal insurance coverage. The Company grants credit to certain customers, substantially all of which are located in the Dallas-Fort Worth metroplex. In addition, all factory and warranty claims are due from Chrysler Motor Corporation. The Company has not experienced significant losses from these receivables. 8. RELATED PARTY TRANSACTIONS: The Company permits shareholders and a former shareholder to loan money to the Company, which it places on deposit with the financial institution through which the notes payable, flooring are held. These deposits result in decreased interest expense due to the financial institution. The interest savings is remitted to the related parties who loaned money to the Company. Total amounts remitted to related parties under this arrangement were approximately $274,000 and $70,000 for 1996 and 1995, respectively. F-107 108 Independent Auditors' Report ---------------------------- BOARD OF DIRECTORS SPIRIT RENT-A-CAR, INC. We have audited the accompanying consolidated balance sheets of Spirit Rent-A-Car, Inc. and Subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Spirit Rent-A-Car, Inc. and Subsidiary as of December 31, 1996 and 1995, and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles. Cohen & Company January 31, 1997 (except for Notes 7 and 9 which are dated as of May 6, 1997) Cleveland, Ohio F-108 109 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
As of As of December 31, March 31, --------------------------------- 1997 1996 1995 ------------- ------------- -------------- (Unaudited) ASSETS CASH AND CASH EQUIVALENTS $ 11,192,510 $ 10,008,747 $ 6,834,892 TRADE ACCOUNTS RECEIVABLE - Net of allowance for doubtful accounts of $685,540, $721,330 and $465,675 4,035,519 4,535,201 2,988,180 OTHER RECEIVABLES 1,099,930 942,311 609,297 PREPAID EXPENSES 852,871 756,745 529,542 REFUNDABLE INCOME TAXES 444,876 1,754,081 ------------- ------------- -------------- 17,625,706 17,997,085 10,961,911 ------------- ------------- -------------- PROPERTY AND EQUIPMENT - AT COST Rental automobiles 113,233,320 105,090,205 65,968,144 Other property and equipment 6,021,100 5,346,533 3,205,378 ------------- ------------- -------------- 119,254,420 110,436,738 69,173,522 Less: Accumulated depreciation and amortization 20,217,126 18,230,104 12,137,522 ------------- ------------- -------------- 99,037,294 92,206,634 57,036,000 ------------- ------------- -------------- OTHER ASSETS 454,280 359,834 239,602 ------------- ------------- -------------- $ 117,117,280 $ 110,563,553 $ 68,237,513 ============= ============= ============== LIABILITIES ACCOUNTS PAYABLE $ 1,081,839 $ 910,340 $ 324,711 AUTOMOBILE OBLIGATIONS 94,089,600 88,451,581 55,913,959 ACCRUED EXPENSES AND TAXES 5,661,183 5,085,478 3,640,913 DEFERRED INCOME TAXES PAYABLE 4,863,000 4,863,000 1,996,000 ------------- ------------- -------------- COMMITMENTS AND CONTINGENCIES 105,695,622 99,310,399 61,875,583 ------------- ------------- -------------- SHAREHOLDERS' EQUITY COMMON STOCK No par value Authorized - 750 shares Issued and outstanding - 489 shares 288,210 288,210 288,210 RETAINED EARNINGS 11,133,448 10,964,944 6,073,720 ------------- ------------- -------------- 11,421,658 11,253,154 6,361,930 ------------- ------------- -------------- $ 117,117,280 $ 110,563,553 $ 68,237,513 ============= ============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-109 110 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Three Months Years Ended Ended March 31, December 31, ------------------------------- ------------------------------- 1997 1996 1996 1995 ------------- ------------- ------------- ------------- (Unaudited) REVENUE Automobile rentals $ 15,217,648 $ 10,901,911 $ 51,312,009 $ 33,101,339 ------------- ------------- ------------- ------------- COST AND EXPENSES Direct operating 1,409,121 836,072 3,562,362 2,911,738 Depreciation and amortization 4,940,797 2,865,022 13,991,240 8,505,983 Salaries and employee benefits 4,249,547 2,943,267 13,249,615 8,682,179 General and administrative 2,353,601 1,281,228 6,394,554 4,223,078 Advertising and promotion 385,919 203,056 1,009,010 600,036 ------------- ------------- ------------- ------------- 13,338,985 8,128,645 38,206,781 24,923,014 ------------- ------------- ------------- ------------- INCOME FROM OPERATIONS 1,878,663 2,773,266 13,105,228 8,178,325 INTEREST EXPENSE 1,596,364 1,104,771 5,399,998 3,487,163 ------------- ------------- ------------- ------------- INCOME BEFORE PROVISION FOR INCOME TAXES 282,299 1,668,495 7,705,230 4,691,162 ------------- ------------- ------------- ------------- Provision (credit) for income taxes Current 113,795 673,361 (52,994) 798,500 Deferred 2,867,000 1,078,000 ------------- ------------- ------------- ------------- 113,795 673,361 2,814,006 1,876,500 ------------- ------------- ------------- ------------- NET INCOME $ 168,504 $ 995,134 $ 4,891,224 $ 2,814,662 ============= ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-110 111 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TOTAL COMMON RETAINED SHAREHOLDERS' STOCK EARNINGS EQUITY ------------- ------------- -------------- BALANCE - JANUARY 1, 1995 $ 185,250 $ 3,259,058 $ 3,444,308 NET INCOME 2,814,662 2,814,662 ISSUANCE OF COMMON STOCK 102,960 102,960 ------------- ------------- -------------- BALANCE - DECEMBER 31, 1995 288,210 6,073,720 6,361,930 NET INCOME 4,891,224 4,891,224 ------------- ------------- -------------- BALANCE - DECEMBER 31, 1996 288,210 10,964,944 11,253,154 NET INCOME 168,504 168,504 ------------- ------------- -------------- BALANCE - MARCH 31, 1997 (Unaudited) $ 288,210 $ 11,133,448 $ 11,421,658 ============= ============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-111 112 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Years Ended Ended March 31, December 31, ------------------------------- ------------------------------- 1997 1996 1996 1995 ------------- ------------- ------------- ------------- (Unaudited) CASH FLOW PROVIDED FROM OPERATING ACTIVITIES Net income $ 168,504 $ 995,134 $ 4,891,224 $ 2,814,662 Noncash items included in income Depreciation and amortization 5,373,366 3,261,868 16,336,725 9,825,438 Deferred income taxes 2,867,000 1,078,000 Gain on disposals of property and equipment (432,568) (396,846) (2,406,260) (1,784,535) Increase (decrease) in cash caused by changes in operating assets Trade accounts receivable - Net 499,682 205,304 (1,547,021) (1,206,562) Other receivables (157,619) (35,669) (333,014) 18,030 Prepaid expenses (96,126) (29,086) (227,203) (189,140) Refundable income taxes 1,309,205 673,362 (1,754,081) Accounts payable 171,499 34,649 585,629 55,791 Accrued expenses and taxes 575,705 302,378 1,444,565 634,793 ------------- ------------- ------------- ------------- Net cash flow provided from operations 7,411,648 5,011,094 19,857,564 11,246,477 ------------- ------------- ------------- ------------- CASH FLOW USED IN INVESTING ACTIVITIES Acquisition of rental automobiles (17,155,277) (3,303,185) (64,883,509) (37,697,980) Acquisition of other property and equipment (674,567) (25,915) (3,237,626) (1,339,168) Proceeds from disposals of property and equipment 6,058,386 2,582,473 19,020,036 9,145,440 Increase in other assets (94,446) 26,770 (120,232) (27,164) ------------- ------------- ------------- ------------- (11,865,904) (719,857) (49,221,331) (29,918,872) ------------- ------------- ------------- ------------- CASH FLOW PROVIDED FROM (USED IN) FINANCING ACTIVITIES Proceeds from long-term borrowings 17,597,718 2,862,819 70,208,675 40,071,502 Principal payments of long-term borrowings (11,959,699) (7,091,280) (37,671,053) (18,542,398) Proceeds from issuance of common stock 102,960 ------------- ------------- ------------- ------------- 5,638,019 (4,228,461) 32,537,622 21,632,064 ------------- ------------- ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,183,763 62,781 3,173,855 2,959,669 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 10,008,747 6,834,892 6,834,892 3,875,223 ------------- ------------- ------------- ------------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 11,192,510 $ 6,897,668 $ 10,008,747 $ 6,834,892 ============= ============= ============= ============= SUPPLEMENTAL INFORMATION Interest paid $ 1,835,197 $ 1,291,508 $ 5,977,857 $ 3,293,879 ============= ============= ============= ============= Income taxes paid None None $ 1,319,679 $ 1,325,000 ============= ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS. F-112 113 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Spirit Rent-A-Car, Inc. and Subsidiary ("Spirit") are primarily engaged in the insurance replacement automobile rental business. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of Spirit Rent-A-Car, Inc. and its wholly-owned subsidiary, Spirit Leasing, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS At March 31, 1997 and December 31, 1996 and 1995, Spirit maintained cash balances at a financial institution and a captive finance company which exceeded the amount insured by the Federal Deposit Insurance Corporation. Spirit considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. At March 31, 1997 and December 31, 1996 and 1995, cash and cash equivalents included amounts on deposit with a captive finance company of approximately $10,333,000, $8,879,000 and $5,401,000, respectively. Interest income for the three months ended March 31, 1997 and 1996 amounted to $185,162 and $149,228, respectively, and for the years ended December 31, 1996 and 1995 amounted to $700,138 and $312,117, respectively, and is netted against interest expense in the accompanying consolidated statement of income. PROPERTY AND EQUIPMENT Rental automobiles are stated at cost, less related purchase discounts and incentives. Rental automobiles are depreciated over their estimated economic useful lives using the straight-line method at a rate of 1.6% per month. Other property and equipment consists primarily of trucks, tow dollies, office equipment and leasehold improvements and is depreciated and amortized using the straight-line method over estimated useful lives of three to seven years. During 1995, Spirit changed its estimate of the useful lives of its rental automobiles. This change increased net income for 1995 by $204,000, net of a related tax effect of $136,000. Gains or losses realized from vehicle disposals are recorded as an adjustment to depreciation expense. Gains on vehicle disposals amounted to $434,792 and $401,100 for the three months ended March 31, 1997 and 1996, respectively, and amounted to $2,327,539 and $1,859,526 for the years ended December 31, 1996 and 1995, respectively. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Spirit and its subsidiary file a consolidated Federal income tax return. F-113 114 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) USE OF ACCOUNTING ESTIMATES Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used. ADVERTISING AND PROMOTIONAL COSTS Advertising and promotional costs are generally expensed as incurred. UNAUDITED FINANCIAL STATEMENTS The financial statements as of March 31, 1997 and for the three months ended March 31, 1997 and 1996 are unaudited; however, in the opinion of management, all material normal recurring adjustments necessary for a fair presentation of the financial statements for these interim periods have been included. The results of the interim periods are not necessarily indicative of the results for the full year. 2. AUTOMOBILE OBLIGATIONS A captive finance company of an automobile manufacturer and a bank have provided Spirit with long-term credit facilities totaling $110 million, $110 million and $69 million at March 31, 1997 and December 31, 1996 and 1995, respectively, for the purchase of new automobiles. Subsequent to March 31, 1997, available credit facilities were increased to $130 million. Outstanding borrowings of $94,089,600, $88,451,581 and $55,913,959 bear interest at a weighted average interest rate of 7.9%, 8.0% and 9.2% at March 31, 1997, and December 31, 1996 and 1995, respectively, and are collateralized by the rental automobiles and their related receivables. Future maturities of automobile obligations at March 31, 1997 are as follows (unaudited): 1997 $ 33,723,500 1998 50,450,320 1999 9,915,783 ------------- $ 94,089,603 ============= Future maturities of automobile obligations at December 31, 1996 are as follows: 1997 $ 43,250,461 1998 45,201,120 ------------- $ 88,451,581 ============= Maturities of automobile obligations at December 31, 1995 were as follows: 1996 $ 29,279,165 1995 26,634,794 ------------- $ 55,913,959 ============= The credit agreement with a bank requires, among other things, that Spirit maintain certain financial ratios, and imposes restrictions on additional indebtedness and on compensation of non-executive employees. The credit agreement with the finance company requires, among other things, that Spirit maintain a certain net worth ratio. F-114 115 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. AUTOMOBILE OBLIGATIONS (Continued) In addition, at March 31, 1997 and December 31, 1996, Spirit had an available $750,000 line of credit from General Motors Acceptance Corporation. Interest, computed at .75% above a bank's prime rate, is payable monthly with any unpaid principal balance due on November 30, 1997. Such agreement is collateralized by substantially all assets of Spirit, excluding rental automobiles. There were no outstanding borrowings at March 31, 1997 and December 31, 1996. The carrying amount of automobile obligations approximates the fair value of the obligations since, in the opinion of management, Spirit could borrow funds with similar remaining maturities at similar interest rates. 3. PROFIT SHARING PLAN Effective January 1, 1995, Spirit adopted a 401(k) profit sharing plan covering substantially all employees. Spirit matches certain amounts contributed by the employees up to a maximum percentage of compensation. Discretionary company contributions can also be authorized by the Board of Directors annually. Spirit's matching contribution authorized for the three months ended March 31, 1997 and 1996 amounted to $14,689 and $10,498, respectively, and for the years ended December 31, 1996 and 1995 amounted to $44,428 and $33,580, respectively. No discretionary contributions were authorized for the three months ended March 31, 1997 and 1996 or for the years ended December 31, 1996 and 1995. 4. COMMON STOCK During 1995, Spirit issued 42 shares of its common stock for $102,960. 5. COMMITMENTS AND CONTINGENCIES Spirit is obligated under various leases, primarily for office space, that expire at various dates during the next four years. Future minimum lease payments under noncancellable operating leases (with initial lease terms in excess of one year) as of December 31, 1996 are as follows: 1997 $ 1,162,000 1998 950,000 1999 577,000 2000 353,000 2001 270,000 Thereafter 444,000 ------------- $ 3,756,000 ============= Rent expense for such operating leases for the three months ended March 31, 1997 and 1996 amounted to $349,976 and $197,146, respectively, and for the years ended December 31, 1996 and 1995 amounted to $945,528 and $619,210, respectively. F-115 116 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. INCOME TAXES Spirit's provision for income taxes differs from the amount that would be determined using the statutory rate of 34%. The following is a reconciliation of the income tax provision and the amount computed by applying the statutory Federal income tax rate:
As of March 31, As of December 31, ------------------------------- ------------------------------- 1997 1996 1996 1995 ------------- -------------- ------------- -------------- (Unaudited) Tax provision computed at the statutory rate $ 95,982 $ 567,288 $ 2,619,780 $ 1,594,995 Deferred tax provision for state and local income taxes 374,600 145,400 Current tax provision for state and local income taxes 17,813 106,073 105,300 Non-deductible expenses 25,300 13,800 Under- (over-) accrual from prior period (310,974) 122,305 ------------- -------------- ------------- -------------- $ 113,795 $ 673,361 $ 2,814,006 $ 1,876,500 ============= ============== ============= ==============
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 1996 and 1995 are as follows:
As of December 31, ------------------------------- 1996 1995 ------------- -------------- Deferred Tax Assets Accounting for bad debts under the allowance method for financial reporting purposes $ 282,000 $ 182,000 Accrual for self-insurance claims not deductible until paid for tax purposes 607,000 587,000 Alternative minimum tax credit carryforwards 1,214,000 216,000 Other 5,000 25,000 ------------- ------------- 2,108,000 1,010,000 ------------- ------------- Deferred Tax Liabilities Excess of tax over financial accounting depreciation (6,778,000) (3,006,000) Accounting for prepaid expenses, deductible when paid for tax purposes (193,000) ------------- ------------- (6,971,000) (3,006,000) ------------- ------------- Net deferred tax liability $ (4,863,000) $ (1,996,000) ============= =============
There was no valuation allowance required to reduce the above deferred tax assets at December 31, 1996 and 1995. F-116 117 SPIRIT RENT-A-CAR, INC. AND SUBSIDIARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7. CONTINGENT LIABILITIES Spirit is insured for bodily injury and physical property damage liability claims up to $1,000,000 per occurrence. Spirit has a $100,000 ($50,000 prior to September 30, 1996) deductible per occurrence. A funding arrangement with an outside third-party administrator, which investigates, settles and processes each claim, requires Spirit to maintain specific cash reserves on deposit. At March 31, 1997 and December 31, 1996 and 1995, the cash reserve on deposit with the administrator of $50,000 has been included in prepaid expenses in the accompanying consolidated financial statements. Provisions for actual and estimated claims included in accrued expenses and taxes are as follows:
As of As of December 31, March 31, ------------------------------ 1997 1996 1995 ------------- ------------- ------------- (Unaudited) Provision for actual and estimated claims submitted $ 1,154,922 $ 1,199,306 $ 709,060 Provision for unsubmitted estimated claims 741,640 351,360 795,740 ------------- ------------- ------------- Balance - End of period $ 1,896,562 $ 1,550,666 $ 1,504,800 ============= ============= =============
Spirit is self-insured for all physical property damage to its vehicles. Net reserves for estimated losses on known self-insurance claims at March 31, 1997 and December 31, 1996 and 1995 were approximately $251,000, $34,000 and $96,000, respectively. At March 31, 1997 and December 31, 1996, Spirit had a $750,000 irrevocable letter of credit with General Motors Acceptance Corporation as a guarantee for payment of liability insurance premiums. As of March 31, 1997 and December 31, 1996, such letter of credit was unused. Spirit was named co-defendant in an action alleging infringements of a shareholder's rights. Spirit filed a counter-claim against the shareholder alleging, among other things, breach of fiduciary duty. Subsequent to December 31, 1996, both Spirit and the shareholder dropped all litigation claims against each other. 8. VULNERABILITY DUE TO CONCENTRATIONS Spirit purchases substantially all of its rental automobiles and finances the majority of them from one automobile manufacturer and financing subsidiary. Vehicle purchase commitments are finalized for the entire model year at least six months before any vehicles are produced. Management believes that there would be sufficient time to purchase and finance its vehicles on comparable terms with alternative sources, if need be. However, if it were necessary to change suppliers, there is a possibility it could result in a loss of revenue. 9. SUBSEQUENT EVENT - BUSINESS REORGANIZATION PLAN On April 22, 1997, Spirit and Republic Industries, Inc. entered into a merger agreement whereby shareholders of Spirit have agreed to exchange all of the outstanding shares of common stock of Spirit for shares of Republic Industries, Inc., valued at $80 million, in a business combination accounted for as a pooling of interests. F-117 118 Independent Auditors' Report ---------------------------- Boards of Directors Chesrown Automotive Group Denver, Colorado We have audited the accompanying combined balance sheet of Chesrown Automotive Group as of December 31, 1996 and the related statements of income and accumulated deficit and cash flows for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chesrown Automotive Group as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying balance sheet of Chesrown Automotive Group as of March 31, 1997 and the related statements of income and accumulated deficit and cash flows for the three months ended March 31, 1997 and 1996 are presented for the purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on it. BAILEY SAETVEIT & CO., P.C. Englewood, Colorado, February 13, 1997 F-118 119 CHESROWN AUTOMOTIVE GROUP Combined Balance Sheets
ASSETS ------ (Unaudited) December 31, March 31, 1996 1997 ------------ ----------- Current assets: Cash $ 1,745,771 $ 825,215 Receivables (net of allowance for doubtful accounts of $102,095 in 1996 and 1997) 4,170,726 3,132,593 Notes receivable - related parties 2,251,860 2,251,860 Inventories 38,082,593 33,605,008 Prepaid expenses 22,895 25,460 ----------- ----------- Total current assets 46,273,845 39,840,136 Property and equipment 23,969,890 27,948,334 Goodwill (net of amortization of $92,985 and $105,663 in 1996 and 1997, respectively) 1,935,784 1,923,106 Other assets 187,721 82,697 ----------- ----------- $72,367,240 $69,794,273 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Bank overdraft $ 563,881 $ 935,609 Current maturities of long-term debt 2,172,471 2,779,397 Notes payable - floor plan 39,554,358 35,633,740 Notes payable - other 2,930,000 3,610,000 Accounts payable 1,738,155 1,488,769 Accrued liabilities 3,178,603 2,242,591 ----------- ----------- Total current liabilities 50,137,468 46,690,106 ----------- ----------- Long-term debt 15,339,543 16,569,416 ----------- ----------- Unearned income and reserves 4,344,774 4,628,129 ----------- ----------- Commitments and contingencies Stockholders' equity: Common stock, 60,000 shares of no par value authorized, 24,000 shares issued and outstanding 2,120,814 2,120,814 Additional paid-in capital 1,294,496 1,594,496 Accumulated deficit (869,855) (1,808,688) ----------- ----------- Total stockholders' equity 2,545,455 1,906,622 ----------- ----------- $72,367,240 $69,794,273 =========== ===========
See notes to combined financial statements. F-119 120 CHESROWN AUTOMOTIVE GROUP Combined Statements of Income and Accumulated Deficit
(Unaudited) March 31, December 31, ------------------------------ 1996 1997 1996 ------------ ------------ ------------ Sales $299,781,300 $ 63,954,436 $ 74,431,446 Cost of sales 258,788,097 55,170,626 63,344,216 ------------ ------------ ------------ Gross profit 40,993,203 8,783,810 11,087,230 Selling, general and administrative expenses 36,858,883 7,893,529 9,002,351 ------------ ------------ ------------ Operating income 4,134,320 890,281 2,084,879 Other income, less other deductions 693,335 509,945 708,157 ------------ ------------ ------------ Income before cumulative effects of accounting change 4,827,655 1,400,226 2,793,036 Cumulative effect of accounting change on years prior to 1996 (1,592,714) -0- -0- ------------ ------------ ------------ Net income 3,234,941 1,400,226 2,793,036 Dividend distributions (4,525,392) (2,339,059) (2,073,654) Retained earnings (accumulated deficit), beginning 420,596 (869,855) 4,257,543 ------------ ------------ ------------ Accumulated deficit, end $ (869,855) $ (1,808,688) $ 4,976,925 ============ ============ ============
See notes to combined financial statements. F-120 121 CHESROWN AUTOMOTIVE GROUP Combined Statements of Cash Flows
(Unaudited) March 31, December 31, -------------------------------- 1996 1997 1996 ------------ -------------------------------- Operating activities: Net income $ 3,234,941 $ 1,400,226 $ 2,793,036 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 989,363 304,263 126,127 Net change in assets and liabilities: Receivables (2,066,410) (1,228,822) 664,108 Inventories, net of floor plan 897,197 (1,596,239) (3,060,219) Prepaid expenses 78 (2,565) 3,552 Other assets 16,892 65,312 75,204 Accounts payable (217,365) (725,337) (881,308) Other liabilities 3,878,389 (590,417) 502,761 ----------- ----------- ----------- Net cash provided (used) by operating activities 6,733,085 (2,373,579) 223,261 ----------- ----------- ----------- Investing activities: Purchases of property and equipment (15,396,485) (4,894,003) (4,578,155) Proceeds from sales of property and equipment 1,077,819 23,974 928,320 ----------- ----------- ----------- Net cash used by investing activities (14,318,666) (4,870,029) (3,649,835) ----------- ----------- ----------- Financing activities: Proceeds from long-term debt and notes payable 13,404,700 8,191,487 1,169,262 Additional paid-in capital 19,496 300,000 -- Payments of long-term debt and notes payable (775,629) (201,104) 4,340,864 Proceeds from issuance of common stock 10,000 -0- 35,000 Dividends paid (4,525,392) (2,339,059) (2,176,140) ----------- ----------- ----------- Net cash provided by financing activities 8,133,175 5,951,324 3,368,986 ----------- ----------- ----------- Net increase (decrease) in cash 547,594 (1,292,284) (57,588) Cash, beginning of year/period 634,296 1,181,890 634,296 ----------- ----------- ----------- Cash, (bank overdraft) end of year/period $ 1,181,890 $ (110,394) $ 576,708 =========== =========== =========== Cash, end of year/period: Cash $ 1,745,771 $ 825,215 $ 576,708 Bank overdraft (563,881) (935,609) -- ----------- ----------- ----------- $ 1,181,890 $ (110,394) $ 576,708 =========== =========== =========== Supplemental disclosure of cash flow information - cash paid during the year/period for: Interest $ 4,250,955 $ 972,374 $ 656,310 Income taxes $ -0- -0- -0-
See notes to combined financial statements. F-121 122 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements December 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES BUSINESS ORGANIZATION AND BASIS OF PRESENTATION The accompanying combined financial statements include the accounts of the following entities: Chesrown Chevrolet, Inc., Marshall Ford, Inc., Chesrown's Friendly Ford, Inc., Chesrown's Southwest Dodge, Inc., Total Care, Inc., Chesrown Collision Center, Inc., and Chesrown Auto Group, Inc. (the "Companies"). The Companies have been presented on a combined basis due to their related operations, common ownership and common management control. All significant intercompany balances and transactions have been eliminated in combination. The Chesrown Automotive Group is engaged in the retail and commercial sale of new and used motor vehicles, finance and insurance products, vehicle service and parts, after-market products and in selling third party financing contracts on new and used vehicle sales originated by dealerships within the group. The Companies operate in the Denver and Boulder, Colorado areas. In the opinion of management, the unaudited combined financial statements contain all material adjustments, consisting of only normal recurring adjustments, necessary to present fairly the combined financial position of the Companies at March 31, 1997 and the combined results of its operations and cash flows for the three months ended March 31, 1997 and 1996. Operating results for these interim periods are not necessarily indicative of the results that can be expected for a full year. INVENTORIES The cost of new vehicle inventories is computed using the last-in, first-out (LIFO) cost method. If the first-in, first-out (FIFO) method of inventory accounting had been used by the Companies, inventories, net working capital and total stockholder's equity would have been $4,601,085 higher than reported at December 31, 1996 and net income for the year ended December 31, 1996 would have been $764,138 higher than reported. Used vehicle and parts and accessories inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method, and market represents the lower of replacement cost or estimated net realizable value. PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION Property and equipment are recorded at cost. Depreciation is provided using the declining balance and straight-line methods. Estimated useful lives of the assets used in the computation of depreciation are as follows: F-122 123 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements, Continued December 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES, Continued Years -------- Building and improvements 5 - 10 Furniture, equipment and vehicles 5 - 7 FINANCE CONTRACTS Finance income is recognized when finance contracts are sold. The Companies provide an estimated reserve for finance income chargebacks. Finance contracts sold to customers through some lenders on vehicles which are at least six years old are sold with recourse. In the event of a default by a customer, the finance institution will repossess the vehicle and the Companies must purchase the vehicle for the balance due on the customer's contract. Repossession losses are recorded as incurred. Such repossession losses in 1996 totaled $34,633. EXTENDED WARRANTIES Warranty income and related claims expense are recognized ratably over customers' periods of coverage as provided in the individual extended service contracts. The Companies provide an estimated reserve for warranty claims. INCOME TAXES The Companies have elected S-Corporation status and income taxes on the profits are a liability of the shareholders. Accordingly, there is no provision for income taxes or income tax liability reflected in these combined financial statements. CASH The Companies consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash. ADVERTISING COSTS The Companies expense non-direct advertising costs as incurred. The Companies did not incur any direct advertising costs in 1996 to be capitalized and deferred to future periods. Total advertising expense in 1996 was approximately $4,225,000. F-123 124 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements, Continued December 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES, Continued ESTIMATES The preparation of combined financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. NOTES RECEIVABLE - RELATED PARTIES Notes receivable - related parties at December 31, 1996 consist of the following, which are due on demand and bear interest at rates ranging from 8% to 10%: Colorado National Speedway, Inc. $ 1,100,000 Chesrown Racing, Inc. 350,000 CAG Investments, Inc. 801,860 ----------- $ 2,251,860 =========== 3. PROPERTY AND EQUIPMENT Following is a summary of property and equipment at December 31, 1996: Land $ 9,541,771 Buildings and improvements 10,892,071 Furniture, equipment and vehicles 5,950,575 ----------- 26,384,417 Less accumulated depreciation (2,414,527) ----------- $23,969,890 =========== Depreciation expense for 1996 was $953,122. 4. NOTES PAYABLE - FLOOR PLAN The Companies have line of credit commitments with General Motors Acceptance Corporation (GMAC) and Ford Motor Credit Company (FMCC) to finance new vehicle inventory and program vehicles (included in used vehicles). Principal reductions are required as vehicles are sold and interest is due monthly at 1% over prime. The lenders retain a security interest in all units financed and all other assets of the dealerships. The notes are guaranteed by the shareholder. Interest expense relating to notes payable - floor plan for 1996 was approximately $3,120,000. F-124 125 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements, Continued December 31, 1996 5. NOTES PAYABLE - OTHER The Companies have line of credit commitments with GMAC and FMCC which mature during 1997 under which the Companies may borrow up to $3,550,000 at 1.00% to 1.25% above the lenders' prime interest rate. Principal is due at maturity with interest due monthly. The notes are collateralized by all the assets of the dealership and guaranteed by the majority shareholder. 6. LONG-TERM DEBT Long-term debt at December 31, 1996 consists of the following: GMAC $ 4,442,167 Real estate construction loan commitment of $4,950,000 of which $1,800,000 was drawn to purchase the land. Payable, interest only through September 1996 and thereafter in monthly installments of $27,500 plus interest at prime plus 1% through August 2001. Principal and interest balloon payment due September 2001. The note is collateralized by real property, machinery and equipment located at the future site of the Chesrown Chevrolet facilities. GMAC 2,305,628 Payable in monthly installments of $19,373 plus interest at prime plus 1% through December 2006. The note is collateralized by real property, machinery and equipment located at the Companies' new collision center. GMAC 3,644,334 Payable in monthly installments of $31,417 plus interest at prime plus 1% through September 2006. The note is collater- alized by real property, machinery and equipment located at the Companies' new Marshall Ford facility. GMAC 4,343,625 Payable in monthly installments of $37,125 plus interest at prime plus 1% through October 2006. The note is collateralized by real property, machinery and equipment located at the Companies' Chesrown's Southwest Dodge facility. F-125 126 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements, Continued December 31, 1996 6. LONG-TERM DEBT, CONTINUED Others 2,776,260 ----------- 17,512,014 Less current maturities (2,172,471) ----------- Long-term debt $15,339,543 =========== Maturities of long-term debt are as follows: Year Ended December 31, Amount ----------------- --------------- 1997 $ 2,172,471 1998 2,031,136 1999 2,051,974 2000 1,824,567 2000 and thereafter 9,431,866 ----------- $17,512,014 =========== The Companies follow the policy of capitalizing interest as a component of the cost of property, plant, and equipment constructed for its own use. In 1996, total interest incurred for long-term debt was $1,254,812, of which $132,718 was capitalized, and $1,122,094 was charged to operations. 7. PROFIT SHARING PLAN The Companies have adopted a 401(k) plan in which all full-time employees who meet certain eligibility requirements may participate. The Companies may match a portion of the employees' salary reduction contributions. The contribution for 1996 was $55,321. The Companies have no obligation to make a contribution to the plan in any year. 8. CHANGE IN ACCOUNTING PRINCIPLE During 1996 the Companies changed their method of recognizing warranty income and related claims expense from the point of sale method to a method in which the income and related claims expense are recognized ratably over the customers' periods of coverage, as provided in the individual extended service contracts. The effect of the change was to decrease income by $2,376,374 for 1996. The cumulative effect of the change on prior years of $1,592,714 is a one time change to income. F-126 127 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements, Continued December 31, 1996 9. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Companies lease a dealership facility under an operating lease for $35,000 per month through March 1, 2005. The lease is a "triple net" lease requiring the Companies to pay real estate taxes, insurance, and repairs. The lease also requires cost of living increases calculated every year based on the Consumer Price Index. Following is a schedule by years of the future minimum rental payments under the operating lease as of December 31, 1996 based on the present actual rate: Year Ended December 31, Amount ---------------- --------------- 1997 $ 420,000 1998 420,000 1999 420,000 2000 420,000 2001 and thereafter 1,750,000 ----------- $ 3,430,000 =========== Rent expense for the period ended December 31, 1996 was $523,100. CONCENTRATION OF CREDIT RISK The Companies maintain checking accounts at high credit quality financial institutions. The balances, at times, may exceed federally insured limits. At December 31, 1996 the balances exceeded the federally insured limit by approximately $760,000. GOVERNMENTAL REGULATION The Companies' facilities are subject to federal, state and local regulations relating to the discharge of materials into the environment. Compliance with these provisions has not had, nor do the Companies expect such compliance to have, any material effect upon its capital expenditures, net income, financial condition or competitive position. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal and state requirements. 10. RELATED PARTY TRANSACTIONS The Companies have transactions with its major shareholder, Marshall R. Chesrown, and with three other corporations which he owns: Chesrown Racing, Inc. (a motor sport promotion company); Colorado National Speedway (a race track promotion company); and CAG Investments, Inc. (a real estate investment company). F-127 128 CHESROWN AUTOMOTIVE GROUP Notes to Combined Financial Statements, Concluded December 31, 1996 10. RELATED PARTY TRANSACTIONS, continued Mr. Chesrown is a guarantor of substantially all of the Companies' debt. The Companies have notes receivable from the three corporations (note 2). The Companies leased racing equipment to Chesrown Racing, Inc. in 1996 for $240,000. In addition, the Companies paid $480,000 in sponsorship fees to Chesrown Racing, Inc. in 1996. The Companies collected management fees in 1996 from Colorado National Speedway, Inc. and Chesrown Racing, Inc. of $120,000 and $60,000, respectively. The Companies rent an office building from CAG Investments, Inc. on a month-to-month basis. Total rent paid to CAG Investments, Inc. in 1996 was $90,000. F-128 129 REPORT OF INDEPENDENT AUDITORS Board of Directors Bankston Automotive Group Dallas, Texas We have audited the accompanying combined balance sheet of Bankston Automotive Group as of March 31, 1997, and the related combined statements of operations, owners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Bankston Automotive Group as of March 31, 1997, and the combined results of their operations and cash flows for the year then ended in conformity with generally accepted accounting principles. Turner & Vedrenne Dallas, Texas May 22, 1997 F-129 130 BANKSTON AUTOMOTIVE GROUP COMBINED BALANCE SHEET MARCH 31, 1997 ASSETS Current assets: Cash $ 2,932,750 Accounts receivable, less allowance for doubtful accounts of $178,461 (Note 2) 12,133,095 Inventories (Note 2): New and demonstrator vehicles 21,325,586 Used vehicles 6,927,542 Parts, accessories, and supplies 2,033,240 ------------ 30,286,368 Prepaid expenses 125,193 Deferred tax asset (Note 5) 34,693 ------------ Total current assets 45,512,099 Other assets: Investment in tax benefits (Note 3) 120,461 Amounts withheld by financing institutions to apply against prepayments and losses on conditional sales contracts 601,130 Deferred tax asset (Note 5) 1,121,112 Miscellaneous 565,924 ------------ 2,408,627 Advances to shareholder and affiliates (Note 6) 1,198,140 Net assets excluded from merger (Note 8) 2,040,996 Property, equipment and leasehold improvements, at cost (Note 4): Land 14,326,723 Building and leasehold improvements 8,860,853 Furniture and equipment 5,959,289 Construction in progress 1,511,815 ------------ 30,658,680 Allowance for depreciation and amortization (8,983,247) ------------ 21,675,433 ------------ $ 72,835,295 ============
SEE ACCOMPANYING NOTES. F-130 131 LIABILITIES AND OWNERS' DEFICIT Current liabilities: Obligations to financing institutions for new and used vehicles (Note 2) $ 41,155,009 Current portion of long-term debt (Note 4) 1,779,731 Trade accounts payable 4,351,213 Accrued payroll and commissions 952,674 Other accrued expenses 1,020,832 Taxes, other than Federal income taxes 784,342 Federal income taxes payable (Note 5) 454,312 ------------ Total current liabilities 50,498,113 Long-term debt, less current portion (Note 4) 28,249,745 Commitments and contingencies (Note 9) Minority interest 344,066 Owners' deficit: Common stock 51,612 Additional paid-in capital 752,383 Accumulated deficit (2,991,735) Partners' deficit (4,068,889) ------------ Total owners' deficit (6,256,629) ------------ $ 72,835,295 ============
SEE ACCOMPANYING NOTES. F-131 132 BANKSTON AUTOMOTIVE GROUP COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997 Net sales: Vehicles $ 233,501,373 Parts and service 45,336,363 ------------- 278,837,736 ------------- Cost of sales: Vehicles 218,735,938 Parts and service 26,190,993 ------------- 244,926,931 ------------- Gross margin 33,910,805 Other income: Finance and extended warranty 4,787,206 Miscellaneous 2,096,626 ------------- 6,883,832 ------------- Expenses: Selling 19,591,938 Administrative and general 12,965,492 Depreciation and amortization 765,524 Interest 3,983,654 ------------- 37,306,608 ------------- Minority interest in net income of combined entity (183,085) ------------- Income before Federal income taxes 3,304,944 Federal income taxes (Note 5) 99,284 ------------- Net income $ 3,205,660 =============
SEE ACCOMPANYING NOTES. F-132 133 BANKSTON AUTOMOTIVE GROUP COMBINED STATEMENT OF OWNERS' DEFICIT FOR THE YEAR ENDED MARCH 31, 1997
Additional Common paid-in Accumulated Partners' stock capital deficit deficit Total ----------- ----------- ------------ ------------ ------------ Balance at April 1, 1996 $ 51,612 $ 751,883 $(5,186,425) $(4,769,561) $(9,152,491) Net income -- -- 2,334,690 870,970 3,205,660 Capital contributions -- 500 -- 836,991 837,491 Dividends and distributions -- -- (140,000) (1,007,289) (1,147,289) ----------- ----------- ----------- ----------- ----------- Balance at March 31, 1997 $ 51,612 $ 752,383 $(2,991,735) $(4,068,889) $(6,256,629) =========== =========== =========== =========== ===========
SEE ACCOMPANYING NOTES. F-133 134 BANKSTON AUTOMOTIVE GROUP COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 1997 OPERATING ACTIVITIES Net income $ 3,205,660 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 765,524 Gain on sale of minority interest (21,649) Increase in LIFO reserves 484,578 Provision for deferred income taxes (490,542) Minority interest in net income of combined entity 183,085 Changes in assets and liabilities: Accounts receivable (995,375) Inventories (FIFO) 1,042,367 Prepaid expenses and miscellaneous other assets (242,559) Trade accounts payable and other current liabilities 951,287 Federal income taxes payable 467,610 Amounts withheld by financing institutions 116,560 Net assets excluded from merger 100,572 ----------- Net cash provided by operating activities 5,567,118 ----------- INVESTING ACTIVITIES Purchase of property, equipment and leasehold improvements (5,876,852) Proceeds from sale of minority interest in combined subsidiary 25,000 Proceeds from sale of equipment 72,215 ----------- Net cash used in investing activities (5,779,637) ----------- FINANCING ACTIVITIES Decrease in obligations to financing institutions for new and used vehicles (1,735,078) Proceeds from long-term debt 5,003,131 Proceeds from line of credit 2,365,000 Payments on line of credit (3,245,673) Principal payments on long-term debt (2,091,574) Capital contributions 837,491 Dividends paid to shareholder (140,000) Distributions to partners and minority interest (1,127,289) Decrease in advances to shareholder and affiliates 598,528 ----------- Net cash provided by financing activities 464,536 ----------- Net increase in cash 252,017 Cash at beginning of year 2,680,733 ----------- Cash at end of year $ 2,932,750 ===========
SEE ACCOMPANYING NOTES. F-134 135 BANKSTON AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS MARCH 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Bankston Automotive Group (the Group) operates in Dallas, Texas and the surrounding suburbs. The Group serves customers principally in the Dallas and Fort Worth metropolitan area. The Group offers a broad range of products and services including new and used car and light truck sales, vehicle financing and warranty products, and replacement parts and service. At its five locations the Group offers four makes of new vehicles, including Ford, Nissan, Lincoln-Mercury and SAAB. PRINCIPLES OF COMBINATION The combined financial statements include the accounts of W.O. Bankston Enterprises, Inc. and subsidiaries and certain other partnerships and joint ventures. The partnerships and joint ventures all have a December 31 fiscal year-end. There have been no transactions from January 1, 1997 to March 31, 1997 related to these entities that have a material effect on the financial position or results of operations of the Group. All significant intercompany accounts and transactions have been eliminated in the combined financial statements. MAJOR SUPPLIER AND DEALER AGREEMENTS The Group purchases substantially all of its new vehicles and parts and accessories inventories from Ford Motor Company, Nissan Motor Corporation and SAAB Cars USA, Inc. at the prevailing prices charged to all franchised dealers. The Group's overall sales could be impacted by a manufacturer's inability or unwillingness to supply the Group with an adequate supply or mix of inventory. The Group enters into Dealer Agreements with each manufacturer. The Dealer Agreements limit the location of the dealership and give the manufacturer rights to approve changes in the dealership's ownership. A manufacturer may terminate the Dealer Agreement if the Group is in breach of its terms. REVENUE RECOGNITION Revenue from the sale of vehicles is recognized upon acceptance by the customer and completed financing arrangements. Revenue from parts sales and service are recognized when the parts are delivered or the service work is performed. Finance, insurance and extended warranty contracts are recognized upon the sale of the contract. F-135 136 BANKSTON AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Group defines cash equivalents as cash and short-term highly liquid investments that: (a) are readily convertible to known amounts of cash and (b) are so near to maturity that they present insignificant risk of changes in value because of changes in interest rates. INVENTORIES New, demonstrator and used vehicles are stated at the lower of cost or market, with cost being determined by the last-in, first-out (LIFO) method. If the specific unit method of inventory accounting had been used, the new, demonstrator and used vehicle inventory would have increased by $10,585,254 and $1,770,643 at March 31, 1997, respectively. Parts, accessories, and supplies are stated at the lower of cost or market, with cost being determined by the LIFO method. If the inventory had been priced using manufacturer's catalogue replacement prices, the inventory would have increased by $1,684,310 at March 31, 1997. Quantities in various LIFO inventory pools were reduced in 1997, resulting in liquidation of LIFO layers carried at lower costs prevailing in prior years as compared with the cost of current year purchases. The effect of the liquidation was to increase net income by $354,360 in 1997. DEPRECIATION AND AMORTIZATION Depreciation and amortization are provided using accelerated methods for substantially all furniture and equipment. The straight-line method is used for building and leasehold improvements in amounts sufficient to amortize the cost of the assets over their estimated useful lives. INCOME TAXES The Group uses an asset and liability approach to recognize deferred income tax assets and liabilities for the future tax return consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Valuation allowances are established, if necessary, to reduce deferred tax assets to the amount that will more likely than not be realized. The Company's deferred taxes relate primarily to the allowance for doubtful accounts (deductible for financial statement purposes but not for income tax purposes), investments in affiliates (recorded on the cost method for financial statement purposes), deductible loss carryforwards, and tax credit carryforwards. ADVERTISING The Group expenses production and other costs of advertising as incurred. Advertising expense for the year ended March 31, 1997 was $2,451,217. F-136 137 BANKSTON AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) CONCENTRATION OF CREDIT RISK The financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and accounts receivable. The Group has cash on deposit with financial institutions and limits the amount of credit exposure to any one financial institution. At times, the Group's cash balances exceeds the federally insured limit of $100,000. The Group routinely assesses the financial strength of its customers. Consequently, the Group believes that its accounts receivable credit risk exposure is limited. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. OBLIGATIONS TO FINANCING INSTITUTIONS At March 31, 1997, obligations to financing institutions for new and used vehicles have as collateral accounts receivable of $3,117,872, substantially all new and demonstrator vehicles, and $4,367,392 of used vehicles. Payment is generally due upon the sale of the related vehicle. These obligations bear interest at prime plus 1%. Total interest expense for these obligations for the year ended March 31, 1997 was $1,468,152 and is net of floor plan assistance of $1,886,256. 3. INVESTMENT IN TAX BENEFITS During the year ended March 31, 1984, the Group acquired Federal income tax benefits under the safe harbor leasing provisions of the Economic Recovery Tax Act of 1981 from The Greater Cleveland Regional Transit Authority for $520,000. The tax benefits consisted of accelerated cost recovery system (ACRS) deductions on $2.8 million of light rail vehicles. The purchase has been recorded as an investment in tax benefits. The investment in tax benefits is being amortized over the life of the related lease. F-137 138 BANKSTON AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1997 4. LONG-TERM DEBT Long-term debt consists of the following at March 31, 1997: Mortgages payable to Ford Motor Credit Company; interest at prime plus 1% to 1.5% or the commercial paper rate plus 3.95% or 4.45%; secured by assets of certain of the Group's subsidiaries; maturing through 2005 $ 23,226,465 Notes payable to Ford Motor Credit Company; interest at prime plus 1.5%; secured by assets of certain of the Group's subsidiaries; maturing through 2006 2,253,170 $1,500,000 line of credit; interest at prime plus 1.5%; secured by certain furniture and equipment; due on demand 300,000 Mortgages payable to Nissan Motor Acceptance Corporation; interest at prime plus 1%; secured by assets of certain of the Group's subsidiaries; maturing through 2010 3,181,321 Mortgage payable to bank; interest at 9.25%; secured by assets of certain of the Group's subsidiaries; matures in April 1997 554,000 Other notes payable 514,520 ------------ 30,029,476 Less current portion (1,779,731) ------------ $ 28,249,745 ============
Maturities of long-term debt are as follows: 1998 - $1,779,731; 1999 - $5,434,603; 2000 - $20,118,164; 2001 - $366,056 and 2002 - $365,799. The Group made interest payments of $4,066,265 in 1997, of which $112,807 was capitalized. F-138 139 BANKSTON AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1997 5. FEDERAL INCOME TAXES Certain members of the Group are treated as partnerships for income tax purposes. Accordingly, the accompanying financial statements reflect no provision for income taxes for these entities since the taxable income or loss of the entities are reported by the individual partners. For the remaining members of the Group, the provision for income taxes consist of the following for the year ended March 31, 1997: Current $ 589,826 Deferred (490,542) --------- $ 99,284 ========= The Group's taxable income for the year ended March 31, 1997 was $1,888,166. The Group was subject to alternative minimum tax (AMT) resulting in AMT expense of $25,395 for the year ended March 31, 1997. The provision for income taxes at the Group's effective tax rate of 34% differed from the provision for income taxes at the statutory rate as follows: Computed tax at the expected statutory rate $ 1,123,681 Partnerships not subject to entity level tax (296,072) Utilization of net operating loss carryforward (327,900) Nondeductible expenses (34,648) Alternative minimum tax 25,395 Other, net 99,370 ----------- $ 589,826 ===========
The Group's total deferred tax assets and deferred tax liabilities consist of the following at March 31, 1997: Total deferred tax assets $ 1,334,827 Total deferred tax liabilities (179,022) ----------- Net deferred tax asset $ 1,155,805 =========== At March 31, 1997, the Group has safe harbor lease deduction carryforwards of $1,965,289 available to offset future taxable income and alternative minimum tax credit carryforwards of $624,497 available to offset future taxes payable. Such carryforwards have an indefinite expiration under present tax laws. F-139 140 BANKSTON AUTOMOTIVE GROUP NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1997 6. RELATED PARTY TRANSACTIONS Included in advances to shareholder and affiliates at March 31, 1997, is an interest-bearing advance to an affiliated company, Dallas North Acceptance Corporation (DNAC), totaling $776,403. DNAC functions as a finance company that provides credit to selected customers of the Group. The advance bears interest at 7%, with no specified repayment terms. 7. EMPLOYEE BENEFIT PLAN The Group sponsors a defined contribution profit sharing plan covering substantially all full-time employees. If a participant decides to contribute, a portion of the contribution may be matched by the Group at the Group's discretion. Amounts expensed for this plan totaled $101,052 for the year ended March 31, 1997. 8. SUBSEQUENT EVENT On March 8, 1997, the stockholders and partners of the Group entered into a Merger Agreement with Republic Industries, Inc. Under the terms of the Merger Agreement, Republic Industries, Inc. will acquire 100% ownership of the Group. Prior to the closing of the Merger Agreement, certain nonautomotive assets of the Group will be purchased at fair market value by the stockholders and partners of the Group. The closing of the Merger Agreement occurred on May 14, 1997. 9. COMMITMENTS AND CONTINGENCIES The Group is exposed to various asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material effect on the Group's financial position or results of operations. F-140 141 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors Ditschman/Flemington Ford- Lincoln-Mercury, Inc. and Related Entities Flemington, New Jersey We have audited the accompanying combined balance sheet of Ditschman/Flemington Ford-Lincoln-Mercury, Inc. and related entities as of December 31, 1996, and the related combined statements of income, changes in owners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1996 financial statements referred to above present fairly, in all material respects, the combined financial position of Ditschman/Flemington Ford-Lincoln-Mercury, Inc. and related entities as of December 31, 1996 and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 17, an agreement has been reached for Ditschman/Flemington Ford-Lincoln-Mercury, Inc. and related entities to be acquired. EHRENKRANTZ STERLING & CO. LLC Roseland, New Jersey, May 28, 1997 F-141 142 DITSCHMAN/FLEMINGTON FORD-LINCOLN-MERCURY, INC. AND RELATED ENTITIES COMBINED BALANCE SHEETS
March 31, December 31, 1997 1996 --------- ------------ (unaudited) ASSETS CURRENT ASSETS Cash $ 4,192,767 $ 5,331,706 Accounts and factory receivables 7,793,053 6,959,890 Finance receivables, net of allowances of $283,000 at March 31, 1997 and December 31, 1996 114,901 21,071 Mortgages and notes receivable, current portion 203,343 198,766 Inventories 50,418,319 46,480,163 Sundry assets 128,013 107,952 Deferred taxes 148,270 148,270 ----------- ----------- TOTAL CURRENT ASSETS 62,998,666 59,247,818 ----------- ----------- PROPERTY AND EQUIPMENT, net 12,001,661 11,544,978 ----------- ----------- OTHER ASSETS Mortgages and notes receivable, non-current portion 100,982 118,629 Due from related parties -- 4,200 Sundry 124,288 142,242 ----------- ----------- 225,270 265,071 ----------- ----------- $75,225,597 $71,057,867 =========== =========== LIABILITIES AND OWNERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 941,340 $ 657,835 Notes payable, floor plan 54,753,031 50,764,635 Accounts payable 1,386,392 1,566,319 Accrued expenses 3,945,886 4,643,173 Due to related parties 1,573,098 271,051 Sundry 1,326,800 1,962,713 ----------- ----------- TOTAL CURRENT LIABILITIES 63,926,547 59,865,726 ----------- ----------- LONG-TERM DEBT, less current maturities 4,596,624 5,068,913 ----------- ----------- OWNERS' EQUITY Common stock 2,645,071 2,645,071 Partners' equity 2,306,758 2,026,929 Retained earnings 1,750,597 1,451,228 ----------- ----------- 6,702,426 6,123,228 ----------- ----------- $75,225,597 $71,057,867 =========== ===========
See notes to combined financial statements. F-142 143 DITSCHMAN/FLEMINGTON FORD-LINCOLN-MERCURY, INC. AND RELATED ENTITIES COMBINED STATEMENTS OF INCOME
Three Months Ended March 31, Year Ended --------------------------------- December 31, 1997 1996 1996 ------------- ------------- ------------- (Unaudited) SALES $ 95,238,295 $ 80,438,666 $ 374,884,828 COST OF SALES 85,971,945 72,336,033 342,681,304 ------------- ------------- ------------- GROSS PROFIT 9,266,350 8,102,633 32,203,524 ------------- ------------- ------------- EXPENSES Selling expenses (including advertising expenses of $309,899, $396,219 and $2,966,263) 2,723,582 2,448,119 9,475,022 General and administrative expenses 4,686,576 4,266,189 22,563,653 ------------- ------------- ------------- 7,410,158 6,714,308 32,038,675 ------------- ------------- ------------- INCOME FROM OPERATIONS 1,856,192 1,388,325 164,849 ------------- ------------- ------------- OTHER INCOME (DEDUCTIONS) Floor plan assistance 1,070,361 923,741 3,666,806 Interest expense, net (874,708) (928,194) (3,929,143) Factory incentives -- -- 422,477 Miscellaneous 404,233 285,649 285,873 ------------- ------------- ------------- 599,886 281,196 446,013 ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 2,456,078 1,669,521 610,862 INCOME TAXES -- -- 56,825 ------------- ------------- ------------- NET INCOME $ 2,456,078 $ 1,669,521 $ 554,037 ============= ============= =============
See notes to combined financial statements. F-143 144 DITSCHMAN/FLEMINGTON FORD-LINCOLN-MERCURY, INC. AND RELATED ENTITIES COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
Common Stock ----------------------------- Retained Total Partners' Equity Shares Issued Amount Earnings Equity ---------------- ------------- ------ -------- ------ Balance, January 1, 1996 $ 1,938,599 3,600 $ 2,645,071 $ 2,320,630 $ 6,904,300 Net income 444,174 -- -- 109,863 554,037 Cash dividends -- -- -- (979,265) (979,265) Partners' contributions 810,760 -- -- -- 810,760 Partners' withdrawals (1,166,604) -- -- -- (1,166,604) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 2,026,929 3,600 2,645,071 1,451,228 6,123,228 Net Income 500,709 -- -- 1,955,369 2,456,078 Cash dividiends -- -- -- (1,656,000) (1,656,000) Partners' contributions 100,000 -- -- -- 100,000 Partners' withdrawals (320,880) -- -- -- (320,880) ----------- ----------- ----------- ----------- ----------- Balance, March 31, 1997 (unaudited) $ 2,306,758 3,600 $ 2,645,071 $ 1,750,597 $ 6,702,426 =========== =========== =========== =========== ===========
See notes to combined financial statements. F-144 145 DITSCHMAN/FLEMINGTON FORD-LINCOLN-MERCURY, INC. AND RELATED ENTITIES COMBINED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, Year Ended ----------------------------- December 31, 1997 1996 1996 ----------- ----------- ----------- (unaudited) ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,456,078 $ 1,669,521 $ 554,037 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 141,722 258,137 783,079 Amortization 1,308 1,413 10,148 Deferred income taxes -- 56,118 (60,725) Allowance for doubtful accounts -- -- 301,750 (Increase) decrease in operating assets Accounts and factory receivables (833,163) 783,429 (917,738) Inventories (3,938,156) 3,538,149 (4,988,190) Sundry assets (3,415) (519,198) 105,468 Finance receivables (93,830) (142,359) 105,474 Increase in operating liabilities Notes payable, floor plan, net 3,988,396 (2,596,716) 5,066,947 Accounts payable and accrued expenses (384,149) (1,148,880) 3,073,382 Sundry liabilities (1,128,976) (183,142) 493,254 ----------- ----------- ----------- Net cash provided by operating activities 205,815 1,716,472 4,526,886 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment, net of dispositions (598,405) (274,467) (3,271,179) Payment on note receivable 13,070 770,402 797,211 Issuance of notes receivable -- (74,250) (154,700) Loans from related parties, net 1,306,245 778,458 636,713 ----------- ----------- ----------- Net cash provided by (used in) investing activities 720,910 1,200,143 (1,991,955) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of short-term borrowings -- (326,000) (326,000) Proceeds from long-term borrowings -- 600,000 1,918,000 Repayment of long-term debt (188,784) (185,909) (1,250,529) Partners' withdrawals (320,880) (76,120) (1,166,604) Partners' contributions 100,000 -- 810,760 Dividends paid (1,656,000) (121,347) (979,265) ----------- ----------- ----------- Net cash used in financing activities (2,065,664) (109,376) (993,638) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (1,138,939) 2,807,239 1,541,293 CASH, beginning of period 5,331,706 3,790,413 3,790,413 ----------- ----------- ----------- CASH, end of period $ 4,192,767 $ 6,597,652 $ 5,331,706 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for Interest $ 1,013,637 $ 1,126,264 $ 3,754,213 Taxes -- -- 3,839
See notes to combined financial statements. F-145 146 DITSCHMAN/FLEMINGTON FORD-LINCOLN-MERCURY, INC. AND RELATED ENTITIES NOTES TO COMBINED FINANCIAL STATEMENTS Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ORGANIZATION AND PRINCIPLES OF COMBINATION The combined financial statements of Ditschman/Flemington Ford-Lincoln-Mercury, Inc. and related entities ("The Companies") include all the separate entities which are substantially controlled by Steven Kalafer, as presented below. The Companies are comprised of automobile dealerships, selling new and used automobiles to customers in New Jersey and surrounding states. In addition, the real estate entities lease property to the operating entities. All significant balances and transactions between the combined entities have been eliminated. The Companies reached an agreement in 1997 to be acquired by Republic Industries, Inc. for a purchase price of approximately $55 million which will be accounted for as a pooling of interest. The acquisition is expected to close in 1997 (See Note 17).
ENTITY Form of Interest Interest - ------ Commercial Business of of OPERATING COMPANIES Abbreviation Operations Operation Steven Kalafer Others - ------------------- ------------------------------------------------------------------------------------------ Ditschman/Flemington Ditschman- Ford-Lincoln-Mercury, Inc. Ford 1976 S-Corporation 100% Flemington Nissan/BMW, Inc. Flemington Nissan 1980 S-Corporation 100% Circle Buick/GMC, Inc. Circle Buick 1983 S-Corporation 25% 75% Byron Brisby Princeton's Nassau/Conover Ford-Lincoln Mercury, Inc. Princeton Ford 1994 S-Corporation 100% SNDK, Inc. Porsche Audi/BMW 1992 S-Corporation 70% 30% Norman Denbigh Flemington Subaru, Inc. Flemington Subaru 1985 S-Corporation 100% Flemington Infiniti, Inc. Flemington Infiniti 1989 S-Corporation 100% Sabek, Inc. Flemington Mitsubishi 1989 S-Corporation 100% JJSS, INC. Flemington Mazda 1988 S-Corporation 100% Flemington Chrysler-Plymouth- Flemington Dodge-Jeep Eagle, Inc. Chrysler 1982 S-Corporation 100% Ditschman/Flemington Pontiac Inc. Flemington Pontiac 1990 S-Corporation 100% Land Rover/Princeton, L.L.C. Land Rover 1996 Limited 100% Liability Co.
(Continued on Following Page) F-146 147 Notes to Combined Financial Statements Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BUSINESS ORGANIZATION AND PRINCIPLES OF COMBINATION
Form of Interest Interest Commercial Business of of Abbreviation Operations Operations Steven Kalafer Others ----------------------------------------------------------------------------------------- REAL ESTATE ENTITIES - -------------------- Flemington Equities -- 1982 Partnership 100% Flemington Equities II -- 1983 Partnership 100% Flemington Equities V -- 1983 Partnership 100% Flemington Equities VI -- 1986 Partnership 100% Flemington Equities 9, L.L.C. -- 1996 Partnership 100% Flemington Equities 2000 -- 1992 Partnership 100% Ditschman/Flemington Property Rentals, Inc. -- 1990 S-Corporation 100%
REVENUE RECOGNITION OF FINANCE INCOME The Companies include income from finance income in sales, and recognize a reserve of future finance chargebacks based on industry estimates. INVENTORIES The Company's new car and truck inventory is stated at the lower of cost (last-in, first-out method) or market. All other inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY AND EQUIPMENT, AT COST Property and equipment are depreciated principally on accelerated methods over the estimated useful lives of the property. INTERIM FINANCIAL RESULTS In the opinion of management, the unaudited combined Financial Statements contain all material adjustments, consisting of only normal recurring adjustments, necessary to present fairly the combined financial position of the Company at March 31, 1997, and the results of its operations and cash flows for the three months ended March 31, 1997 and 1996. Operations results for these interim periods are not necessarily indicative of the results that can be expected for a full year. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MAJOR SUPPLIER The Company purchases substantially all of its new vehicles and parts from several automobile manufacturers at the prevailing prices charged by the distributor to all franchised dealers. F-147 148 Notes to Combined Financial Statements Note 2: INVENTORIES Inventories consist of the following: New cars and trucks $36,278,162 Used cars and trucks 3,985,057 Rental vehicles 3,907,643 Parts, accessories, etc 2,309,301 ----------- $46,480,163 =========== New vehicle inventories would have been approximately, $6,144,480 higher than reported at December 31, 1996 if the dealership had used the first-in, first-out method of inventory accounting. The use of the last-in, first-out method resulted in a reduction of net income by $221,853 in 1996. Note 3: PROPERTY AND EQUIPMENT, AT COST Property and equipment summarized by major classifications are as follows: December 31, March 31, 1996 1997 ------------ ----------- Land $ 3,395,596 $ 2,956,744 Building and improvements 7,403,576 7,522,967 Machinery and equipment 2,648,955 3,912,081 Furniture and fixtures 2,501,248 2,083,047 Leasehold improvements 2,583,668 3,207,890 Company vehicles 162,989 28,420 Construction in Progress 426,712 10,000 ----------- ----------- 19,122,744 19,721,149 Less: Accumulated depreciation 7,577,766 7,719,488 ----------- ----------- $11,544,978 $12,001,661 =========== =========== Note 4: MORTGAGES AND NOTES RECEIVABLE Mortgages and notes receivable consist of the following: Note receivable, repaid in May, 1997. $151,200 Note receivable, employee, requiring monthly payments of $1,000 including interest at 8% commencing February, 1995. 84,220 Various employee receivables maturing at various dates with no stated interest. 35,227
(Continued on Following Page) F-148 149 Notes to Combined Financial Statements Note 4: MORTGAGES AND NOTES RECEIVABLE (CONTINUED) Note receivable, requiring monthly payments of $534 including interest at 7% commencing July 1, 1995 and maturing June, 1998. The note is collateralized by certain automobiles of the borrowers as well as a $53,500 personal guarantee. $ 53,500 Note receivable, requiring monthly payments of $1,667 plus interest at prime plus 1%. A security interest in property is collateral for the notes. 74,998 -------- 399,145 Less: Reserve for doubtful accounts 81,750 -------- 317,395 Less: Current maturities 198,766 -------- $118,629 ========
Scheduled maturities of mortgages and notes receivable are as follows: 1997 $198,766 1998 80,021 1999 31,199 2000 26,694 2001 7,265 Thereafter 55,200 -------- $399,145 ======== Note 5: NOTES PAYABLE, FLOOR PLAN The Companies' floor plan lines are payable to Ford Motor Credit Company and General Motors Acceptance Corporation. Obligations under the lines are collateralized by new car and truck inventories and accounts receivable arising from the sale of new motor vehicles. Interest is initially charged at 1% over the prime rate as defined, however the rate is subject to reduction based upon various lender and manufacturer incentives. F-149 150 Notes to Combined Financial Statements Note 6: LONG-TERM DEBT Long-term debt consists of the following:
December 31, March 31, 1996 1997 ------------ --------- Lines of credit with two dealerships through Ford Motor, Credit Company totaling $1,600,000 at December 31, 1996. Outstanding borrowings under the lines bear interest at prime, as defined, and are secured by the receivables and equipment of the two dealerships as well as guaranteed by the Companies' shareholder and spouse. Upon the termination of these agreements by either party, amortization of principal, based on a sixty month payout, commences over a twenty-three month period with a balloon payment on the maturity date. $1,250,000 $1,220,000 Mortgage payable, Ford Motor Credit Company requiring monthly installments of $13,831, including interest at the Company's commercial paper rate plus 2.75%. The mortgage matures on July 1, 1998, at which time a balloon payment is due. The mortgage is collateralized by the land and building of a dealership and is personally guaranteed by the primary shareholder of the Company. 1,233,867 1,204,314 Mortgage payable, General Motors Acceptance Corporation, payable in monthly installments of $10,617 including interest at prime plus 1%. The note is collateralized by the Companies' used car lot and prep center, in addition to being guaranteed by the partners of a real estate entity. 313,859 297,129 Mortgage payable, General Motors Acceptance Corporation, payable in monthly installments of $30,926 including interest at prime plus 1%. The note is collateralized by land and building occupied by Flemington Chrysler-Plymouth-Dodge-Jeep Eagle, Inc., in addition to being guaranteed by the partners of a real estate entity. 1,590,397 1,545,570
(Continued on Following Page) F-150 151 Notes to Combined Financial Statements Note 6: LONG-TERM DEBT (CONTINUED)
December 31, March 31, 1996 1997 ------------ --------- Mortgage payable, General Motors Acceptance Corporation, payable in monthly installments of $16,894, including interest at prime plus 1%. The note is collateralized by land and building occupied by Circle Buick/GMC, Inc., in addition to being guaranteed by the partners of a real estate entity. 636,632 608,968 Notes payable to finance companies, payable in monthly installments of $3,127, including interest at rates ranging from 7.9% to 9.65%, and maturing at various dates through December, 1999. The obligations are collateralized by the equipment being financed. 51,993 35,407 Mortgage payable to a bank, payable in monthly installments of $10,131, including interest at 8.0% through December 2003. The note is collateralized by substantially all of a dealership's assets. 650,000 626,576 ---------- ---------- 5,726,748 5,537,964 Less: Current maturities 657,835 941,340 ---------- ---------- $5,068,913 $4,596,624 ========== ==========
Maturities of long-term debt are as follows: December 31, March 31, 1996 1997 ------------ --------- 1997 $ 657,835 $ -- 1998 1,791,852 941,340 1999 651,323 1,506,720 2000 1,052,436 751,601 2001 99,296 814,150 2002 -- 442,974 Thereafter 1,474,006 1,081,179 ---------- ---------- $5,726,748 $5,537,964 ========== ========== F-151 152 Notes to Combined Financial Statements Note 7: OWNERS' EQUITY The common stock (no par value) of the Companies as of December 31, 1996 is as follows:
Shares Shares Issued and Company Authorized Outstanding Amount ------- ---------- ----------- ------ Ditschman Ford 1,000 100 $ 55,200 Flemington Nissan 1,000 100 55,000 Flemington Mitsubishi 2,500 100 200,000 Flemington Chrysler 1,000 100 100,000 Flemington Mazda 2,500 2,500 450,000 Flemington Infiniti 2,500 100 332,800 Flemington Pontiac 2,500 100 535,000 Flemington Subaru 2,500 100 100,000 Circle Buick 1,000 100 206,000 Porsche/Audi/BMW 1,000 100 510,971 Princeton Ford 1,000 100 100,000 Ditschman Property Rentals 1,000 100 100 ------ ----- ---------- 19,500 3,600 $2,645,071 ====== ===== ==========
Note 8: INCOME TAXES The operating companies have elected to be "S" Corporations, whereby the stockholders account for their share of the Companies' earnings, losses, deductions and credits on their individual income tax returns. Accordingly, these statements do not include any provision for Federal income taxes. Certain companies have elected to be taxed as "S" Corporations for State income tax reporting, which subjects those companies to a reduced tax rate. Income tax expense is summarized as follows: Current $ 105,522 Deferred (48,697) --------- $ 56,825 ========= The Companies under provisions of Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes" have provided for future realization of net operating losses and certain non-deductible reserves in a deferred tax asset. For state income tax reporting purposes, the Companies have net operating loss carryforwards of approximately $978,687 available to offset future state taxable income. The carryforwards expire as follows: Year Amount ---- ------ 2000 $328,986 2002 539,175 2003 98,132 2004 12,394 -------- $978,687 ======== F-152 153 Notes to Combined Financial Statements Note 9: LEASES The Companies lease various real estate located in the Flemington, New Jersey and Princeton, New Jersey areas as well as equipment, accounted for as operating leases, that expire at various dates through 2002. Real estate leases contain provisions whereby the automobile dealerships are required to pay for all operating expenses of the premises, including but not limited to real estate taxes and insurance. In addition, the lessors (real estate entities) have options in certain instances to purchase the premises. Minimum rental commitments are as follows: Total Real Estate Equipment ----- ----------- --------- 1997 $ 778,682 $ 483,710 $294,972 1998 641,028 423,710 217,318 1999 450,093 279,710 170,383 2000 411,175 262,085 149,090 2001 349,517 244,460 105,057 Thereafter 1,174,955 1,135,645 39,310 ---------- ---------- -------- $3,805,450 $2,829,320 $976,130 ========== ========== ======== Note 10: RELATED PARTY Amounts due from (to) related parties are on open account and do not bear interest. Real estate entities noted below are owned and operated by Steven Kalafer, who owns and controls substantially all of the operating entities. Such amounts are comprised of the following items: Due from related parties Real estate entities $ 4,200 ======== Due to related parties Owners $260,151 Related business 10,900 -------- $271,051 ======== Note 11: PROFIT-SHARING PLAN The Companies have a non-contributory profit-sharing plan covering substantially all full time employees with more than one year of service. Discretionary contributions to the plan are determined by the Board of Directors. No contribution was made for the year ended December 31, 1996. The Companies also maintain an employee deferred compensation plan which qualifies under Section 401 (k) of the Internal Revenue Code covering substantially all employees after they have completed one year of service. Circle Buick which maintains a separate qualified retirement plan, converted to a 401K retirement plan in 1996. Contributions to the Plans totaled $103,572 for the year ended December 31, 1996. F-153 154 Notes to Combined Financial Statements Note 12: ACCOUNTS AND FACTORY RECEIVABLES Accounts and factory receivables consist of the following:
December 31, March 31, 1996 1997 ------------ --------- Accounts receivable $1,767,827 $ 872,018 Contracts in transit 2,640,087 4,487,936 Factory receivables 2,912,976 2,794,099 ---------- ---------- 7,320,890 8,154,053 Less: Allowance for doubtful accounts 361,000 361,000 ---------- ---------- $6,959,890 $7,793,053 ========== ==========
Note 13: ACCRUED EXPENSES Accrued expenses consist of the following: Deferred compensation $2,600,000 Accrued wages 813,808 Accrued interest 405,024 Accrued professional fees 399,166 Accrued advertising 129,194 Accrued other 295,981 ---------- $4,643,173 ========== Note 14: SUNDRY LIABILITIES Sundry liabilities consist of the following: Payroll and sales taxes $1,046,757 Customer deposits 355,281 Due to employees 459,452 Income taxes payable 101,223 ---------- $1,962,713 ========== Note 15: DEFERRED COMPENSATION Effective January, 1996 the Companies implemented a deferred compensation program, whereby should the Companies be sold, certain key employees will be paid compensation in recognition of prior service in an amount totaling $2,600,000. As of December 31, 1996 such amount was provided for in the financial statements due to the pending sale of the Company (See Note 17). F-154 155 Notes to Combined Financial Statements Note 16: CONCENTRATION OF CREDIT RISK The Companies maintain several cash balances at banks which are insured up to $100,000 by the Federal Deposit Insurance Corporation. In addition, the Companies have cash management accounts with vehicle manufacturers which are not covered by any insurance. Note 17: SUBSEQUENT EVENT Effective May 28, 1997 the Companies were acquired by Republic Industries, Inc. in a transaction accounted for as a pooling of interest. The selling price, totaling approximately $55,000,000, includes all of the operating companies and related real estate, except for the items noted below:
Company ------- Flemington Equities, a partnership Land and building $431,002 Flemington Equities, a partnership Mortgage receivable 151,000 -------- $582,002 ========
On April 14, 1997, Hunterdon BMW, Inc., a newly formed corporation purchased the assets and location of an existing BMW franchise located in Clinton, New Jersey for $2,364,000. F-155 156 INDEPENDENT AUDITORS' REPORT Shareholders and Members John Lance Company Westlake, Ohio We have audited the accompanying combined balance sheet of the John Lance Company ("the Company") as of December 31, 1996, and the related combined statements of operations, stockholders' and members' equity and cash flows for the year then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the John Lance Company as of December 31, 1996 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. GEORGE B. JONES & CO., P.C. Memphis, Tennessee May 9, 1997 F-156 157 John Lance Company COMBINED BALANCE SHEETS December 31, 1996 and March 31, 1997 (Unaudited)
ASSETS March 31, December 31, 1997 1996 ----------- ------------ (Unaudited) CURRENT ASSETS Cash on hand and in bank $ 506,279 $ 150,593 Contracts in transit 614,123 1,376,953 ----------- ----------- Total cash and cash equivalents 1,120,402 1,527,546 Accounts and factory receivables--less allowance for doubtful accounts of $39,207 695,302 1,331,700 Inventories 4,611,873 5,567,492 Prepaid expenses 23,470 19,590 ----------- ----------- Total Current Assets 6,451,047 8,446,328 LOANER VEHICLES--at cost less accumulated depreciation 486,054 438,945 PROPERTY AND EQUIPMENT--at cost less accumulated depreciation 1,991,073 2,019,386 OTHER ASSETS 63,612 7,351 ----------- ----------- TOTAL ASSETS $ 8,991,786 $10,912,010 =========== ===========
The accompanying notes are an integral part of this statement. F-157 158
LIABILITIES March 31, December 31, 1997 1996 ----------- ------------ (Unaudited) CURRENT LIABILITIES Notes payable--vehicles financed $ 1,108,104 $ 3,340,527 Current portion--mortgage payable 3,725 3,480 Loans from stockholders 758,004 762,236 Accounts payable--trade 62,509 593,063 Salaries and bonuses payable 185,827 189,936 Taxes payable 318,389 275,654 Other expenses payable 113,959 153,043 Estimated contingent losses 100,000 100,000 ----------- ----------- Total Current Liabilities 2,650,517 5,417,939 LONG-TERM MORTGAGE, excluding current portion 76,164 77,249 COMMITMENTS -- -- ----------- ----------- Total Liabilities 2,726,681 5,495,188 ----------- ----------- STOCKHOLDERS' AND MEMBERS' EQUITY STOCKHOLDERS' EQUITY Capital stock 10,500 10,500 Additional paid-in capital 30,365 30,365 Retained earnings 6,079,101 5,224,323 MEMBERS' EQUITY 145,139 151,634 ----------- ----------- Total Stockholders' and Members' Equity 6,265,105 5,416,822 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY $ 8,991,786 $10,912,010 =========== ===========
The accompanying notes are an integral part of this statement. F-158 159 John Lance Company COMBINED STATEMENTS OF OPERATIONS For The Year Ended December 31, 1996 and Three-Month Periods Ended March 31, 1997 and 1996
March 31, December 31, 1997 1996 1996 ----------- ----------- ------------ (Unaudited) Sales $19,132,172 $14,370,496 $65,747,044 Cost of Sales 16,545,655 12,183,572 55,948,326 ----------- ----------- ----------- Gross Profit 2,586,517 2,186,924 9,798,718 Operating expenses Variable selling expenses 210,518 182,204 780,293 Semi-fixed expenses 931,121 795,887 3,399,655 Fixed expenses (including interest of $84,246) 694,763 621,672 3,689,454 ----------- ----------- ----------- Income before other income 750,115 587,161 1,929,316 Other income 98,168 16,370 80,755 ----------- ----------- ----------- NET INCOME $ 848,283 $ 603,531 $ 2,010,071 =========== =========== ===========
The accompanying notes are an integral part of this statement. F-159 160 John Lance Company COMBINED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY For the Year Ended December 31, 1996 and the Three-Month Period Ended March 31, 1997
Additional Capital Paid-In Retained Members' Stock Capital Earnings Equity Total ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1995 $ 10,500 $ 30,365 $ 3,740,328 $ 143,373 $ 3,924,566 Distributions to stockholders -- -- (517,815) -- (517,815) 1996 Net income -- -- 2,001,810 8,261 2,010,071 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 10,500 30,365 5,224,323 151,634 5,416,822 Unaudited: March 31, 1997 net income -- -- 854,778 (6,495) 848,283 ----------- ----------- ----------- ----------- ----------- Balance, March 31, 1997 $ 10,500 $ 30,365 $ 6,079,101 $ 145,139 $ 6,265,105 =========== =========== =========== =========== ===========
The accompanying notes are an integral part of this statement. F-160 161 John Lance Company COMBINED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 1996 and the Three-Month Periods Ended March 31, 1997 and 1996
March 31, December 31, 1997 1996 1996 ----------- ----------- ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 848,283 $ 603,531 $ 2,010,071 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation 71,667 59,047 298,033 Provision for losses on accounts receivable 39,128 Provision for contingent losses 31,247 49,109 111,666 (Increase) decrease in operating assets: Accounts and factory receivables 636,398 (53,303) (771,631) Inventories 875,117 362,390 79,422 Prepaid expenses (3,880) (5,700) 8,244 Other assets (56,261) (34,306) (4,306) Increase (decrease) in operating liabilities: Notes payable--vehicles financed (2,232,423) (1,071,090) (808,458) Accounts payable--trade (530,554) (1,049) 423,355 Salaries and bonuses payable (4,109) 74,775 (24,549) Taxes payable 42,735 68,797 10,058 Other expenses payable (39,084) 16,694 83,789 Charges against estimated contingent losses (31,247) (49,109) (54,271) ----------- ----------- ----------- Net Cash Provided By (Used In) Operating Activities (392,111) 19,786 1,400,551 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (9,961) (34,561) (294,241) ----------- ----------- -----------
The accompanying notes are an integral part of this statement. F-161 162 John Lance Company COMBINED STATEMENTS OF CASH FLOWS - Continued For the Year Ended December 31, 1996 and the Three-Month Periods Ended March 31, 1997 and 1996
March 31, December 31, 1997 1996 1996 ------------ ----------- ------------- (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgages payable (840) (39,319) (313,140) Increases in loans from stockholders 29,240 - 20,000 Principal payments on loans from stockholders (33,472) (4,970) (247,190) Distributions to stockholders - (40,000) (246,118) ------------ ------------ ------------ Net Cash Used In Financing Activities (5,072) (84,289) (786,448) ------------ ------------ ------------ Net change in cash and cash equivalents (407,144) (99,064) 319,862 Cash and cash equivalents at beginning of period 1,527,546 1,207,684 1,207,684 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 1,120,402 $ 1,108,620 $ 1,527,546 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 26,187 $ 87,518 $ 284,534 ============ ============ ============ Property acquired by debt: Land $ - $ 82,124 $ 82,124 ============ ============ ============ Distributions: Accounts receivable in lieu of cash $ - $ - $ 271,697 ============ ============ ============
The accompanying notes are an integral part of this statement. F-162 163 John Lance Company NOTES TO THE COMBINED FINANCIAL STATEMENTS For The Year Ended December 31, 1996 and the Three-Month Periods Ended March 31, 1997 and 1996 NOTE 1 - DESCRIPTION OF BUSINESS John Lance Company (the Company) consists of the following: John Lance Ford, Inc. began operations on October 1, 1914, and is an Ohio Sub Chapter S corporation which was incorporated on June 29, 1962. It is a franchised dealer for Ford Motor Company, and its principal place of business is in Westlake, Ohio. MLF Insurance Agency, Inc. is an Ohio Sub Chapter S corporation organized on May 2, 1969. It sells credit life insurance to John Lance Ford, Inc., and its principal place of business is in Westlake, Ohio. Lance Children, Ltd. is an Ohio limited liability company organized on December 27, 1994. It holds rental real estate, and its principal place of business is in Westlake, Ohio. All significant intercompany transactions and balances have been eliminated in the combination of the financial statements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS - The Company considers contracts in transit to be cash equivalents because the contracts are normally purchased by a financial institution for face value within several business days. CONCENTRATIONS OF CREDIT RISK ARISING FROM CASH DEPOSITS IN EXCESS OF INSURED LIMITS - The Company maintains its cash balances in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. ACCOUNTS RECEIVABLE - The Company grants credit to the franchisor and to customers, substantially all of whom are local businesses. The Company believes it maintains an adequate allowance for any uncollectible accounts. F-163 164 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued INVENTORIES - New vehicles, used vehicles and parts inventories are stated at cost (determined on the Last-In, First-Out method) while all other inventories are valued at the lower of cost or market. LOANER VEHICLES - Loaner vehicles are stated at cost. Depreciation is computed using the straight-line method. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Expenditures which materially increase the values or extend the useful lives of the respective assets are capitalized, while replacements, maintenance and repairs which do not improve the values or extend the useful lives of the respective assets are charged against income as incurred. The cost of property and equipment is depreciated over the estimated useful lives of the assets. Depreciation is computed using the straight-line and accelerated methods. INCOME TAXES - Except for Lance Children, Ltd., each company has elected by consent of its stockholders to be treated as an S Corporation under Internal Revenue Code and Ohio provisions. Under those provisions, the company does not pay Federal or State corporate income taxes on its taxable income. Instead, the stockholders are liable for individual income taxes on their respective share of the company's taxable income. Lance Children, Ltd. is a limited liability company. The company does not pay Federal and State corporate income taxes on its taxable income. Instead, the members are liable for individual income taxes on their respective share of the company's taxable income. INTEREST EXPENSE - Interest expense resulting from the floorplanning of vehicle inventories has been reduced by the floorplan assistance rebates offered by Ford Motor Company. ADVERTISING - Advertising costs are charged to operations when incurred. The amount expensed for advertising totaled $667,754 in 1996. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS - The fair values of the Company's financial instruments approximate carrying values. UNAUDITED INTERIM FINANCIAL INFORMATION - In the opinion of management, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation, have been included in the unaudited financial information for the interim periods ended March 31, 1997 and 1996. F-164 165 NOTE 3 - INVENTORIES Inventories consist of the following: New vehicles (including new cars, new trucks, and demonstrators) $ 5,946,148 Used vehicles (including used cars and used trucks) 1,056,785 Parts and accessories 293,669 ------------- Totals 7,296,602 Less LIFO Reserve (1,731,301) ------------- Total Inventories Valued at LIFO 5,565,301 Other inventories at the lower of cost or market 2,191 ------------- Total Inventories $ 5,567,492 ============= If the specific identification cost method of inventory valuation had been used for new and used vehicles and parts, inventories would have been $1,731,301 higher at December 31, 1996 compared to $1,779,828 higher at December 31, 1995. NOTE 4 - LOANER VEHICLES Loaner vehicles consist of the following: Loaner vehicles $ 541,995 Less accumulated depreciation (103,050) ------------- Net carrying amount $ 438,945 ============= Depreciation expense relating to loaner vehicles totaled $136,308 for 1996. NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consist of the following: Land $ 417,319 Buildings and improvements 2,232,891 Machinery and shop equipment 422,965 Furniture and fixtures 253,592 Service vehicles 32,174 ------------- Subtotal (carried forward) 3,358,941 F-165 166 NOTE 5 - PROPERTY AND EQUIPMENT - Continued Subtotal (brought forward) 3,358,941 Less accumulated depreciation (1,339,555) ----------- Total $ 2,019,386 =========== Depreciation expense relating to property and equipment totaled $161,725 for 1996. NOTE 6 - NOTES PAYABLE - VEHICLES FINANCED The Company has a floorplan financing agreement with Huntington National Bank which allows for total borrowings of up to $7,000,000. The floorplan agreement, which is secured by all vehicles, accounts receivable, cash accounts and fixed assets, is payable on demand and bears interest at the prime rate, which was 8.25% at December 31, 1996. NOTE 7 - LOANS FROM STOCKHOLDERS Loans from stockholders consist of advances from several stockholders that are due on demand, unsecured, and bear interest at 8.25% at December 31, 1996. NOTE 8 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) and pension plan that covers all full-time employees having one year of continuous service and who are at least 21 years of age at the specified entry dates. Participants contribute up to 15% of their gross base salary. The Company makes contributions of such sums which are necessary to meet the plans' funding requirements. Expense for 1996 totaled $86,802. NOTE 9 - MORTGAGE PAYABLE Mortgage payable consists of the following: Mortgage payable to First Federal Savings and Loan Association of Lakewood, due in monthly installments of $725 including interest through March 1, 2011, secured by land and buildings $ 80,729 Less current portion (3,480) ---------- Total long-term debt $ 77,249 ========== F-166 167 NOTE 9 - MORTGAGE PAYABLE - Continued Annual maturities are as follows: Year ending December 31, Amount ------------------------ ---------- 1997 $ 3,480 1998 3,798 1999 4,053 2000 4,324 2001 4,614 Subsequent to 2002 60,460 ---------- Total $ 80,729 ========== NOTE 10 - LEASE COMMITMENTS The following is a list of operating leases in effect: Description Annual Lessor of Assets Lease Terms Rental -------------------------- --------- ----------- ------ Standard Office Systems Copier 60 months $ 2,388 Automatic Data Processing Computer 60 months 22,260 Konica Business Machines Copier 60 months 2,436 Ford Dealer Computer Services Equipment 60 months 29,172 Rent expense relating to these leases totaled $54,847 during 1996. Future minimum lease commitments are summarized as follows: Year ending December 31, Amount ------------------------ ----------- 1997 $ 56,256 1998 56,256 1999 41,416 2000 21,841 2001 1,409 ----------- Total $ 177,178 =========== NOTE 11 - ESTIMATED CONTINGENT LOSSES The Company is contingently liable for finance and certain other chargebacks due to repossessions and early payoffs of notes on vehicles financed for customers, substantially all of whom are local residents. The Company has estimated losses based on loss experience and outstanding contingencies. F-167 168 NOTE 12 - CAPITAL STOCK At December 31, 1996 capital stock was comprised of the following:
Shares Shares Issued and Par Total Corporate Name Authorized Outstanding Value Capital -------------- ---------- ----------- ----- --------- John Lance Ford, Inc. 20,000 10,000 No Par $ 10,000 MLF Insurance Agency, Inc. 1,000 1,000 No Par 500 --------- Total $ 10,500 =========
NOTE 13 - SUBSEQUENT EVENTS An agreement in principle was reached with Republic Industries, Inc. on April 25, 1997 for the acquisition of John Lance Companies in a transaction treated as a purchase in conformity with generally accepted accounting principles. The transaction has not been completed as of the date of the auditors' report. F-168 169 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP AND JOHN LANCE COMPANY The following Unaudited Condensed Consolidated Pro Forma Financial Statements include the supplemental consolidated financial statements of Republic Industries, Inc. and subsidiaries (the "Company") which include the results of operations of Flemington Car and Truck Country and certain related dealerships ("Flemington"), Spirit Rent-A-Car, Inc. ("Spirit"), Chesrown Automotive Group ("Chesrown") and Bledsoe Dodge, Inc. ("Bledsoe") which the Company acquired in May 1997. These transactions have been accounted for under the pooling of interests method of accounting and, accordingly, the Company's supplemental consolidated financial statements have been retroactively adjusted as if the Company and Flemington, Spirit, Chesrown and Bledsoe had operated as one entity since inception. The supplemental consolidated financial statements also include the results of operations of National Car Rental System, Inc. ("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries, Inc. ("Taormina") which the Company acquired in February 1997 and Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January 1997. These transactions have been accounted for under the pooling of interests method of accounting and, accordingly, the Company's historical consolidated financial statements have been restated as if the Company, National, Maroone, Wallace, Taormina and Carlisle had operated as one entity since inception. The following Unaudited Condensed Consolidated Pro Forma Balance Sheet presents the pro forma financial position of the Company as of March 31, 1997 as if the acquisitions of Shad Management Company ("Shad") and Bankston Automotive Group ("Bankston"), which were acquired in May 1997, and the John Lance Company ("Lance"), which was acquired in June 1997, had been consummated as of March 31, 1997. The following Unaudited Condensed Consolidated Pro Forma Statements of Operations for the three months ended March 31, 1997 and for the year ended December 31, 1996 present the pro forma results of operations of the Company as if the acquisitions of Shad, Bankston and Lance, as well as the acquisitions of AutoNation Incorporated ("AutoNation"), Ed Mullinax, Inc. and subsidiaries ("Mullinax") and Grubb Automotive ("Grubb"), which were acquired in January 1997, and Kendall Automotive Group ("Kendall"), AAA Disposal Service, Inc. ("AAA") and York Waste Disposal, Inc. ("York"), which were acquired in February 1997, had been consummated as of January 1, 1996. The pro forma statement of operations for the year ended December 31, 1996 also contains pro forma adjustments related to certain equity transactions in 1996 and 1997 which resulted in net proceeds to the Company of approximately $1.1 billion (the "Equity Transactions"). The unaudited pro forma income per common and common equivalent share is based on the combined weighted average number of common shares and common share equivalents outstanding which include, where appropriate, the assumed exercise or conversion of warrants and options. In computing the unaudited pro forma income per common and common equivalent share, the Company utilizes the treasury stock method. Primary income per share is not presented as it does not significantly differ from fully diluted income per share. These Unaudited Condensed Consolidated Pro Forma Financial Statements should be read in conjunction with the respective historical consolidated or combined financial statements and notes thereto of the Company, Flemington, Spirit, Chesrown, Bledsoe, AutoNation, Mullinax, Grubb, Kendall, AAA, York, Shad, Bankston and Lance. These Unaudited Condensed Consolidated Pro Forma Financial Statements were prepared utilizing the accounting policies of the respective entities as outlined in their historical financial statements except as described in the accompanying notes. The acquisitions of AutoNation, Mullinax, Grubb, Kendall, York, Shad, Bankston and Lance have been accounted for under the purchase method of accounting. Accordingly, the Unaudited Condensed Consolidated Pro Forma Financial Statements reflect the Company's preliminary allocations of the purchase prices of such acquisitions which will be subject to further adjustments as the Company finalizes the allocations of the purchase prices in accordance with generally accepted accounting principles. The acquisition of AAA has been accounted for under the pooling of interests method of accounting and, accordingly, has been included in the Company's historical results of operations for the three months ended March 31, 1997. Such acquisition was not material and consequently prior period financial statements have not been restated and pro forma statements of operations for 1995 and 1994 have not been included herein. The unaudited condensed consolidated pro forma results of operations do not necessarily reflect actual results which would have occurred if the acquisitions or the Equity Transactions had taken place on the assumed dates, nor are they necessarily indicative of the results of future combined operations. F-169 170 REPUBLIC INDUSTRIES, INC. SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP AND JOHN LANCE COMPANY UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1997 (In millions)
SUPPLEMENTAL REPUBLIC SHAD BANKSTON LANCE COMBINED ------------- ---- -------- ---------- -------- ASSETS Current assets: Cash and cash equivalents $ 222.7 $ 1.7 $ 2.9 $ .5 $ 227.8 Receivables, net 543.5 5.2 12.1 1.3 562.1 Inventory 607.4 10.5 30.3 4.6 652.8 Revenue earning vehicles, net 4,018.2 -- -- -- 4,018.2 Other current assets 526.5 .7 .2 -- 527.4 -------- ----- ----- ------- -------- Total current assets 5,918.3 18.1 45.5 6.4 5,988.3 Property and equipment, net 1,542.5 8.0 21.7 2.5 1,574.7 Intangible assets 736.7 -- -- -- 736.7 Investment in subscribers 108.6 -- -- -- 108.6 Other assets 30.9 1.4 5.6 .1 38.0 -------- ----- ----- ------- -------- $8,337.0 $27.5 $72.8 $ 9.0 $8,446.3 ======== ===== ===== ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 811.5 $ 2.3 $ 7.6 $ .7 $ 822.1 Current portion of long-term debt and notes payable 3,520.8 17.5 42.9 1.9 3,583.1 Other current liabilities 81.3 -- -- -- 81.3 -------- ----- ----- ------- -------- Total current liabilities 4,413.6 19.8 50.5 2.6 4,486.5 Long-term debt, net of current maturities 1,204.4 6.4 28.2 .1 1,239.1 Other liabilities 231.0 .4 .3 -- 231.7 -------- ----- ----- ------- -------- Total liabilities 5,849.0 26.6 79.0 2.7 5,957.3 -------- ----- ----- ------- -------- Shareholders' equity: Common stock 3.6 -- -- -- 3.6 Additional paid-in capital 2,412.4 .4 .8 .2 2,413.8 Unrealized gain on marketable securities 43.7 -- -- -- 43.7 Retained earnings 28.3 .5 (7.0) 6.1 27.9 -------- ----- ----- ------- -------- Total shareholders' equity 2,488.0 .9 (6.2) 6.3 2,489.0 -------- ----- ----- ------- -------- $8,337.0 $27.5 $72.8 $ 9.0 $8,446.3 ======== ===== ===== ======= ======== PRO FORMA ADJUSTMENTS --------------------------------- DR. CR. PRO FORMA --------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 227.8 Receivables, net 562.1 Inventory $ 20.2(a) 673.0 Revenue earning vehicles, net 4,018.2 Other current assets 527.4 --------- -------- -------- Total current assets 20.2 6,008.5 Property and equipment, net 1,574.7 Intangible assets 35.2(b) 771.9 Investment in subscribers 108.6 Other assets 38.0 --------- -------- -------- $ 55.4 $8,501.7 ========= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 822.1 Current portion of long-term debt and notes payable 3,583.1 Other current liabilities 81.3 -------- Total current liabilities 4,486.5 Long-term debt, net of current maturities 1,239.1 Other liabilities 231.7 -------- Total liabilities 5,957.3 Shareholders' equity: Common stock 3.6 Additional paid-in capital $ 1.4(c) $ 56.4(d) 2,468.8 Unrealized gain on marketable securities 43.7 Retained earnings .4(c) 28.3 -------- -------- -------- 1.4 56.8 2,544.4 -------- -------- -------- Total shareholders' equity $ 1.4 $ 56.8 $8,501.7 ======== ======== ========
The accompanying notes are an integral part of these statements. F-170 171 REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP AND JOHN LANCE COMPANY UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 (In millions, except per share data)
SUPPLEMENTAL REPUBLIC AUTONATION(1) GRUBB(2) KENDALL(2) YORK(2) SHAD BANKSTON LANCE COMBINED --------- ---------- -------- --------- ------- ---- -------- ----- -------- Revenue $ 1,717.1 $ 14.2 $ 42.0 $ 69.6 $ 6.9 $34.4 $68.0 $19.1 $1,971.3 Expenses: Cost of operations 1,419.8 15.1 37.8 63.1 5.2 30.4 59.3 16.5 1,647.2 Selling, general and administrative 251.6 8.9 3.8 5.4 .9 3.7 7.6 1.8 283.7 Other (income) expense: Interest and other income (9.7) -- (.2) (.2) (.1) (.1) (.3) (.1) (10.7) Interest expense 4.9 1.1 -- .3 .1 -- .2 -- 6.6 ---------- ------ ------ ------ ------ ----- ----- ----- -------- 1,666.6 25.1 41.4 68.6 6.1 34.0 66.8 18.2 1,926.8 ---------- ------ ------ ------ ------ ----- ----- ----- -------- Income before income taxes 50.5 (10.9) .6 1.0 .8 .4 1.2 .9 44.5 Provision for income taxes 18.6 -- -- -- -- -- -- -- 18.6 ---------- ------ ------ ------ ------ ----- ----- ----- -------- Net income $ 31.9 $(10.9) $ .6 $ 1.0 $ .8 $ .4 $ 1.2 $ .9 $ 25.9 ========== ====== ====== ====== ====== ===== ===== ===== ======== Fully-diluted: Income per share $ .08 ========== Weighted average shares outstanding 383.4 17.5 4.0 1.2 1.1 .5 1.4 .8 409.9 ========== ====== ====== ====== ====== ===== ===== ===== =======
PRO FORMA ADJUSTMENTS ------------------------- DR. CR. PRO FORMA ---------- ---------- ------------ Revenue $ 1,971.3 Expenses: Cost of operations $ 1.1(f) 1,648.3 Selling, general and administrative 283.7 Other (income) expense: Interest and other income 1.1(e) (9.6) Interest expense $ 1.1(e) 5.5 ------ ------ --------- 2.2 1.1 1,927.9 ------ ------ --------- Income before income taxes 2.2 1.1 43.4 Provision for income taxes 2.6(h) 16.0 ------ ------ --------- Net income $ 2.2 $ 3.7 $ 27.4 ====== ====== ========= Fully-diluted: Income per share $ .07 ========= Weighted average shares outstanding (19.1)(i) 390.8 ====== ========= - --------------------- (1) Represents the pre-acquisition results of operations for the month of January 1997. (2) Represents the pre-acquisition results of operations for the months of January and February 1997.
The accompanying notes are an integral part of these statements. F-171 172 REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP AND JOHN LANCE COMPANY UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (In millions, except per share data)
SUPPLEMENTAL REPUBLIC AUTONATION MULLINAX GRUBB KENDALL AAA YORK SHAD BANKSTON(1) LANCE COMBINED --------- ---------- -------- ------ ------- ----- ----- ----- -------- ----- -------- Revenue $5,644.1 $ 31.5 $659.0 $440.0 $405.8 $32.4 $39.3 $92.4 $ 285.7 $65.7 $7,695.9 Expenses: Cost of operations 4,643.2 42.8 589.8 384.8 367.1 23.7 31.8 82.8 247.2 56.0 6,469.2 Selling, general and administrative 892.8 38.5 54.5 46.9 34.3 5.1 4.6 9.4 32.7 7.8 1,126.6 Restructuring and merger expenses 38.3 -- -- -- -- -- -- -- -- -- 38.3 Other (income) expense: Interest and other income (35.3) -- -- (2.0) (.7) (.2) (.3) (.2) -- (.1) (38.8) Interest expense 49.3 5.6 .9 4.3 1.3 .5 .7 -- 2.5 -- 65.1 -------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------- 5,588.3 86.9 645.2 434.0 402.0 29.1 36.8 92.0 282.4 63.7 7,660.4 -------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------- Income before income taxes and extraordinary charge 55.8 (55.4) 13.8 6.0 3.8 3.3 2.5 .4 3.3 2.0 35.5 Provision for income taxes 53.7 -- -- -- -- -- -- .4 .1 -- 54.2 -------- ------ ------ ------ ------ ----- ----- ----- ------- ----- -------- Income before extraordinary charge $ 2.1 $(55.4) $ 13.8 $ 6.0 $ 3.8 $ 3.3 $ 2.5 $ -- $ 3.2 $ 2.0 $ (18.7) ======== ====== ====== ====== ====== ===== ===== ===== ======= ===== ======== Fully-diluted: Income per share before extraordinary charge $ 0.01 ======== Weighted average shares outstanding 323.4 17.5 3.6 4.0 1.2 2.9 1.1 .5 1.4 .8 356.4 ======== ====== ====== ====== ====== ===== ===== ===== ====== ===== =======
PRO FORMA ADJUSTMENTS ------------------------- DR. CR. PRO FORMA ---------- ---------- ----------- Revenue $7,695.9 Expenses: Cost of operations $ 11.3(f) $ 1.4(a) 6,434.4 44.7(g) Selling, general and administrative 1,126.6 Restructuring and merger expenses 38.3 Other (income) expense: Interest and other income 5.6(e) (33.2) Interest expense 59.5(g) 5.6(e) -- ------ ------ -------- 16.9 111.2 7,566.1 ------ ------ -------- Income before income taxes and extraordinary charge 16.9 111.2 129.8 Provision for income taxes 27.4(h) 81.6 ------ ------ -------- Income before extraordinary charge $ 44.3 $111.2 $ 48.2 ====== ====== ======== Fully-diluted: Income per share before extraordinary charge $ .12 ======== Weighted average shares outstanding 29.9(i) 386.3 ====== ======== - ------------------ (1) Represents the fiscal year ended March 31, 1997.
The accompanying notes are an integral part of these statements. F-172 173 REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE, KENDALL AUTOMOTIVE GROUP, AAA DISPOSAL SERVICE, INC., YORK WASTE DISPOSAL, INC., SHAD MANAGEMENT COMPANY, BANKSTON AUTOMOTIVE GROUP AND JOHN LANCE COMPANY NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (a) Represents an entry to conform the inventory accounting policies of acquired companies from LIFO to the specific identification method. (b) Represents an entry to record intangible assets resulting from the preliminary allocations of the purchase prices for the acquisitions of Shad, Bankston and Lance as follows (in millions): Shares of Republic Common Stock to be issued............... 2.7 Value of Republic Common Stock consideration............... $ 56.4 Historical net assets...................................... (1.0) Write-up of inventory to fair value........................ (20.2) ------ Allocation to intangible assets............................ $ 35.2 ======
(c) Represents an entry to eliminate the historical equity balances of Shad, Bankston and Lance. (d) Represents the recording of equity resulting from the Company's issuance of Common Stock to effect the acquisitions of Shad, Bankston and Lance. (e) Represents an entry to eliminate interest on advances from the Company to AutoNation. (f) Represents an adjustment to record amortization, on a straight-line basis, of the intangible assets resulting from the preliminary purchase price allocations of AutoNation, Mullinax (1996 only), Grubb, Kendall, York, Shad, Bankston and Lance. Intangible assets resulting from these purchases are being amortized over a 40 year life which approximates the estimated useful life. (g) Represents the assumed interest savings on the payoff of a portion of the existing indebtedness outstanding as of January 1, 1996 of the combined entity with the proceeds from the 1996 and 1997 Equity Transactions which are also assumed to have occurred as of January 1, 1996. (h) Represents the incremental change in the combined entity's provision for income taxes as a result of the pre-tax income (loss) of AutoNation, Mullinax, Grubb, Kendall, York, AAA, Shad, Bankston and Lance and all pro forma adjustments as described above. (i) Includes the weighted average effect of shares issued in the acquisitions and/or the 1996 and 1997 Equity Transactions. F-173 174 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (RESTATED) The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto of Republic Industries, Inc. (the "Company") which are included elsewhere herein. The historical financial statements of the Company include the financial position and results of operations of National Car Rental System, Inc. ("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina Industries, Inc. ("Taormina"), which the Company acquired in February 1997 and Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January 1997. These transactions have been accounted for under the pooling of interests method of accounting, and accordingly, these historical financial statements have been restated as if the companies had operated as one entity since inception. All references to historical share and per share data of the Company's common stock, par value $.01 per share ("Common Stock"), have been retroactively adjusted to reflect the two-for-one stock split that occurred in June 1996, which is more fully described in Note 6, Shareholders' Equity, of Notes to Consolidated Financial Statements. BUSINESS COMBINATIONS The Company makes its decisions to acquire or invest in businesses based on financial and strategic considerations. PENDING ACQUISITIONS In June 1997, the Company signed a definitive agreement to acquire the Appleway Automotive Group ("Appleway"), which owns and operates eight franchised automotive dealerships. The Company will issue Common Stock valued at approximately $42.6 million in this transaction, which will be accounted for under the purchase method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In May 1997, the Company signed a definitive agreement to acquire Desert Buick-GMC Automotive Group ("Desert"), which owns and operates four franchised automotive dealerships. The Company will issue Common Stock valued at approximately $38.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In May 1997, the Company signed a definitive agreement to acquire Gulf Management, Inc. ("Gulf"), which owns and operates two franchised automotive dealerships. The Company will issue Common Stock valued at approximately $45.0 million in this transaction, which will be accounted for under the purchase method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In April 1997, the Company signed a definitive agreement to acquire De La Cruz Auto Group ("De La Cruz"), which owns and operates four franchised automotive dealerships. The Company will issue Common Stock valued at approximately $40.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. In March 1997, the Company signed a definitive agreement to acquire Tempe Toyota and related entities ("Tempe"), which operate one franchised automotive dealership and two used automotive dealerships. The Company will issue Common Stock valued at approximately $48.0 million in this transaction, which will be accounted for under the pooling of interests method of accounting. The closing of the transaction is subject to customary conditions, including manufacturer and regulatory approvals. Additionally, the Company has signed definitive agreements to acquire various other businesses in the automotive retail industry which are not material to the Company. The Company will issue cash and/or Common Stock valued in the aggregate at approximately $129.8 million in such transactions which will be accounted for under the purchase method of accounting. These transactions are subject to customary conditions, including manufacturer and regulatory approvals. COMPLETED ACQUISITIONS Significant businesses acquired through March 31, 1997 and accounted for under the pooling of interests method of accounting have been included retroactively in the Consolidated Financial Statements as if the companies had operated as one entity since inception. Businesses acquired through December 31, 1996 and accounted for under the purchase method of accounting are included in the Consolidated Financial Statements from the date of acquisition. In May 1997, the Company acquired Flemington Car and Truck Country and certain related dealerships ("Flemington"), which own and operate twelve franchised automotive dealerships. The Company issued approximately 2.3 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Spirit Rent-A-Car, Inc. ("Spirit"), which operates a vehicle rental business. The Company issued 3.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Chesrown Automotive Group ("Chesrown"), which owns and operates seven franchised automotive dealerships. The Company issued approximately 2.5 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Bledsoe Dodge, Inc. ("Bledsoe"), which operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In May 1997, the Company acquired Bankston Automotive Group ("Bankston"), which owns and operates four franchised automotive dealerships. The Company issued approximately 1.4 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In February 1997, the Company acquired National, which operates a vehicle rental business. The Company issued approximately 21.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. National was formed in April 1995 to acquire the operating assets and certain liabilities of a predecessor company ("Old National") from General Motors Corporation as further discussed below. In February 1997, the Company acquired Maroone, which owns and operates five franchised automotive dealerships. The Company issued approximately 6.1 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Wallace, which owns and operates three franchised automotive dealerships. The Company issued approximately 1.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Taormina, which provides waste collection services and owns and operates a materials recycling facility. The Company issued approximately 7.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1997, the Company acquired Kendall Automotive Group ("Kendall"), which owns and operates three franchised automotive dealerships. The Company issued approximately 1.2 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, following approval by the Company's stockholders at a special meeting, the Company acquired AutoNation Incorporated ("AutoNation"), which is developing a chain of used vehicle megastores. The Company issued approximately 17.5 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. F-174 175 In January 1997, the Company acquired Carlisle which owns and operates three franchised automotive dealerships. The Company issued approximately 1.0 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In January 1997, the Company acquired Grubb Automotive ("Grubb"), which owns and operates seven franchised automotive dealerships. The Company issued approximately 4.0 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries ("Mullinax"), which owns and operates six franchised automotive dealerships. The Company issued approximately 3.6 million shares of Common Stock in this transaction, which has been accounted for under the purchase method of accounting. In addition, subsequent to December 31, 1996, the Company acquired various other businesses in the automotive retail, solid waste services and electronic security services industries which were not material to the Company. The Company issued an aggregate of approximately 3.0 million shares of Common Stock and paid approximately $40.4 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 8.9 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. In December 1996, the Company acquired Addington Resources, Inc. ("Addington"), which primarily provides solid waste disposal services. The Company issued approximately 13.7 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In December 1996, the Company acquired Continental Waste Industries, Inc. ("Continental"), which provides integrated solid waste services. The Company issued approximately 12.4 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In November 1996, the Company acquired Alamo Rent-A-Car, Inc. ("Alamo"), which operates a vehicle rental business. The Company issued approximately 22.6 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In August 1996, the Company acquired the net assets of CarChoice, Inc. ("CarChoice"), which operated used vehicle superstores similar to those being developed by AutoNation. The Company issued approximately 3.9 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired Incendere, Inc. ("Incendere"), which provides solid waste collection, recycling and medical waste hauling services. The Company issued approximately 3.3 million shares of Common Stock in connection with this acquisition which has been accounted for under the pooling of interests method of accounting. In February 1996, the Company acquired The Denver Fire Reporter and Protective Co. ("Denver Alarm"), which provides electronic security services. The Company issued approximately 2.5 million shares of Common Stock in this transaction, which has been accounted for under the pooling of interests method of accounting. During the year ended December 31, 1996, the Company also acquired various other businesses in the solid waste services, electronic security services and automotive retailing industries which were not material to the Company. The Company issued an aggregate of approximately 9.1 million shares of Common Stock and paid $47.0 million of cash in such transactions which have been accounted for under the purchase method of accounting, and issued an aggregate of approximately 13.0 million shares of Common Stock in such transactions which have been accounted for under the pooling of interests method of accounting. These acquisitions accounted for under the pooling of interests method of accounting were not material in the aggregate and, consequently, prior period financial statements were not restated for such acquisitions. In November 1995, the Company acquired J.C. Duncan Company, Inc. ("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc. ("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste collection and recycling services and also operates two landfills. GDS provides solid waste collection and recycling services. Fennell provides solid waste collection and recycling services and also owns a landfill. Scott provides electronic security services. In October 1995, the Company acquired United Waste Service, Inc. ("United") and Southland Environmental Services, Inc. ("Southland"). United provides solid waste collection, transfer and recycling services. Southland provides solid waste collection services. In August 1995, the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides electronic security services. The Company issued an aggregate of approximately 36.3 million shares of Common Stock for the above acquisitions. These acquisitions have been accounted for under the pooling of interests method of accounting and, accordingly, the accompanying Consolidated Financial Statements have previously been restated as if the Company and Duncan, GDS, Fennell, Scott, United, Southland and Kertz had operated as one entity since inception. In August 1995, the Company acquired Hudson Management Corporation and Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and recycling services. The Company issued 16.0 million shares of Common Stock to acquire HMC. The acquisition of HMC has been accounted for under the purchase method of accounting. In June 1995, National acquired all of the operating assets and assumed certain liabilities of Old National for a total cash purchase price of approximately $1.3 billion. This acquisition was accounted for under the purchase method of accounting. During the years ended December 31, 1995 and 1994, the Company entered into several other business combinations which have been accounted for under the purchase method of accounting, which were not material to the Company. Termination of ADT Agreement In September 1996, the Agreement and Plan of Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the Company, R.I./Triangle, Ltd. and ADT Limited, a Bermuda Corporation ("ADT"), which provided for the acquisition of ADT by the Company, was terminated by mutual agreement of the parties. In connection with the execution of the ADT Agreement, ADT granted to the Company a warrant ("the ADT Warrant") to purchase 15.0 million common shares of ADT at a purchase price of $20 per share (which approximated fair market value). In March 1997, the Company exercised the ADT Warrant resulting in the purchase of 15.0 million common shares of ADT at $20 per share. In May 1997, the Company sold the ADT common shares to certain institutional investors for $27.50 per share resulting in a gain of approximately $100.0 million, net of fees and expenses. F-175 176 BUSINESS SEGMENT INFORMATION The following table sets forth revenue with percentages of total revenue, and sets forth cost of operations, selling, general and administrative expenses, restructuring and merger expenses and operating income (loss) with percentages of the applicable segment revenue, for each of the Company's various business segments for the years ended December 31 (in millions):
1996 % 1995 % 1994 % -------- ----- -------- ----- -------- ----- Revenue: Automotive rental...................... $2,567.1 54 $1,886.4 56 $1,222.3 50 Automotive retail...................... 1,410.5 29 1,000.3 30 858.3 35 Solid waste services................... 701.2 15 450.4 13 317.9 13 Electronic security services........... 85.3 2 49.8 1 41.9 2 -------- -------- -------- 4,764.1 3,386.9 2,440.4 Cost of Operations: Automotive rental...................... 2,061.4 80 1,517.0 80 910.3 74 Automotive retail...................... 1,269.9 90 872.3 87 743.7 87 Solid waste services................... 512.4 73 307.5 68 213.6 67 Electronic security services........... 37.3 44 20.6 41 20.6 49 -------- -------- -------- 3,881.0 2,717.4 1,888.2 -------- -------- -------- Selling, General and Administrative: Automotive rental...................... 512.9 20 388.7 21 281.8 23 Automotive retail...................... 136.7 10 112.7 11 102.2 12 Solid waste services................... 86.3 12 76.5 17 61.6 19 Electronic security services........... 33.5 39 20.6 41 18.9 45 Corporate.............................. 25.8 -- 4.3 -- 2.9 -- -------- -------- -------- 795.2 602.8 467.4 -------- -------- -------- Restructuring and Merger Expenses: Automotive rental...................... 23.5 1 -- -- -- -- Solid waste services................... 8.8 1 3.3 1 -- -- Corporate.............................. 6.0 -- -- -- -- -- -------- -------- -------- 38.3 3.3 -- -------- -------- -------- Operating Income (Loss): Automotive rental...................... (30.7) (1) (19.3) (1) 30.2 2 Automotive retail...................... 3.9 -- 15.3 2 12.4 1 Solid waste services................... 93.7 13 63.1 14 42.7 13 Electronic security services........... 14.5 17 8.6 17 2.4 6 Corporate.............................. (31.8) -- (4.3) -- (2.9) -- -------- -------- -------- $ 49.6 $ 63.4 $ 84.8 ======== ======== ========
CONSOLIDATED RESULTS OF OPERATIONS The Company's consolidated revenue increased 41% to $4.8 billion for the year ended December 31, 1996 and 39% to $3.4 billion for the year ended December 31, 1995 due to growth in all four of the Company's business segments. Consolidated operating income was $49.6 million, $63.4 million and $84.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. Net income (loss) was $(32.6) million, $(.4) million and $35.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. Net income (loss) per common and common equivalent share was $(.12), $-- and $.23 for the years ended December 31, 1996, 1995 and 1994, respectively. The year ended December 31, 1996 was impacted by one-time pre-tax charges of approximately $95.5 million and an extraordinary charge of approximately $31.6 million, both of which are more fully discussed below. Excluding these charges, operating results of the Company's automotive rental segment for the year ended December 31, 1996 improved significantly over 1995. Operating results of the Company's automotive retail operations during the year ended December 31, 1996 were negatively impacted by start-up costs associated with the Company's used vehicle megastore operations related to the CarChoice acquisition. The Company's solid waste services and electronic security services segments experienced significant F-176 177 improvement over 1995. The operating results for each of the Company's various business segments are discussed below. Restructuring, Merger and Other Non-Recurring Expenses During the year ended December 31, 1996, the Company took one-time pre-tax charges of approximately $95.5 million related primarily to the integration of the operations of Alamo into those of the Company. Also included in these charges are merger expenses associated with the acquisitions of Alamo, Addington and Continental. Approximately $38.3 million of such expenses appear as restructuring and merger expenses on the Company's Consolidated Statement of Operations for the year ended December 31, 1996 with the remainder of approximately $57.2 million included in automotive rental operating expenses and selling, general and administrative expenses. These costs primarily include asset write-offs, severance benefits, accounting and legal merger costs and changes in various estimated reserve requirements. Extraordinary Charge During the year ended December 31, 1996, in connection with refinancing Alamo's debt at substantially lower interest rates, the Company took an extraordinary charge of approximately $31.6 million, net of income taxes. Included in this charge are bond redemption premiums, the write-off of debt issue costs, prepayment penalties and other related fees. See Note 4, Long-Term Debt and Notes Payable, of Notes to Consolidated Financial Statements for further discussion of this charge. Discontinued Operations During the year ended December 31, 1995, the Company disposed of its mining and citrus operations and spun-off its hazardous waste services segment resulting in a loss from discontinued operations of approximately $25.1 million, net of income taxes. Operating results have been reclassified in the Consolidated Financial Statements from the historical classification in order to properly identify them as discontinued operations. See Note 11, Discontinued Operations, of Notes to Consolidated Financial Statements, for further discussion of these transactions. AUTOMOTIVE RENTAL Revenue from the Company's automotive rental operations consists primarily of rental fees and sales of related rental products from the leisure and business travel segments. Rental revenue for the year ended December 31, 1996 increased 36% to $2.6 billion from $1.9 billion in 1995, while 1995 revenue increased 54% from $1.2 billion in 1994. These increases are primarily a result of National's acquisition of Old National in July 1995 which was accounted for under the purchase method of accounting. Operating income (loss) from the Company's automotive rental operations has fluctuated during the three years ended December 31, 1996, 1995 and 1994 due to restructuring, merger and other non-recurring expenses and the level of vehicle rental operating expenses as discussed below. Operating income (loss) was $(30.7) million for the year ended December 31, 1996 as compared to $(19.3) million in 1995 and income of $30.2 million in 1994. Approximately $75.7 million of the Company's 1996 restructuring, merger and other non-recurring expenses relate to the operations of Alamo as discussed above. Without these charges, operating income from the Company's automotive rental business would have been approximately $45.0 million in 1996. Automotive rental operating expenses consist primarily of vehicle depreciation, interest and lease expenses and other direct operating expenses including personnel, insurance, fleet maintenance and rental location occupancy costs. Automotive rental operating expenses were $2.1 billion, $1.5 billion and $910.3 million or, as percentages of automotive rental revenue, 80%, 80% and 74% for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in aggregate dollars are attributed primarily to National's acquisition of Old National as described above. The 1995 increase in such expenses as a percentage of revenue over 1994 was primarily a result of increased vehicle depreciation due to unfavorable changes to manufacturers' repurchase programs F-177 178 and the Company's decision to accelerate the removal of certain higher cost vehicles from its fleet. Additionally, vehicle lease costs and interest costs increased as percentages of revenue due to an increase in the number of vehicles under lease and an increase in market interest rates, respectively. Selling, general and administrative expenses related to the Company's automotive rental operations consist primarily of administrative personnel, marketing costs and agent and tour operator commissions. Such expenses were $512.9 million, $388.7 million and $281.8 million or, as percentages of automotive rental revenue, 20%, 21% and 23% for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in aggregate dollars are primarily due to National's acquisition of Old National as described above. The decreases in such expenses as percentages of revenue are primarily due to implementation of a cost reduction plan in late 1995 which included downsizing certain administrative functions and reductions in advertising expenses. AUTOMOTIVE RETAIL Revenue from the Company's automotive retail operations consists of sales of new and used vehicles, parts and service. Automotive retail revenue was $1.4 billion, $1.0 billion and $858.3 million for the years ended December 31, 1996, 1995 and 1994, respectively. These increases are primarily attributed to higher fleet sales, acquisitions of new franchised automotive dealerships and increases in manufacturer pricing. The Company has aggressively expanded its automotive retail business through the acquisition of AutoNation and several new car dealerships during 1997 and currently plans to continue this expansion for the remainder of 1997 and beyond. In this regard, the Company has established framework agreements with each of Ford Motor Company and General Motors Corporation which will allow the Company to acquire franchised automotive dealerships nationwide. Cost of operations of the Company's automotive retail operations was $1.3 billion, $872.3 million and $743.7 million or, as percentages of automotive retail revenue, 90%, 87% and 87% for the years ended December 31, 1996, 1995 and 1994, respectively, and consists primarily of the cost of vehicles sold, including the cost of reconditioning used vehicles, the cost of parts and accessories and interest expense related to vehicle inventory financing. The increases in aggregate dollars are attributed to higher volume of vehicle sales during the periods. The increase in cost of operations as a percentage of revenue in 1996 is primarily due to a higher mix of fleet sales which generate lower margins than retail sales and 1996 start-up costs associated with the initial development of the Company's used vehicle megastore operations. Selling, general and administrative expenses consist primarily of sales salaries and commissions, marketing expense and office salaries. Such expenses were $136.7 million, $112.7 million and $102.2 million or, as percentages of automotive retail revenue, 10%, 11% and 12% for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in aggregate dollars primarily reflect the Company's expanded operations through the acquisition of new franchised automotive dealerships as well as 1996 start-up costs associated with the initial development of the Company's used vehicle megastore operations. The decreases in such expenses as percentages of revenue are primarily due to increased fleet sales as described above which generate minimal incremental administrative costs. As the Company opens AutoNation stores and reconditioning centers during 1997 and beyond, such operations will incur fixed operating and administrative costs immediately while revenue volume will tend to grow more gradually. Consequently, the Company anticipates it will take approximately nine months for an average AutoNation store to generate operating income. SOLID WASTE SERVICES Revenue from the Company's solid waste services operations consists of collection fees from residential, commercial and industrial customers and landfill disposal fees charged to third parties. Solid waste revenue was $701.2 million, $450.4 million and $317.9 million for the years ended December 31, 1996, 1995 and 1994, respectively. These increases in revenue are a result of acquisitions as well as the expansion of the Company's existing business. Cost of solid waste services includes disposal, labor and equipment operating costs related to waste collection operations and the cost of operating the Company's landfills which consist of daily operating expenses, legal and administrative costs of ongoing environmental compliance and site closure and post-closure costs. Certain direct landfill development costs, such as engineering, upgrading, cell construction and permitting costs, are capitalized and depleted based on consumed airspace. All indirect landfill development costs, such as executive salaries, general corporate overhead, public affairs and other corporate services are expensed as incurred. Cost of solid waste services was $512.4 million, $307.5 million and $213.6 million or, as percentages of solid waste revenue, 73%, 68% and 67% for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in aggregate dollars are a result of the expansion of the Company's solid waste services operations through acquisition and internal growth. The 1996 increase in cost of solid waste services as a percentage of solid waste revenue is primarily a result of certain of the Company's acquired collection companies which had higher levels of operating costs than the Company's historical operations. The Company also incurred various operating costs in 1996 related to its plan to realign certain collection routes in an effort to make its collection process more efficient. Also, the Company incurred various costs related to upgrading several of its landfills during 1996. Selling, general and administrative expenses related to the Company's solid waste services operations consist primarily of office salaries, supervisor salaries and office expenses. Such expenses were $86.3 million, $76.5 million and $61.6 million or, as percentages of solid waste revenue, 12%, 17% and 19% for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in aggregate dollars from year to year primarily reflects the growth of the Company's business through acquisitions. The decreases in selling, general and administrative expenses as percentages of revenue in each of the years are primarily due to the reduction of administrative expenses for acquired businesses and growth in revenue. F-178 179 ELECTRONIC SECURITY SERVICES Revenue from the Company's electronic security services operations results from monitoring contracts for security systems and fees charged for the sale and installation of such systems. Electronic security revenue was $85.3 million, $49.8 million and $41.9 million for the years ended December 31, 1996, 1995 and 1994, respectively. These increases in revenue are principally a result of the installation of new monitoring systems and acquisitions of subscriber accounts during the periods. Cost of electronic security services primarily consists of the labor and equipment associated with the sale, installation and monitoring of security systems. Cost of electronic security services was $37.3 million, $20.6 million and $20.6 million or, as percentages of electronic security revenue, 44%, 41% and 49% for the years ended December 31, 1996, 1995 and 1994, respectively. The 1996 increase in aggregate dollars from 1995 is a result of the installation of new monitoring systems and acquisitions of subscriber accounts. The 1996 increase in cost of electronic security services as a percentage of electronic security revenue is primarily a result of the Company's expansion in 1996 through the opening of additional branch offices which have not yet reached the revenue volume of a mature branch office, yet have attained a full level of operating costs and expenses. The 1995 decrease from 1994 in cost of electronic security services as a percentage of electronic security revenue is primarily a result of 1995 acquisitions of monitoring accounts which were integrated into the Company's existing operations with the addition of substantially no incremental cost of operations. Selling, general and administrative expenses related to the Company's electronic security services operations consist primarily of office salaries, office expenses and marketing expenses. Such expenses were $33.5 million, $20.6 million and $18.9 million or, as percentages of electronic security revenue, 39%, 41% and 45% for the years ended December 31, 1996, 1995, and 1994, respectively. The increases in aggregate dollars primarily reflect the Company's expanded operations through the growth of its existing business. The decreases in selling, general and administrative expenses as percentages of revenue are primarily due to the reduction of administrative expenses for acquired businesses and growth in revenue. CORPORATE ACTIVITIES Corporate selling, general and administrative expenses consist primarily of office salaries for corporate employees, professional and regulatory fees, office expenses and the cost of business travel. Such expenses were $25.8 million, $4.3 million and $2.9 million for the years ended December 31, 1996, 1995 and 1994, respectively. The 1996 increase over 1995 is a result of the growth experienced by the Company during the year. INTEREST INCOME Interest income was $30.8 million, $21.0 million and $6.4 million for the years ended December 31, 1996, 1995 and 1994, respectively. The increase in 1996 over 1995 is due to the increase in interest income from proceeds from sales of Common Stock and interest income on advances to AutoNation F-179 180 made during 1996. The increase in 1995 over 1994 is a result of interest income from operating cash flows generated by National subsequent to the acquisition of Old National in July 1995 as described above and increased interest income on proceeds from 1995 sales of Common Stock. For further discussion of the sales of Common Stock, see Note 6, Shareholders' Equity, of Notes to the Consolidated Financial Statements. INTEREST EXPENSE Interest expense was incurred on general corporate debt and the debt assumed in acquisitions. Interest expense was $43.9 million, $33.5 million and $20.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in 1996 over 1995 and 1995 over 1994 are primarily due to higher average outstanding borrowings used to fund the Company's growth and debt assumed in acquisitions. Interest expense related to revenue earning vehicle financing in the Company's automotive rental operations is included in vehicle rental operating expenses and interest expense related to the vehicle inventory financing in the Company's automotive retailing operations is included in cost of vehicle sales. INCOME TAXES The provision for income taxes was $43.0 million, $31.3 million and $29.8 million for the years ended December 31, 1996, 1995 and 1994, respectively. The effective income tax rate was 102%, 56% and 44% for the years ended December 31, 1996, 1995 and 1994, respectively. The increases in the effective income tax rates for 1996 and 1995 are primarily due to the Company providing valuation allowances on certain deferred tax assets of acquired pooled entities, non-deductible acquisition related costs and varying historical effective income tax rates of acquired businesses accounted for under the pooling of interests method of accounting. ENVIRONMENTAL AND LANDFILL MATTERS The Company provides for accrued environmental and landfill costs which include landfill site closure and post-closure costs. Landfill site closure and post-closure costs include estimated costs to be incurred for final closure of the landfills and estimated costs for providing required post-closure monitoring and maintenance of landfills. These costs are accrued based on consumed airspace. The Company estimates its future cost requirements for closure and post-closure monitoring and maintenance for its solid waste facilities based on its interpretation of the technical standards of the Environmental Protection Agency's Subtitle D regulations. These estimates do not take into account discounts for the present value of such total estimated costs. Excluding existing accruals at December 31, 1996, approximately $53.7 million of such costs are to be expensed over the remaining lives of these facilities. Environmental costs are accrued by the Company through a charge to income in the period such liabilities become probable and can be reasonably estimated. The Company periodically reassesses its methods and assumptions used to estimate such accruals for environmental and landfill costs and adjusts such accruals accordingly. Such factors considered are changing regulatory requirements, the effects of inflation, changes in operating climates in the regions in which the Company's facilities are located and the expectations regarding costs of securing environmental services. FINANCIAL CONDITION At December 31, 1996, the Company had $299.5 million in cash and approximately $92.6 million of availability under its $250.0 million revolving credit facility which may be used for general corporate purposes. In April 1997, the Company replaced its existing $250.0 million credit facility with a new $1.0 billion unsecured revolving credit facility (the "Credit Facility"). The Company believes that its financial condition is strong and that it has sufficient operating cash flow and other financial resources necessary to meet its anticipated capital requirements and obligations as they come due. In March 1997, the Company entered into a $300.0 million unsecured credit facility with a bank. The proceeds of this facility were used to acquire 15.0 million shares of ADT as described above. In April 1997, the Company refinanced amounts borrowed under this facility with proceeds from the Credit Facility. In January 1997, the Company sold approximately 15.8 million shares of Common Stock to certain institutional investors in a private placement transaction resulting in net proceeds of approximately $552.7 million. F-180 181 In connection with the Company's automotive rental operations, the Company, through separate special purpose entities, may issue up to $2.5 billion of commercial paper, the proceeds of which may be used solely to purchase or finance rental fleet vehicles that are subject to manufacturer repurchase programs or to refinance repurchase receivables due from vehicle manufacturers under repurchase programs. The Company has also issued $800.0 million of medium term notes, the proceeds of which were used to finance rental fleet vehicles. The Company has various other credit facilities to finance its current vehicle rental operations in Europe and other foreign markets. In connection with the development of the AutoNation megastores, AutoNation is the lessee under a $500.0 million operating lease facility established to acquire and develop properties used in its business. The Company has guaranteed the residual value of the properties under this facility which guarantee totaled approximately $74.6 million at March 31, 1997. Working Capital Working capital at December 31, 1996 was $1.3 billion as compared to $202.9 million at December 31, 1995. The increase in working capital primarily results from the 1996 refinancing of a portion of the Company's revenue earning vehicle debt with $800.0 million of medium term notes due in 2001. The increase in working capital also results from sales of Common Stock in May and November of 1996 in private placement transactions resulting in net proceeds to the Company of approximately $550.6 million. Such proceeds were used to repay a portion of revenue earning vehicle debt and to make advances to AutoNation pursuant to a loan agreement. The Company believes working capital may decline in 1997 to lower levels as additional capital is used for the continued expansion of the Company's businesses including acquisitions and the development of the AutoNation business. Receivables, net at December 31, 1996 were $535.7 million as compared to $428.7 million at December 31, 1995. Receivables consist primarily of amounts due from retail and service customers, travel agents and tour operators and amounts due under vehicle repurchase and incentive programs. The increase is primarily attributed to various business acquisitions and expansion of the Company's existing businesses. Revenue earning vehicles, net consist of the Company's vehicle rental fleet, net of accumulated depreciation, and were $3.5 billion at December 31, 1996 as compared to $2.9 billion at December 31, 1995. The increase is primarily a result of increased vehicle purchases in 1996 over 1995 to support additional rental volume. Revenue earning vehicles with depreciated cost of $2.9 billion at December 31, 1996 were acquired under programs that allow the Company to require counterparties to repurchase vehicles held for periods of up to 24 months. Advances to affiliate of $247.5 million includes advances made to AutoNation and accrued interest thereon pursuant to a loan agreement whereby the Company agreed to provide a line of credit to AutoNation for the development of new and used vehicle megastores. Accounts payable and accrued liabilities at December 31, 1996 were $470.7 million as compared to $379.6 million at December 31, 1995. The increase is primarily attributed to various business acquisitions and expansion of the Company's existing businesses. Revenue earning vehicle debt consists of the Company's obligations to various financial institutions secured by the Company's vehicle rental fleet. Such debt was $2.7 billion at December 31, 1996 and $3.0 billion at December 31, 1995. The Company expects to continue to fund its purchases of revenue earning vehicles with secured vehicle financings. Property and Equipment Property and equipment increased $392.2 million during 1996 primarily as a result of various business acquisitions and increased capital expenditures resulting from expansion of the Company's existing businesses. Intangible Assets Intangible assets increased $120.4 million during 1996 primarily as a result of the acquisition of various businesses accounted for under the purchase method of accounting during the period. See Note 1, Summary F-181 182 of Significant Accounting Policies -- Intangible Assets, of Notes to Consolidated Financial Statements for further discussion of intangible assets. Investment in Subscriber Accounts Investment in subscriber accounts represents certain capitalized costs associated with the installation of new electronic security systems and the cost of acquired subscriber accounts. Investment in subscriber accounts increased $59.5 million during 1996 primarily as a result of growth in electronic security system installations and acquisitions of subscriber accounts. Notes Payable and Long-Term Debt Including Current Maturities Notes payable and long-term debt including current maturities increased to $532.1 million at December 31, 1996 from $491.4 million at December 31, 1995. The increase is primarily attributed to borrowings under the Company's $250.0 million revolving credit facility to fund the Company's investing activities. Shareholders' Equity Shareholders' equity increased $634.2 million during the year ended December 31, 1996 primarily due to the May and November 1996 sales of approximately 9.9 million and 12.1 million shares of Common Stock, respectively, which resulted in aggregate net proceeds of approximately $550.9 million. Also contributing to this increase were 1996 acquisitions of various businesses accounted for under the purchase method of accounting. CASH FLOWS Cash and cash equivalents decreased by $46.1 million during the year ended December 31, 1996 and increased $300.3 million during the year ended December 31, 1995. The major components of these changes are discussed below. Cash Provided by Operating Activities The Company's net cash flows from operating activities increased by $291.0 million during the year ended December 31, 1996 primarily as a result of various business acquisitions and expansion of the Company's existing businesses. Cash Used in Investing Activities Capital additions were approximately $1.5 billion, $538.0 million and $793.5 million during the years ended December 31, 1996, 1995 and 1994, respectively, which included the purchases of revenue earning vehicles (net of sales) and property and equipment and the expansion of landfill sites. The decrease in 1995 is primarily a result of the Company's utilization of a greater percentage of leased vehicles in its rental fleet during the year. During 1996, the Company returned to a policy which resulted in a greater percentage of owned vehicles in its fleet. The Company also made capital expenditures of approximately $41.4 million, $16.0 million and $17.5 million during the years ended December 31, 1996, 1995 and 1994, respectively, related to the expansion of its electronic security services business through installations of new monitoring systems and acquisitions of subscriber accounts. During the year ended December 31, 1996, Republic advanced $243.4 million to AutoNation under the AutoNation loan agreement as previously discussed. During the year ended December 31, 1995, the Company paid approximately $1.3 billion in cash for business acquisitions, principally for National's acquisition of Old National as previously discussed. The Company expects capital expenditures to increase substantially during the remainder of 1997 and in the foreseeable future due to the development of the AutoNation business as well as continued internal growth of existing businesses and future acquisitions. The Company intends to finance capital expenditures through cash on hand, revolving credit facilities, lease facilities and other financings. F-182 183 Cash Provided by Financing Activities Cash flows from financing activities during the years ended December 31, 1996, 1995, and 1994 included revenue earning vehicle financing, commercial bank borrowings, repayments of debt and issuances of Common Stock. In May 1996, the Company sold 9.9 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $197.6 million. In November 1996, the Company sold 12.1 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $353.3 million. These financing activities combined with cash provided by operating activities were used to fund capital additions and the expansion of the Company's business during these years. In August 1995, the Company issued and sold an aggregate of 16.7 million shares of Common Stock and warrants to purchase an additional 33.4 million shares of Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation controlled by Michael G. DeGroote), Harris W. Hudson, and certain of their assigns for an aggregate purchase price of approximately $37.5 million. The warrants are exercisable at prices ranging from $2.25 to $3.50 per share. In August 1995, the Company issued and sold an additional 2.0 million shares of Common Stock each to Mr. Huizenga and John J. Melk, for aggregate proceeds of approximately $26.5 million. In July 1995, the Company sold 10.8 million shares of Common Stock in a private placement transaction resulting in net proceeds of approximately $69.3 million. In September 1995, the Company sold 10.0 million shares of Common Stock in an additional private placement transaction resulting in net proceeds of approximately $99.0 million. In October 1995, Continental completed a secondary public offering of approximately 2.6 million equivalent shares of Common Stock resulting in net proceeds of approximately $30.1 million. SEASONALITY The Company's automotive rental operations and particularly the leisure travel segment is highly seasonal. In these operations, the third quarter, which includes the peak summer travel months, has historically been the strongest quarter of the year. During the peak season, the Company increases its rental fleet and workforce to accommodate increased rental activity. As a result, any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the annual performance of this segment. The first quarter for the Company's automotive rental operations is generally the weakest, when there is limited leisure family travel and a greater potential for adverse weather conditions. Many of the operating expenses such as rent, general insurance and administrative personnel are fixed and cannot be reduced during periods of decreased rental demand. FORWARD-LOOKING STATEMENTS Certain statements and information included herein constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the ability to develop and implement operational and financial systems to manage rapidly growing operations; competition in the Company's lines of business; the ability to integrate and successfully operate acquired businesses and the risks associated with such businesses; the ability to obtain financing on acceptable terms to finance the Company's growth strategy and for the Company to operate within the limitations imposed by financing arrangements; the Company's limited history of operations in automotive retailing; the dependence on vehicle manufacturers to approve dealership acquisitions; the possibility of unfavorable changes to the cost or financing of the Company's vehicle rental fleet; the Company's dependence on key personnel; and other factors referenced herein. F-183 -----END PRIVACY-ENHANCED MESSAGE-----