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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-26906
ASTA FUNDING, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 22-3388607
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
210 Sylvan Avenue, Englewood Cliffs, NJ 07632
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number, including area code: (201) 567-5648
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. (X)
The Registrant's revenues for the fiscal year ended
September 30, 1997 were $5,674,201
As of December 15, 1997, the aggregate market value of the
Registrant's Common Stock (based upon the closing sales price for the Common
Stock as reported by NASDAQ on such date) held by non-affiliates of the
Registrant was approximately $2,940,000. (Aggregate market value has been
estimated solely for the purpose of this report. For the purpose of this
report it has been assumed that all officers and directors are affiliates of
the Registrant. The statements made herein shall not be construed as an
admission for the purposes of determining the affiliate status of any person.)
As of December 15, 1997, the Registrant had 3,920,000 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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Documents Incorporated by Reference:
The information called for by Part III of this Form 10-KSB
is incorporated by reference from the Company's Proxy Statement to be filed
with the Commission on or before January 30, 1998.
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Part I
Item 1. Description of Business.
General
Asta Funding, Inc. (the "Company") is a consumer finance company specializing
in the business of purchasing, selling and servicing retail automobile
installment contracts ("Contracts") originated by dealers ("Dealers") in the
sale primarily of used automobiles. Through its purchases, the Company
provides indirect financing to borrowers with limited credit histories, lower
than average incomes or past credit problems ("Sub-Prime Borrowers"). The
Company serves as an alternative source of financing for Dealers as compared
to more traditional sources of automobile financing such as banks, credit
unions or finance companies affiliated with automobile manufacturers.
Sub-Prime Borrowers typically pay a higher rate of interest than do prime
credit borrowers utilizing traditional financing sources.
The Company is a Delaware corporation whose principal
executive offices are located at 210 Sylvan Avenue, Englewood Cliffs, New
Jersey 07632. The Company was incorporated in New Jersey on July 7, 1994 and
was reincorporated in Delaware on October 12, 1995 as a result of a merger
with a Delaware corporation. Unless the context otherwise requires, the terms
"Company" or "Registrant" as used herein refer to Asta Funding, Inc.
The Company typically purchases Contracts from new-car
franchise Dealers who sell both new and used automobiles as well as
independent used car Dealers. As of September 30, 1997, the Company has
entered into its standard-form dealer agreement ("Dealer Agreement") with more
than 650 Dealers, all of which are located in the States of New York, New
Jersey, Connecticut, Delaware, Maryland, Pennsylvania, Virginia and Maine.
Dealers are under no obligation to submit any Contracts to the Company, nor is
the Company obligated to purchase any Contracts. The Company enters into
Dealer Agreements and solicits Contracts from Dealers primarily through the
efforts of sales representatives and the Company's staff. The success of the
Company's business is substantially dependent upon its ability to develop and
maintain relationships with Dealers.
The Company currently services all of the Contracts it has
purchased for its own account as well as those Contracts it purchased and
subsequently sold. Servicing consists of the collection of principal, interest
and other payments on the Contracts, providing related accounting and
reporting services and, when necessary, the repossession and sale of
collateral upon an event of default.
Automobile Financing Industry
Automobile financing is the largest category, by dollar amount, of
consumer installment debt in the United States. Most traditional sources of
automobile financing, such as commercial banks, credit unions and captive
finance companies affiliated with automobile manufacturers, generally provide
automobile financing for the most creditworthy, or so-called "prime"
borrowers.
Although prime borrowers represent the largest segment of
the automobile financing market, many potential purchasers of automobiles do
not possess the qualifications required for prime borrowers. The sub-prime
credit market is comprised of consumers who are deemed to be relatively high
credit risks due to various factors, including, among other things, previous
credit problems, the absence or limited extent of their prior credit history
or limited financial resources and, therefore, are unable to obtain credit
from traditional sources of automobile financing. The Company believes that
there is
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substantial demand for Sub-Prime Borrower financing because the market has not
been effectively served by traditional financing sources.
Business Strategy
The Company's primary objective is to increase revenues through the expansion
of its purchasing, selling and servicing of Contracts by, among other things:
o Expanding its existing Dealer network to include additional Dealers
who generate Contracts from Sub-Prime Borrowers who meet the
Company's underwriting criteria;
o Increasing Contract purchases from Dealers in the Company's existing
Dealer network;
o The possible expansion and obtainment of licenses in additional
states.
Purchase and Sale of Contracts
Dealer Contract Purchase Program
As of September 30, 1997, the Company was a party to Dealer Agreements with
more than 650 Dealers, all of which are located in the states of New York, New
Jersey, Connecticut, Delaware, Maryland, Pennsylvania, Virginia and Maine.
Approximately 74% of these Dealers are independent used car dealers and the
remainder are franchised new car dealers selling both new and used
automobiles. For the twelve months ended September 30, 1997, approximately 98%
of the Contracts purchased by the Company consisted of financing for used cars
and the remaining approximately 2% for new cars. Pursuant to the Dealer
Agreement, dealers are under no obligation to submit any Contracts to the
Company, nor is the Company obligated to purchase any Contracts. During the
twelve months ended September 30, 1997, three Dealers under common ownership
accounted for approximately 7.66% of the aggregate principal amount of
Contracts purchased by the Company and 5.62% of the total number of Contracts
purchased by the Company. Two other Dealers accounted for approximately 6.83%
and 6.46%, respectively, of the aggregate principal amount of Contracts
purchased by the Company and approximately 6.84% and 6.80% respectively of the
total number of Contracts purchased by the Company. For the year ended
September 30, 1997, approximately 40%, 24% and 16% of Contracts purchased by
the Company were from borrowers who reside in the states of New York , New
Jersey and Pennsylvania, respectively.
Dealers generate applications from retail automobile buyers who indicate an
interest in obtaining financing from a Dealer to purchase an automobile, light
truck or passenger van. Typically, a Dealer will submit the buyer's
application to more than one financing source for review. The Company believes
the Dealer's decision to finance the automobile purchase with the Company or
other financing source is based primarily upon an analysis of the discounted
purchase price offered for the Contract, the promptness of the financing
source in approving or disapproving loan applications, the ability of the
financing source to promptly consummate the purchase and any purchase
conditions.
Based upon the Company's underwriting criteria and its review of the
information contained in a credit bureau report ordered by the Company, the
application, the proposed transaction structure and a verification of the
value of the automobile securing the Contract, the Company may either approve
the application as submitted, approve the application upon modified terms or
reject the application. The Company's credit analyst's will document their
decision and notify the Dealers by facsimile
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transmission and or telephone. The Company does not purchase all of the
Contracts approved for purchase because Dealers typically offer to sell
Contracts to more than one finance source and applicants often decide not to
purchase a vehicle from Dealers to whom they have submitted a credit
application. The Company buys Contracts directly from Dealers and does not
make loans directly to purchasers of automobiles.
The Company purchases Contracts from Dealers at an average discount of 10%
from the total amount financed under the Contracts. In addition, the Company
charges an acquisition fee ranging from $150 to $300 for each Contract
purchased The Company believes that the level of discounts and fees are a
significant factor in the Dealer's decision to submit a Contract to the
Company for purchase.
The Company attempts to control Dealer misrepresentation by carefully
screening the Dealers and the Contracts it purchases. The Company's efforts
include establishing and maintaining sound professional business relationships
with Dealers and obtaining certain representations and warranties regarding
the nature and enforceability of the Dealer Agreement and the corresponding
Contracts. In addition, if a Dealer breaches its representations or
warranties, pursuant to the Dealer Agreement, the Company has the right to
require the Dealer to repurchase any Contract. There can be no assurance,
however, that any Dealer will have the financial resources to satisfy its
repurchase obligations to the Company.
Contract Purchase Criteria
To be eligible for purchase by the Company, a Contract must have been
originated by a Dealer that has entered into a Dealer Agreement to sell
Contracts to the Company. The Contracts must be secured by a first priority
security interest in the purchased vehicle and must meet the Company's
underwriting criteria. In addition, each Contract requires the borrower to
maintain physical damage insurance covering the financed vehicle and naming
the Company as a loss payee. Although each borrower is required to maintain
insurance, losses may occur upon theft or physical damage of any financed
vehicle if the borrower fails to maintain insurance as required and is unable
to pay for repairs to or replacement of the vehicle or is otherwise unable to
payoff the Contract in full.
All of the Contracts purchased by the Company are fully amortizing and provide
for equal payments over the term of the Contract. The Contracts may be prepaid
at any time without premium or penalty. In the event a borrower elects to
prepay a Contract in full, the payoff amount is calculated by deducting the
unearned interest (as determined by the actuarial or the simple interest
method or such other interest amortization method as is submitted by
applicable state law) from the Contract balance.
Each Contract purchased by the Company prohibits the sale or transfer of the
financed vehicle without the secured party's consent and provides for the
acceleration of the maturity of the Contract upon a sale or transfer without
such consent. In most circumstances, the Company will not consent to a sale or
transfer of a financed vehicle unless the Contract is prepaid in full.
The Company seeks to control loss exposure on Contracts by: (i) requiring that
the applicant pay a substantial portion of the purchase price (usually 15% to
20%) for the vehicle with funds not borrowed from the Company or Dealer; (ii)
verifying the credibility of the applicant and determining whether the
applicant meets the Company's underwriting criteria, particularly whether the
applicant has sufficient disposable income to meet such applicant's existing
obligations and the obligations resulting from the proposed transaction; (iii)
limiting the credit the Company is willing to extend
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based upon its assessment of the applicant's ability to meet payment
obligations and the value of the underlying collateral; (iv) requiring
physical damage insurance, under which the Company is a loss payee, to be
maintained on all vehicles at all times by the obligor to protect the
Company's financial interest; (v) purchasing insurance to cover the risk of
the borrower's failure to maintain insurance and certain other risks; and (vi)
acquiring a first priority security interest in the financed vehicle. There
can be no assurances, however that these methods will afford adequate
protection against risk of loss exposure.
The degree of exposure in any transaction is a function of: (a) the
creditworthiness of the applicant, (b) the extent of credit granted compared
to the value of the underlying collateral, (c) the possibility of physical
damage to, or the loss of the collateral, and (d) the potential for any legal
impediment to the collection of the obligation or the repossession of the
collateral. The Company generally determines the value of collateral based
upon national recognized pricing services.
The Company has implemented specific procedures to control borrower
misrepresentation at the point of origination. The Company requires each
Dealer submitting a potential Contract to provide certain information to the
Company, including a completed signed loan application which lists the
applicant's income, credit and employment history as well as other personal
information. The Company verifies the employment and certain other information
provided by the borrower by contacting the related references noted on the
borrower's application. The Company also evaluates the applicants credit
history as provided by at least one independent credit bureau. The credit
report typically contains information on matters such as historical payment
experience, credit history with merchants and lenders, installment debt
payments, defaults and bankruptcies, if any. The Company also may require
verification of certain other information provided by the applicant or the
Dealer prior to making its credit decision. This verification process in many
instances requires submission of supporting documentation and is performed
solely by Company personnel. The Company evaluates applicants by considering
the relationship of the applicant's monthly income to monthly expenses,
including expenses relating to the Contract and ownership of the financed
vehicle. There can be no assurances, however that these procedures will afford
adequate protection against borrower misrepresentation.
The Company believes that its objective underwriting criteria enable it to
evaluate effectively the creditworthiness of Sub-Prime Borrowers. These
criteria include standards for price, term, installment payment and interest
rate, mileage, age and type of vehicle, amount of the loan in relation to the
value of the vehicle and the amount of the down payment, the borrower's income
level, job and residence stability, credit history and debt serviceability and
other factors. These criteria are subject to change from time to time at the
discretion of the Company as circumstances may warrant.
If a Dealer sells a Contract to the Company, the requisite financing documents
are generated by the Dealer on a standardized form of Contract supplied by the
Company. The Dealer and the borrower sign the Contract, the Dealer assigns the
Contract to the Company and the Dealer forwards the signed Contract to the
Company along with other items, including the vehicle title information
indicating the Company's security interest. The Company thereupon forwards
payment to the Dealer for the Contract upon completion of all loan funding
procedures.
Securitization of Contracts
In May 1996, the Company entered into an agreement with Greenwich Capital
Markets, Inc. ("Greenwich Capital") that provides the Company with a committed
forty-eight month securitization Contract program totaling $200 million. As of
September 30, 1997, the Company had completed two
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securitizations aggregating approximately $44 million in Contracts pursuant to
the agreement with Greenwich Capital.
The Company purchases Contracts with the intention of reselling them to
institutional investors as asset backed securities ("ABS"). The structure of
these securitizations with Greenwich Capital (and the general structure the
Company intends to utilize with future securitizations) included the following
steps. First, the Company sells a portfolio of Contracts to a wholly-owned
subsidiary which had been established for the limited purpose of buying and
reselling the Company's Contracts. The wholly-owned subsidiary then sells the
portfolio of Contracts to a grantor trust and the the grantor trust in turn
issues interest-bearing ABS in an amount equal to the aggregate principal
balance of the Contracts. Institutional investors purchase these ABS, the
proceeds of which are used by the grantor trust to purchase the Contracts from
the subsidiary. The wholly-owned subsidiary uses the proceeds to purchase the
Contracts from the Company. The Company also provides a credit enhancement for
the benefit of the trust investors through the use of an initial cash deposits
to a specified trust account ("Spread Account") and agrees to deposit certain
residual interest cash flows which may be received in the future. Purchasers
of the ABS received a particular coupon rate (the "Pass-Through Rate")
established at the time of the sale.
The Company receives periodic base servicing fees for its duties relating to
the accounting for and collection of the Contracts. In addition, the Company
is entitled to certain residual interest cash flows that represent collections
on the Contracts in excess of the amounts required to pay the investors
principal and interest, the base servicing fees and certain other fees such as
trustee and custodial fees. The company sells the Contracts in the portfolio
at face value and without recourse except that certain of the representations
and warranties made by the Dealer to the Company in the Dealer Agreement were
similarly made by the Company to the ABS investors.
At the end of the month, the aggregate cash collections relating to the
portfolio of Contracts are allocated first to the base servicing fees and
certain fees such as trustee and custodial fees for the period, then to the
ABS certificate holder in an amount equal to the interest accrued at the
Pass-Through Rate on the portfolio plus the amount by which the portfolio
balance decreased (due to payments, payoffs or charge offs) during the period.
If the amount of cash required for the above allocations exceeds the amount
collected during the monthly period, the shortfall is drawn from the Spread
Accounts. If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related Spread
Accounts from prior periods, the excess is returned to the Company. The excess
cash flows are considered by the Company to be cash receipts from the residual
interest, part of which the Company recognizes as a gain on sale bases on an
estimate of the discounted present value of the excess cash flows.
Because the annual percentage rate on the Contracts received by the Company is
relatively high in comparison to the Pass-Through Rate paid to investors, the
net present value described above can be significant. In calculating the net
gain on the sales described above, the Company must estimate the future rates
of prepayments, delinquencies, defaults and default loss severity as they
impact the amount and timing of the cash flows in the net present value
calculation. The cash flows received by the Company are then discounted at an
interest rate that the Company believes a third-party purchaser would require
as a rate of return. Expected losses are discounted using a rate equivalent to
the risk free rate for securities with a duration similar to that estimated
for the underlying Contracts.
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In future periods, the Company will recognize additional revenue from the
servicing fees if the actual performance of the Contracts is better than the
original discounted estimate. If the actual performance of the Contracts is
worse than the original discounted estimate, then a write-down would be
required.
In connection with the sale of the Contracts, the Company is required to make
certain representations and warranties, which generally duplicate the
substance of the representations and warranties made by Dealers in connection
with the Company's purchase of the Contracts. If the Company breaches any of
its representations or warranties to a purchaser of the Contracts, the Company
will be obligated to repurchase the Contract from such purchaser at a price
equal to such purchaser's purchase price less the related cash securitization
reserve and any payments received by such purchaser of the Contract. In most
cases, the Company would then be entitled under the terms of its Dealer
Agreement to require the selling Dealer to repurchase the Contracts at a price
equal to the Company's purchase price, less any payments made by the borrower.
Subject to any recourse against Dealers, the Company will bear the risk of
loss on repossession and resale of vehicles under Contracts repurchased by it.
Terms of Servicing Agreements
The Company currently services all Contracts it has purchased, including those
it has subsequently sold.
The Company currently has a servicing agreement with several trustees ( the
"Servicing Agreements") relating to the securitizations with Greenwhich
Capital pursuant to which the Company is obligated to service all Contracts
sold to the trusts in accordance with the Company's standard procedures. The
Servicing Agreements provide that the Company will bear all costs and expenses
incurred in connection with the management, administration and collection of
the Contracts serviced. The Servicing Agreements also provide that the Company
will take all actions necessary or reasonable requested by the investor to
maintain perfection and priority of the investors' or the trust's security
interest in the financed vehicles.
Pursuant to the Servicing Agreements, the Company mails to borrowers monthly
invoices directing them to mail payments on the Contracts to a
lock-box-account. The Company engages an independent lock-box-processing agent
to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the trust's bank account of the entire amount of
each day's lock-box receipts. In addition, the agent prepares a listing of all
payments received and sends a photo copy of each payment along with the
envelope in which the payment was received to the Company for posting to the
borrowers account on a daily basis. Pursuant to the Servicing Agreements, the
Company is required to deliver to the trustee monthly information of all
transaction activity with respect to the Contracts.
The Company is entitled under the Servicing Agreements to receive a base
monthly servicing fee of 3.0% computed as a percentage of the declining
outstanding principal balance of each Contract in the portfolio that is not in
default as of the beginning of the month. Each month, after payment of the
Company's base monthly servicing fee and certain other fees, the investors
receive the paid principal reduction of the Contracts in their portfolio and
interest at the Pass-Through Rate. If, in any month, collections on the
Contracts are insufficient to pay such amounts and any principal reduction due
to charge-off, the shortfall is satisfied from the cash securitization reserve
established in connection with the sale of the portfolio. (If the cash
securitization reserve is not sufficient to satisfy a shortfall, then the
trust may suffer a loss to the extent that the shortfall exceeds the cash
securitization reserve.)
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If collections on the Contracts exceeds such amounts, the excess is utilized,
first, to build up or replenish the cash securitization reserve to the extent
required and the balance, if any, constitutes residual interest cash flows,
which are distributed to the Company. If, in any month, the cash
securitization reserve balances are in excess of that required under the
Servicing Agreements, the Company is entitled to receive such excess.
Pursuant to the Servicing Agreements, the Company is required to charge-off
the balance of any Contracts when the Contract becomes 120 days delinquent or,
in the case of repossessions, the month that the proceeds from liquidation of
the financed vehicle are received by the Company. In the case of a
repossession, the amount of the charge-off is the difference between the
outstanding principal balance on the Contract and the repossession sale
proceeds. In the event collections on the Contracts are not sufficient to pay
the investors the entire principal balance of any Contracts charged-off during
the month, the securitization reserve established in connection with the sale
of the Contracts is reduced by the unpaid principal amount of such Contracts.
Such amount would then have to be restored to the cash securitization reserve
from future collections on the Contracts remaining in the portfolio before the
Company would again be entitled to residual interest cash flows. In addition,
the Company would not be entitled to receive any further base monthly
servicing fees with respect to the defaulted Contracts. Subject to any
recourse against the Company in the event of a breach of the Company's
representations and warranties with respect to any Contracts, the ABS
investors bear the risk of all charge-offs on the Contracts in excess of the
cash securitization reserve. However, the Company would experience a reduction
of residual interest cash flows in the event of greater than anticipated
charge-offs or prepayments on Contracts sold and serviced by the Company which
could result in losses on the residual interest and investments in Spread
Accounts.
The Servicing Agreements are terminable by the ABS investors in the event of
certain defaults by the Company and under certain other circumstances.
Servicing of Contracts
The Company's servicing activities have been tailored to the Sub-Prime
Borrower market. Such activities consist of: (a) collection of payments; (b)
accounting for and posting all payments received; (c) responding to borrower
inquiries; (d) taking necessary action to maintain the security interest in
the financed vehicle; (e) investigating delinquencies and communicating with
the borrower to obtain timely payments; (f) monitoring the Contract and its
related collateral; and (g) when necessary, repossessing and disposing of the
financed vehicle.
The Company believes that its ability to monitor performance and collect
payments owed from Sub-Prime Borrowers with limited financial resources
primarily is a function of its collection approach and support systems. The
Company believes that if payment problems are identified early and the
Company's collection staff works closely with borrowers to address these
concerns, it is possible to correct a portion of these problems before they
deteriorate further. To this end, the Company utilizes pro-active collection
procedures, which include making early and frequent telephone contact with
delinquent borrowers and educating borrowers as to the importance of
maintaining good credit.
The Company issues to each borrower a monthly invoice approximately two weeks
before the due date of a payment. If a payment is not received on or before
its due date, the Company typically contacts the borrower by telephone within
five days after the due date. The Company's personnel attempt to stay in
regular contact with the borrower until the delinquency is cured. If the
borrower does not cure the delinquency within two to four weeks after the due
date, the Company typically
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causes its licensed repossession agents to repossess the vehicle immediately.
All such agents used by the Company are licensed and bonded against claims
relating to improper repossessions.
When a vehicle is repossessed, the Company gives the
borrower written notice in accordance with applicable laws and the opportunity
to redeem the repossessed vehicle upon payment to the Company of all past due
obligations on the Contract, including the costs of repossession. If the
vehicle is not redeemed by the borrower, the Company usually sells the vehicle
at a public sale.
Based upon the experience of the Company's management in the
consumer finance industry, as well as the results of the Company's collection
efforts during its limited operating history, the Company believes that its
collection policies and procedures will be effective to minimize the incidence
of borrower defaults and loss on default. However, there can be no assurance
that such policies and procedures will afford adequate protection against the
risks of borrower defaults.
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The tables below document the delinquency, repossession and net credit loss
experience of all Contracts originated and/or sold by the Company since
inception through September 30, 1997. All amounts and percentages are based on
the principal amount to be paid on each Contract. The information in the
tables represent all Contracts purchased by the Company including Contracts
subsequently sold by the Company which it continues to service. Management has
reviewed the credit losses experienced by other Sub-Prime lenders for which
information is available and believes that the Company's allowance for credit
losses as a percentage of loans outstanding is within the range employed by
similar lenders and, based upon the performance of the portfolio to date, is
adequate. Additionally, management periodically evaluates the portfolio
primarily by analyzing the trends in past due loans and repossessed vehicles
and the portfolios historical performance.
Delinquency Experience (1)
<TABLE>
<CAPTION>
September 30,1997 September 30, 1996
Number Number
Of Loans Amount Of Loans Amount
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Gross Servicing Portfolio 3936 $32,946,674 2869 $27,312,981
Period of delinquency (2)
31-60 days 175 1,696,722 107 1,198,716
61-90 days 48 478,540 17 185,958
91- + days 36 400,084 14 123,306
---- ----------- ---- -----------
Total delinquencies 259 2,575,346 138 1,507,980
Amount in repossession (3) 107 1,015,380 124 1,161,771
Total delinquencies and 366 3,590,726 262 2,669,771
amount in repossession
Delinquencies as a percent
Of Gross Servicing Portfolio 6.58% 7.82% 4.81% 5.52%
Total delinquencies and amount in
Repossession as a percent of
Gross Servicing Portfolio 9.30% 10.90% 9.13% 9.77%
</TABLE>
(1) All amounts and percentages are based on the remaining unpaid principal
balance on each Contract. The information in the table represents the
principal amount of all Contracts purchased by the Company, including
Contracts subsequently sold by the Company which it continues to service.
(2) The Company considers a Contract delinquent when an obligor fails to make
at least 95% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually past
due. Amounts shown do not include Contracts which are less than 31 days
delinquent.
(3) Amount in repossession represents vehicles which have been repossessed but
not yet liquidated.
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Net Charge-Off Experience (1)
YearEnded Year Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Average Servicing Portfolio
Outstanding $30,129,928 $16,143,339
Net charge-offs as a percent of
Average Servicing Portfolio 10.69% 1.01%
(1) Net charge-off includes the remaining principal balance, after the
application of net proceeds from liquidation of the vehicle. Post-liquidation
amounts received on previously charged-off Contracts are applied to the period
in which the related Contract was originally charged-off.
Proposed Portfolio Purchases
In addition to the purchase of individual Contracts from Dealers, the Company
may purchase portfolios of Contracts in bulk from Dealers or financial
institutions. Such portfolios may consist of Contracts with borrowers of a
different credit standing than the Sub- Prime Borrowers that are parties to
most of the Company's Contracts, may be comprised of Contracts that contain
terms different than the typical Contract purchased by the Company and may
include "non-performing" Contracts in which there have been delinquencies
and/or defaults. The purchase (or sale) of Contracts in bulk requires the
consent of BankAmerica Business Credit, Inc. ("BankAmerica") pursuant to the
Company's Credit Facility (as defined below).
Generally, the purchase price for portfolios will be paid in cash. Such
purchase price will be based upon the aging of Contracts in the portfolio, the
delinquency rates of borrowers that are parties to the Contracts in the
portfolio, the value of the collateral securing the Contracts in the portfolio
and the interest rates and the maturity dates of Contracts in the portfolio.
There can be no assurance that the Company will make any bulk purchases of
Contracts or, that, if opportunities to make a purchase arise, the terms of
such a purchase would be acceptable to the Company or that the Company will
have sufficient capital to make the purchase. Moreover, there can be no
assurance that a purchase or purchases of portfolios of Contracts in bulk will
not result in losses to the Company.
Marketing
The Company establishes relationships with Dealers through Company
representatives that contact prospective Dealers. Each representative presents
the Dealer with a marketing package, which includes the current program
offered by the Company for the purchase of Contracts, a copy of the Company's
standard-form Dealer Agreement and examples of required documentation relating
to Contracts. The Company's acceptance of a Dealer is subject to its analysis
of, among other things, the Dealer's operating history and financial
condition. After initial contact, the Company's representatives frequently
communicate with Dealers to obtain feedback on the program and address any
problems or additional requirements that Dealers may have in connection with
the program. As of September 30, 1997, the Company had 9 representatives, 5 of
whom are employees and 4 of whom are independent sales representatives.
<PAGE>
Seasonality
Management of the Company believes that the Company's operations may, to some
extent, be affected by high delinquency rates by borrowers on Contracts during
or shortly following certain holiday periods as well as seasonal changes in
Contract purchases due to the purchasing patterns of Sub-Prime Borrowers. In
addition, the Company believes that purchases of used automobiles, and
therefore financing activity, will decrease significantly in northern states
during periods of poor winter weather. Conversely, purchases and financing
activity may increase somewhat in late spring when many people receive tax
refunds.
Competition
The automobile financing business is highly competitive and fragmented. The
Company competes with a number of national, local and regional finance
companies with operations similar to those of the Company. Although the
Company does not believe it currently competes with commercial banks, thrift
institutions, savings and loan associations, credit unions or captive
automobile finance companies, such companies are capable of providing retail
loan financing for used automobiles. Many of the Company's competitors and
potential competitors possess substantially greater financial, marketing,
technical, personnel and other resources than the Company. Moreover, the
Company's future profitability will be directly related to the availability
and cost of its capital in relation to the availability and cost of capital to
its competitors.
The Company's existing and potential competitors include larger, more
established companies that have access to capital markets, including those for
commercial paper, asset-backed securities and rated debt which may be
unavailable to the Company. Many of these competitors also have long-standing
relationships with Dealers. As the Company seeks to increase market
penetration, its success will depend, in part, on its ability to gain market
share from established competitors. The Company believes that no individual
competitor or group of competitors has a dominant presence in the market. The
Company's strategy is designed to capitalize on the market's lack of a major
national financing source.
The Company believes that the principal competitive factors affecting a
Dealer's decision to offer Contracts for sale to a particular financing source
are the proposed purchase price for the Contracts, the reasonableness of the
underwriting guidelines and documentation requests of the financing source and
the predictability and timeliness of purchase.
The Company believes that it can obtain sufficient Contracts for purchase at
attractive prices by consistently applying reasonable underwriting criteria
and making timely purchases of qualifying Contracts. Management of the Company
believes, however, that its underwriting criteria tend to be more conservative
than many other financing sources available to Sub-Prime Borrowers as the
Company finances a lower percentage of the vehicle's book value and bases its
book value figures on a relatively conservative industry estimate. The
Company's practice could lead to the loss of Contracts to financing sources
maintaining less conservative policies. Competition by existing and potential
competitors could result in financial pressures, including reductions in the
number of Contracts purchased by the Company, reduced discounts on the
purchase price for Contracts paid to Dealers and reduced interest spreads,
that would materially adversely affect the Company's profitability.
<PAGE>
Regulation
Several federal and state consumer protection laws, including the Federal
Truth- In-Lending Act, the Federal Equal Credit Opportunity Act, the Federal
Fair Debt Collection Practices Act and the Federal Trade Commission Act,
regulate the extension of credit in consumer credit transactions. These laws
mandate certain disclosures with respect to finance charges on Contracts and
impose certain other restrictions on Dealers. Certain state laws impose
limitations on the amount of finance charges that may be charged by Dealers on
credit sales. The so-called Lemon Laws enacted by the federal government and
certain states provide certain rights to purchasers with respect to motor
vehicles that fail to satisfy express warranties. The application of Lemon
Laws or violation of such other federal and state laws may give rise to a
claim or defense of a borrower against a Dealer and its assignees, including
the Company and purchasers of Contracts from the Company. The Dealer Agreement
contains representations by the Dealer that the sale of the motor vehicle
covered by the Contract was effected in accordance with all applicable
federal, state and local laws covering the sale. Although a Dealer would be
obligated to repurchase Contracts that involve a breach of such warranty,
there can be no assurance that the Dealer will have the financial resources to
satisfy its repurchase obligations to the Company. Certain of these laws also
regulate the Company's Contract servicing activities, including its methods of
collection.
Although the Company believes that it is currently substantially in compliance
with applicable statutes and regulations, there can be no assurance that the
Company will be able to maintain such compliance. The failure to comply with
such statutes and regulations could have a material adverse effect upon the
Company. Furthermore, the adoption of additional statutes and regulations, or
the expansion of the Company's business into jurisdictions that have adopted
more stringent regulatory requirements than New York, New Jersey, Delaware,
Connecticut, Maryland, Pennsylvania, Virginia or Maine could have a material
adverse effect upon the Company.
The Company is not licensed to make loans directly to borrowers. Certain of
the Company's licenses and licenses that it may be required to obtain in the
future are subject to periodic renewal provisions and provisions governing
changes in control, or acquisitions of certain percentages of stock, of the
Company. The Company intends to renew all licenses necessary to the lawful
operation of its business.
The Dealer Agreement contains an undertaking by the Dealer that at the time of
sale of a Contract to the Company, (i) the Dealer will submit an application
for state registration of the financed vehicle, naming the Company as a
secured party with respect to the vehicle, and (ii) that all necessary steps
will be taken to obtain a perfected first priority security interest in each
financed vehicle in favor of the Company under the laws of the state in which
the financed vehicle is registered. If a Dealer or the Company, because of
clerical error or otherwise, has failed to timely take such action or maintain
such interest with respect to a financed vehicle, neither the Company nor any
subsequent purchaser of the related Contract would have a perfected security
interest in the financed vehicle and its security interest may be subordinate
to the interest of, among others, later purchasers of the financed vehicle,
holders of perfected security interests and a trustee in bankruptcy of the
borrower. The security interest of the Company may also be subordinate to the
interests of such third parties in the case of fraud or forgery by the
borrower, administrative error by state recording officials or in certain
other circumstances.
The Company may take action to enforce the security interest in financed
vehicles with respect to any related Contracts in default by repossession and
resale of the financed vehicles. The Uniform Commercial Code ("UCC") and other
state laws regulate repossession sales by requiring that the
<PAGE>
secured party provide the borrower with reasonable notice of the date, time
and place of any public sale of the collateral, the date after which any
private sale of the collateral may be held and of the borrower's right to
redeem the financed vehicle prior to any such sale and providing that any such
sale be conducted in a commercially reasonable manner.
In the event of a repossession and resale of a financed vehicle, after payment
of outstanding liens for storage, repairs and unpaid taxes, the secured party
would be entitled to be paid the full outstanding balance of the Contract out
of the sale proceeds before payments are made to the holders of junior
security interests in the financed vehicle, to unsecured creditors of the
borrower, or, thereafter, to the borrower. Under the UCC and other laws
applicable in most states, a creditor is entitled to obtain a deficiency
judgment from a borrower for any deficiency on repossession and resale of the
motor vehicle securing the unpaid balance of such borrower's motor vehicle
loan. However, some states impose prohibitions or limitations on deficiency
judgments. If a deficiency judgment were granted, the judgment would be a
personal judgment against the borrower for the shortfall, and a defaulting
borrower may often have insufficient capital or few sources of income
available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment against a borrower or, if one is
obtained, it may be settled at a significant discount.
Risk Factors
Dependence on Credit Facilty
In November 1995, the Company entered into a credit facility agreement with
BankAmerica ( the "Credit Facility") pursuant to which BankAmerica agreed to
provide the Company with a maximum of $15 million. The Credit Facility has a
term of two years. The outstanding principal amount of the indebtedness under
the Credit Facility bears interest at the rate of 1% per annum over
BankAmerica's reference rate from time to time in effect. As of November 30,
1997, BankAmerica's reference rate was 8.50%. Commencing 120 days after the
date of execution of the Credit Facility, the Company was required to pay a
fee calculated at the rate of .25% per annum on the average unused amount of
the Credit Facility. Under the Credit Facility, the Company may borrow up to
between 70% and 80% (the "advance rate") of its net eligible installment loan
receivables (depending upon the trade-in value of the automobiles securing the
receivables), but in no event more than $15 million. The advance rates are
subject to decrease based on the rate of borrower delinquencies on such
receivables. The Company's ability to continue to borrow under the Credit
Facility will be dependent upon its compliance with the terms thereof,
including compliance with certain financial covenants such as the maintenance
of a minimum ratio of earnings before interest and taxes to interest expense,
a minimum tangible net worth and a maximum ratio of total liabilities to
tangible net worth. In addition, events of default under the Credit Facility
will occur if, among other things, borrower delinquencies of 30 days or more
on Contracts exceed 4% of the Company's gross receivables at any time on loans
that have not yet been sold, if the existing stockholders of the Company no
longer own at least 51% of the outstanding Common Stock, or if there occurs a
material adverse change in the Company's financial condition. Pursuant to the
Credit Facility, BankAmerica's consent will be required for the Company to
make bulk purchases or sales of Contracts.
All of the Company's obligations under the Credit Facility are secured by a
first priority security interest in the Company's installment loan receivables
and a pledge by the Company's principal stockholders of 2,252,000 shares of
the Company's common stock.
<PAGE>
The Company is currently in negotiations with BankAmerica to extend the Credit
Facility another two years. In November 1997, BankAmerica extended the Credit
Facility until January 31, 1998. There can be no assurance that BankAmerica
will extend the Credit Facility after January 31, 1998. If BankAmerica does
not extend the Credit Facility, there can be no assurance that the Company
will be able to negotiate for and obtain further financing, or if so, on what
terms. The failure of BankAmerica to extend the Credit Facility or the
Company's failure to obtain further financing could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Default and Prepayment Risks
The Company's results of operations, financial condition and liquidity depend,
to a material extent, on the performance of Contracts purchased and held by
the Company prior to their sale in a securitization transaction as well as the
subsequent performance of receivables sold to securitization trusts. A portion
of the loans purchased by the Company may default or prepay during the period
prior to their sale in a securitization transaction or if they remain owned by
the Company. The Company bears the full risk of losses resulting from payment
defaults during such period. In the event of a payment default, the collateral
value of the financed vehicle may not cover the outstanding loan balance and
costs of recovery. The Company maintains an allowance for losses on loans held
by the Company, which reflects management's estimates of anticipated losses
for such loans. If the allowances is inadequate, then the Company would
recognize as an expense the losses in excess of such allowance and results of
operations could be adversely affected. In addition, under the terms of the
Credit Facility the Company is not able to borrow against defaulted loans and
loans greater than 60 days delinquent held by the Company.
The Company also retains a substantial portion of the default and prepayment
risk associated with the receivables that it sells pursuant to
Company-sponsored securitizations. A large component of the gain recognized on
such sales and the corresponding asset recorded on the Company's balance sheet
is excess servicing receivable which is based on the present value of
estimated future excess cash flows from the securitized receivables which will
be received by the Company. Accordingly, the residual interest is calculated
on the basis of management's assumptions concerning, among other things,
defaults and prepayments. Actual defaults and prepayments may vary from
management's assumptions, possibly to a material degree. In addition, the
Company is required to deposit substantial amounts of the cash flows generated
by its interests in Company sponsored securitizations ("restricted cash") into
spread accounts.
The Company regularly measures its default, prepayment and other assumptions
against the actual performance of securitized receivables. If the Company were
to determine, as a result of such regular review or otherwise, that it
underestimated defaults and/or prepayments, or that any other material
assumptions were inaccurate, the Company would be required to adjust the
carrying value of the residual interest on its balance sheet. Future cash
flows from securitization trusts may also be less than expected and the
Company's results of operations and liquidity would be adversely affected,
possibly to a material degree. In addition, an increase in prepayments and
defaults would reduce the size of the Company's servicing portfolio which
would reduce the Company's servicing fee income, further adversely affecting
results of operations and cash flows. A write-down of the residual interest
and the corresponding decreases in earnings and cash flow could affect the
Company's liquidity position and future securitizations. Although the Company
believes that it has made reasonable assumptions as to the future cash flows
of the various pools of receivables that have been sold in securitization
transactions, actual rates of default or prepayment may differ from those
assumed and other assumptions may be required to be revised upon future
events.
<PAGE>
Portfolio Performance; Negative Impact on Cash Flows; Right to Terminate
Normal Servicing
Generally, the form of credit enhancement agreement entered into in connection
with securitization transactions contains specified limits on the delinquency,
defaults and loss rates on the receivables included in each trust. At any
measurement date, the delinquency, defaults or loss rate with respect to any
trust were to exceed the specified limits, provisions of the credit
enhancement agreement would automatically increase the level of credit
enhancement requirements for that trust. During the period in which the
specified delinquency, default or loss rate was exceeded, excess cash flow, if
any, from the trust would be used to fund the increase credit enhancement
levels instead of being distributed to the Company, which would have an
adverse effect on the Company's cash flow.
The credit enhancement agreement entered into in connection with
securitization transactions contain additional specified limits on the
delinquency, default and loss rates on the receivables included in each trust
which are higher that the limits referred to in the preceding paragraph. If,
at any measurement date, the delinquency, default or loss rate with respect to
any trust were to exceed these additional specified limits applicable to such
trust, provisions of the credit enhancement agreements permit the trustees to
terminate the Company's servicing rights with respect to the receivables sold
to that trust. Although the Company has never exceeded such delinquency,
defaults or loss rates, there can be no assurance that the Company's servicing
rights with respect to the automobile receivables in such trusts, or any other
trust which exceeds the specified limits in future periods, will not be
terminated.
Credit-Impaired Borrowers
The Company specializes in purchasing, securitizing and servicing sub-prime
receivables. Sub-Prime borrowers are associated with higher than average
delinquency and default rates. While the Company believes that it effectively
manages such risks with its underwriting policies and collection methods, no
assurance can be given that such criteria or methods will be effective in the
future. In the event that the Company underestimates the default risk or under
prices contracts that it purchases, the Company's financial position,
liquidity and results of operations would be adversely affected, possibly to a
material degree.
Economic Conditions
Delinquencies, defaults, repossessions and losses generally increase during
periods of economic recession and such periods also may be accompanied by
decreased consumer demand for automobiles and declining values of automobiles
securing outstanding loans, thereby weakening collateral coverage and
increasing the possibility of a loss in the event of default. Significant
increases in the inventory of used automobiles during periods of economic
recession may also depress the prices at which repossessed automobiles may be
sold. Because the Company focuses on Sub-Prime borrowers, the actual rates of
delinquencies, defaults, repossessions and losses on such loans could be
higher than those experienced in the general automobile finance industry and
could be more significantly affected by a general economic downturn. In
addition, during an economic slowdown or recession, the Company's servicing
costs may increase. While the Company believes that the underwriting criteria
and collection methods it employs enable it to manage the higher risk inherent
in loans made to Sub-Prime borrowers, no assurance can be given that such
criteria or methods will provide adequate protection against such risks. Any
sustained period of increased delinquencies, defaults, repossessions or losses
or increased servicing costs could adversely affect the Company's ability to
complete future securitizations and correspondingly, its financial position,
liquidity and results of operations would be adversely effected.
<PAGE>
Interest Rates
The company may be directly affected by the level of and fluctuations in
interest rates, which affect the Company's ability to earn a gross interest
rate spread between the rate charged the consumers and the rate paid on its
indebtedness. As the interest rate on the Company's indebtedness rises, the
Company may not be able to increase the rate it charges on new Contracts
because the rates on many of the Contracts purchased by the Company are
already at or near the statutory maximums, affording the Company limited
opportunity to pass on any increased interest costs. The Company believes that
its results of operations and liquidity would be adversely affected during any
period of higher interest rates, possibly to a material degree.
Competition
Reference should be made to Item 1. "Competition" for a discussion of
competitive risk factors.
Regulation
Reference should be made to Item 1. "Regulation" for a discussion of
regulatory risk factors.
Management Information Systems
Management believes that a high degree of automation is necessary to enable
the Company to grow and successfully compete with other financing entities.
Accordingly, during the year ended September 30, 1997, the Company upgraded
its computer hardware to support the Company's origination, accounting and
collection processes. In addition, the Company has continued to enhance the
application processing and credit approval software that has increased the
efficiency of processing applications.
Due to its desire to increase productivity through automation, the Company
intends to periodically review its systems for possible upgrades and
enhancements. During the next year, the application system will be further
enhanced to accommodate the Company's growth and data processing needs.
The Company believes that the capacity of its existing data processing and
management information systems is sufficient to allow the Company to expand
its business without significant additional capital expenditures. In addition,
the Company has consulted with its software vendor about the year 2000 and the
data processing changes that will be required and has been assured that our
software will be capable of handling process dates beyond the year 2000 by the
end of 1998.
Employees
As of September 30, 1997, the Company had 42 full-time employees. The Company
is not a party to any collective bargaining agreement.
Item 2. Property.
The Company's executive and administrative offices are located in Englewood
Cliffs, New Jersey, where the Company subleases approximately 8,300 square
feet of general office space for $8,677 per month from Asta Group,
Incorporated, an affiliate of the Company. The sublease expires on July 31,
2000. The Company believes that the sublease is on terms that are as favorable
to the Company as those terms which could be obtained from an unaffiliated
lessor of the same premises.
<PAGE>
Item 3. Legal Proceedings.
As of the date of this Form 10-KSB, the Company was not involved in any
material litigation in which it was a defendant. The Company regularly
initiates legal proceedings as a plaintiff in connection with its routine
collection activities. . Item 4. Submission of Matters to a Vote of
Security-Holders.
None.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Commencing November 13, 1995 the Company's common stock par
value $.01 per share ("Common Stock") has been quoted on the NASDAQ Small Cap
Market under the symbol "ASFI." On December 13, 1996 there were approximately
13 holders of record of the Common Stock. High and low bid prices of the
Common Stock since November 13, 1995, as reported by NASDAQ are set fourth
below (such quotations reflect inter-dealer prices without retail markup,
markdown, or commission, and may not necessarily represent actual
transactions):
High Low
---- ---
November 13, 1995 to December 31, 1995 5.88 3.50
January 1, 1996 to March 31, 1996 7.25 4.00
April 1, 1996 to June 30, 1996 9.00 4.63
July 1, 1996 to September 30, 1996 7.38 4.50
October 1, 1996 to December 31, 1996 6.25 3.75
January 1, 1997 to March 31, 1997 5.00 2.00
April 1, 1997 to June 30, 1997 3.13 1.31
July 1, 1997 to September 30, 1997 3.38 0.75
The Company has never paid a cash dividend on its Common
Stock and does not expect to pay a cash dividend in the near future. Under the
Credit Facility the Company is prohibited from paying dividends on its Common
Stock without the consent of BankAmerica.
During the year ended September 30, 1997, the Company granted stock options to
an officer and an employee covering an aggregate 14,000 shares of Common
Stock. These grants were exempt from registration pursuant to Securities Act
Release No. 33-6188 (February 1, 1980). No underwriter was involved with these
grants.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Year Ended September 30, 1997 Compared to the Year Ended September 30, 1996
Revenues. During the year ended September 30, 1997, revenues decreased $1.23
million compared to the year ended September 30, 1996. Interest income on
Contracts decreased $915,342 representing 43.3% of total revenues for the year
ended September 30, 1997. The decrease in revenues and interest income is due
to the decrease in the volume of Contracts purchased during the year ended
September 30, 1997, as compared to the same period in the prior year. During
the year ended September 30, 1997, the Company purchased $23 million in
Contracts from Dealers, compared to $28 million in the year ended September
30, 1996.
Expenses. During the year ended September 30, 1997, general and administrative
expenses increased $1.68 million from the prior year and represented 56.1% of
total operating expenses. The increase is due to the addition of employees and
increased overhead expenses necessary to accommodate the Company's purchasing
and servicing Contracts.
Interest expense decreased $278,433 during the year ended September 30, 1997,
as compared to the same period in the prior year and represented 6.6% of total
operating expenses. The decrease is due to the volume of Contracts held for
sale which reduced the interest accrued and/or paid during the year. During
the year ended September 30, 1997, interest expense consisted of interest
accrued and/or paid on the Company's Credit Facility and loans from an
affiliate.
During the year ended September 30, 1997, the provision for credit losses on
Contracts purchased increased by $1.6 million over the prior year and
represented 37.2% of total operating expenses. The increase in the provision
reflects higher than expected losses on loans previously sold and serviced by
the Company.
Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995
Revenues. During the year ended September 30, 1996, revenues increased $6.6
million compared to the year ended September 30, 1995. Interest income on
Contracts increased by $2.9 million representing 47.7% of total revenues for
the year ended September 30, 1996. The increase in revenues and interest
income is due to the increase in the volume of Contracts purchased during the
year ended September 30, 1996, and the length of time they were held by the
Company prior to their sale. During the year ended September 30, 1996 the
Company purchased $28.0 million in Contracts from dealers, compared to $5.1
million in the year ended September 30, 1995.
Expenses. During the year ended September 30, 1996, general and administrative
expenses increased $1.7 million from the prior year and represented 49.2% of
total operating expenses (excluding charge from release of Escrow Shares (as
defined below)). The increase is due to the addition of employees and
increased overhead expenses necessary to accommodate the Company's increase in
volume of purchasing and servicing Contracts.
Interest expense increased $623,000 during the year ended September 30, 1996,
and represented 19.9% of total operating expenses (excluding charge from
release of Escrow Shares). During the year ended September 30, 1996, interest
expense consisted of interest accrued and/or paid on the Company's Credit
Facility which was not in place during the year ended September 30, 1995.
<PAGE>
During the year ended September 30, 1997 provision for losses on Contracts
purchased increased by $638,000 over the prior year and represented 22.0% of
total operating expenses (excluding charge from release of Escrow Shares). The
increase in the provision reflects Contracts that have not been sold and have
been held for a longer period of time when compared to the same period in the
previous year.
Upon consummation of the Company's initial public offering which
became effective November13, 1995, the Company's controlling shareholder and
certain officers and directors deposited an aggregate of 1,000,000 shares of
Common Stock (the "Escrow Shares") in escrow, subject to release upon
attainment of certain net income or stock price levels. As of September 30,
1996, the Company exceeded the requisite level for the release of
fifty-percent of the Escrow Shares. The release of these Escrow Shares was
deemed compensatory and resulted in a one-time, noncash charge for the year
ended September 30, 1996 of $2.94 million which was equal to the market value
of the Escrow Shares at the time of their release. This one-time, noncash
charge was offset by an identical increase in additional paid-in capital and
was not tax deductible. Consequently, there was no impact on total
shareholders' equity on the Company's financial statements as a result of the
release of the Escrow Shares and the corresponding charge. As of September 30,
1997, the Company did not attain the income level nor did the stock price meet
or exceed the per share value necessary for the release of the remaining
Escrow Shares. As a result, the remaining shares have been cancelled.
The following table illustrates the impact of this charge on the Company's
results for the year ended September 30, 1996.
<TABLE>
<CAPTION>
As Stated Impact of Charge Without Charge
--------- ---------------- --------------
<S> <C> <C> <C>
Revenues:
Interest income $3,372,857 $ -- $3,372,857
Net gain on sale of loans 3,450,179 -- 3,450,179
Servicing fees 244,720 -- 244,720
---------- ------------- ----------
7,067,746 -- 7,067,746
---------- ------------- ----------
Expenses:
Compensation charge from
release of escrow shares 2,937,500 (2,937,500) --
General and administrative expenses 2,067,263 -- 2,067,263
Provision for credit losses 783,767 -- 783,767
Interest expense 709,159 -- 709,159
---------- ------------- ----------
6,497,689 (2,937,500) 3,560,189
---------- ------------- ----------
Income(loss) before income taxes 570,057 2,937,500 3,507,557
Income taxes 1,428,300 -- 1,428,300
---------- ------------- ----------
Net income (loss) $ (858,243) -- 2,079,257
---------- ------------- ----------
Net income (loss) per share $ (0.25) $ 0.63
---------- ----------
Weighted average number of shares outstanding 3,307,874 3,307,874
</TABLE>
<PAGE>
Liquidity and Capital Needs
The Company's primary sources of cash from operating activities include
borrower payments on Contracts, proceeds on the sale of Contracts in excess of
its recorded investment in the Contracts and base servicing fees it earns on
Contracts it has sold. The Company's primary uses of cash include its
purchases of Contracts, ordinary operating expenses and the establishment and
buildup of Spread Accounts.
Net cash used in operating activities was $1.1 million during the year ended
September 30, 1997 compared to net cash provided of $258,000 during the year
ended September 30, 1996. Cash used for purchasing Contacts was $22.0 million
during the year ended September 30, 1997 as compared to $28.0 million in the
year ended September 30, 1996.
The Company's cash requirements have been and will continue to be significant.
The agreement with Greenwich Capital regarding securitizations requires the
Company to make a significant cash deposits into Spread Accounts, for the
purpose of credit enhancement. The Spread Accounts are pledged to support the
related ABS, and are invested in high quality liquid securities. Excess cash
flow from securitized Contracts are deposited into the Spread Accounts until
such time as the Spread Account balances reach a specified percent of the
outstanding balance of the related ABS.
The Company anticipates the funds available under its Credit Facility, funds
made available by Asta Group, Incorporated, proceeds from the sale of
Contracts, and cash from operations will be sufficient to satisfy the
Company's estimated cash requirements for at least the next 12 months,
assuming that the Company continues to have a means by which to sell its
Contacts. If for any reason the Company is unable to sell its Contracts, or if
the Company's available cash otherwise proves to be insufficient to fund
operations, the Company may be required to seek additional funding.
The Company does not anticipate any need for significant capital expenditures
in connection with the expansion of its business for at least 12 months.
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements include, but are not limited to, the Company's opportunities to
increase revenues through, among other things, the purchase and sale
additional Contracts, and the anticipated need and availability of financing.
Forward-Looking Statements
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated. Future events and actual results, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements herein. Important factors that could contribute
to such differences are: increases in unemployment or other changes in
domestic economic conditions which adversely affect the sales of new and used
automobiles and which may result in increased delinquencies, foreclosures and
losses on Contracts; adverse economic conditions in geographic areas in which
the Company's business is concentrated, mainly the Northeast and Mid-Atlantic
States; changes in interest rates, adverse changes in the market for
securitized receivables pools or a substantial lengthening of the Company's
warehousing each of which could restrict the Company's ability to obtain cash
for Contract origination and purchases; increases in the amounts required to
be set aside in spread accounts or to be expended for other forms of credit
enhancement to support future securitizations; increased competition; a
reduction in the number and amount of acceptable Contracts
<PAGE>
submitted to the Company by its Dealers; changes in government regulations
effecting consumer credit; and other risk factors identified herein under the
caption "Risk Factors" and in the Company's filings with the Securities and
Exchange Commission, including under the caption "Risk Factors" in its most
recent Registration Statement on form S-1. Subsequent, written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified by the precautionary statements in this
paragraph and elsewhere in this Form 10-KSB.
Item 7. Financial Statements.
The Financial Statements of the Company, the Notes thereto
and the Report of Independent Auditors thereon required by this item appear in
this report on the pages indicated in the following index:
Index to Audited Financial Statements: Page
Independent Auditors' Report F-1
Consolidated Balance Sheets - September 30, 1997 and 1996 F-2
Consolidated Statements of Operations - Years ended
September 30, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity - Years ended
September 30, 1997 and 1996 F-4
Consolidated Statements of Cash Flows - Years ended
September 30, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Information contained under the caption "Directors, Executive Officers,
Promoters and Control Persons" in the Company's definitive Proxy Statement to
be filed with the Commission on or before January 30, 1998 is incorporated by
reference in response to this Item 9.
Item 10. Executive Compensation.
Information contained under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be filed with the Commission on or
before January 30, 1998 is incorporated by reference in response to this Item
10.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive Proxy Statement
to be filed with the Commission on or before January 30, 1998 is incorporated
herein by reference in response to this Item 11.
Item 12. Certain Relationships and Related Transactions
Information contained under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement to be filed with the
Commission on or before January 30, 1998 is incorporated by reference in
response to this Item 12.
<PAGE>
Part IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number
3.1 Certificate of Incorporation. (1)
3.2 By laws. (2)
10.1 Servicing Agreement dated July 1, 1997, between the Company and The
Chase Manhattan Bank and CSC Logic/MSA, L.L.P. for the servicing of the
Contracts sold.
10.2 Consulting Agreement dated November 14, 1997, by and between the Company
and Arthur Stern.
22. Subsidiary of the Company.
27. Financial Data Schedule.
1. Incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).
2. Incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form SB-2 (File No. 33-97212).
(b) Reports on Form 8-K
The Registrant did not file any Current Reports on form 8-K during the quarter
ended September 30, 1997.
<PAGE>
ASTA FUNDING, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 and 1996
<PAGE>
ASTA FUNDING, INC.
Contents
Page
----
Consolidated Financial Statements
Independent auditors' report F-1
Balance sheets as of September 30, 1997 and 1996 F-2
Statements of operations for the years ended
September 30, 1997 and 1996 F-3
Statements of changes in stockholders' equity for the
years ended September 30, 1997 and 1996 F-4
Statements of cash flows for the years ended
September 30, 1997 and 1996 F-5
Notes to financial statements F-6
<PAGE>
[Letterhead of Richard A. Eisner & Company, LLP]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Asta Funding, Inc.
Englewood Cliffs, New Jersey
We have audited the accompanying consolidated balance sheets of Asta Funding,
Inc. as of September 30, 1997 and 1996, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years then
ended. 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above present
fairly, in all material respects, the financial position of Asta Funding, Inc.
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
Florham Park, New Jersey
October 30, 1997
With respect to Note F
November 3,1997
F-1
<PAGE>
ASTA FUNDING, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Year Ended
September 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 503,715 $ 3,401,674
Restricted cash and cash equivalents (net of estimated future losses of
$703,072 in 1997) (Note D) 2,546,670 358,179
Loans receivable (less allowance for credit losses of $397,926 in 1997 and
and $466,395 in 1996) (Note B) 3,247,542 3,285,130
Servicing assets (Notes A[11] and E) 897,352 2,675,407
Residual interest (Notes A[l2] and E) 951,857
Due from trustee 146,910 2,079,679
Furniture and equipment (net of accumulated depreciation of $84, 130 and
in 1997 and $22,274 in 1996) (Notes A[5] and C) 154,605 97,894
Repossessed automobiles (net of allowance for losses of $96,062 in 1997 491,314
1997 and $298,271 in 1996) 226,248
Deferred taxes (Note G) 365,000
Income taxes receivable 418,101
Other assets 276,544 355,562
------------ ------------
$ 9,369,544 $ 13,109,839
============ ============
LIABILITIES
Bank overdraft $ 54,304
Income taxes payable 1,705,000
Estimated future losses on loans sold (net of restricted cash and cash
equivalents of $1,143,494 in 1996) (Note D) 76,756
Accounts payable and accrued expenses $ 419,080 592,356
Deferred taxes (Note G) 275,000
Due to parent 188,360 1,919,704
------------ ------------
Total liabilities 882,440 4,348,120
------------ ------------
Commitments (Notes I and J)
STOCKHOLDERS' EQUITY (Note J)
Common stock, $.01 par value, authorized 10,000,000 shares, issued and
outstanding 3,945,000 shares in 1997 and 4,460,000 in 1996 39,450 44,600
Additional paid-in capital 9,602,421 9,597,271
Accumulated deficit (1,236,466) (880,152)
Unrealized gain on residual interest (net of income taxes of $55,000) 81,699
------------ ------------
Total stockholders' equity 8,487,104 8,761,719
------------ ------------
$ 9,369,544 $ 13,109,839
============ ============
</TABLE>
See notes to financial statements F-2
<PAGE>
ASTA FUNDING, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Interest income $ 2,457,515 $ 3,372,857
Gain on sale of loans (Note L) 2,533,994 3,450,179
Servicing fee income 682,692 83,927
----------- -----------
5,674,201 6,906,963
----------- -----------
General and administrative expenses (Note I) 3,588,189 1,906,480
Compensation charge upon release of escrow shares (Note J[1]) 2,937,500
Provision for credit losses 2,381,700 783,767
Interest expense (Note H) 430,726 709,159
----------- -----------
6,400,615 6,336,906
----------- -----------
Income (loss) before provision (benefit) for income taxes (726,414) 570,057
Provision (benefit) for income taxes (Note G) (370,100) 1,428,300
----------- -----------
Net loss $ (356,314) $ (858,243)
=========== ===========
Net loss per share $ (.09) $ (0.25)
=========== ===========
Weighted average number of shares outstanding 3,952,315 3,307,874
=========== ===========
</TABLE>
See notes to financial statements F-3
<PAGE>
ASTA FUNDING, INC.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Unrealized Gain
Common Stock Paid-in Accumulated on Residual
Shares Amount Capital Deficit Interest Total
--------- --------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30,1995 3,080,000 $ 30,800 $ 974,200 $ (21,909) $ 983,091
Issuance of common stock (Note J[1]) 1,380,000 13,800 5,685,571 5,699,371
Release of escrow shares (Note J[1]) 2,937,500 2,937,500
Net loss (858,243) (858,243)
--------- --------- ---------- -----------
Balance, September 30,1996 4,460,000 44,600 9,597,271 (880,152) 8,761,719
Cancellation of escrow shares (Note J[1]) (500000) (5,000) 5,000
Cancellation of shares (Note J[4]) (15,000) (150) 150
Change in unrealized gain on residual interest, net of
income tax effect $ 81,699 81,699
Net loss (356,314) (356,314)
--------- --------- ---------- ----------- ----------- ----------
Balance, September 30, 1997 3,945,000 $ 39,450 $9,602,421 $(1,236,466) $ 81,699 $8,487,104
========= ========= ========== =========== =========== ==========
</TABLE>
See notes to financial statements F-4
<PAGE>
ASTA FUNDING, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (356,314) $ (858,243)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,801,690 181,021
Charge from release of escrow shares 2,937,500
Provisions for losses 2,381,700 2,004,016
Deferred income taxes 585,000 (314,700)
Expenses advanced by parent 104,580 88,445
Impairment of servicing asset 144,573
Changes in:
Restricted cash and cash equivalents (3,818,948) (1,501,673)
Loans receivable (1,415,605)
Due from trustee 1,932,769 (2,079,679)
Repossessed automobiles (256,504)
Income taxes receivable (418,101)
Other assets 79,018 (232,508)
Income taxes payable (1,705,000) 1,693,500
Accounts payable and accrued expenses (173,276) 522,675
------------ -----------
Net cash (used in) provided by operating activities (1,114,418) 2,440,354
------------ -----------
Cash flows from investing activities:
Loans originated (27,010,868)
Loans repaid 23,912,764
Principal payments received on residual interest 225,254
Capital expenditures (118,567) (83,567)
------------ -----------
Net cash provided by (used in) investing activities 106,687 (3,181,671)
------------ -----------
Cash flows from financing activities:
(Repayment to) advances from parent (1,835,924) 1,848,219
Issuance of common stock 5,797,002
Repayments under line of credit (3,664,140)
Bank overdraft (54,304) (52,481)
------------ -----------
Net cash (used in) provided by financing activities (1,890,228) 3,928,600
------------ -----------
Net (decrease) increase in cash (2,897,959) 3,187,283
Cash at beginning of period 3,401,674 214,391
------------ -----------
Cash at end of period $ 503,715 3,401,674
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 555,083 $ 612,170
Income taxes $ 1,167,576 $ 49,500
</TABLE>
See notes to financial statements F-5
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
[1] The Company:
Asta Funding, Inc. (the "Company") is a majority-owned subsidiary of Asta
Group, Inc. ("Group"). The Company is engaged in the business of
purchasing, selling and servicing retail installment sales contracts
originated by automobile dealers financing the purchase primarily of used
automobiles by sub-prime borrowers. During 1997, the Company shifted its
focus from investing in loans receivable to reselling the contracts. The
loans are generally purchased from automobile dealers in the states of New
York, New Jersey, Connecticut, Delaware, Maryland and Pennsylvania. During
the year ended September 30, 1996 approximately 28% of loans were
originated through two automobile dealers under common ownership.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of Asta
Funding, Inc. and its wholly-owned subsidiary, Asta Auto Receivables
Company, which is a limited purpose corporation formed to accommodate the
structures under which the Company sells its contracts. All significant
intercompany balances and transactions have been eliminated in
consolidation. The 1996 financial statements have been reclassified to
conform to the current years presentation.
[3] Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
The Company maintains cash balances in various financial institutions.
Management periodically evaluates the creditworthiness of such
institutions.
[4] Income recognition:
Interest income from loans is recognized using the interest method.
Accrual of interest income on loans receivable is suspended when a loan is
contractually delinquent more than 60 days. The accrual is resumed when
the loan becomes contractually current, and past due interest income is
recognized at that time. In addition, a detailed review of loans will
cause earlier suspension if collection is doubtful.
Gain on sales of loans receivable principally represents the present value
of the differential between the interest rates charged by the Company and
the interest rates passed on to the purchaser of the receivables, after
considering the effects of estimated prepayments, repurchases, normal
servicing fees and estimated future losses. Gains on the sale of loan
receivables are recorded on the trade date using the specific
identification method.
Effective January 1,1997, as required by Statement of Financial Accounting
Standards No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" ("SFAS 125"), upon the sale of
loans, the Company allocates the cost based upon the relative fair values,
to the loan, the servicing asset and residual interest, if any. The impact
of the adoption of SFAS 125 on net income in 1997 was immaterial.
F-6
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] Furniture and equipment:
Furniture and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets (5
to 7 years).
(6] Credit losses:
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance at a level considered adequate to cover the
losses of principal in the existing portfolio. The Company's charge-off
policy is based on an account-by-account review of loans receivable. Loans
receivable are charged off when management deems them to be uncollectible.
On October 1,1995, the Company adopted prospectively Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" ("SFAS 114"). This statement defines an impaired
loan as a loan for which it is probable, based on current information,
that the lender will not collect all amounts due under the contractual
terms of the loan agreement. The Company has defined the population of
impaired loans to be all nonaccrual loans. The impaired loan portfolio is
primarily collateral dependent, as defined by SFAS No. 114. Impaired loans
are assessed to determine that each loan's carrying value is not in excess
of the fair value of the related collateral or the present value of the
expected future cash flows.
The provision for credit losses for the loans receivable sold with
recourse is measured based on the present value of expected future losses
discounted at a riskless interest rate.
[7] Loan origination fees and costs:
Direct loan origination fees collected and costs incurred are deferred and
amortized over the average lives of the loans using the interest method.
Unamortized amounts are recognized at the time that loans are sold or paid
in full.
[8] Repossessed automobiles:
The Company records repossessed automobiles at the lower of loan balance
or estimated fair value.
[9] Income taxes:
Deferred federal and state taxes arise from temporary differences
resulting primarily from the provision for credit losses and funds
deposited in spread accounts for loans sold (Note D) being reported for
financial accounting and tax purposes in different periods.
[10] Net loss per share:
Net loss per share was computed based on the weighted average number of
common shares outstanding during each year presented excluding shares in
escrow.
F-7
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[11] Servicing assets:
Servicing assets arise from the sale of loans. Servicing assets represent
the estimated present value of the differential between the contractual
servicing fee and the Company's normal servicing cost. These capitalized
amounts are amortized over the estimated average life of the loans in each
pool sold. The Company reviews the carrying amount of each pool for
possible impairment. If the estimated present value of the future
servicing income is less than the carrying amount, the Company recognizes
an impairment loss and reduces future amortization accordingly.
[12] Residual interest:
In accordance with SFAS 125, effective January 1,1997, the Company, upon
sale of loans, recognizes a residual interest. The residual interest
represents the estimated discounted cash flow of the differential of the
total interest to be earned on the loans sold and the sum of the interest
to be paid to the investors and the contractual servicing fee.
[13] 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.
[14] Recently issued accounting standards:
In February 1997, the Financial Standards Accounting Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") which is effective for periods ending after December 15,
1997. Management believes that "basic earnings per share" as defined, for
each of the periods included in these financial statements would be
substantially the same as the earnings per share amounts included in the
statements of income.
F-8
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[15] Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") allows companies to either expense
the estimated fair value of stock options or to continue to follow the
intrinsic value method set forth in APB Opinion 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net
income had the fair value of the options been expensed. The Company has
elected to continue to apply APB 25 in accounting for its stock option
incentive plans.
NOTE B - LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
All loans are at fixed rates of interest, collateralized by automobiles, and
have remaining maturities of 5 years or less. As of September 30, 1997, the
average effective interest rate of the loan portfolio approximated 32%. Each
loan provides for full amortization, equal monthly payments and can be fully
prepaid by the borrower at any time without penalty. The Company purchases the
loans from dealers at a discount from the amount financed under the contract.
Substantially all borrowers are located in the states of New York, New Jersey,
Connecticut, Delaware, Maryland and Pennsylvania.
As of September 30, 1997 and 1996, nonaccrual loans totaled $203,469 and
$254,964, respectively.
Changes in the allowance for credit losses consisted of the following:
1997 1996
--------- ---------
Balance, beginning of period $ 466,395 $ 146,000
Provisions 357,878 485,495
Charge-offs (781,690) (199,308)
Recoveries 355,343 34,208
--------- ---------
Balance, end of period $ 397,926 $ 466,395
========= =========
NOTE C - FURNITURE AND EQUIPMENT
Furniture and equipment as of September 30, 1997 and 1996 consist of the
following:
1997 1996
-------- --------
Furniture $ 35,787 $ 23,182
Equipment 202,948 96,986
-------- --------
238,735 120,168
Less accumulated depreciation 84,130 22,274
-------- --------
Balance, end of period $154,605 $ 97,894
======== ========
Depreciation expense for the years ended September 30, 1997 and 1996
aggregated $61,856 and $20,276, respectively.
F-9
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE D - RESTRICTED CASH AND ESTIMATED FUTURE LOSSES ON LOANS SOLD
In connection with the sale of loans during 1997 and 1996, the Company was
required to deposit funds into separate cash accounts with trustees for possible
interest adjustments due to borrowers prepaying the loans and into the Spread
Account for possible losses. Additionally, the Company is required to deposit
into the Spread Accounts cash flows from residual interests in order to maintain
a specified percentage of the outstanding principal balance of the certificates.
This percentage may increase in the event of defaults and/or losses exceeding
certain specified levels. Additionally, losses are charged against the Spread
Accounts. If the Spread Accounts are in excess of the specified percentage, the
trustee will release the excess funds to the Company.
NOTE E - SERVICING ASSETS AND RESIDUAL INTEREST
Changes in servicing assets and residual interest for the two years ended
September 30, 1997 are as follows:
Servicing Residual
Assets Interest
----------- -----------
Balance, September 30,1995 --
Assets originating from loan sales $ 2,836,152
Amortization (160,745)
-----------
Balance, September 30, 1996 2,675,407
Assets originating from loan sales 106,352 $ 1,040,412
Amortization (1,739,834) (225,254)
Impairment loss (144,573)
Change in market value 136,699
----------- -----------
Balance, September 30, 1997 $ 897,352 $ 951,857
=========== ===========
NOTE F - LINE OF CREDIT
In November 1995, the Company entered into a two-year credit facility with a
bank under which the Company can borrow the lesser of the advance rate (between
70% and 80% of the eligible loans receivable) and $15 million. Advances accrue
interest at the prime rate plus one percent. As of September 30, 1997 and 1996,
there were no amounts outstanding. In November 1997, the bank extended the
credit facility until January 31, 1998.
F-10
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE G - INCOME TAXES
The significant components of the Company's deferred tax assets and liabilities
as of September 30, 1997 and 1996 are as follows:
1997 1996
--------- --------
Deferred tax assets:
Allowance for credit losses $ 513,300 $326,600
Restricted cash and cash equivalents 32,800
Net operating losses 95,400
Other 5,600
--------- --------
Total deferred tax assets 608,700 365,000
--------- --------
Deferred tax liabilities:
Restricted cash and cash equivalents 828,700
Unrealized gain on residual interests 55,000
---------
Total deferred tax liabilities 883,700
---------
Net deferred tax asset (liability) $(275,000) $365,000
========= ========
The components of the provision (benefit) for income taxes for the years
ended September 30, 1997 and 1996 are as follows:
1997 1996
----------- -----------
Current:
Federal $ (836,000) $ 1,350,000
State (119,100) 393,000
----------- -----------
(955,100) 1,743,000
----------- -----------
Deferred:
Federal 538,000 (249,000)
State 47,000 65,700
----------- -----------
585,000 (314,700)
----------- -----------
Provision (benefit) for income taxes $ (370,100) $ 1,428,300
=========== ===========
The difference between the statutory federal income tax rate on the
Company's net loss and the Company's effective income tax rate is summarized as
follows:
1997 1996
------ ------
Statutory federal income tax rate 34.0% 34.0%
Change from release of escrow shares 175.2
State income tax, net of federal benefit 6.5 37.9
Reversal of income tax accruals 4.4
Other 6.0 3.5
------ ------
Effective income tax rate 50.9% 250.6%
====== ======
F-11
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE H - RELATED PARTY TRANSACTIONS
The Company leases its facilities through July 2000 pursuant to a sublease from
a subsidiary of Group. The terms of the sublease are substantially identical to
the terms of the underlying lease between the subsidiary of Group and the
lessor. Minimum lease payments are as follows:
September 30,
-------------
1998 $104,124
1999 104,124
2000 86,770
--------
$295,018
========
During the years ended September 30, 1997 and 1996, salaries, related payroll
taxes and other expenses allocated from Group to the Company aggregated $104,580
and $88,445, respectively. Management allocates costs monthly based upon its
estimate of the cost of services provided by Group to the Company. Additionally,
during the year ended September 30, 1996, Group paid direct expenses and
purchased equipment for the Company aggregating $16,647.
During the years ended September 30, 1997 and 1996, Group advanced funds to the
Company. Interest expense, at 8 percent per annum, aggregated $7,950 and $14,226
in the years ended September 30, 1997 and 1996, respectively.
NOTE I - COMMITMENTS
[1] Minimum annual rental payments:
Future minimum lease payments at September 30, 1997 on noncancelable
operating leases with an original or remaining term of one year or more,
other than related party leases are as follows:
1998 $16,559
1999 8,107
-------
$24,666
=======
Rent expense for the years ended September 30, 1997 and 1996 was
approximately $134,100 and $48,500, respectively, (including $106,000 and
$35,500 to Group and one of its subsidiaries) (see Note H).
[2] Employment agreements:
As of September 30, 1997, the Company has employment agreements with two
executives which expire in September 1998. Under the terms of the
agreements, the aggregate annual base salaries effective September 30,
1997 are $261,250. Additionally, each executive may be granted annual
bonuses.
The Company has a one-year consulting agreement with a director of the
Company, pursuant to which he will be paid an annual fee of $75,000.
Included in the accompanying consolidated statements of operations for the
year ended September 30, 1997 and 1996 is $75,000 and $66,058,
respectively, of consulting expense related to this and a prior consulting
agreement.
F-12
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE J - STOCKHOLDERS' EQUITY
[1] Initial public offering:
On November 13, 1995, the Company, in its initial public offering, sold
1,200,000 shares of its common stock. On December 1, 1995, the underwriter
executed its option to sell an additional 180,000 shares of the Company's
common stock. Net of related expenses, the Company raised $5,699,371 in
the offering.
Upon consummation of the Company's initial public offering, certain
shareholders deposited 1,000,000 shares of common stock (the "Escrow
Shares") into an escrow account with the Company's transfer agent,
pursuant to an agreement by the Company, the escrow agent, and Whale
Securities, LP. During the escrow period, the escrow Shareholders' may
vote, but not transfer, the escrow shares. The escrow agreement provides
for the escrow shares to be released either in their entirety or in
increments of 500,000 depending on the Company's attainment of certain
income levels for the fiscal years ending September 30,1996 and September
30, 1997 or alternatively, if the Company's common stock trades above
certain levels for a specified period of time during the fiscal years
ending September 30, 1996 and 1997. The release of the escrow shares is
deemed to be compensatory and results in a charge to the Company's
operations equal to the fair market value of the escrow shares as of the
date on which they are released. The charge related to the release of the
shares is not deductible for income tax purposes.
As of September 30, 1996, the Company exceeded the income level in the
escrow agreement which provided for the release of fifty-percent of the
escrow shares. The release of the 500,000 shares of common stock was
deemed compensatory and resulted in a noncash expense for the year ended
September 30, 1996 of $2,937,500, the estimated fair value of the escrow
shares at the time of their release.
As of September 30, 1997, the Company did not attain the income level nor
did the stock price meet or exceed the per share value necessary for the
release of the remaining 500,000 escrow shares. As a result, the remaining
escrow shares have been canceled.
[2] Stock options:
The Company has a stock option plan under which 420,000 shares of common
stock are reserved for issuance upon exercise of either incentive or
nonincentive stock options which may be granted from time to time by the
Board of Directors to employees and others. The Board of Directors
determines the option price (not to be less than fair market value for
incentive options) at the date of grant. The options have a maximum term
of 10 years and outstanding options expire from October 2004 through June
2007.
The Company applies APB 25 in accounting for its stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the grant price
of the option at the date of grant. Had compensation cost for the
Company's stock option plan been determined based upon the fair value at
the grant date for awards under the plans consistent with the methodology
prescribed under SFAS No. 123, the Company's proforma net loss for 1997
and 1996 would have been approximately $(372,000) and $(1,141,000),
respectively and net loss per share would have been approximately $(0.09)
and $(0.34), respectively. The weighted average fair value of the options
granted during 1997 and 1996 were $1.13 and $2.90 per share, respectively,
on the date of grant using the Black-Scholes option pricing model with the
following assumptions: dividend yield 0% volatility 40%, expected life 10
years, risk free interest rates from 5.75% to 6.75%.
F-13
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE J - STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes stock option transactions under the plan:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996
------------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding options at the beginning of year 417,500 $3.53 320,000 $3.13
Options granted 14,000 1.75 97,500 4.83
Options expired or canceled (147,000) 1.78
------- ----- ------- -----
Outstanding options at the end of year 284,500 $4.34 417,500 $3.53
======= ===== ======= =====
</TABLE>
The following table summarizes information about the Plan's outstanding
options as of September 30, 1997:
Options Outstanding Options Exercisable
--------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (in Years) Price Exercisable Price
- -------------- ----------- --------------- -------- ----------- --------
$0.01 25,000 7.05 $0.01
$1.75 14,000 9.72 $1.75 7,667 $1.75
$4.50-$5.00 245,000 8.18 $4.93 143,664 $4.96
As of September 30, 1997, 420,000 shares have been reserved for the
exercise of stock options, including 135,500 shares available for future
grant.
[4] Common stock:
During the year ended September 30, 1997, an officer terminated his
employment with the Company. Pursuant to an agreement, 15,000 shares of
common stock owned by the former officer were canceled and another 25,000
shares are subject to cancellation should losses on certain loans exceed a
defined amount.
NOTE K - RETIREMENT PLAN
During 1996, the company established a 401(k) Retirement Plan covering all of
its eligible employees. Matching contributions to the plan are made at the
discretion of the Board of Directors each plan year. There were no contributions
for the year ended September 30, 1997 and 1996.
F-14
<PAGE>
ASTA FUNDING, INC.
Notes to Financial Statements
September 30, 1997 and 1996
NOTE L - GAIN ON SALE OF LOANS
In 1997 and 1996, the Company securitized and sold loans with limited recourse.
Since the Company did not retain the future economic benefits embodied in the
loans and can reasonably estimate its obligation under the recourse provisions
(see Note D), the transactions have been accounted for as sales. Accordingly,
the Company recognized a gain of $2,533,994 in 1997 and $3,450,179 in 1996.
Additionally, the Company entered into an agreement to securitize and sell,
through the same investment banker, an additional $155,000,000 of loans through
May 2000.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("SFAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because no
market exists for certain of the Company's assets and liabilities, fair value
estimates are based upon judgments regarding credit risk, investor expectation
of economic conditions, normal cost of administration and other risk
characteristics, including interest rate and prepayment risk. These estimates
are subjective in nature and involve uncertainties and matters of judgment which
significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
The tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on the fair value estimates and have not
been considered in the estimates.
The following summarizes the information as of September 31, 1997 and 1996 about
the fair value of the financial instruments recorded on the Company's financial
statements in accordance with SFAS 107:
1997 1996
-------------------------- --------------------------
Carrying Value Fair Value Carrying Value Fair Value
-------------- ---------- -------------- ----------
Cash, restricted cash and
cash equivalents,
and bank overdraft $3,050,385 $3,050,385 $3,705,549 $3,705,549
Loans receivable 3,247,542 3,803,681 3,285,130 4,189,751
Servicing assets and
residual interests 1,849,209 1,863,564 2,675,407 3,440,893
Estimated future losses
on loans sold 76,756 76,756
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments, are as follows:
Cash, restricted cash and cash equivalents and bank overdraft:
The carrying amount of cash approximates fair value.
Loans receivable, servicing assets and residual interests:
The Company has estimated the fair value reported based on the present value of
expected future cash flows.
Estimated future losses on loans sold:
The Company has estimated the fair value reported based on expected future
losses.
F-15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASTA FUNDING, INC.
Dated: December 19, 1997 By: /s/ Gary Stern
--------------------------------
Gary Stern
President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Gary Stern President and Director December 19, 1997
- ---------------------------
Gary Stern
/s/ Mitchell Herman Chief Financial Officer, December 19, 1997
- --------------------------- Secretary, Chief Accounting
Mitchell Herman Officer and Director
/s/ Arthur Stern Director December 19, 1997
- ---------------------------
Arthur Stern
/s/ Martin Fife Director December 19, 1997
- ---------------------------
Martin Fife
/s/ Herman Badillo Director December 19, 1997
- ---------------------------
Herman Badillo
/s/ General Buster Glosson Director December 19, 1997
- ---------------------------
General Buster Glosson
/s/ Edward Celano Director December 19, 1997
- ---------------------------
Edward Celano
</TABLE>
<PAGE>
ASTA FUNDING, INC.
FORM 10-KSB
EXHIBIT 10.1
Servicing Agreement dated July 1, 1997, between the Company and The Chase
Manhattan Bank and CSC Logic/MSA, L.L.P.
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of July 1, 1997
by and among
ASTA AUTO RECEIVABLES COMPANY
as Seller
ASTA FUNDING, INC.
as Servicer
CSC LOGIC/MSA, L.L.P.
as Backup Servicer
and
THE CHASE MANHATTAN BANK
as Trustee and Custodian
$21,119,985
ASTA AUTO TRUST 1997-1
Automobile Receivable Pass-Through Certificates
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
CREATION OF THE TRUST
Section 1.1 Creation of the Trust ......................................... 1
ARTICLE II
DEFINITIONS
Section 2.1 Definitions ................................................... 1
Section 2.2 Usage of Terms ................................................ 17
Section 2.3 References .................................................... 18
ARTICLE III
THE RECEIVABLES
Section 3.1 Conveyance of Receivables ..................................... 18
Section 3.2 Transfer Intended as Sale; Precautionary Security Interest .... 20
Section 3.3 Acceptance by Trustee ......................................... 20
Section 3.4 Representations and Warranties of Seller ...................... 20
Section 3.5 Repurchase Upon Breach ........................................ 26
Section 3.6 Custody of Receivable Files ................................... 27
Section 3.7 Duties of Custodian ........................................... 29
Section 3.8 Instructions; Authority to Act ................................ 30
Section 3.9 Custodian's Indemnification ................................... 30
Section 3.10 Effective Period and Termination .............................. 30
Section 3.11 Pre-Funding Events ............................................ 30
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 4.1 Duties of Servicer ............................................ 31
Section 4.2 Collection and Allocation of Receivable Payments .............. 32
Section 4.3 Realization Upon Receivables .................................. 33
Section 4.4 Physical Damage Insurance; Other Insurance .................... 33
Section 4.5 Maintenance of Security Interests in Financed Vehicles ........ 34
Section 4.6 Covenants of Servicer ......................................... 34
Section 4.7 Purchase of Receivables Upon Breach ........................... 34
Section 4.8 Servicing Fee ................................................. 35
i
<PAGE>
Page
----
Section 4.9 Servicer's Certificate ......................................... 35
Section 4.10 Annual Statement as to Compliance; Notice of Default ........... 35
Section 4.11 Annual Independent Certified Public Accountant's Report ........ 36
Section 4.12 Servicer Expenses .............................................. 36
Section 4.13 Access to Certain Documentation and Information Regarding
Receivables .................................................... 37
Section 4.14 Preparation and Verification of Servicer's Certificate ......... 37
Section 4.15 Errors and Omissions ........................................... 38
Section 4.16 Duties of Backup Servicer ...................................... 39
ARTICLE V
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
Section 5.1 Accounts ....................................................... 39
Section 5.2 Collections .................................................... 40
Section 5.3 Application of Collections ..................................... 40
Section 5.4 Additional Deposits ............................................ 40
Section 5.5 Distributions .................................................. 40
Section 5.6 Reserve Account, Priority of Distributions ..................... 42
Section 5.6A Pre-Funding Account ............................................ 43
Section 5.6B Capitalized Interest Account ................................... 43
Section 5.7 Simple Interest Differential Account ........................... 44
Section 5.8 Statements to Certificateholders; Tax Returns .................. 44
Section 5.9 Reliance on Information from the Servicer ...................... 47
Section 5.10 Statements to Certificateholders; Characteristics of
Receivables Pool ............................................... 48
Section 5.11 Amendment to Schedule of Receivables ........................... 48
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates ............................................... 48
Section 6.2 Appointment of Paying Agent .................................... 48
Section 6.3 Authenticating Agent ........................................... 49
Section 6.4 Authentication of Certificates ................................. 50
Section 6.5 Registration of Transfer and Exchange of Certificates .......... 50
Section 6.6 Mutilated, Destroyed, Lost, or Stolen Certificates ............. 53
Section 6.7 Persons Deemed Owners .......................................... 53
Section 6.8 Access to List of Certificateholders' Names and Addresses ...... 53
Section 6.9 Maintenance of Office or Agency ................................ 53
ii
<PAGE>
Page
----
ARTICLE VII
THE SELLER
Section 7.1 Representations of Seller ...................................... 54
Section 7.2 Liability of Seller; Indemnities ............................... 57
Section 7.3 Merger or Consolidation of, or Assumption of the Obligations of,
Seller ......................................................... 57
Section 7.4 Limitation on Liability of Seller and Others ................... 58
Section 7.5 Seller May Own Certificates .................................... 58
Section 7.6 Covenants of the Seller ........................................ 58
Section 7.7 Enforcement by Trustee ......................................... 59
Section 7.8 No Bankruptcy Petition ......................................... 61
ARTICLE VIII
THE SERVICER
Section 8.1 Representations of Servicer .................................... 62
Section 8.2 Indemnities of Servicer ........................................ 63
Section 8.3 Merger or Consolidation of, or Assumption of the Obligations of,
Servicer or Backup Servicer .................................... 64
Section 8.4 Limitation on Liability of Servicer and Others ................. 65
Section 8.5 Servicer and Backup Servicer Not to Resign ..................... 65
ARTICLE IX
DEFAULT
Section 9.1 Events of Default .............................................. 66
Section 9.2 Appointment of Successor ....................................... 68
Section 9.3 Notification to Certificateholders ............................. 69
Section 9.4 Action Upon Certain Failures of the Servicer ................... 69
Section 9.5 Waiver of Past Defaults ........................................ 70
ARTICLE X
THE TRUSTEE
Section l0.1 Duties of Trustee ............................................. 70
Section l0.2 Trustee's Certificate ......................................... 72
Section 10.3 Certain Matters Affecting Trustee ............................. 72
Section 10.4 Trustee Not Liable for Certificates or Receivables ............ 74
Section 10.5 Trustee May Own Certificates .................................. 75
Section 10.6 Indemnity of Trustee .......................................... 75
Section 10.7 Eligibility Requirements for Trustee .......................... 75
iii
<PAGE>
Page
----
Section 10.8 Resignation or Removal of Trustee ............................. 75
Section 10.9 Successor Trustee ............................................. 76
Section 10.10 Merger or Consolidation of Trustee ............................ 76
Section 10.11 Appointment of Co-Trustee or Separate Trustee ................. 77
Section 10.12 Representations and Warranties of Trustee ..................... 78
Section 10.13 No Bankruptcy Petition ........................................ 78
Section 10.14 Trustee May Enforce Claims Without Possession of Certificates . 78
Section 10.15 Trustee Not Liable for Losses ................................. 79
Section 10.16 Application of Article X ...................................... 79
ARTICLE XI
TERMINATION
Section 11.1 Termination of the Trust ...................................... 79
Section 11.2 Optional Purchase of all Receivables .......................... 80
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Amendment ..................................................... 80
Section 12.2 Protection of Tide to Trust ................................... 81
Section 12.3 Limitation on Rights of Certificateholders .................... 83
Section 12.4 Governing Law ................................................. 84
Section 12.5 Notices ....................................................... 84
Section 12.6 Severability of Provisions .................................... 85
Section 12.7 Assignment .................................................... 85
Section 12.8 Certificates Nonassessable and Fully Paid ..................... 85
Section 12.9 Nonpetition Covenant .......................................... 85
Section 12.10 Third Party Beneficiaries ..................................... 85
Section 12.11 Agent for Service ............................................. 86
Section 12.12 Tax Treatment ................................................. 86
Section 12.13 Seller's Partnership Interest ................................. 86
Section 12.14 [Reserved] .................................................... 86
Section 12.15 Withholding ................................................... 86
Section 12.16 Right to Direct ............................................... 87
iv
<PAGE>
EXHIBITS
Exhibit A Form of Class A Certificate
Exhibit B Form of Class B Certificate
Exhibit C-1 Form of Trustee's Certificate (Seller)
Exhibit C-2 Form of Trustee's Certificate (Servicer)
Exhibit D Form of Servicer's Certificate
Exhibit E List of Lock-Boxes, Lock-Box Accounts and Lock-Box Banks
Exhibit F Form of Investor Representation Letter
Exhibit G Underwriting Guidelines
Exhibit H VSI Insurance Policy
Exhibit I Form of Request for Release of Documents
Exhibit J Form of Certificate of Non-Foreign Status
Exhibit K Form of Notice of Pre-Funding
Exhibit L Form of Acknowledgment of Receipt
Exhibit M Form of Statement to Certificateholders regarding
Characteristics of Receivables as of the Termination of the
Pre-Funding Period.
SCHEDULES
Schedule A Schedule of Receivables
Schedule B Location of Receivable Files
Schedule C Fees of Trustee, Custodian and Backup Servicer
v
<PAGE>
This POOLING AND SERVICING AGREEMENT, dated as of July 1,1997, is
made with respect to the formation of the ASTA AUTO TRUST 1997-1 among ASTA AUTO
RECEIVABLES COMPANY, a Delaware corporation, as Seller (in such capacity, the
"Seller"), ASTA FUNDING, INC., a Delaware corporation, as Servicer (in such
capacity, the "Servicer"), CSC LOGIC/MSA, L.L.P., a Texas limited liability
partnership, as Backup Servicer (in such capacity, the "Backup Servicer") and
THE CHASE MANHATIAN BANK, a New York banking corporation, as Trustee and
Custodian (in such capacities, the "Trustee" and "Custodian" respectively).
WITNESSETH THAT: In consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
CREATION OF THE TRUST
Section 1.1 Creation of the Trust. Upon the execution of this
Agreement by the parties hereto, there is hereby created the Asta Auto Trust
1997-1.
ARTICLE II
DEFINITIONS
Section 2.1 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
"Actuarial Receivable" means any Receivable that provides for the
amortization of the amount financed under the Receivable over, a series of
fixed, level monthly payments. Each monthly payment, including the monthly
installment representing the final payment on the Receivable, consists of an
amount of interest equal to 1/12th of the stated APR multiplied by the unpaid
principal balance of the loan, and an amount of principal equal to the remainder
of such monthly payment.
"Affiliate" of any Person means any Person who directly or
indirectly controls, is controlled by or is under common control with such
person. For purposes of this definition of "Affiliate," the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause a direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
<PAGE>
"Amount Financed" with respect to a Receivable means the amount
advanced under the Receivable toward the purchase price of the Financed Vehicle
and any related costs.
"Annual Percentage Rate" or "APR" of a Receivable means the annual
rate of finance charges stated in the Receivable.
"Asta Funding" means Asta Funding, Inc., a Delaware corporation, and
its successors and assigns.
"Assumption Date" shall have the meaning specified in 9.2(a).
"Authenticating Agent" has the meaning assigned to such term in
Section 6.3.
"Available Interest Distribution Amount" means, for any Distribution
Date, the sum (without duplication) of the following amounts received with
respect to the preceding Collection Period: (i) that portion of all collections
on Receivables attributable to interest, (ii) Liquidation Proceeds attributable
to interest with respect to the Receivables that became liquidated Receivables
during the Collection Period in accordance with the Servicer's customary
servicing procedures; (iii) proceeds attributable to interest from recoveries
with respect to Liquidated Receivables that became Liquidated Receivables during
prior Collection Periods; and (iv) the Purchase Amount of each Receivable that
became a Purchased Receivable during the related Collection Period to the extent
attributable to accrued interest on such Receivable; provided, however, that in
calculating the Available Interest Distribution Amount, all payments and
proceeds (including Liquidation Proceeds) of any Purchased Receivables the
principal portion of the Purchase Amount of which has been included in the
Available Principal Distribution Amount in a prior Collection Period will be
excluded.
"Available Principal Distribution Amount" means, for any
Distribution Date, the sum (without duplication) of the following amounts
received with respect to the preceding Collection Period: (i) that portion of
all collections on Receivables allocable to principal; (ii) liquidation Proceeds
attributable to principal with respect to Receivables that became Liquidated
Receivables during the Collection Period in accordance with the Servicer's
customary servicing procedures; (iii) proceeds attributable to principal from
recoveries with respect to Liquidated Receivables that became Liquidated
Receivables during prior Collection Periods; (iv) with respect to the First
Distribution Date following the Pre-Funding Period, the amount, if any,
remaining on deposit in the Pre-Funding Account (other than investment
earnings); and (v) to the extent attributable to principal, the Purchase Amount
of each Receivable that became a Purchased Receivable during the related
Collection Period; provided, however, that in calculating the Available
Principal Distribution Amount, all payments and proceeds (including Liquidation
Proceeds) of any Purchased Receivables the principal portion of the Purchase
Amount of which has been included in the Available Principal Distribution Amount
in a prior Collection Period that are allocable to principal will be excluded.
"Backup Servicer" means CSC Logic/MSA, L.L.P.. d/b/a Loan Servicing
Enterprise, a Texas limited liability partnership.
2
<PAGE>
"Backup Servicing Fee" means the monthly fee payable to the Backup
Servicer for services rendered during the respective Collection Period in the
amount specified in Schedule C hereto.
"Backup Servicing Officer" means any person whose name appears on a
list of Backup Servicing Officers delivered to the Trustee, as the same may be
amended from time to time.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York, New York, the State in which the
Corporate Trust Office is located or the State in which the executive offices of
the Servicer are located shall be authorized or obligated by law, executive
order or governmental decree to be closed.
"Capitalized Interest Account" means the account, which shall be an
Eligible Account, established and maintained pursuant to Section 5.6B hereof.
"Capitalized interest Account Balance" means the amount on deposit
in the Capitalized Interest Account as of any date of determination.
"Capitalized Interest Requirement" means for any Collection Period
during the Pre-Funding Period the excess of (A) the sum of the interest accruing
on the amounts on deposit in the Pre-Funding Account for each day of such
Collection Period over (B) any earnings on Eligible Investments of funds in such
Pre-Funding Account during such Collection Period. Such daily interest shall
equal the sum of (i) the product of (a) the Class A Percentage, (b) the daily
balance in the Pre-Funding Account divided by 360, and (c) the Class A Rate and
(ii) the product of (a) the Class B Percentage, (b) the daily balance in the
Pre-Funding Account divided by 360, and (c) the Class B Rate.
"Certificate Account" means the account designated as such,
established and maintained pursuant to Section 5.5 hereof.
"Certificateholder" or "Holder" means the Person in whose name the
respective Certificate shall be registered in the Certificate Register, except
solely for the purposes of giving any consent, waiver, request, or demand
pursuant to this Agreement, the interest evidenced by any Certificate registered
in the name of the Seller or the Servicer, or any Affiliate of either of them,
shall not be taken into account in determining whether the requisite percentage
necessary to effect any such consent, waiver, request, or demand shall have been
obtained.
"Certificate Register" and "Certificate Registrar" mean,
respectively, the register maintained, and the Certificate Registrar appointed,
pursuant to Section 6.5.
"Certificates" means, collectively, the Class A Certificates and the
Class B Certificates.
"Class" means all Certificates having the same order of priority and
bearing the same alphabetical designation ("A" or "B").
3
<PAGE>
"Class A Certificate" means any one of the Certificates executed by
the Trust and authenticated by the Trustee in substantially the form set forth
in Exhibit A hereto.
"Class A Certificate Balance" shall initially equal the Class A
Original Class Certificate Balance and thereafter shall equal the Class A
Original Class Certificate Balance, reduced by all amounts previously
distributed to Class A Certificateholders and allocable to principal.
"Class A Distributable Amount" means, with respect to each
Distribution Date, the sum of the Class A Interest Distributable Amount and the
Class A Interest Carryover Shortfall for the prior Distribution Date and the
Class A Principal Distributable Amount and the Class A Principal Carryover
Shortfall for the prior Distribution Date.
"Class A Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Interest Distributable Amount for
such Distribution Date and any outstanding Class A Interest Carryover Shortfall
from the preceding Distribution Date plus interest on such outstanding Class A
Interest Carryover Shortfall, to the extent permitted by law, at the Class A
Rate from such preceding Distribution Date through the current Distribution Date
(calculated on the basis of a 360-day year consisting of twelve 30-day months),
over the amount of interest that the Holders of the Class A Certificates
actually received on such current Distribution Date.
"Class A Interest Distributable Amount" means, for any Distribution
Date, 30 days of interest at the Class A Rate on the Class A Certificate Balance
as of the close of business on the last day of the related Collection Period
(calculated on the basis of a 360-day year consisting of twelve 30-day months).
"Class A Percentage" shall be 75%.
"Class A Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Class A Principal Distributable Amount
and any outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the Holders of the Class A
Certificates actually received on such current Distribution Date.
"Class A Principal Distributable Amount" means, with respect to any
Distribution Date, the Class A Percentage of the Principal Distributable Amount.
"Class A Rate" means 7.60% of interest per annum.
"Class B Certificate" means any one of the Certificates executed by
the Trust and authenticated by the Trustee in substantially the form set forth
in Exhibit B hereto.
"Class B Certificate Balance" shall equal, initially, the Class B
Original Class Certificate Balance and, thereafter, shall equal the Class B
Original Class Certificate Balance,
4
<PAGE>
reduced by all amounts previously distributed to Class B Certificateholders and
allocable to principal.
"Class B Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class B Interest Distributable Amount and the
Class B Interest Carryover Shortfall for the prior Distribution Date and the
Class A Principal Distributable Amount and the Class A Principal Carryover
Shortfall for the prior Distribution Date.
"Class B Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Interest Distributable Amount for
such Distribution Date and any outstanding Class B Interest Carryover Shortfall
from the preceding Distribution Date plus interest on such outstanding Class B
Interest Carryover Shortfall, to the extent permitted by law, at the Class B
Rate from such preceding Distribution Date through the current Distribution Date
(calculated on the basis of a 360-day year consisting of twelve 30-day months),
over the amount of interest that the Holders of the Class B Certificates
actually received on such current Distribution Date.
"Class B Interest Distributable Amount" means, for any Distribution
Date, 30 days of interest at the Class B Rate on the Class B Certificate Balance
as of the close of business on the last day of the related Collection Period
(calculated on the basis of a 360-day year consisting of twelve 30-day months).
"Class B Percentage" shall be 25%.
"Class B Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Class B Principal Distributable Amount
and any outstanding Class B Principal Carryover Shortfall on the preceding
Distribution Date over the amount of principal that the Holders of the Class B
Certificates actually received on such current Distribution Date.
"Class B Principal Distributable Amount" means, with respect to any
Distribution Date, the Class B Percentage of the Principal Distributable Amount.
"Class B Rate" means 8.95% of interest per annum.
"Class Certificate Balance" means as of any date of determination,
with respect to the applicable Class of Certificates, the Class A Certificate
Balance or the Class B Certificate Balance as of such date.
"Class Factor" as of the close of business on the last day of the
Collection Period, means with respect to each Class of Certificates, a
seven-digit decimal figure equal to the Class Certificate Balance of such Class
as of such date divided by the Original Class Certificate Balance thereof. The
Class Factor will be 1.0000000 as of the Cutoff Date; thereafter, the Class
Factor will decline to reflect reductions in the Class Certificate Balance.
"Closing Date" means July 29, 1997.
5
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means the account designated as such,
established and maintained pursuant to Section 5.1.
"Collection Period" means a calendar month. Any amount stated "as of
the close of business on the last day of a Collection Period" shall give effect
to the following calculations as determined at the end of the day on such last
day: (a) all applications of collections, and (b) all distributions. A
Collection Period with respect to a Distribution Date will be the calendar month
preceding the month in which such Distribution Date occurs.
"Corporate Trust Office" at the date hereof is located at:
The Chase Manhattan Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Structured Finance Services
"Cram Down Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
the scheduled payments to be made on a Receivable, an amount equal to the
difference between the Principal Balance of such Receivable immediately prior to
the issuance of such order and the Principal Balance of such Receivable as so
reduced or the net present value (using as the discount rate, the lower of the
contract rate or the rate of interest specified by the court in such order) of
the Scheduled Payments as so modified or restructured by such order. A Cram Down
Loss shall be deemed to have occurred on the date of issuance of such order.
"Cross-Acceleration Amount" shall have the meaning specified in
Section 9.1(e).
6
<PAGE>
"Cumulative Gross Loss Curve" means the ratios set forth in the
table below:
Month Ratio Month Ratio
July, 1997 0.00% November, 1998 19.54%
August, 1997 0.79% December, 1998 20.13%
September, 1997 1.58% January, 1999 20.71%
October, 1997 2.36% February, 1999 21.29%
November, 1997 3.15% March, 1999 21.83%
December, 1997 3.94% April, 1999 22.46%
January, 1998 5.54% May, 1999 23.04%
February, 1998 7.15% June, 1999 23.63%
March, 1998 8.75% July, 1999 24.06%
April, 1998 10.35% August, 1999 24.50%
May, 1999 11.96% September, 1999 24.94%
June, 1998 13.56% October, 1999 25.38%
July, 1998 15.17% November, 1999 25.81%
August, 1998 16.77% December, 1999 26.25%
September, 1998 18.38% January, 2000 26.25%
October, 1998 18.69% and thereafter 26.25%
"Cumulative Gross Loss Ratio" means, as of any date of
determination, the ratio of the aggregate Liquidated Receivables since the
Initial Cutoff Date to the Original Pool Balance.
"Custodian "means the Person acting as custodian of the Trust
pursuant to Section 3.6 of this Agreement, the successor in interest and any
successor Custodian.
"Custodian Fees" means the monthly fee payable on each Distribution
Date to the Custodian for services rendered during the respective Collection
Period, in the amount specified in Schedule C hereto.
"Cutoff Date" shall mean (i) with respect to each Initial
Receivable, July 1, 1997 and (ii) with respect to each Subsequent Receivable,
the last Business Day of the calendar week immediately preceding the calendar
week of the Subsequent Transfer Date related to such Subsequent Receivable.
"Dealer" means the dealer who financed and sold a Financed Vehicle
and with respect to which Asta Funding purchased the respective Receivable and
sold it to the Seller.
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"Determination Date" means the earlier of (i) the ninth Business Day
of each calendar month and (ii) the fourth Business Day preceding the related
Distribution Date.
"Distribution Date" means, for each Collection Period, the 20th of
the following month, or if the 20th is not a Business Day, the next following
Business Day, commencing on August 20, 1997.
"Eligible Account" means (a) a segregated account or accounts
maintained with a depository institution or trust company whose long-term
unsecured debt obligations are rated at least A by the Rating Agency at the time
of any deposit therein, or (b) a segregated trust account or accounts maintained
with a federal or state chartered depository institution subject to regulations
regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section
9.10(b).
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(i) direct obligations of, and obligations fully guaranteed as to
the full and timely payment by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit of
any depository institution or trust company incorporated under the laws of
the United States of America or any State thereof (or any domestic branch
of a foreign bank) and subject to supervision and examination by federal
or State banking or depository institution authorities; provided, however,
that at the time of the investment or contractual commitment to invest
therein, the commercial paper or other short-term unsecured debt
obligations (other than such obligations the rating of which is based on
the credit of a Person other than such depository institution or trust
company) thereof shall have a short-term credit rating from the Rating
Agency in the highest investment category granted thereby;
(iii) commercial paper having, at the time of the investment or
contractual commitment to invest therein, a rating from the Rating Agency
in the highest investment category granted thereby;
(iv) bankers' acceptances issued by any depository institution or
trust company referred to in clause (ii) above;
(v) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed as to the full and timely
payment by, the United States of America or any agency or instrumentality
thereof the obligations of which are backed by the full faith and credit
of the United States of America, in either case entered into with (a) a
depository institution or trust company (acting as principal) described in
clause (b) above or (ii) a depository institution or trust company whose
commercial paper or other short term unsecured debt obligations are rated
not less than the highest investment category granted by the Rating
Agency;
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(vi) money market mutual funds registered under the Investment
Company Act of 1940, as amended, having a short-term or long-term rating,
at the time of such investment, from both Standard & Poor's and Moody's in
the highest investment category granted thereby; and
(vii) any other investment that is approved in writing by the Rating
Agency and given one of its three highest ratings.
Any Eligible Investments may be purchased by or through the Trustee
or any of its Affiliates.
"ERISA" shall have the meaning specified in Section 6.5(c)(iv).
"Event of Default" means an event set forth in Section 9.1.
"Excess Interest" means the amount payable to the Seller on each
Distribution Date pursuant to Section 5.5(c)(vii).
"Final Scheduled Distribution Date" shall be the October 2002
Distribution Date.
"Final Subsequent Transfer Date" means the Subsequent Transfer Date
upon which the balance in the Pre-Funding Account is reduced to zero.
"Financed Vehicle" means a new or used automobile, van or light-duty
truck, together with all accessions thereto, securing an Obligor's indebtedness
under the respective Receivable.
"Initial Receivables" means all Receivables sold to the Trust by the
Seller on the Closing Date.
"Insurance Policy" means, with respect to a Receivable, any
comprehensive, collision, fire and theft insurance policy requlred to be
maintained by the Obligor with respect to the Financed Vehicle, the VSI
Insurance Policy and any credit life, credit accident and credit disability
insurance policies or certificates of insurance maintained by the Obligor or the
Seller relating to the Financed Vehicles or the Obligors.
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind other than tax liens, mechanics' liens and any liens
which attach to the respective Receivable by operation of law or unpaid storage
or repair charges that may arise after the Closing Date.
"liquidated Receivable" means any Receivable (i) that has been
liquidated by the Servicer through the sale of the Financed Vehicle or (ii) as
to which all or any part of a Scheduled Payment in an amount of more than five
percent (5%) of such Scheduled Payment is 120 days or more delinquent as of the
end of a Collection Period or (iii) with respect to which
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proceeds have been received that, in the Servicer's good faith judgment,
constitute the final amounts recoverable in respect of such Receivable.
"Liquidation Proceeds" means the monies collected from whatever
source on a Liquidated Receivable during the respective Collection Period in
which such Receivable became a Liquidated Receivable, net of the reasonable
costs of liquidation and any amounts required by law to be remitted to the
Obligor.
"Lock-Box" means the post office box or other mailing location in
the name of the Trustee identified in Exhibit E hereto maintained by the
Lock-Box Bank for the purpose of receiving payments by Obligors for subsequent
deposit into a Lock-Box Account.
"Lock-Box Account" means the account, which shall be an Eligible
Account established and maintained pursuant to Section 5.1 hereof.
"Lock-Box Bank" means, as of any date, the bank set forth in Exhibit
E hereto (including its successors) and any other bank that becomes a Lock-Box
Bank pursuant to Section 5.1 and that holds, or may in the future hold, the
Lock-Box Account for depositing payments made by Obligors.
"Majority Certificateholders" means the Holders of Certificates
evidencing not less than 51 % of the Voting Interests thereof.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Net Losses" means, with respect to a Collection Period, the sum of
(i) the sum of the Principal Balances of Receivables that became Liquidated
Receivables during such Collection Period minus Liquidation Proceeds and (ii)
Cram Down Losses incurred during such Collection Period minus (a) recoveries
received during such Collection Period on liquidated Receivables of prior
Collection Periods minus (b) recoveries, if any, received during such Collection
Period on Cram Down Losses incurred during such Collection Period and during
prior Collection Periods.
"Obligor" on a Receivable means the purchaser or co-purchasers of
the Financed Vehicle or any other Person who owes payments under the Receivable.
"Officer's Certificate" means a certificate signed by the chief
executive officer, chief financial officer, the president, any vice president,
the treasurer, the controller of Asta Funding, the Seller, or the Servicer, as
appropriate.
"Opinion of Counsel" means a written opinion of counsel who may but
need not be counsel to the Seller or Servicer, which counsel shall be reasonably
acceptable to the Trustee and which opinion shall be acceptable to the Trustee
in form and substance and which shall not be at the expense of the Trustee. Such
Opinion of Counsel may rely with respect to matters of fact on an Officer's
Certificate or certificates of public officials.
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"Optional Purchase Percentage" shall be 10% or less.
"Original Class Certificate Balance" means, with respect to the
Class A Certificates, $15,839,989; and with respect to the Class B Certificates,
$5,279,996.
"Original Pool Balance" means, as of any date of determination, the
aggregate Principal Balance of all Receivables (including Subsequent
Receivables) as of their respective Cutoff Dates.
"Original Pre-Funded Amount" means the amount deposited in the
Pre-Funding Account on the Closing Date.
"Paying Agent" shall have the meaning set forth in Section 6.2.
"Person" means any individual, corporation, limited liability
company, estate, partnership, joint venture, association, joint stock company,
trust, unincorporated organization, or government or any agency or political
subdivision thereof.
"Pool Balance" means, as of the Determination Date, the aggregate
Principal Balance of the Receivables less Net Losses.
"Pool Factor" as of the close of business on the last day of a
Collection Period, means a seven-digit decimal figure equal to the Pool Balance
on such day divided by the Original Pool Balance. The Pool Factor will be
1.0000000 as of the Cutoff Date; thereafter, the Pool Factor will decline to
reflect reductions in the Pool Balance.
"Pre-Funding Account" means the trust account, which shall be an
Eligible Account, designated as such, established and maintained pursuant to
Sections 5.1 and 5.6A hereof.
"Pre-Funding Event" shall mean, with respect to a Subsequent
Transfer Date, the occurrence of the events required to occur in accordance with
Section 3.11.
"Pre-Funding Period" means the period beginning on the Closing Date
and ending on the earlier to occur of (a) any date on which the amount on
deposit in the Pre-Funding Account is less than $2,000, (b)the occurrence of an
Event of Default under the Agreement, or (c) the close of business on October
29, 1997.
"Principal Balance" of a Receivable, as of the close of business on
the last day of a Collection Period, means the Amount Financed minus the sum of
(i) that portion of all Scheduled Payments made by or on behalf of the Obligor
on or prior to such day allocable to principal using the Simple Interest Method;
(ii) any refunded portion of any Insurance Policy premiums or other amounts
included in the Amount Financed; (iii) any payment of the Purchase Amount with
respect to the Receivable allocable to principal; (iv) any prepayment applied to
reduce the Principal Balance of the Receivable; and (v) any Cram Down Loss or
Simple Interest
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Differential Adjustment in respect of such Receivable (without duplication of
amounts included above).
"Principal Distributable Amount" means (i) the amount of all
Scheduled Payments collected during the related Collection Period and allocated
to principal under the Simple Interest Method; (ii) the principal portion of all
prepayments (whether in whole or in part) on Receivables (without duplication of
amounts included in clause (i) above and clause (iv) below) received during the
related Collection Period including refunded portions of Insurance Policy
premiums or other amounts included in the Amount Financed; (iii) the Principal
Balance of each Receivable that became a Purchased Receivable during the related
Collection Period (without duplication of amounts referred to in clauses (i) and
(ii) above or clause (iv) below); (iv) the Principal Balance of each Receivable
that became a Liquidated Receivable during the related Collection Period
(without duplication of the amounts included in clause (i) and (ii) above); (v)
the aggregate amount of Cram Down Losses that shall have occurred during the
related Collection Period (without duplication of amounts included above); and
(vi) the aggregate amount of Simple Interest Differential Adjustments that shall
have occurred during the related Collection Period; provided, however, that, in
calculating the Principal Distributable Amount, all payments and proceeds of any
Purchased Receivable the Purchase Amount of which has been included in the
Principal Distributable Amount in a prior Collection Period shall be excluded.
"Program" shall have the meaning set forth in Section 4.11.
"Purchase Agreement" means the agreement dated as of July 1, 1997
relating to the purchase of the Receivables by the Seller from Asta Funding.
"Purchase Amount" equals, as of any date of determination, the
Principal Balance plus interest thereon at the respective APR to the last day of
the month of repurchase.
"Purchased Receivable" means a Receivable purchased as of the close
of business on the last day of a Collection Period by the Servicer or the
Seller, as the case may be, pursuant to Section 4.7 or by Asta Funding pursuant
to Section 3.5.
"Rating Agency" means Duff & Phelps Credit Rating Co., or its
successor, as the statistical credit rating agency that rated the Certificates
at the request of the Seller at the time of the initial issuance of the
Certificates. If such organization or successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization or other comparable Person designated by the Seller, notice of
which designation shall be given to the Trustee.
"Realized Losses" means the excess of the Principal Balance of any
Liquidated Receivable over Liquidation Proceeds to the extent allocable to
principal received in the Collection Period in which the Receivable became a
Liquidated Receivable.
"Receivable" means any retail installment sale contract set forth on
Schedule A hereto (which Schedule A may be in the form of microfiche), a portion
of which shall be Actuarial Receivables; provided that Schedule A shall be
deemed to be amended on each
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Subsequent Transfer Date to add the Subsequent Receivables acquired by the
Seller from Asta Funding pursuant to the Purchase Agreement and sold to the
Trust pursuant to the terms hereof on each such Subsequent Transfer Date;
provided further, however, that the portion of a payment allocable to interest
and the portion allocable to principal with respect to each Receivable,
including Actuarial Receivables, shall be determined herein according to the
Simple Interest Method.
"Receivable Files" means the documents specified in Section 3.6(a).
"Receivables Cash Purchase Price" means with respect to any
Subsequent Receivable and any date of determination, an amount equal to 100% of
the outstanding Principal Balance of such Subsequent Receivable as of such date
of determination.
"Record Date" means, with respect to each Distribution Date, the
last Business Day of the immediately preceding calendar month, except that the
Record Date with respect to the first Distribution Date will be the Closing
Date.
"Refunding Event" means the transfer of remaining funds in the
Pre-Funding Account to the Certificate Account and distribution to the
Certificateholders on a pro rata basis on the first Distribution Date following
the end of the Pre-Funding Period of such remaining funds in the Pre-Funding
Account (other than investment earnings) in accordance with Section 3.11 hereof.
"Repossession Inventory Rate" means, with respect to a Collection
Period, the fraction, expressed as a percentage, equal to the sum of the
aggregate outstanding Principal Balance of Receivables as to which the related
Financed Vehicles have been repossessed but not yet liquidated by the Servicer
as of the end of such Collection Period divided by the Pool Balance as of the
end of such Collection Period.
"Repurchase Threshold" shall equal at any time, an amount equal to
the available amount under the Seller note, as reduced by any payments made on
the Seller Note.
"Required Deposit Rating" shall be a rating of an institution which
has a short term deposit rating of at least A-1 + by the Rating Agency and a
long term deposit rating of at least AA by the Rating Agency or in the event
such institution is not rated by the Rating Agency, an equivalent rating from
each of Standard & Poor's and Moody's.
"Reserve Account" means the account, which shall be an Eligible
Account, established and maintained pursuant to Section 5.6 hereof.
"Reserve Account Balance" means the amount on deposit in the Reserve
Account as of any date of determination.
"Reserve Account Draw" shall have the meaning set forth in Section
5.6(d).
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"Reserve Account Initial Deposit" means $1,932,478.63, an amount
equal to 9.15% of the aggregate certificate principal balance of the Class A
Certificates and Class B Certificates as of the Closing Date.
"Reserve Account Property" shall have the meaning set forth in
Section 5.6(d).
"Reserve Requirement" means, as of any Distribution Date, after
giving effect to distributions of principal on such date, an amount equal to the
greatest of the following provisions that are applicable as of such date:
1. twelve percent (12%) of the Pool Balance;
2. fourteen percent (14%) of the Pool Balance if, as of the end
of any Collection Period, the 60 Day + Delinquency Rate is
greater than 4% of the Pool Balance, in which event the
Reserve Requirement shall remain at 14% of the Pool Balance
until such time as the 60 day + Delinquency Rate equals or
drops below 4% of the Pool Balance for three (3) consecutive
subsequent Collection Periods at which point the Reserve
Requirement will be reduced to twelve percent (12%) of the
Pool Balance (the Reserve Requirement may be reduced only one
time under this provision);
3. fourteen percent (14%) of the Pool Balance if the Repossession
Inventory Rate is greater than 4.50% of the Pool Balance, in
which event the Reserve Requirement shall remain at 14% of the
Pool Balance until such time as the Repossession Inventory
Rate equals or drops below 4.50% of the Pool Balance for three
(3) consecutive subsequent Collection Periods at which point
the Reserve Requirement will be reduced to twelve (12%) of the
Pool Balance (the Reserve Requirement may be reduced only one
time under this provision);
4. fourteen percent (14%) of the Pool Balance if the cumulative
Net Losses exceed ten and one-half percent (10.50%) of the
Original Pool Balance; provided, however, that if the
cumulative Net Losses exceed fourteen percent (14%) of the
Original Pool Balance, the Reserve Requirement shall be equal
to the Pool Balance; or
5. fourteen percent (14%) of the Pool Balance if the Cumulative
Gross Loss Ratio as of the last day of any calendar month
occurring during such Collection Period is greater than the
percentage set forth in the Cumulative Gross Loss Curve.
6. the lesser of two percent (2%) of the Original Pool Balance
and the then current aggregate Pool Balance.
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"Scheduled Payment" on a Receivable means that payment required to
be made by the Obligor during the respective Collection Period which, together
with all other scheduled payments thereon, will be sufficient to amortize the
Principal Balance under the actuarial method set forth in the related Contract
over the term of the Receivable and to provide interest at the APR.
"Schedule of Receivables" shall mean the schedule of all motor
vehicle retail installment sale contracts and promissory notes sold and
transferred pursuant to this Agreement which schedule is attached hereto as
Schedule A; provided that the Schedule of Receivables shall be deemed to be
amended (i) on each Subsequent Transfer Date to add all such contracts and
promissory notes acquired by Asta Funding during the Pre-Funding Period, subject
to the requirements of Section 3.11(b); and provided further that the aggregate
Principal Balance of such Subsequent Receivables added to the Schedule of
Receivables on a Subsequent Transfer Date shall not exceed the amount of the
principal balance of the Pre-Funding Account on such Subsequent Transfer Dates.
"Securities Act" shall have the meaning set forth in Section 6.5(b).
"Seller" means Asta Auto Receivables Company as the seller of the
Receivables hereunder, and each successor to the Seller (in the same capacity)
pursuant to Section 7.3.
"Seller Note" shall mean the demand note issued by Asta Funding to
the Seller in the principal amount as of the Closing Date of $2,100,000.
"Seller Partnership Interest" means at any time of measurement,
ownership of the sum of (i) the Excess Interest, (ii) the Seller's interest in
the Reserve Account, (iii) the Seller's interest in the Simple Interest
Differential Account and (iv) the Seller's interest in the Capitalized Interest
Account.
"Servicer" means Asta Funding as the servicer of the Receivables
that were purchased by the Seller, and each successor to Asta Funding (in the
same capacity) pursuant to Section 8.3(a) or 9.2.
"Servicer's Certificate" means a certificate completed and executed
by a Servicing Officer or Trustee Officer pursuant to Section 4.9, substantially
in the form of Exhibit D hereto.
"Servicing Fee" means the fee payable to the Servicer for services
rendered during the respective Collection Period, determined pursuant to Section
4.8.
"Servicing Officer" means any person whose name appears on a list of
Servicing Officers delivered to the Trustee, as the same may be amended from
time to time.
"Servicing Rate" shall be 3.00% per annum.
"Simple Interest Differential Account" means the account, which
shall be an Eligible Account, established and maintained pursuant to Section 5.7
hereof.
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"Simple Interest Differential Adjustment" shall have the meaning
specified in Section 5.7.
"Simple Interest Method" means the method of allocating a fixed
level payment to principal and interest, pursuant to which the portion of such
payment that is allocated to interest is equal to the product of the APR
multiplied by the unpaid principal balance multiplied by a fraction the
numerator of which is the number of days elapsed since the preceding payment was
made and the denominator of which is 365.
"60 Day + Delinquency Rate" means, with respect to any Collection
Period, the fraction, expressed as a percentage, equal to the sum of the
aggregate outstanding Principal Balance of Receivables (other than the aggregate
Principal Balance of Liquidated Receivables and repossessed vehicles) as to
which Obligors are more than 60 days past due in making Scheduled Payments as of
the end of such Collection Period divided by the Pool Balance as of the end of
such Collection Period. For purposes of the foregoing definition only, a
Scheduled Payment shall be considered to be made if 95% or more of such
Scheduled Payment is made.
"Standard & Poor's" means Standard & Poor's Ratings Services or its
successor.
"State" means any state of the United States of America, or the
District of Columbia.
"Subsequent Receivables" means all Receivables sold by the Seller to
the Trust after the Closing Date and during the Pre-Funding Period, which shall
be listed on Schedule A to the related assignment.
Subsequent Transfer Date" means each Business Day occurring no more
than once per calendar week during the Pre-Funding Period on which Receivables
are sold to the Trust.
"Successor Bank" shall have the meaning set forth in Section 5.1.
"Total Available Distribution Amount" shall mean, for each
Distribution Date, the sum of the Available Interest Distribution Amount and the
Available Principal Distribution Amount.
"Trust" means the Asta Auto Trust 1997-1 created by this Agreement,
the estate of which shall consist of the Trust Property.
"Trust Property" shall have the meaning set forth in Section 3.2.
"Trustee" means the Person acting as Trustee hereunder, its
successor in interest, and any successor Trustee appointed pursuant to Section
10.8.
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"Trustee Fee" means the monthly fee payable on each Distribution
Date to the Trustee for services rendered during the respective Collection
Period, in the amount specified in Schedule C hereto.
"Trustee Officer" means any vice president, any assistant vice
president, any assistant secretary, any assistant treasurer, any trust officer,
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and having direct
responsibility for the administration of this Agreement.
"Trustee's Certificate" means a certificate completed and executed
by the Trustee by a Trustee Officer pursuant to Section 10.2, substantially in
the form of, in the case of assignment to Asta Funding, Exhibit C-1 hereto and
in the case of an assignment to the Servicer, Exhibit C-2 hereto.
"UCC" means the Uniform Commercial Code, as amended from time to
time, as in effect in the States of New Jersey and Illinois and in any other
State where the filing of a financing statement is required to perfect an
interest in the Receivables and the proceeds thereof or in any other specified
jurisdiction.
"Underwriting Guidelines" means the Underwriting guidelines of Asta
Funding with respect to each of its programs, copies of which are attached
hereto as Exhibit G.
"Voting Interests" means the portion of the voting interests of all
the Certificates that is allocated to any Certificate for purposes of the voting
provisions of this Agreement. Voting Interests shall be allocated to the Class A
and Class B Certificates, respectively, in proportion to their respective Class
Certificate Balances. Voting Interests allocated to each Class of Certificates
shall be allocated among the Certificates within each such Class in proportion
to their respective Certificate Balances. Where the Voting Interests are
relevant in determining whether the vote of the requisite percentage of the
Certificateholders necessary to effect any consent, waiver, request or demand
shall have been obtained, the Voting Interests shall be deemed to be reduced by
the amount equal to the Voting Interests (without giving effect to this
provision) represented by the interests evidenced by any Certificate registered
in the name of the Servicer, Asta Funding, the Seller or any Person known to a
Trustee Officer to be an Affiliate of any such foregoing entities, unless such
entity owns all affected Certificates.
"VSI Insurance Policy" means the Vendor's Single Interest Physical
Damage Insurance Policy attached hereto as Exhibit H issued by the VSI Insurer,
including all endorsements thereto or any replacement policy under Section 4.4.
"VSI Insurer" means certain underwriters at Lloyd's, London,
England, or any issuer of a replacement VSI Insurance Policy under Section 4.4.
Section 2.2 Usage of Terms. With respect to all terms in this
Agreement, the singular includes the plural and the plural the singular; words
importing any gender include the other genders; references to "writing" include
printing, typing, lithography, and other means of reproducing words in a visible
form; references to agreements and other contractual instruments
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include all subsequent amendments thereto or changes therein entered into in
accordance with their respective terms and not prohibited by this Agreement;
references to Persons include their permitted successors and assigns; and the
term "including" means "including without limitation."
Section 2.3 References. Unless otherwise noted herein, all section
references shall be to Sections in this Agreement.
ARTICLE III
THE RECEIVABLES
Section 3.1 Conveyance of Receivables.
(a) In consideration of the Trustee's delivery of Certificates to,
or upon the written order of, the Seller in an aggregate principal amount equal
to the aggregate Principal Balance of the Initial Receivables plus the Original
Pre-Funded Amount, the Seller does hereby sell, transfer, assign, set over and
otherwise convey to the Trustee on behalf of the Trust, in trust for the benefit
of the Certificateholders, without recourse (subject to the obligations
contained herein):
(i) all right, title and interest of the Seller in and to the
Receivables listed in Schedule A hereto and all monies received thereon on
or after the initial Cutoff Date and all Liquidation Proceeds received
with respect to such Receivables;
(ii) all right, title and interest of the Seller in and to the
security interests in the Financed Vehicles granted by Obligors pursuant
to the Receivables and any other interest of the Seller in the Financed
Vehicles, including, without limitation, the certificates of title with
respect to Financed Vehicles;
(iii) all, right, title and interest of the Seller in and to any
proceeds from claims on any Insurance Policies covering the Receivables,
the Financed Vehicles or the Obligors;
(iv) all, right, title and interest of the Seller in and to the
Pre-Funding Account and all moneys and investments from time to time on
deposit therein;
(v) all right, title and interest of the Seller in and to the
Purchase Agreement, including a direct right to cause Asta Funding to
purchase Receivables from the Trust under certain circumstances;
(vi) all right, title and interest of the Seller in and to refunds
of unearned premiums with respect to any Insurance Policies covering the
Receivables, an Obligor or the Financed Vehicle or his or her obligations
with respect to a Financed Vehicle and any recourse to Dealers for any of
the foregoing;
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(vii) the Receivables File related to each Receivable;
(viii) all right, title and interest of the Seller in and to the
Reserve Account, the Simple Interest Differential Account, the Capitalized
Interest Account, the Collection Account, the Lock-Box Account, the
Certificate Account and all monies on deposit therein; and
(ix) the proceeds of any and all of the foregoing.
(b) Subject to the conditions set forth in Section 3.11 hereof, in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
to or upon the order of the Seller of all or a portion of the balance in the
Pre-Funding Account in an amount equal to the aggregate Receivables Cash
Purchase Price of the Subsequent Receivables to be acquired on such Subsequent
Transfer Date, the Seller shall on such Subsequent Transfer Date sell, transfer,
assign, set over and otherwise convey to the Trustee, without recourse (subject
to the obligations herein):
(i) all right, title and interest of the Seller in and to the
Subsequent Receivables and all monies received thereon on or after the
related Cutoff Date and all Liquidation Proceeds received with respect to
such Receivables;
(ii) all right, title and interest of the Seller in and to the
security interests in the Financed Vehicles granted by Obligors pursuant
to the Subsequent Receivables and any other interest of the Seller in the
Financed Vehicles, including, without limitation, the certificates of
title with respect to Financed Vehicles;
(iii) all, right, title and interest of the Seller in and to any
proceeds from claims on any Insurance Policies covering the Subsequent
Receivables, the Financed Vehicles or the Obligors;
(iv) all right, title and interest of the Seller in and to the
Purchase Agreement, including a direct right to cause Asta Funding to
purchase the Subsequent Receivables from the Trust under certain
circumstances;
(v) all right, title and interest of the Seller in and to refunds of
unearned premiums with respect to any Insurance Policies covering the
Subsequent Receivables, an Obligor or the Financed Vehicle or his or her
obligations with respect to a Financed Vehicle and any recourse to Dealers
for any of the foregoing;
(vi) the Receivables File related to each Subsequent Receivable; and
(vii) the proceeds of any and all of the foregoing.
The Trustee, on behalf of the Trust and the Certificateholders,
acknowledges and agrees that the Seller and any successor is the holder of the
Excess Interest, that such Excess Interest is not Trust Property and, subject to
the terms and provisions of this Agreement, that
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the Seller or any successor shall be entitled to receive all distributions of
amounts in respect thereof pursuant to Section 5.5(d), subject to the limitation
therein.
Section 3.2 Transfer Intended as Sale; Precautionary Security
Interest. The conveyance to the Trust of the property set forth in Section 3.1
(collectively, the "Trust Property ") is intended as a sale free and clear of
all Liens. The Seller will reflect on its books that such property is owned by
the Trust. In the event, however, that notwithstanding the intent of Asta
Funding, the Seller and the Trustee, the transfer hereunder is held not to be a
sale, this Agreement shall constitute a grant of a security interest in the
property described in Section 3.1 to the Trustee on behalf of the Trust for the
benefit of the Certificateholders.
Section 3.3 Acceptance by Trustee. The Trustee on behalf of the
Trust does hereby accept all consideration conveyed by the Seller pursuant to
Section 3.1, and declares that the Trustee on behalf of the Trust shall hold
such consideration upon the trusts herein set forth for the benefit of all
present and future Certificateholders, subject to the terms and provisions of
this Agreement.
Section 3.4 Representations and Warranties of Seller. The Seller
makes the following representations and warranties to the Trustee as to the
Initial Receivables as of the Closing Date and as to the Subsequent Receivables
as of the applicable Subsequent Transfer Date, on which the Trustee, on behalf
of itself and the Certificateholders, relies in accepting the items specified in
Section 3.1 in trust on the Closing Date and each applicable Subsequent Transfer
Date and executing and authenticating the Certificates. Such representations and
warranties speak as of the execution and delivery of this Agreement, but shall
survive the sale, transfer and assignment of the Receivables to the Trustee.
(i) Characteristics of Receivables. Each Receivable:
(A) has been originated in the United States of America by a Dealer
for the retail sale of a Financed Vehicle in the ordinary course of
such Dealer's business, has been fully and properly executed by the
parties thereto, and has been purchased by Asta Funding in
connection with the sale of a Financed Vehicle by the Dealer or has
been or will be financed for such Dealer under an existing agreement
with Asta Funding;
(B) has created a valid, subsisting and enforceable first priority
security interest in favor of Asta Funding in the Financed Vehicle,
which security interest has been assigned by Asta Funding to the
Seller, which in turn has assigned such security interest to the
Trustee;
(C) contains or will contain customary and enforceable provisions
such that the rights and remedies of the holder or assignee thereof
shall be adequate for realization against the collateral of the
benefits of the security;
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(D) provides for level monthly payments that fully amortize (based
upon the actuarial basis set forth in such Receivable) the Amount
Financed by maturity and yield interest at the Annual Percentage
Rate;
(E) has an Annual Percentage Rate of not less than 16.95%;
(F) no Receivable has a payment that is more than 30 days past due
and no Financed Vehicle with respect to a Receivable has been
subject to any repossession activity;
(G) each Receivable has a final scheduled payment due no later than
September 30, 2002;
(H) provides for, in the event that such contract is prepaid, a
prepayment that fully pays the principal balance and interest
accrued to the date of prepayment, computed at the Annual Percentage
Rate and based upon the actuarial method;
(I) no more than 20.25 % of the Initial Receivables are Actuarial
Receivables, not less than 79.75% of the Initial Receivables are
Simple Interest Receivables. With respect to each Subsequent
Receivable such Receivable is a Simple Interest Receivable;
(J) as of the end of the Pre-Funding Period, the transfer of all the
Subsequent Receivables shall not cause the weighted average APR for
all the Receivables in the Trust as of such date to be more than 100
basis points lower than the weighted average APR of the Initial
Receivables as of the initial Cutoff Date; and
(ii) Schedule of Receivables. The information with respect to the
Receivables set forth in Schedule A hereto is true and correct in all
material respects as of the opening of business on the applicable Cutoff
Date, and no selection procedures adverse to the Certificateholders have
been utilized in selecting the Receivables.
(iii) Compliance with Law. Each Receivable, the sale of the Financed
Vehicle and the sale of any Insurance Policy and any service contracts (A)
complied at the time the related Receivable was originated or made and at
the execution of this Agreement complies in all material respects with all
requirements of applicable federal, State and local laws, and regulations
thereunder including, without limitation, usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Federal Trade
Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve
Board's Regulations B and Z, the New Jersey Consumer Credit Code and State
adaptations of the National Consumer Act, any State or federal provision
or act relating to motor vehicle retail installment sales contracts, or
any similar state or federal provision or act, and of the Uniform Consumer
Credit Code, and other consumer credit laws and equal credit opportunity
and disclosure laws and (B) does not contravene any contracts to which
Asta Funding is a party.
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(iv) No Government Obligor. None of the Receivables are due from the
United States of America or any State or local government or from any
agency, department, or instrumentality of the United States of America or
any State or local government.
(v) Security Interest in Financed Vehicle. Immediately prior to the
sale, assignment and transfer thereof, each Receivable shall be secured by
a validly perfected first security interest in the Financed Vehicle in
favor of Asta Funding as secured party, and such security interest is
prior to all other Liens upon and security interests in such Financed
Vehicle that now exist or may hereafter arise or be created (except, as to
priority, for (A) any lien for unpaid storage or repair charges which may
arise after the Closing Date or (B) any liens for municipal or other local
taxes). The Seller has caused each certificate of title (or copy of an
application for title), or such other document delivered by the State
title registration agency evidencing the security interest in each
Financed Vehicle, to be delivered to the Custodian pursuant to Section 3.6
hereof, together with a power of attorney, duly executed by Asta Funding
in favor of the Trustee, which powers of attorney are sufficient to change
the lien holder on the certificate of title with respect to a Financed
Vehicle.
(vi) Receivables in Force. No Receivable has been satisfied in full,
subordinated or rescinded, nor has any Financed Vehicle been released from
the lien granted by the related Receivable in whole or in part.
(vii) No Waiver. Other than with respect to the amendments set forth
in clause (viii) below, no provision of a Receivable has been waived,
impaired, altered or modified in any respect.
(viii) No Amendments. No Receivable has been amended, except as such
Receivable may have been amended to grant one extension of not more than
15 days as a matter of convenience to each Obligor.
(ix) No Defenses. No right of rescission, setoff, counterclaim or
defense exists or has been asserted or, to the Seller's knowledge,
threatened with respect to any Receivable. The operation of the terms of
any Receivable or the exercise of any right thereunder will not render
such Receivable unenforceable in whole or in part or subject to any such
right of rescission, setoff, counterclaim, or defense.
(x) No Liens. There are, to the Seller's knowledge, no Liens or
claims existing or that have been filed for work, labor, storage or
materials relating to a Financed Vehicle that shall be Liens prior to, or
equal or coordinate with, the security interest in the Financed Vehicle
granted by the Receivable.
(xi) No Default. Except for payment delinquencies continuing for a
period of not more than 30 days as of the applicable Cutoff Date (provided
that repossession of the related Financed Vehicle has not been initiated
prior to such Cutoff Date due to such payment delinquency), no default,
breach, violation or event permitting acceleration
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under the terms of any Receivable has occurred; and no continuing
condition that with notice or the lapse of time would constitute a
default, breach, violation or event permitting acceleration under the
terms of any Receivable has arisen; and the Seller shall not waive and has
not waived any of the foregoing. To the best of Seller's knowledge, no
Obligor is the subject of any pending bankruptcy, insolvency or similar
proceeding or no other fact exists regarding any Receivable that would
indicate that such Receivable would not be paid in full.
(xii) Insurance. As of the Closing Date and throughout the shorter
of the term of the Trust or the term of the Receivable, each Receivable is
and shall be covered under the VSI Insurance Policy, and such insurance
policy is valid and remains in full force and effect. Asta Funding, in
accordance with its customary procedures, has determined that (A) each
Obligor has obtained insurance covering the Financed Vehicle as of the
execution of the Receivable insuring against loss and damage due to fire,
theft, transportation, collision and other risks generally covered by
comprehensive and collision coverage and that each Receivable requires the
Obligor to maintain such insurance naming Asta Funding and its successors
and assigns as an additional insured and permits Asta Funding to obtain
such insurance at the expense of the Obligor if the Obligor fails to do so
and (B) each Receivable, if any, that finances the cost of premiums for
any Insurance Policy is covered by an Insurance Policy, naming the
respective Dealer or Asta Funding as policyholder (creditor) or creditor's
assignee, respectively, under each such Insurance Policy.
(xiii) Title. No Receivable has been sold, transferred, assigned, or
pledged by the Seller to any Person other than the Trustee or any such
pledge has been released. Immediately prior to the transfer and assignment
herein contemplated, the Seller had good and marketable title to each
Receivable, and was the sole owner thereof, free and clear of all liens,
claims, encumbrances, security interests and rights of others and,
immediately upon the transfer thereof, the Trustee for the benefit of the
Certificateholders shall have good and marketable title to each such
Receivable, and will be the sole owner thereof, free and clear of all
liens, encumbrances, security interests and rights of others, and the
transfer has been validly perfected under the UCC.
(xiv) Lawful Assignment. No Receivable has been originated in, or is
subject to the laws of, any jurisdiction under which the sales transfer
and assignment of such Receivable hereunder or pursuant to transfers of
the Certificates shall be unlawful, void or voidable.
(xv) All Filings Made. All filings (including, without limitation,
UCC filings) necessary in any jurisdiction to give the Trustee a first
priority perfected ownership interest in the Receivables have been made.
(xvi) Receivable File; One Original. The Seller has delivered to the
Custodian a complete Receivable File with respect to each Receivable.
There is only one original executed copy of each Receivable.
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(xvii) Chattel Paper. Each Receivable constitutes "chattel paper"
under the UCC and is the legal, valid and binding obligation of the
Obligor thereunder in accordance with the terms thereof.
(xviii) Title Documents. (A) If the related Financed Vehicle was
originated in a State in which notation of security interest on the title
document is required or permitted to perfect such security interest, the
title document for such Financed Vehicle shows, or if a new or replacement
title document is being applied for with respect to such Financed Vehicle
the title document will be received within 180 days from the date of
application and will show, Asta Funding named as the original secured
party under the related Receivable as the Holder of a first priority
security interest in such Financed Vehicle, and (B) if the related
Financed Vehicle was originated in a State in which the filing of a
financing statement under the UCC is required to perfect a security
interest in motor vehicles, such filings or recordings have been duly made
and show Asta Funding named as the original secured party under the
related Receivable, and in either case, the Trustee, upon the conveyance
of the Seller's interests in such security interests to the Trustee, has
the same rights as such secured party has or would have (if such secured
party were still the owner of the Receivable) against all parties claiming
an interest in such Financed Vehicle. With respect to each Receivable for
which the title document has not yet been returned from the Registrar of
Titles, Asta Funding has received written evidence from the related Dealer
that such title document showing Asta Funding as first lienholder has been
applied for.
(xix) Valid and Binding Obligation of Obligor. Each Receivable is
the legal, valid and binding obligation of the Obligor thereunder and is
enforceable in accordance with its terms, except only as such enforcement
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally, all parties to such contract
had full legal capacity to execute and deliver such contract and all other
documents related thereto and to grant the security interest purported to
be granted thereby and no party to such contract is in violation of any
applicable law, rule or regulation that is material to the Receivable or
the sale of the Financed Vehicle; the terms of such Receivable have not
been waived or modified in any respect (other than with respect to
amendments permitted by clause (viii) above).
(xx) Tax Liens. As of the Cutoff Date, to the Seller's knowledge,
there is no Lien against the related Financed Vehicle for delinquent
taxes.
(xxi) Maturity of Receivables. Each Receivable has an original
maturity of not more than 60 months; the weighted average original
maturity of the Initial Receivables is approximately 43 months as of the
Cutoff Date relating to Initial Receivables; the remaining maturity of
each Receivable was 60 months or less as of the Cutoff Date; the weighted
average remaining maturity of the Initial Receivables was 41 months as of
the Cutoff Date relating to Initial Receivables; the addition of the
Subsequent Receivables on each Subsequent Transfer Date will not extend
the weighted average remaining term to maturity of all Receivables sold
hereunder by more than one month as of the applicable Cutoff Dates.
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(xxii) Scheduled Payments. Each Initial Receivable shall have an
outstanding principal balance as of the Cutoff Date of not more than
$24,552 and a first Scheduled Payment due on or prior to August 1, 1997.
Each Receivable, including Subsequent Receivables shall have a final
Scheduled Payment due no later than the Final Scheduled Distribution Date.
(xxiii) Characteristics of Obligors. As of the applicable Cutoff
Date, no Obligor on any Receivable was noted in the related records of
Asta Funding or in the Receivable Files (A) as having been unemployed or
(B) as having no verifiable address during the year immediately preceding
the origination of the related Receivable.
(xxiv) Location of Receivable Files. A complete Receivable File with
respect to each Receivable is in the possession of or, in the case of
Subsequent Receivables, will be held by the Custodian at the location
listed in Schedule B.
(xxv) At the time of origination, each Receivable was originated in
one of the following States, which are the only States in which the
Receivables were originated:
New York
New Jersey
Delaware
Connecticut
Pennsylvania
Maryland
Virginia
(xxvi) No Future Advances. The full principal amount of each
Receivable has been advanced to each Obligor or advanced in accordance
with the directions of each such Obligor, and there is no requirement for
future advances thereunder. The Obligor with respect to the Receivable
does not have any options under such Receivable to borrow from any person
additional funds secured by the Financed Vehicle.
(xxvii) Underwriting Guidelines. Each Receivable has been originated
in accordance with the applicable Underwriting Guidelines of Asta Funding
in effect at the time of origination.
(xxviii) Financed Vehicle in Good Repair. To the best of the
Seller's knowledge, each Financed Vehicle is in good repair and in working
order.
(xxix) Principal Balance. No Receivable has a Principal Balance
which includes capitalized interest, physical damage insurance or late
charges.
(xxx) Servicing. At the applicable Cutoff Date, each Receivable was
being serviced by the Servicer.
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(xxxi) Original Principal Amount. The original principal amount of
each Initial Receivable does not exceed $26,100.
(xxxii) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Seller, threatened before any
court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its respective
properties: (A) asserting the invalidity of any of the Receivables; (B)
seeking to prevent the enforcement of any of the Receivables; or (C)
seeking any determination or ruling that might materially and adversely
affect the payment on or enforceability of any Receivable.
(xxxiii) Certain New Jersey Receivables. No Receivables originated
in New Jersey where cash price of the vehicle as shown on the Receivable
is $10,000 or less shall require the payment by the Obligor of a premium
with respect to the VSI Insurance Policy.
(xxxiv) Geographic Distribution of Subsequent Receivables. As of the
termination of the Pre-Funding Period, the percentage of Receivables
having Obligor billing addresses in New Jersey, New York and Pennsylvania
shall not exceed 27.24%, 50.00% and 20.00%, respectively, of the aggregate
principal balance of all the Receivables as of such date.
(xxxiv) No Consents Required. No consents, filings or governmental
approvals that have not been made or obtained are required for the due
authorization, execution, delivery and performance of the Agreement by the
Seller.
(xxxv) Seller Note. The Seller will not extinguish or cause to be
extinguished or in any way reduce the value of the Seller Note on or
before the November 1997 Distribution Date, except to the extent that
reductions in the principal value of the Seller Note are necessary to fund
the repurchase by the Seller of Receivables pursuant to Section 4.7
hereof.
(xxxvi) The Certificates issued to the Seller in exchange for the
Initial Receivables and the deposit of the Original Pre-Funded Amount in
the Pre-Funding Account represent the fair market value of the Initial
Receivables and the Original Pre-Funded Amount.
Section 3.5 Repurchase Upon Breach. The Seller, the Servicer, the
Backup Servicer or the Trustee, as the case may be, shall inform the other
parties hereto promptly, in writing, upon the discovery of any breach of the
Seller's representations and warranties made pursuant to Section 3.4 (without
regard to any limitation therein as to the Seller's knowledge). Unless the
breach shall have been cured by the last day of the second Collection Period
following the Collection Period in which the discovery thereof was made by a
Trustee Officer of the Trustee or the Trustee received written notice from the
Seller, the Backup Servicer or the Servicer of such breach, Asta Funding shall
purchase any Receivable materially and adversely affected, or where the
Trustee's interest therein has been adversely affected, by the breach as of the
last day of such second Collection Period (or, at Asta Funding's option, the
last day of
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the first Collection Period following the Collection Period in which the
discovery was made). In consideration of the purchase of the Receivable, Asta
Funding shall remit the Purchase Amount, in the manner specified in Section 5.4.
For the purposes of this Section 3.5, the Purchase Amount of a Receivable that
is not consistent with the warranty pursuant to Section 3.4(i)(D) shall include
such additional amount as shall be necessary to provide the full amount of
interest as contemplated therein. The sole remedy of the Trustee, the Trust or
the Certificateholders with respect to a breach of representations and
warranties pursuant to Section 3.4 shall be to enforce Asta Funding's obligation
to purchase such Receivables pursuant to the Purchase Agreement; provided,
however, that Asta Funding shall indemnify the Trustee and the Backup Servicer,
including officers, directors, employees and agents of either entity, the Trust
and the Certificateholders against all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to such breach. Upon receipt of
the Purchase Amount, written instructions from the Servicer, and instruments
necessary to effect such transfer the Trustee shall execute and deliver all such
instruments of transfer or assignment, without representation, warranty or
recourse, as are prepared by the Seller and delivered to the Trustee and
necessary to vest in Asta Funding or such designee title to the Receivable, the
related Receivable File and the other related documents and instruments referred
to in Section 3.6(a).
Section 3.6 Custody of Receivable Files.
(a) To assure uniform quality in servicing the Receivables, to
reduce administrative costs and to perfect the security interest, the Trustee,
upon the execution and delivery of this Agreement, is hereby appointed as
Custodian and the Trustee hereby accepts such appointment, to act as Custodian
of the following documents or instruments which are hereby delivered to the
Trustee with respect to each Initial Receivable and shall be delivered to the
Trustee with respect to each Subsequent Receivable on the applicable Subsequent
Transfer Date:
(i) the fully executed original of the Receivable and any amendments
thereto;
(ii) the original certificate of title or, if the applicable State
title registration agency does not issue certificates of title to
lienholders, such other documents under the applicable State's laws
evidencing the security interest of Asta Funding in the Financed Vehicle
(as indicated by the Servicer as the equivalent in such State of a
certificate of title), or a guarantee of title or an application for title
if a certificate of title or other document evidencing the security
interest in the Financed Vehicle has not yet been issued; and
(iii) a copy of the VSI Insurance Policy (including all endorsements
thereto), including endorsements confirming insurance thereunder (as
reflected on master lists of insured Receivables annexed to such
endorsements) regarding each Receivable covered thereby and an endorsement
naming the Trustee as an additional insured thereunder.
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As evidence of its acknowledgment of such receipt of the Receivable
Files, the Custodian shall execute and deliver an acknowledgment of such
receipt, as set forth in Exhibit L hereof.
The following documents shall be delivered to the Custodian within
30 days of the Closing Date or applicable Subsequent Transfer Date:
(iv) file-stamped copies of the UCC-1 from among statements filed
pursuant to this Agreement.
Items (a)(i), (ii) and (iii) shall be referred to collectively as
the "Receivable Files."
The Custodian shall review the Receivable Files within 30 days after
the Closing Date or applicable Subsequent Transfer Date, to verify that an
original retail installment sale contract and certificate of title are present
for each Receivable and to verify that the name of the Obligor, the Amount
Financed, the account number and the APR are as stated on Schedule A for such
Receivable and that the Obligor's signature is an original signature and that no
Receivable evidenced by a New Jersey form of contract shows a vehicle cash price
of $10,000 or less and requires a payment by the Obligor of a premium under the
VSI Insurance Policy. The Custodian shall immediately deliver written notice by
certified mail to the Seller and Asta Funding if any such document is missing or
has not been delivered to the Custodian by the time required as set forth in
this Agreement. The Custodian shall deliver written notice by facsimile or
overnight courier to the Rating Agency and the Certificateholders if any
original certificate of title or other document evidencing the security interest
of Asta Funding in the Financed Vehicle has not been delivered to the Custodian
within 180 days after the Closing Date or applicable Subsequent Transfer Date.
Such notice shall confirm whether or not a guaranty of title or an application
for title has been delivered to the Custodian with respect to the related
Receivable.
With respect to Receivables for which the original retail
installment sale contract and, with respect to any Receivables File that does
not contain an original certificate of title, a copy of the application for a
certificate of title have not been delivered to the Custodian in accordance with
this Section 3.6(a), the Seller shall cause Asta Funding to deliver the missing
documents within seven (7) Business Days of receipt of such notice or repurchase
such Receivables pursuant to Section 3.5 hereof. With respect to Receivables for
which original certificates of title or other documents evidencing the security
interest of Asta Funding in the Financed Vehicle have not been delivered to the
Custodian within 180 days of the Closing Date or applicable Subsequent Transfer
Date, the Seller shall cause Asta Funding to deliver such documents within such
period of time as determined by the Rating Agency (after receipt of notice as
described in the preceding paragraph) or repurchase the Receivables pursuant to
Section 3.5 hereof. Other than the reviews set forth in this paragraph, the
Custodian shall have no duty or obligation to review any of the Receivable Files
and shall be under no duty or obligation to inspect, review or examine any such
documents, instruments, certificates or other papers to determine that they are
genuine, enforceable, or appropriate for the represented purpose or that they
are other than what they purport to be on their face.
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In performing any such review, the Custodian may conclusively rely
on the Seller as to the purported genuineness of any such document and any
signature thereon. The Custodian shall have no responsibility for determining
whether any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction, or
whether a blanket assignment is permitted in any applicable jurisdiction.
(b) The Custodian agrees to maintain the Receivable Files at the
Custodian's office at 2 Chase Manhattan Plaza, New York, New York 10081 or such
other offices as shall from time to time be identified to the Trustee, the
Seller and Asta Funding by written notice. Subject to the foregoing, the
Custodian may temporarily move individual Receivable Files or any portion
thereof without notice as necessary to enable the Servicer to conduct collection
and other servicing activities in accordance with its customary practices and
procedures.
The Custodian shall have and perform the following powers and
duties:
(i) hold the Receivable Files for the benefit of all present and
future Certificateholders, maintain accurate records pertaining to each
Receivable to enable it to comply with the terms and conditions of this
Agreement and maintain a current inventory thereof;
(ii) carry out such policies and procedures in accordance with its
customary actions with respect to the handling and custody of the
Receivable Files so that the integrity and physical possession of the
Receivable Files will be maintained; and
(iii) promptly release the original certificate of title to the
Servicer upon receipt of a written request for release of documents
certified by an officer of the Servicer, substantially in the form of
Exhibit I hereto, with respect to the matters therein.
Section 3.7 Duties of Custodian.
(a) Safekeeping. The Trustee, in its capacity as Custodian, shall
hold the Receivable Files for the benefit of the Certificateholders and maintain
accurate and complete accounts and records pertaining to each Receivable File.
In performing its duties, the Custodian shall act with reasonable care, using
that degree of skill and attention that the Custodian exercises with respect to
the receivable files relating to all comparable automotive receivables held by
the Custodian. The Custodian makes no representations as to (i) the validity,
legality, enforceability, sufficiency, due authorization or genuineness of any
of the documents contained in each Receivables File or of any of the Receivables
or (ii) the collectibility, effectiveness, insurability or suitability of any
Receivable.
(b) Maintenance of and Access to Records. Subject to Section 3.6(b),
the Custodian shall maintain each Receivable File at the Corporate Trust Office.
The original of each Receivable and the original of each certificate of title or
application therefor shall be stored in a fireproof vault. The Custodian shall
make available to the Servicer and the Certificateholders or their duly
authorized representatives, attorneys, or auditors a list of
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locations of the Receivable Files and the related accounts, records and computer
systems maintained by the Custodian at such times as the Servicer, the Trustee
or the Majority Certificateholders shall instruct following reasonable notice to
the Custodian and during business hours and at the expense of such requesting
Party.
(c) Release of Documents. In addition to releasing certificates of
title pursuant to Section 3.6(b)(iii), upon instruction from the Servicer, in
the form of Exhibit I hereto, the Custodian shall release as soon as practicable
any document in a Receivable File to the Servicer, the Servicer's agent or
designee, as the case may be, at such place or places as the Servicer may
designate following reasonable notice to the Custodian and during business
hours.
Section 3.8 Instructions; Authority to Act. The Custodian shall be
deemed to have received proper instructions with respect to the Receivable Files
upon its receipt of written instructions from the Servicer in the form of
Exhibit I hereto.
Section 3.9 Custodian's Indemnification. The Servicer shall
indemnify the Custodian, including its officers, directors, employees and
agents, for any and all liabilities, obligations, losses, compensatory damages,
payments, costs, or expenses of any kind whatsoever that may be imposed on,
incurred, or asserted against the Trust or the Custodian as the result of any
improper act or omission by the Servicer in any way relating to the maintenance
and custody by the Custodian of the Receivable Files; provided, however, that
the Servicer shall not be liable for any portion of any such amount resulting
from the willful misfeasance, bad faith, or gross negligence of the Custodian or
its representatives, attorneys or auditors.
Section 3.10 Effective Period and Termination. The Trustee's
appointment as Custodian shall become effective as of the Closing Date and shall
continue in full force and effect until the Trustee resigns or is removed
pursuant to Section 10.8. As soon as practicable after any termination of such
appointment, the Custodian shall, at the Servicer's expense if the Custodian is
not then the Servicer, deliver the Receivable Files to the successor Custodian
or its agent at such place or places as the successor Custodian may designate in
writing to the Trustee, Asta Funding and the Seller.
Section 3.11 Pre-Funding Events.
(a) A pre-funding event (each a "Pre-Funding Event") shall occur
upon a Subsequent Transfer Date and in accordance with the requirements of
this Section 3.11.
(b) Subject to the conditions set forth in this Section 3.11, in
consideration of the Trustee's release on the related Subsequent Transfer
Dates to the Seller or its designee of the related Receivables Cash
Purchase Price, the Seller shall, in accordance with Section 3.1(b)
hereof, sell, transfer, assign, set over and otherwise convey, without
recourse, to the Trustee, all right, title and interest of the Seller in
and to each Subsequent Receivable and other interests of the Seller
therein as set forth in Section 3.1(b) hereof, which Subsequent
Receivables shall be listed on the schedule attached to the Notice of
Pre-Funding delivered by the Seller to the Trustee prior to such
Subsequent Transfer Date; provided, however, that the principal amount of
Subsequent Receivables
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to be acquired on any Subsequent Transfer Date, other than the Final
Subsequent Transfer Date, shall not be less than $2,000; provided further
that as of such Subsequent Transfer Date, the aggregate principal amount
of all Subsequent Receivables on which at least one Scheduled Payment has
not been made by the related Obligor and received by the Servicer with
respect to such Receivables shall not exceed the Repurchase Threshold.
On any Subsequent Transfer Date and in accordance with written
instructions from the Servicer received prior to such date, the Trustee
shall disburse the related Receivables Cash Purchase Price only if (i) the
Trustee shall have received, on or before such Subsequent Receivables
Transfer Date, a letter issued by an independent accountant retained by
Asta Funding (copies of which shall have been delivered to Greenwich
Capital Markets, Inc. and the Rating Agency) certifying that the
characteristics of the Subsequent Receivables conform to the
characteristics set forth in Section 3.4 hereof and described in the
Private Placement Memorandum under the heading "The Receivables Pool" and
(ii) it has received a certification from the Seller stating that the
conditions set forth in Section 3.6(a)(i)-(iii) have been satisfied on or
prior to the related Subsequent Transfer Date. In addition, if the
transfer of Subsequent Receivables to the Trust on any Subsequent Transfer
Date would cause the percentage of Receivables in any one State (other
than New Jersey, New York or Pennsylvania) to equal or exceed 20.00% of
the aggregate principal balance of all the Receivables as of such date,
the Seller shall obtain at its own expense within 10 days of the related
Subsequent Transfer Date, an Opinion of Counsel to the effect that (i) the
security interest of Asta Funding in each of the Receivables in the
related State is perfected; (ii) the security interest of the Trustee in
the Receivables in the related State is perfected and (iii) the security
interest of Asta Funding in the related Financed Vehicles is perfected.
(c) Upon satisfaction of the above requirements with respect to
events to occur on or before the Subsequent Transfer Date, the Trustee
will on the Subsequent Transfer Date withdraw the Receivables Cash
Purchase Price from the Pre-Funding Account and shall pay such amount to
the Seller or its designee by federal wire transfer in accordance with the
written instructions provided in the Notice of Pre-Funding.
(d) The Seller shall take any action required to maintain the first
priority perfected ownership interest of the Trust in the Trust Property.
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 4.1 Duties of Servicer. The Servicer, as agent for the Trust
and the Certificateholders (to the extent provided herein), shall manage,
service, administer, make collections on the Receivables (other than Purchased
Receivables) and administer and enforce the Insurance Policies, with reasonable
care, using that degree of skill and attention that the Servicer exercises with
respect to all comparable automotive receivables that it services for itself
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or others and that is consistent with prudent industry standards. The Servicer's
duties shall include collection and posting of all payments, administering and
enforcing the Insurance Policies, responding to inquiries of Obligors on such
Receivables, investigating delinquencies, sending monthly invoices to Obligors,
accounting for collections and furnishing monthly and annual statements to the
Trustee with respect to distributions. The Servicer shall follow its currently
employed standards, policies and procedures or such more exacting standards,
policies and procedures as the Servicer employs in the future, in performing its
duties as Servicer. Without limiting the generality of the foregoing, and
subject to the servicing standards set forth in this Agreement, the Servicer is
authorized and empowered by the Trustee to execute and deliver, on behalf of
itself, the Trust and the Certificateholders or any of them, any and all
instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other comparable instruments, with respect to such
Receivables or to the Financed Vehicles securing such Receivables and/or the
certificates of title with respect to such Financed Vehicles. If the Servicer
shall commence a legal proceeding to enforce a Receivable, the Trustee (in the
case of a Receivable other than a Purchased Receivable) shall thereupon be
deemed to have automatically assigned, solely for the purpose of collection,
such Receivable to the Servicer. If in any enforcement suit or legal proceeding
it shall be held by a court of competent jurisdiction that the Servicer may not
enforce a Receivable on the ground that it shall not be a real party in interest
or a Holder entitled to enforce such Receivable, the Trustee shall, at the
Servicer's expense and written direction, take reasonable steps to enforce such
Receivable, including bringing suit in its name or the name of the
Certificateholders. The Servicer may delegate any of its duties set forth herein
to the Trustee to the extent that the Trustee has agreed to perform such duties
herein. The Servicer shall prepare and furnish and the Trustee shall execute,
any powers of attorney and other documents reasonably necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
hereunder.
Section 4.2 Collection and Allocation of Receivable Payments. The
Servicer shall use its best efforts to collect all payments called for under the
terms and provisions of the Receivables as and when the same shall become due
and shall follow such collection procedures as it follows with respect to all
comparable automotive receivables that it services for itself or others and that
are consistent with prudent industry standards; provided, however, that the
Servicer shall notify each Obligor to make all payments with respect to the
Receivables to a Lock-Box. The Servicer, for so long as Asta Funding is the
Servicer, may grant extensions on a Receivable; provided, however, that no
extension shall for the purpose of this Agreement modify the Scheduled Payment
due in respect of any Collection Period; provided further, however, that the
Servicer may grant only one extension not in excess of 15 days with respect to a
Receivable (including for purposes of the foregoing, any extension granted prior
to the Cutoff Date); and provided, further, that if the Servicer extends the
date for final payment by the Obligor of any Receivable beyond the last day of
the Collection Period preceding the Final Scheduled Distribution Date, it shall
promptly purchase the Receivable from the Trust in accordance with the terms of
Section 4.7 hereof (and for purposes thereof, the Receivable shall be deemed to
be materially and adversely affected by such breach). Notwithstanding the
foregoing, the Servicer shall not extend or modify the Scheduled Payments of a
Receivable unless such Receivable is in default, default thereunder is imminent
or a modification is required by law. The Servicer may, in its discretion, waive
any late payment charge or any other fees that may be collected in the ordinary
course of servicing a Receivable. The Servicer shall not
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consensually agree to any alteration of the interest rate on any Receivable or
of the amount of any Scheduled Payment on Receivables.
Section 4.3 Realization Upon Receivables. On behalf of the Trust and
the Certificateholders, the Servicer shall use its best efforts, consistent with
its customary servicing procedures, to repossess or otherwise convert the
ownership of the Financed Vehicle securing any Receivable as to which the
Servicer shall have determined eventual payment in full is unlikely. The
Servicer shall commence efforts to repossess or otherwise convert the ownership
of a Financed Vehicle on or prior to the date that all or a portion of a
Scheduled Payment thereon in excess of five percent (5%) of such Scheduled
Payment is 120 days or more delinquent; provided, however, that the Servicer may
elect not to commence such efforts within such time period if in its good faith
judgment it determines either that it would be impracticable to do so or that
the proceeds ultimately recoverable with respect to such Receivable would be
increased by forbearance. The Servicer shall follow such customary and usual
practices and procedures as it shall deem necessary or advisable in its
servicing of automotive receivables and that are consistent with prudent
industry standards, which may include its best efforts to realize upon any
recourse to Dealers and selling the Financed Vehicle at public or private sale.
The foregoing shall be subject to the provision that, in any case in which the
Financed Vehicle shall have suffered damage, the Servicer shall not expend funds
in connection with the repair or the repossession of such Financed Vehicle
unless it shall determine in its discretion that such repair or repossession
will increase the proceeds ultimately recoverable with respect to such
Receivable by an amount greater than the amount of such expenses. The Servicer
shall dispose of any Financed Vehicle acquired by the Trust as soon as
practicable. The Servicer shall not convey to the Trust any consideration for
any acquired Financed Vehicle other than cash.
Section 4.4 Physical Damage Insurance; Other Insurance.
(a) The Servicer, in accordance with its customary servicing
procedures, shall require (i) that each Obligor shall maintain insurance
covering the Financed Vehicle insuring against loss and damage due to fire,
theft, transportation, collision and other risks generally covered by
comprehensive and collision coverage naming Asta Funding and its successors and
assigns as an additional insured and permits the Holder of such Receivable to
obtain physical damage insurance at the expense of the Obligor if the Obligor
fails to do so, (ii) maintain the VSI Insurance Policy in full force and effect
with respect to all Receivables for the life of the Trust, or, at the Seller's
option, replace such insurance with a policy from another insurer having a
claims paying rating not lower than the then current claims paying rating of the
then current VSI insurer with substantially similar loss coverage and covering
all Receivables and (iii) each Receivable that finances the cost of premiums for
any Insurance Policy is covered by an Insurance Policy naming the respective
Dealer or Asta Funding as policyholder (creditor) or creditor's assignee,
respectively.
(b) To the extent applicable, the Servicer shall not take any action
which would result in noncoverage under any of the insurance policies referred
to in Section 4.4(a) which, but for the actions of the Servicer, would have been
covered thereunder. The Servicer, on behalf of the Trustee, shall take such
reasonable action as shall be necessary to permit recovery under any of the
foregoing insurance policies. Any amounts collected by the Servicer under any
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of the foregoing insurance policies shall be deposited in the Collection Account
pursuant to Section 5.2. The Servicer shall cause to be maintained and enforced
in respect of each Financed Vehicle the insurance referred to in Section
4.4(a)(i) above; provided, that the Servicer shall not be required to maintain
and enforce such insurance in respect to any Financed Vehicle having an unpaid
Principal Balance of less than $2,000.
Section 4.5 Maintenance of Security Interests in Financed Vehicles.
The Servicer shall take such steps as are necessary to maintain perfection of
the security interest created by each Receivable in the related Financed Vehicle
including but not limited to obtaining the execution by the Obligors and the
recording, registering, filing, re-recording, re-registering and refiling of all
security agreements, financing statements (including the filing of UCC-3
Termination Statements) and continuation statements or instruments as are
necessary to maintain the security interest granted by Obligors under the
respective Receivables. The Trustee hereby authorizes the Servicer to take such
steps as are necessary to re-perfect or continue the perfection of such security
interest on behalf of the Trust in the event of the relocation of a Financed
Vehicle or for any other reason, with regard to any related Subsequent
Receivables, the Servicer shall send to the Trustee a filed stamped Termination
Statement.
Section 4.6 Covenants of Servicer. The Servicer shall not release
the Financed Vehicle securing each Receivable from the security interest granted
by such Receivable in whole or in part except in the event of payment in full by
the Obligor thereunder or foreclosure thereunder, nor shall the Servicer impair
the rights of the Certificateholders in such Receivables, nor shall the Servicer
commingle any payments received on behalf of the Trustee for the benefit of
Certificateholders with assets of the Servicer, nor shall the Servicer amend a
Receivable, except that extensions may be granted in accordance with Section
4.2.
Section 4.7 Purchase of Receivables Upon Breach. The Servicer or the
Trustee shall inform the other party promptly, in writing, upon the discovery of
any breach pursuant to Sections 4.2, 4.4, 4.5 or 4.6. Unless the breach shall
have been cured by the last day of the second Collection Period following the
month in which such discovery was made (or, at the Servicer's election, the last
day of the first following Collection Period), the Servicer shall purchase any
Receivable materially and adversely affected by such breach. On each
Determination Date, the Servicer will inform the Trustee and the Seller as to
the Initial Receivables or Subsequent Receivables, if any, with respect to which
the date on which the first Scheduled Payment had not occurred as of the
applicable Cutoff Date and as to which such first Scheduled Payment has not been
made or received by the Servicer within the earlier of (a) forty-five days after
the contractual due date of such payment or (b) the date on which the related
Financed Vehicle is assigned for repossession. All such Receivables shall be
repurchased by the Seller on the next Distribution Date. In consideration of the
purchase of any such Receivable, the Seller shall remit the Purchase Amount in
the manner specified in Section 5.4. The sole remedy of the Trustee, the Trust
or the Certificateholders with respect to a breach pursuant to Section 4.2, 4.4,
4.5 or 4.6 shall be to require the Servicer to repurchase Receivables pursuant
to this Section 4.7. The Trustee shall be under no duty or obligation to inquire
or investigate as to the Servicer's compliance with Sections 4.2, 4.4, 4.5 or
4.6. If the Backup Servicer is appointed successor Servicer pursuant to Section
9.2, such successor Servicer shall not be required to (i) repurchase any
Receivables other than as provided in this Section 4.7 and subject
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to Section 9.2 or (ii) to obtain any physical damage insurance at the expense of
the Obligor as provided in Section 4.4(a)(i).
Section 4.8 Servicing Fee. The Servicing Fee for the initial
Distribution Date shall equal the product of one-twelfth of the Servicing Rate
and the Original Pool Balance. Thereafter, the Servicing Fee for a Distribution
Date shall equal (i) with respect to the Servicer, the product of one twelfth of
the Servicing Rate and the Pool Balance as of the close of business on the last
day of the second Collection Period immediately preceding the related
Distribution Date and (ii) with the event that the Backup Servicer becomes
Servicer, an amount equal to fifteen dollars per each Receivable outstanding on
the date of business of the preceding Collection Period. The Servicer shall also
be entitled to collect and retain, and the Servicing Fee shall also include (i)
all other administrative fees or similar charges allowed by applicable law with
respect to Receivables, collected (from whatever source) on the Receivables and
(ii) except with respect to the Backup Servicer in the event it becomes
Servicer, any interest or investment income earned on funds deposited in the
Collection Account.
Section 4.9 Servicer's Certificate. By 12:00 noon, New York City
time, on the eleventh Business Day of each month, the Servicer shall deliver or
cause the Trustee (upon its timely receipt of the information set forth in
Section 4.14) to deliver to the Trustee, the Backup Servicer, the Rating Agency,
Greenwich Capital Markets, Inc. and the Seller, a Servicer's Certificate
containing all information necessary to make the distributions pursuant to
Section 5.5 (including, if required, the computation of the Reserve Account
Draw, the amount of any Simple Interest Adjustment and the amount of any
Capitalized Interest Requirement) for the Collection Period preceding the date
of such Servicer's Certificate and all information necessary for the Trustee to
send statements to Certificateholders pursuant to Section 5.8. Receivables to be
purchased by the Servicer or to be purchased by Asta Funding shall be identified
by the Servicer by account number with respect to such Receivable (as specified
in Schedule A). Notwithstanding the foregoing, it is understood and agreed that
the Trustee has agreed to act as the Servicer's agent for the purpose of
preparing and delivering the Servicer's Certificate, and so long as the Trustee
timely prepares and delivers the Servicer's Certificate, the Servicer shall not
be required to do so.
Section 4.10 Annual Statement as to Compliance; Notice of Default.
(a) The Servicer shall deliver to the Trustee, on or before January
31 of each year beginning January 31, 1999, an Officer's Certificate, dated as
of July 31 of the preceding year, stating that (i) a review of the activities of
the Servicer during the preceding 12-month period (or in the case of the first
such certificate, the period from the Closing Date to July 31, 1998) and of its
performance under this Agreement has been made under such officer's supervision
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
year (or period, as applicable), or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. The Trustee shall send a copy of such
certificate and the report referred to in Section 4.11 to the Rating Agency and
Greenwich Capital Markets, Inc. A copy of such certificate and the report
referred to in
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Section 4.11 may be obtained by any Certificateholder by a request in writing to
the Trustee addressed to the Corporate Trust Office.
(b) The Servicer shall deliver to the Trustee, the Backup Servicer,
Greenwich Capital Markets, Inc. and the Rating Agency, promptly after having
obtained knowledge thereof, but in no event later than five (5) Business Days
thereafter, written notice in an Officer's Certificate of any event which with
the giving of notice or lapse of time, or both, would become an Event of Default
under clause (a), (b) or, so long as Asta Funding is Servicer, clause (d) or (e)
of Section 9.1. The Seller shall deliver to the Trustee, the Backup Servicer,
Greenwich Capital Markets, Inc. and the Rating Agency, promptly after having
obtained knowledge thereof, but in no event later than five (5) Business Days
thereafter, written notice in an Officer's Certificate of any event which with
the giving of notice or lapse of time, or both, would become an Event of Default
under clause (b) of Section 9.1.
Section 4.11 Annual Independent Certified Public Accountant's
Report. The Servicer shall cause a nationally recognized firm of independent
certified public accountants who may also render other services to the Servicer
or to the Seller, to deliver to the Trustee and the Rating Agency on or before
January 31 of each year beginning January 31, 1999, a report addressed to the
Board of Directors of the Servicer, to the effect that such firm has examined
the financial statements of the Servicer and issued its report thereof and that
such examination (a) was made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records and
such other auditing procedures as such firm considered necessary in the
circumstances; (b) included tests relating to auto loans serviced for others in
accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers (the "Program"), to the extent the procedures in such Program
are applicable to the servicing obligations set forth in this Agreement; (c)
included an examination of the delinquency and loss statistics relating to the
Servicer's portfolio of automobile, van and light truck installment sales
contracts; and (d) except as described in the report, disclosed no exceptions or
errors in the records relating to automobile, van and light truck loans serviced
for others that, in the firm's opinion, paragraph four (4) of such Program
requires such firm to report. The accountant's report shall further state that
(i) a review in accordance with agreed upon procedures acceptable to the Rating
Agency was made of three (3) randomly selected Servicer's Certificates; (ii)
except as disclosed in the report, no exceptions or errors in the Servicer's
Certificates were found; and (iii) the delinquencies and loss information
relating to the Receivables contained in the Servicer's Certificates were found
to be accurate.
The Report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
Section 4.12 Servicer Expenses. The Servicer shall be required to
pay out of its Servicing Fee all expenses incurred by it in connection with its
activities hereunder (other than the reasonable costs of liquidation of
Receivables), including fees and disbursements of independent accountants, the
cost of maintaining the rating on the Certificates, taxes imposed on the
Servicer, and expenses incurred in connection with distributions and reports to
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Certificateholders. In the event that the Backup Servicer becomes Servicer, the
cost of maintaining the rating on the Certificates shall be paid by the Seller.
Section 4.13 Access to Certain Documentation and Information
Regarding Receivables. The Servicer shall provide to representatives of the
Trustee reasonable access to documentation and computer systems and information
regarding the Receivables. The Servicer shall provide such access to any
Certificateholder only in such cases where the Servicer is required by
applicable statutes or regulations (whether applicable to the Servicer or to
such Certificateholder) to permit such Certificateholder to review such
materials. In each case, such access shall be afforded without charge but only
upon reasonable request and during normal business hours. Nothing in this
Section 4.13 shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors, and
the failure of the Servicer to provide access as provided in this Section 4.13
as a result of such obligation shall not constitute a breach of this Section
4.13.
Section 4.14 Preparation and Verification of Servicer's Certificate.
(a) On or before the seventh Business Day of each month, the
Servicer shall deliver to the Trustee and the Backup Servicer:
(i) all information necessary to prepare the Servicer's Certificate
required by Section 4.9 and to make the distributions required by Section
5.5 hereof (including, if required, the computation of the Reserve Account
Draw, the amount of Simple Interest Differential Adjustments and the
amount of the Capitalized Interest Requirement) for the Collection Period
immediately preceding the related Distribution Date; and
(ii) all information necessary for sending statements to Holders pursuant
to Section 5.8 hereof.
(b) The information set forth in (a)(i) and (ii) above shall include
information as of (A) July 1, 1997 (with respect to the initial Servicer's
Certificate) and (B) the close of business on the last day of the preceding
Collection Period (with respect to each subsequent Servicer's Certificate). Such
information shall be provided by a magnetic tape, diskette or electronic data
transmission in a format reasonably acceptable to the Trustee and the Backup
Servicer.
The Servicer hereby represents, as of the date of each such delivery, that such
information is accurate and complete in all material respects.
(c) The Trustee shall use the information described in subparagraph
(a) to either, at the Servicer's option:
(i) verify the Servicer's Certificate delivered by the Servicer, and
the Trustee shall notify the Servicer of any discrepancies on or
before the second Business Day following the Determination Date. In
the event that the Trustee reports any discrepancies, the Servicer
and the Trustee shall attempt to reconcile such
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discrepancies prior to the third Business Day following the
Determination Date, but in the absence of a reconciliation, the
Servicer's Certificate shall control for the purpose of calculations
and distributions with respect to the related Distribution Date. In
the event that the Trustee and the Servicer are unable to reconcile
discrepancies with respect to a Servicer's Certificate by the
related Distribution Date, the Servicer shall cause a firm of
independent certified public accountants, at the Servicer's expense,
to audit the Servicer's Certificate and, prior to the fifth calendar
day of the following month, reconcile the discrepancies. The effect,
if any, of such reconciliation shall be reflected in the Servicer's
Certificate for such next succeeding Determination Date; or
(ii) prepare the Servicer's Certificate on the Servicer's behalf, if
so requested by the Servicer.
Notwithstanding the foregoing, it is understood and agreed that the Trustee has
agreed to act as Servicer's agent for the purpose of preparing and delivering
Servicer's Certificates, and so long as Trustee timely prepares and delivers
Servicer's Certificates, Servicer shall not be required to do so.
(d) The Trustee shall not be responsible for delays attributable to
the Servicer's failure to deliver information, defects in the information
supplied by the Servicer or other circumstances beyond the Trustee's control.
(e) Other than the duties specifically set forth in this Section
4.14, the Trustee shall have no obligation hereunder, including, without
limitation, to supervise, verify, monitor or administer the performance of the
Servicer. The Trustee shall have no liability for any action taken or omitted by
the Servicer. The duties and obligations of the Trustee in connection with the
verification or preparation of any Servicer's Certificate shall be determined
solely by the express provisions of this Section 4.14 and no implied covenants
or obligations shall be read into this Section 4.14 against the Trustee.
Section 4.15 Errors and Omissions Insurance. The Servicer, at its
own expense, shall procure within 30 days of the Closing Date and shall
thereafter maintain an errors and omissions insurance policy, with $500,000
coverage with responsible companies on all officers, employees or other persons
acting on behalf of the Servicer in any capacity with regard to the Receivables
to handle funds, money, documents and papers relating to the Receivables. Any
such errors and omissions insurance shall protect and insure the Servicer
against losses, including forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such persons and shall be maintained in a form
that would meet the requirements of prudent institutional sub-prime automobile
loan servicers. No provision of this Section 4.15 requiring such errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The Servicer shall be deemed to have
complied with this provision if one of its respective Affiliates has such errors
and omissions policy coverage and, by the terms of such errors and omission
policy, the coverage afforded thereunder extends to the Servicer. Upon request
of the Trustee, the Servicer shall cause to be delivered to the Trustee a
certification evidencing coverage under such insurance policy. Any such errors
and
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omissions insurance policy shall not be cancelled or modified in a materially
adverse manner without ten days' prior written notice to the Trustee and the
Rating Agency.
Section 4.16 Duties of Backup Servicer. The Backup Servicer prior to
the Assumption Date shall be responsible for (a) performing initial data mapping
of the tape provided to the Backup Servicer and Trustee; and (b) receiving and
ensuring the proper and safe storage of the information provided to the Backup
Servicer pursuant to Section 4.14(b).
ARTICLE V
DISTRIBUTIONS; STATEMENTS TO CERTIFICATEHOLDERS
Section 5.1 Accounts. Exhibit E hereto sets forth the Lock-Box and
the Lock-Box Account. The Lock-Box shall be a post office box in the name of the
Trustee. Neither the Seller nor the Servicer shall have access to or any control
over such Lock-Box. The Servicer may, at the Servicer's expense, cause the
Trustee to terminate and substitute the Lock-Box Bank for another bank, but only
(a) upon written notice from the Servicer to the Trustee and the Seller, and (b)
so long as no Event of Default shall have occurred and be continuing. The
Servicer shall give ten (10) days prior written notice (if practicable) to the
Trustee of the name and address of the proposed new Lock-Box Bank, which notice
shall identify the related Lock-Box Account.
The Trustee shall establish the Lock-Box Account, the Collection
Account, the Certificate Account and the Pre-Funding Account in the name of the
Trustee for the benefit of the Certificateholders, such accounts to be Eligible
Accounts. The Collection Account, the Pre-Funding Account and the Certificate
Account shall be segregated trust accounts initially established with the
Trustee and maintained with the Trustee so long as the Trustee has the Required
Deposit Rating; provided, however, if the deposits of the Trustee no longer have
the Required Deposit Rating, the Servicer shall within 30 days, with the
Trustee's assistance as necessary, cause such accounts to be moved to a bank or
trust company with the Required Deposit Rating (each such bank or trust company,
a "Successor Bank"). Should the deposits of any Successor Bank no longer have
the Required Deposit Rating, the Servicer within 30 days shall, with the
Successor Bank's assistance as necessary, cause such accounts to be moved to a
bank or trust company, the deposits of which shall have the Required Deposit
Rating.
All amounts held in the Collection Account and the Pre-Funding
Account shall be invested by the Trustee at the written direction of the
Servicer in Eligible Investments in the name of the Trustee as trustee of the
Trust and shall mature no later than the Business Day immediately preceding the
Distribution Date next succeeding the date of such investment. Such written
direction shall certify that any such investment is authorized by this Section.
No investment may be sold prior to its maturity. Amounts in the Lock-Box Account
and the Certificate Account shall not be invested. The Certificate Account shall
be a non-interest-bearing account. Earnings on investments of funds in the
Collection Account shall be paid to the Servicer as additional servicing
compensation pursuant to Section 4.8 hereof. Earnings on investments of funds in
the Pre-Funding Account during any Collection Period during the
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Funding Period shall be credited to the Pre-Funding Account and transferred to
the Collection Account pursuant to Section 5.6A(c) hereof.
Section 5.2 Collections. The Servicer shall remit all payments made
by or on behalf of the Obligors that are received by the Servicer with respect
to the Receivables (other than Purchased Receivables) and all Liquidation
Proceeds to the Lock-Box Account no later than the Business Day following
receipt. No later than the Business Day after deposit in the Lock-Box Account,
the Trustee shall cause the Lock-Box Bank to transfer all available funds from
the Lock-Box Account to the Collection Account.
Section 5.3 Application of Collections. All collections for the
Collection Period shall be applied by the Servicer as follows:
with respect to each Receivable (other than a Purchased
Receivable), payments by or on behalf of the Obligor shall be
applied first to interest on the Receivable and any excess
remaining thereafter shall be applied to principal of the
Receivable.
Section 5.4 Additional Deposits. The Servicer or Asta Funding, as
the case may be, shall deposit or cause to be deposited in the Collection
Account the aggregate Purchase Amount with respect to Purchased Receivables and
the Servicer shall deposit therein all amounts to be paid under Section 11.2.
All such deposits shall be made, in immediately available funds, on the Business
Day preceding the Distribution Date.
Section 5.5 Distributions.
(a) One Business Day prior to each Distribution Date, the Trustee
shall cause to be transferred from the Collection Account, to the extent of the
Total Available Distribution Amount, to the Certificate Account, in immediately
available funds, those funds that were deposited in the Collection Account for
the Collection Period related to such Distribution Date, based solely on the
amounts set forth in the Servicer's Certificate for the related Distribution
Date.
(b) Prior to each Distribution Date, the Trustee on behalf of the
Servicer shall on the related Determination Date calculate the Total Available
Distribution Amount, the Available Interest Distribution Amount, the Available
Principal Distribution Amount, the Class A Distributable Amount, the Class B
Distributable Amount, the Reserve Account Balance, the amount on deposit in the
Simple Interest Differential Account, the amount on deposit in the Capitalized
Interest Account and, based on the Total Available Distribution Amount, all
other amounts in the Certificate Account and the other distributions to be made
on such Distribution Date, determine the amount distributable to
Certificateholders of each Class and the other distributions to be made on such
Distribution Date.
(c) The rights of the Class B Certificateholders to receive
distributions with respect to the Class B Certificateholders shall be and hereby
are subordinated to the rights of
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the Class A Certificateholders to receive distributions in respect of the Class
A Certificates to the extent provided in this Section. On each Distribution
Date, the Trustee (based on the information contained in the Servicer's
Certificate delivered on the related Determination Date pursuant to Section 4.9)
shall, subject to Section 5.5(e), make the following distributions from the
funds then on deposit in the Certificate Account (including funds transferred
from the Reserve Account when necessary pursuant to Section 5.6) in the
following order of priority:
(i) to the Trustee and the Custodian, the Trustee Fee and Custodian
Fee and all unpaid Trustee Fees and Custodian Fees from prior Collection
Periods; to the Backup Servicer, the Backup Servicer Fee and all unpaid
Backup Servicer Fees from prior Collection Periods; to the Servicer, the
Servicing Fees and liquidation expenses (including reasonable attorney
fees and expenses) to the extent such liquidation expenses are not
required to be covered by the Servicing Fee or to the extent not
previously recovered from Liquidation Proceeds, and all unpaid Servicing
Fees and unreimbursed liquidation expenses (including reasonable attorney
fees and expenses) to the extent such liquidation expenses are not
required to be covered by the Servicing Fee or to the extent not
previously recovered from Liquidation Proceeds, from prior Collection
Periods and, to the extent not previously paid by the predecessor Servicer
pursuant to Section 9.1, to the successor to the Servicer, any reasonable
transition costs incurred by such successor Servicer in acting as
successor Servicer;
(ii) to the Class A Certificateholders, an amount equal to the sum
of the Class A Interest Distributable Amount and any Class A Interest
Carryover Shortfall from the prior Distribution Date;
(iii) to the Class B Certificateholders, an amount equal to the sum
of the Class B Interest Distributable Amount and any Class B Interest
Carryover Shortfall from the prior Distribution Date;
(iv) to the Class A Certificateholders, an amount equal to the sum
of the Class A Principal Distributable Amount and any Class A Principal
Carryover Shortfall from the prior Distribution Date;
(v) to the Class B Certificateholders, an amount equal to the sum of
the Class B Principal Distributable Amount and any Class B Principal
Carryover Shortfall from the prior Distribution Date;
(vi) until but not including the March 20, 1998 Distribution Date,
to the Reserve Account, and beginning with the March 20, 1998 Distribution
Date, to the Reserve Account, the amount, if any, required to cause the
balance therein to be equal to the Reserve Requirement; and
(vii) beginning with the March 20, 1998 Distribution Date, to the
Seller, an amount equal to any remaining amounts in the Certificate
Account after the distributions described in clauses (i) through (vi)
above, and any amounts in the Reserve Account in excess of the Reserve
Requirement, if any.
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(d) Subject to Section 11.1 respecting the final payment upon
retirement of each Certificate, the Servicer shall on each Distribution Date
instruct the Trustee to distribute to each Certificateholder of any Class of
record on the preceding Record Date either by wire transfer, in immediately
available funds to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder shall have provided
to the Trustee appropriate written instructions prior to the Record Date for
such Distribution Date and such Holder's Certificates of such Class in the
aggregate evidence a denomination of not less than $1,000,000, or if not, by
check mailed to such Certificateholder at the address of such Holder appearing
in the Certificate Register, the amounts to be distributed to such
Certificateholder pursuant to Section 5.5(c) in proportion to its Certificate
Balance.
Section 5.6 Reserve Account, Priority of Distributions.
(a) In order to assure that sufficient amounts to make required
payments to the Certificateholders specified therein will be available, there
shall be established and maintained with the Trustee, the following Eligible
Account: the "Reserve Account--Asta Auto Trust 1997-1" (the "Reserve Account"),
which will include the money and other property deposited and held therein
pursuant to Section 5.5(c) and this Section 5.6.
(b) The Reserve Account shall be initially funded on the Closing
Date by the Seller in the amount of the Reserve Account Initial Deposit.
(c) Amounts held in the Reserve Account shall be invested in
Eligible Investments, in accordance with written instructions from the Seller
(or its successors) or its designee, and such investments shall not be sold or
disposed of prior to their maturity but shall mature no later than one (1)
Business Day before the Distribution Date next succeeding the date of
investment. All such investments shall be made in the name of the Trustee as
Trustee for the benefit of the Certificateholders. Any loss on investment of
amounts held in the Reserve Account and all income and gain on the Reserve
Account shall be credited to such account.
(d) If on any Distribution Date the Total Available Distribution
Amount is insufficient to distribute the full amount described in clauses (i)
through (v) of Section 5.5(c), the Trustee shall withdraw an amount equal to
such insufficiency from the Reserve Account (any such amount, the "Reserve
Account Draw") and apply such amount (in the order of priority provided by
Section 5.5(c)) in respect of such insufficiencies. If on any Distribution Date
beginning with the March 20, 1998 Distribution Date, amounts on deposit in the
Reserve Account are in excess of the Reserve Requirement for such date (after
giving effect to Reserve Account Draws on such date, if applicable), the Trustee
shall release such excess to the Seller as owner of the funds on deposit in the
Reserve Account. Any such amounts released from the Reserve Account shall not be
available for Reserve Account Draws on following Distribution Dates. Upon
termination of this Agreement, any amounts on deposit in the Reserve Account,
after payment of all amounts due the Backup Servicer, the Trustee, the
Custodian, the Servicer and the Certificateholders, shall be paid to the Seller.
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Section 5.6A Pre-Funding Account.
(a) The Trustee shall establish the Pre-Funding Account for the
benefit of the Certificateholders. The Pre-Funding Account shall be initially
funded in the amount of $5,279,996.
(b) The Trustee shall use funds on deposit in the Pre-Funding
Account on Subsequent Transfer Dates to acquire Subsequent Receivables on behalf
of the Trust (in accordance with Section 3.1(b) hereof.
(c) Amounts held in the Pre-Funding Account shall be invested in
Eligible Investments, in accordance with written instructions from the Seller
(or its successors) or its designee, which mature, or which are payable or
redeemable upon demand of the holder thereof, so that such funds will be
available on or before each Subsequent Transfer Date. All such investments shall
be made in the name of the Trustee as Trustee for the benefit of the
Certificateholders. Any loss on investment of amounts held in the Pre-Funding
Account and all income and gain on the Pre-Funding Account shall be credited to
such account. Two Business Days prior to each Distribution Date, the Trustee
shall transfer all amounts received as earnings on income from any investments
or reinvestments of funds in the Pre-Funding Account to the Collection Account.
(d) The Trustee shall distribute all funds remaining in the
Pre-Funding Account on the last day of the Pre-Funding Period to the
Certificateholders as principal on a pro rata basis in proportion to the
respective Class Percentage of each class of then outstanding Certificates on
the immediately succeeding Distribution Date.
Section 5.6B Capitalized Interest Account.
(a) In order to cover certain interest shortfalls during the
Pre-Funding Period resulting from the difference between the aggregate
Certificate Balance of the Certificates and the aggregate Principal Balance of
the Initial Receivables, there shall be established and maintained with the
Trustee the following Eligible Account: the "Capitalized Interest Account--Asta
Auto Trust 1997-1", which will include the money and other property deposited
and held therein pursuant to this Section 5.6B.
(b) The Capitalized Interest Account shall be funded on the Closing
Date by a single deposit therein by the Seller in the amount of $199,539.85.
(c) Amounts held in the Capitalized Interest Account shall be
invested in Eligible Investments, in accordance with written instructions from
the Seller (or its successors) or its designee, and such investments shall not
be sold or disposed of prior to their maturity but shall mature no later than
one (1) Business Day before the Distribution Date next succeeding the date of
investment. All such investments shall be made in the name of the Trustee as
Trustee for the benefit of the Certificateholders. Any loss on investment of
amounts held in the Capitalized Interest Account and all income and gain on the
Capitalized Interest Account shall be credited to such account.
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(d) On each Distribution Date prior to the December 1997
Distribution Date, the Trustee shall withdraw from the Capitalized Interest
Account an amount, calculated by the Trustee, equal to the Capitalized Interest
Requirement and deposit such amount in the Certificate Account. Upon the
termination of the Pre-Funding Period, any amounts on deposit in the Capitalized
Interest Account shall be deposited first into the Reserve Account to the extent
required to maintain the Reserve Requirement, and the balance will be paid to
the Seller.
Section 5.7 Simple Interest Differential Account.
(a) In order to cover certain potential shortfalls due to use of the
Simple Interest Method, there shall be established and maintained with the
Trustee the following Eligible Account: the "Simple Interest Differential
Account--Asta Auto Trust 1997-1" (the "Simple Interest Differential Account"),
which will include the money and other property deposited and held therein
pursuant to this Section 5.7.
(b) The Simple Interest Differential Account shall be initially
funded on the Closing Date by the Seller in the amount of $48,168.04.
(c) Amounts held in the Simple Interest Differential Account shall
be invested in Eligible Investments, in accordance with written instructions
from the Seller (or its successors) or its designee, and such investments shall
not be sold or disposed of prior to their maturity but shall mature no later
than one (1) Business Day before the Distribution Date next succeeding the date
of investment (or in the case of money market fund investments, on such
Distribution Date). All such investments shall be made in the name of the
Trustee as Trustee for the benefit of the Certificateholders. Any loss on
investment of amounts held in the Simple Interest Differential Account and all
income and gain on the Simple Interest Differential Account shall be credited to
such account.
(d) On each Distribution Date, the Trustee shall withdraw from the
Simple Interest Differential Account an amount, calculated by the Servicer and
transmitted to the Trustee in writing on or before the related Determination
Date, equal to the sum of the amounts for each Actuarial Receivable that was the
subject of a prepayment or final Scheduled Payment during the preceding
Collection Period, or that became a Liquidated Receivable during such Collection
Period, in an amount (the "Simple Interest Differential Adjustment") equal to
the excess, if any, of the principal balance of such Actuarial Receivable
computed pursuant to the Simple Interest Method over the principal balance of
such Actuarial Receivable computed pursuant to the actuarial method set forth in
such Actuarial Receivable as of the date of the last payment made by the Obligor
on the Actuarial Receivable, and shall transfer such sum to the Certificate
Account for application pursuant to Section 5.5(c). Upon termination of this
Agreement, any amounts on deposit in the Simple Interest Differential Account,
after payment of all amounts due the Backup Servicer, the Trustee, the
Custodian, the Servicer and the Certificateholders, shall be paid to the Seller.
Section 5.8 Statements to Certificateholders; Tax Returns. With each
distribution from the Certificate Account to the Certificateholders made on a
Distribution Date, the Trustee (to the extent that the Servicer has provided to
the Trustee the necessary information
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pursuant to the terms hereof) shall prepare and forward to each
Certificateholder of record, Greenwich Capital Markets, Inc. and the Rating
Agency a statement substantially in the form of Exhibit D hereto setting forth
at a minimum the following information as to each Class of Certificates to the
extent applicable:
(a) Servicer Collections:
(i) the Available Interest Distribution Amount;
(ii) the Available Principal Distribution Amount; and
(iii) the Total Available Distribution Amount.
(b) Distribution:
(i) the amount of such distribution allocable to principal in
respect of each Class of Certificates;
(ii) the amount of such distribution allocable to interest in
respect of each Class of Certificates;
(iii) the Pool Balance, the Pool Factor, the Class Factor, the
weighted average coupon, the weighted average maturity (in months) and the
remaining number of Receivables as of the close of business on the first
and the last day of the related Collection Period, after giving effect to
payments allocated to principal reported under clause (b)(i) above;
(iv) the aggregate Certificate Balance of each Class as of the
close of business on the last day of the preceding Collection Period,
after giving effect to payments allocated to principal reported under
clause (b)(i) above;
(v) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period and the amount of any unpaid
Servicing Fees and the change in such amount from that of the prior
Distribution Date;
(vi) the amount of the Principal Carryover Shortfalls and
Interest Carryover Shortfalls with respect to each Class, if any, on such
Distribution Date and the change, if any, in each such amount from the
preceding Distribution Date;
(vii) the amount of the aggregate Realized Losses, if any on
such Distribution Date and the change in such amount from that of the
prior Distribution Date and the amount of Cram Down Losses with respect to
the preceding Collection Period;
(viii) the amount on deposit in the Reserve Account on such
Distribution Date, after giving effect to amounts on deposit in the
Reserve Account and Reserve Account Draws, if any, on such dates; the
amount of net investment earnings with
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respect to the Reserve Account earned during the related Collection
Period; and the amounts, if any, released from the Reserve Account to the
Seller as owner of the funds held therein;
(ix) the amount on deposit in the Simple Interest Differential
Account on such Distribution Date, after giving effect to all withdrawals
on such date, the aggregate amount of Simple Interest Differential Account
withdrawals to cover Simple Interest Differential Adjustments to any Class
on such Distribution Date and the aggregate amount of any Simple Interest
Differential Adjustments with respect to such Distribution Date;
(x) the aggregate amount of Reserve Account Draws, if any, and
the application of such draws to cover any payment shortfalls to the Class
A or B Certificateholders, made on such Distribution Date;
(xi) the amount of Receivables (other than Liquidated
Receivables) as to which the related Obligors are: (i) 31 to 60 days past
due; (ii) 61-90 days past due; and (iii) 91 days or more past due in
making Scheduled Payments;
(xii) the 60 Day + Delinquency Rate, the aggregate amount of
Net Losses with respect to such Collection Period and its percentage of
the Original Principal Balance, the Repossession Inventory Rate, the
aggregate amount of Liquidated Receivables with respect to such collection
period and its percentage of the Original Principal Balance, and the
Reserve Requirement;
(xiii) the number and the aggregate Purchase Amount of
Receivables that became Purchased Receivables during the related
Collection Period;
(xiv) the number and principal balance of Receivables as to
which the Servicer has repossessed the Financed Vehicle during the current
period and the total number of repossessed Financed Vehicles from prior
periods that have yet to be liquidated;
(xv) the amount of Liquidation Proceeds, the amount of rebates
received from the Servicer as a result of cancelled warranty or extended
service contracts and the amount of claims paid under any Insurance Policy
(other than the VSI Insurance Policy) during the related Collection Period
and on a cumulative basis;
(xvi) the number of Receivables as to which a claim was filed
under the VSI Insurance Policy, the amount of such claims, the number of
claims rejected and the principal balance of related Receivables rejected
for the related Collection Period and on a cumulative basis;
(xvii) the amount of reinvestment income on funds held in the
Collection Account;
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(xviii) the beginning balance of the Pre-Funding Account, the
amount withdrawn from such account to purchase Subsequent Receivables and
to make deposits to the Reserve Account, the amount of any reinvestment
income earned on the moneys on deposit therein, and the ending balance;
and
(xix) the amount on deposit in the Capitalized Interest
Account, after giving effect to all withdrawals, if any, on such date; the
amount of net investment earnings with respect to the Capitalized Interest
Account; and the amount, if any, of any Capitalized Interest Requirement.
(xx) any other information regarding each distribution which
any Certificateholder reasonably requests in writing 30 days prior to such
distribution and which the Trustee can provide without undue expense or
effort.
(c) Within 30 days after the end of each calendar year, the Trustee
shall, provided it has received the necessary information from the Servicer,
furnish to each Person who at any time during such calendar year was a
Certificateholder of record and received any payment thereon (i) a report as to
the aggregate of amounts reported pursuant to clauses (b)(i), (ii) and (v) of
this Section 5.8 for such calendar year or applicable portion thereof during
which such person was a Certificateholder, and (ii) such information as may be
reasonably requested by the Certificateholders or required by the Code and
regulations thereunder, to enable such Holders to prepare their federal and
State income tax returns. Within 30 days after the end of each calendar year,
the Trustee shall furnish or shall cause to be furnished to the Seller or its
successors a statement containing such of the information provided pursuant to
this Section 5.8 as relates to distributions to the Seller, as holder of the
Excess Interest and owner of the funds on deposit in the Reserve Account,
aggregated for such calendar year, as well as information respecting the amounts
that were transferred from the Reserve Account to make payments to
Certificateholders and amounts otherwise distributable to the Seller which were
placed in the Reserve Account. The obligation of the Trustee set forth in this
paragraph shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided pursuant to any
requirements of the Code.
(d) The Servicer, at its own expense, shall prepare or cause a firm
of nationally recognized accountants to prepare any tax returns required to be
filed by the Trust, and the Trustee shall, at the Servicer's expense, execute
and file such returns if requested to do so by the Servicer unless applicable
law requires a different signatory to such return, in which case the Seller or
the holder of the Seller Partnership Interest in the Trust shall, where
permitted by law, sign such return. The Trustee, upon request, will furnish the
Servicer with all such information known to the Trustee as may be reasonably
required in connection with the preparation of all tax returns of the Trust. The
Seller or the holder of the Seller Partnership Interest in the Trust shall serve
as the "Tax Matters Partner" for purposes of the Code.
Section 5.9 Reliance on Information from the Servicer.
Notwithstanding anything to the contrary contained in this Agreement, all
distributions from any of the accounts described in this Article V and any
transfer of amounts between such accounts shall be made by
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the Trustee in reliance on information provided to the Trustee by the Servicer
in writing, whether by way of a Servicer's Certificate or otherwise.
Section 5.10 Statements to Certificateholders; Characteristics of
Receivables Pool. Within 30 days after the end of the Pre-Funding Period, Asta
Funding shall provide to the Trustee for the Trustee to forward to each
Certificateholders of record, Greenwich Capital Markets, Inc. and the Rating
Agency a statement, in a form substantially similar to Exhibit M, setting forth
the characteristics of the Receivables after giving effect to the addition of
all Subsequent Receivables acquired by the Seller from Asta Funding pursuant to
the Purchase Agreement and transferred to the Trust on each Subsequent Transfer
Date.
Section 5.11 Amendment to Schedule of Receivables. On each
Subsequent Transfer Date, the Seller shall provide to the Trustee an amended
Schedule of Receivables, which reflects the addition of all Subsequent
Receivables acquired by the Seller from Asta Funding pursuant to the Purchase
Agreement and transferred to the Trust on such Subsequent Transfer Date.
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates. The Class A and B Certificates shall
be substantially in the forms of Exhibit A and Exhibit B, respectively. The
Certificates shall be issued in fully registered, definitive form in minimum
denominations of $250,000 and integral multiples of $1,000 in excess thereof.
The Certificates shall be executed on behalf of the Trust by manual signature of
a Trustee Officer. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trustee, shall be valid and binding
obligations of the Trust, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificates.
Section 6.2 Appointment of Paying Agent. The Trustee may act as or
appoint one or more paying agents (each, a "Paying Agent"). Any such Paying
Agent must be rated no less than investment grade by the Rating Agency. The
Paying Agent shall make distributions to Certificateholders from amounts
delivered by the Trustee to the Paying Agent from amounts on deposit in the
Certificate Account pursuant to Article V. The Trustee may remove the Paying
Agent if the Trustee determines in its sole discretion that the Paying Agent
shall have failed to perform its obligations under this Agreement in any
material respect. The Paying Agent shall initially be the Trustee. A co-paying
agent may be chosen by the Trustee. Any co-paying agent or any successor Paying
Agent shall be permitted to resign as Paying Agent, co-paying agent or successor
Paying Agent, as the case may be, upon 30 days prior written notice to the
Trustee and the Seller. In the event that the Trustee, any co-paying agent or
any successor Paying Agent shall no longer be the Paying Agent, co-paying agent
or successor Paying Agent, as the case may be, the Trustee shall appoint a
successor to act as Paying Agent or co-paying agent. The
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Trustee shall cause each Paying Agent and each successor Paying Agent or any
co-Paying Agent appointed by the Trustee (other than the Trustee, which hereby
agrees) to execute and deliver to the Trustee an instrument in which such Paying
Agent, successor Paying Agent or additional co-Paying Agent shall agree with the
Trustee that, as Paying Agent, such Paying Agent, successor Paying Agent or
additional co-Paying Agent will hold all sums, if any, held by it for payment to
the Certificateholders in trust for the benefit of the Certificateholders
entitled thereto in a segregated trust account with the corporate trust
department of a depositary institution or trust company having corporate trust
powers and acting as trustee with respect to such funds or with an institution
having the Required Deposit Rating (which may be such Paying Agent) until such
sums shall be paid to such Certificateholders and shall promptly notify the
Trustee of any default in making such payment. The Paying Agent shall return all
unclaimed funds to the Trustee and upon removal of a Paying Agent shall also
return all funds in its possession to the Trustee. The provisions of Sections
10.1, 10.4 and 10.5 shall apply to each Paying Agent in its role as Paying
Agent. The fees of any Paying Agent or co-paying agent shall be paid by the
Trustee. Each Paying Agent and co-paying agent must be acceptable to the Seller.
Section 6.3 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating agents (each,
an "Authenticating Agent") with respect to the Certificates which shall be
authorized to act on behalf of the Trustee in authenticating the Certificates in
connection with the issuance, delivery, registration of transfer, exchange or
repayment of the Certificates. Whenever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include authentication by
an Authenticating Agent and a certificate of authentication executed on behalf
of the Trustee by an Authenticating Agent. The Trustee is hereby appointed as
the initial Authenticating Agent.
(b) Any institution succeeding to the corporate agency business of
an Authenticating Agent shall continue to be an Authenticating Agent without the
execution or filing of any paper or any further act on the part of the Trustee
or such Authenticating Agent.
(c) Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Seller. The Trustee may
at any time terminate the agency of an Authenticating Agent by giving notice of
termination to such Authenticating Agent and to the Seller. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time an
Authenticating Agent shall cease to be acceptable to the Trustee or the Seller,
the Trustee may appoint a successor Authenticating Agent. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless acceptable to the Seller.
(d) The Trustee agrees to pay to each Authenticating Agent from its
own funds from time to time reasonable compensation for its services under this
Section 6.3.
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(e) The provisions of Sections 10.1, 10.4 and 10.5 shall be
applicable to any Authenticating Agent.
(f) Pursuant to an appointment made under this Section 6.3, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Certificates described in the Pooling and
Servicing Agreement.
________________________
as Authenticating Agent
for the Trustee,
By:_____________________
Authorized Signatory
Section 6.4 Authentication of Certificates. The Trustee shall cause
the Certificates to be executed on behalf of the Trust, authenticated, and
delivered to or upon the written order of the Seller, pursuant to this
Agreement. No Certificate shall entitle its Holder to any benefit under this
Agreement, or shall be valid for any purpose, unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A or Exhibit B hereto, as the case may be, executed by the Trustee by
manual signature; such authentication shall constitute conclusive evidence that
such Certificate shall have been duly authenticated and delivered hereunder. All
Certificates issued on the Closing Date shall be dated the Closing Date. All
Certificates issued upon transfer or exchange thereafter shall be dated the date
of their authentication.
Section 6.5 Registration of Transfer and Exchange of Certificates.
(a) The Certificate Registrar shall be the Trustee and any
co-registrar chosen by the Servicer and acceptable to the Trustee. The
Certificate Registrar shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 6.9, a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. The Trustee shall be the initial Certificate Registrar.
(b) No transfer of a Certificate shall be made unless (i) the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and any applicable State securities laws are complied with,
(ii) such transfer is exempt from the registration requirements under said
Securities Act and applicable state securities laws or (iii) such Certificate is
transferred to a Person who the transferor reasonably believes is a "qualified
institutional buyer" (as defined in Rule 144A of the Securities Act) that is
purchasing such
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Certificate for its own account or the account of a qualified institutional
buyer to whom notice is given that the transfer is being made in reliance on
said Rule 144A and such transfer complies with any applicable State securities
laws. In the event that a transfer is to be made in reliance upon clause (ii)
above, the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee must each (A) provide a letter to the
Seller and the Trustee regarding the facts surrounding such transfer in a form
substantially similar to that attached hereto as Exhibit F and (B) provide the
Trustee with a written Opinion of Counsel in form and substance satisfactory to
the Seller and the Trustee that such transfer may be made pursuant to an
exemption from the Securities Act or State securities laws, which Opinion of
Counsel shall not be an expense of the Seller or the Trustee. Neither the Seller
nor the Trustee is under an obligation to register the Certificates under said
Securities Act or any other securities law. The Certificate Registrar may
request and shall receive in connection with any transfer signature guarantees
satisfactory to it in its sole discretion.
(c) Certificateholders, by virtue of the acquisition and holding
thereof, will be deemed to have represented and agreed as follows:
(i) it is a qualified institutional buyer as defined in Rule 144A or
an accredited investor as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D promulgated under the Securities Act and is acquiring the
Certificates for its own institutional account or for the account of a
qualified institutional buyer or an institutional accredited investor;
(ii) it understands that the Certificates have been offered in a
transaction not involving any public offering within the meaning of the
Securities Act, and that, if in the future it decides to resell, pledge or
otherwise transfer any Certificates, such Certificates may be resold,
pledged or transferred only (A) to a person whom the Seller reasonably
believes is a qualified institutional buyer (as defined in Rule 144A under
the Securities Act) that purchases for its own account or for the account
of a qualified institutional buyer to whom notice is given that the
resale, pledge or transfer is being made in reliance on Rule 144A, (B)
pursuant to an effective registration statement under the Securities Act
or (C) in reliance on another exemption under the Securities Act and, in
each case, in compliance with any applicable State securities laws;
(iii) it understands that the Certificates will bear a legend
substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) S0 LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE RESALE, PLEDGE OR OTHER TRANSFER IS
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BEING MADE IN RELIANCE ON RULE 144A, (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR (3) IN RELIANCE ON ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUBJECT TO THE RECEIPT
BY THE TRUSTEE AND THE SELLER OF A CERTIFICATION OF THE TRANSFEROR AND THE
TRANSFEREE AND AN OPINION OF COUNSEL (EACH IN FORM AND SUBSTANCE
SATISFACTORY TO THE TRUSTEE AND THE SELLER) TO THE EFFECT THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. ANY TRANSFER OF THIS SECURITY MUST COMPLY WITH ANY ADDITIONAL
TRANSFER RESTRICTIONS IN SECTION 6.5 OF THE POOLING AND SERVICING
AGREEMENT; and
(iv) [Applicable to Class A Certificates only] if such Holder is an
employee benefit plan or other retirement arrangement subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or
the Code (a "Plan"), such Holder is an accredited investor as defined in
Regulation D promulgated under the Securities Act.
(v) [Applicable to Class B Certificates] such Holder represents that
it is neither a Plan nor purchasing the Certificates with "plan assets" of
any Plan unless such Holder is an insurance company and the acquisition
and holding of such Certificates by such entity is permitted under Section
401(c) of ERISA and is made in reliance upon the availability of exemptive
relief under Section III of Prohibited Transaction Class Exemption 95-60
(60 Fed. Reg. 35925, July 12, 1995) issued by the DOL.
(d) Upon surrender for registration of transfer of any Certificate
at the Corporate Trust Office, the Trust shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of like Class in authorized
denominations of a like aggregate amount dated the date of authentication. At
the option of a Holder, Certificates may be exchanged for other Certificates of
like Class of authorized denominations of a like aggregate amount upon surrender
of the Certificates to be exchanged at the Corporate Trust Office.
(e) Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by an enforceable written instrument
of transfer duly executed by the Holder or his attorney duly authorized in
writing. Each Certificate surrendered for registration of transfer and exchange
shall be canceled and subsequently disposed of by the Trustee in accordance with
its customary practices.
(f) No service charge shall be made for any registration of transfer
or exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
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ARTICLE VII
Section 6.6 Mutilated, Destroyed, Lost, or Stolen Certificates. If
(a) any mutilated Certificate shall be surrendered to the Certificate Registrar,
or if the Certificate Registrar shall receive evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (b) there shall be
delivered to the Certificate Registrar, the Trustee and the Servicer such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, the Trustee on behalf of the Trust shall execute and the
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and denomination. In connection with the issuance of any new Certificate
under this Section 6.6, the Trustee and the Certificate Registrar may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith. Any duplicate Certificate issued
pursuant to this Section 6.6 shall constitute conclusive evidence of ownership
in the Trust, as if originally issued, whether or not the lost, stolen, or
destroyed Certificate shall be found at any time.
Section 6.7 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 5.5(c) and for all other purposes whatsoever, and neither
the Trustee nor the Certificate Registrar shall be bound by any notice to the
contrary.
Section 6.8 Access to List of Certaficateholders' Names and
Addresses. The Trustee shall furnish or cause to be furnished to the Servicer,
at the expense of the Trust, within 15 days after receipt by the Trustee of a
request therefor from the Servicer, in writing, a list of the names and
addresses of the Certificateholders as of the most recent Record Date. If three
(3) or more Certificateholders, or one (1) or more Certificateholders evidencing
not less than 25% of the Voting Interests thereof apply in writing to the
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and such application shall be accompanied by a copy of
the communication that such applicants propose to transmit, then the Trustee
shall, within five (5) Business Days after the receipt for such application,
afford such applicants access during normal business hours to the current list
of Certificateholders. Each Holder, by receiving and holding a Certificate,
shall be deemed to have agreed to hold neither of the Servicer or the Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
Section 6.9 Maintenance of Office or Agency. The Trustee shall
maintain in the Borough of Manhattan, the City of New York, an office or offices
or agency or agencies where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustee in
respect of the Certificates and this Agreement may be served. The Trustee
initially designates 450 W. 33rd Street, 8th Floor, New York, New York 10001,
Attn: Structured Finance Operations as its office for such purposes. The Trustee
shall give prompt written notice to the Servicer and to Certificateholders of
any change in the location of the Certificate Register or any such office or
agency.
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ARTICLE VII
THE SELLER
Section 7.1 Representations of Seller. The Seller makes the
following representations to the Trustee, on which the Trustee on behalf of
itself and the Certificateholders relied in accepting the Receivables in trust
and executing and authenticating the Certificates. The representations speak as
of the execution and delivery of this Agreement and shall survive the sale of
the Receivables to the Trustee in trust for the benefit of the
Certificateholders.
(i) Due Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware, with power and authority to own its
properties and to conduct its business as such properties shall be
currently owned and such business is presently conducted, and had at all
relevant times, and shall have, power, authority and legal right to
acquire and own the Receivables.
(ii) Due Qualification. The Seller is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(iii) Power and Authority. The Seller has the power and authority to
execute and deliver this Agreement, the Purchase Agreement and any other
agreement related thereto (collectively, the "Transaction Documents"), and
to carry out their terms; the Seller has full power and authority to sell
and assign the property sold and assigned to and deposited with the
Trustee as part of the Trust and has duly authorized such sale and
assignment to the Trustee by all necessary corporate action; and the
execution, delivery and performance of the Transaction Documents have been
duly authorized by the Seller by all necessary corporate action.
(iv) Valid and Binding Obligation. The Transaction Documents shall
constitute the legal, valid and binding obligations of the Seller
enforceable in accordance with their terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
laws affecting the enforcement of creditors' rights in general and by
general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law), or by public policy
considerations underlying the securities laws, to the extent that such
public policy considerations limit the enforceability of the provisions of
the Transaction Documents which purport to provide indemnification from
liabilities under applicable securities laws.
(v) No Violation. The consummation of the transactions contemplated
by the Transaction Documents and the fulfillment of the terms thereof do
not conflict with, result in any breach of any of the terms and provisions
of, nor constitute (with or without notice or lapse of time) a default
under, the certificate of incorporation or by-laws of the Seller, or any
indenture, loan agreement, mortgage or other agreement, or other
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instrument to which the Seller is a party or by which it is bound; nor
result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, loan agreement,
mortgage or other agreement or other instrument (other than this
Agreement); nor violate any law or, to the best of the Seller's knowledge,
any order, rule or regulation applicable to the Seller of any court or of
any federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties.
(vi) No Proceedings. There are no proceedings, investigations,
injunctions, writs, restraining orders or any orders of any nature pending
or, to the best of the Seller's knowledge, threatened, before any court,
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Seller or its properties: (A)
asserting or declaring the invalidity of the Transaction Documents or the
Certificates; (B) seeking to prevent or preventing the issuance of the
Certificates or the consummation of any of the transactions contemplated
by the Transaction Documents; (C) seeking any determination or ruling that
might materially and adversely affect or which materially and adversely
affects the performance by the Seller of its obligations under, or the
validity or enforceability of, the Transaction Documents or the
Certificates; or (D) relating to the Seller and which might adversely
affect the federal or State income tax attributes of the Certificates.
(vii) No Approvals. No approval, consent, authorization or other
action by, or filing with, any governmental authority of the United States
of America or any of the States is required or necessary to consummate the
transactions contemplated hereby, except as such as have been duly
obtained or made by the Closing Date. The Seller complies in all material
respects with all applicable laws, rules and orders with respect to
itself, its business and properties and the Receivables; and Seller
maintains all applicable permits and certifications.
(viii) Taxes. The Seller has filed all federal, State, county, local
and foreign income, franchise and other tax returns required to be filed
by it through the date hereof, and has paid all taxes reflected as due
thereon. There is no pending dispute with any taxing authority that, if
determined adversely to the Seller, would result in the assertion by any
taxing authority of any material tax deficiency, and the Seller has no
knowledge of a proposed liability for any tax to be imposed upon the
Seller's properties or assets for which there is not an adequate reserve
reflected in the Seller's current financial statements.
(ix) Adequate Provisions for Taxes. The provisions for taxes on the
Seller's books are in accordance with generally accepted accounting
principles.
(x) Pension/Profit Sharing Plans. No contribution failure has
occurred with respect to any pension or profit sharing plan, and all such
plans have been fully funded as of the date of this Agreement.
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(xi) Trade Names. "Asta Auto Receivables Company" is the only trade
name under which the Seller is currently operating its business and under
which the Seller operated its business for the period of time during which
the Seller was in existence preceding the Closing Date.
(xii) Ability to Perform. There has been no material impairment in
the ability of the Seller to perform its obligations under the Transaction
Documents.
(xiii) Chief Executive Office. Since its inception, the Seller has
maintained its chief executive office in the State of New Jersey and there
have been no other locations of the Seller's chief executive office
preceding the Closing Date. The Seller shall give written notice to the
Trustee and the Certificateholders at least 30 days prior to relocating
its chief executive office and shall make, or cause the appropriate Person
to make, such filings under the UCC as shall be necessary to maintain the
perfected, first priority security interest in the Receivables granted
hereunder in favor of the Trust.
(xiv) Adverse Orders. There is no injunction, writ, restraining
order or other order of any nature binding upon the Seller that adversely
affects the Seller's performance of the Transaction Documents and the
transactions contemplated thereby.
(xv) Solvent. The Seller is solvent and will not become insolvent
after giving effect to the transactions contemplated hereunder; the Seller
is paying its debts as they become due; Seller, after giving effect to the
contemplated transactions, will have adequate capital to conduct its
business.
(xvi) Lock-Box Account. Each Obligor of a Receivable has been
directed and is required to remit payments to the Lock-Box.
(xvii) Consolidation. The Seller has operated and will operate its
business such that its assets and liabilities will not be substantively
consolidated with the assets and liabilities of Asta Funding and its
separate existence will not be disregarded in any State or federal court
proceeding.
(xviii) Business Purpose. The Seller will acquire and sell,
transfer, assign and otherwise convey (for State law, tax and financial
accounting purposes) the Receivables for a bona fide business purpose and
will treat such acquisition and conveyance of Receivables as such for
State law, tax and financial accounting purposes.
(xix) Federal Income Tax Purposes. The Seller intends to treat the
transactions contemplated under this Agreement as a sale of the
Receivables to the Trust for federal income tax purposes. The Trustee
intends to cause to be filed all returns or reports on behalf of the Trust
in a manner consistent with such treatment.
(xx) Valid Transfer. The Purchase Agreement constitutes a valid
transfer to the Seller of all of Asta Funding's right, title and interest
in the Receivables transferred to the Seller for reasonably equivalent
value pursuant to such Purchase Agreement.
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(xxi) Seller's Obligations. The Seller has submitted all necessary
documentation for payment of the Receivables to the Obligors and has
fulfilled all of its applicable obligations hereunder required to be
fulfilled as of the Closing Date.
(xxii) 1940 Act. The Seller is not, and is not controlled by, an
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended.
Section 7.2 Liability of Seller; Indemnities. The Seller shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller hereunder and the representations and warranties made
by the Seller in this Agreement and as provided in Section 12.14.
(a) The Seller shall indemnify, defend and hold harmless the
Trustee, the Backup Servicer and the Custodian, including the officers,
directors, employees and agents of each such entity, and each Certificateholder
from and against any taxes, other than income and franchise taxes, that may at
any time be asserted against the Trustee, the Trust, the Backup Servicer, the
Custodian or the Certificateholders with respect to, and as of the date of, the
transfer of the Receivables to the Trust or the issuance and original sale of
the Certificates, including any sales, gross receipts, general corporation,
tangible personal property, privilege or license taxes and costs and expenses in
defending against the same.
(b) The Seller shall indemnify, defend, and hold harmless the
Trustee, the Trust, the Backup Servicer, the Custodian and each
Certificateholder from and against any loss, liability or expense incurred by
reason of (a) the Seller's willful misfeasance, bad faith, or negligence in the
performance of its duties hereunder, or by reason of reckless disregard of its
obligations and duties hereunder or (b) the Seller's violation of federal or
State securities laws in connection with the sale of the Certificates.
Indemnification under this Section 7.2 shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation.
If the Seller shall have made any indemnity payments to the Trustee pursuant to
this Section and the Trustee thereafter shall collect any of such amounts from
others, the Trustee shall repay such amounts to the Seller, without interest.
Section 7.3 Merger or Consolidation of, or Assumption of the
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Seller shall be a party, or (c) which may succeed to the properties and assets
of the Seller substantially as a whole (excluding, however, any transaction
involving the sale of Receivables in a securitization), which Person in any of
the foregoing cases executes an agreement or assumption to perform every
obligation of the Seller hereunder, shall be the successor to the Seller
hereunder without the execution or filing of any document or any further act by
any of the parties to this Agreement; provided, however, that (i) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 3.4 shall have been breached and no Event of Default, and no
event that, after notice or lapse of time, or both, would become an Event of
Default shall have happened and be
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continuing, (ii) the Seller shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement or assumption comply with this Section
7.3 and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with and (iii) the Seller shall
have delivered to the Trustee an Opinion of Counsel either (A) stating that, in
the opinion of such counsel, all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the Trustee in the
Receivables (other than any notations or filings with respect to the title
documents for the Financed Vehicles), and reciting the details of such filings,
or (B) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest. The Seller shall provide notice
of any merger, consolidation or succession pursuant to this Section 7.3 to the
Rating Agency and shall have received confirmation from the Rating Agency that
the then current rating of the Certificates will not be downgraded as a result
of such merger, consolidation or succession. Notwithstanding anything herein to
the contrary, the execution of the foregoing agreement or assumption and
compliance with clauses (i), (ii) or (iii) above shall be conditions to the
consummation of the transactions referred to in clauses (a), (b) or (c) above.
Section 7.4 Limitation on Liability of Seller and Others. The Seller
and any director or officer or employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Seller shall not be under any obligation to appear in, prosecute
or defend any legal action that shall not be incidental to its obligations
hereunder, and that in its opinion may involve it in any expense or liability.
Section 7.5 Seller May Own Certificates. The Seller and any Person
controlling, controlled by or under common control with the Seller may in its
individual or any other capacity become the owner or pledgee of Certificates
with the same rights as it would have if it were not the Seller or an Affiliate
thereof, except as otherwise provided in the definition of "Certificateholder"
specified in Section 2.1. Certificates so owned by or pledged to the Seller or
such controlling or commonly controlled Person shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority or distinction as among all of the Certificates except as
otherwise provided herein or by the definition of Certificateholder.
Section 7.6 Covenants of the Seller. The Seller shall:
(i) not impair the rights of the Certificateholders or the Trustee
in the Receivables;
(ii) except for the sale and assignment effected under this
Agreement and prior to the termination of the Trust, not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Lien on any Receivable sold to the Trustee or any
interest therein;
(iii) immediately notify the Trustee of the existence of any Lien on
any Receivable;
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(iv) defend the right, title and interest of the Trustee in, to and
under the Receivables transferred to the Trustee, against all claims of
third parties claiming through or under the Seller, Asta Funding or the
Servicer;
(v) comply in all respects with the terms and conditions of the
Purchase Agreement and not amend, modify, or waive any provision of the
Purchase Agreement in any manner relating to the obligation of Asta
Funding to repurchase Receivables or in any manner that would have a
materially adverse effect on the interests of the Certificateholders;
(vi) promptly notify the Trustee and the Certificateholders of the
occurrence of any Event of Default and any breach by the Seller, the
Servicer or the Backup Servicer of any of its respective covenants or
representations and warranties contained in this Agreement or, with
respect to the Seller, in the Purchase Agreement;
(vii) make at its sole cost and expense any filings, reports,
notices or applications and seek any consents or authorizations from any
and all government agencies, tribunals or authorities in accordance with
the UCC and any State vehicle license or registration authority on behalf
of the Trust as may be necessary or advisable or reasonably requested by
the Trustee to create, maintain and protect a security interest of the
Trust in, to and on the Financed Vehicles and a first priority perfected
ownership interest of the Trust in, to and on the Receivables transferred
to it; and
(viii) upon request of any Certificateholder, furnish the
information required by paragraph (d)(4) of Rule 144A promulgated under
the Securities Act.
Section 7.7 Enforcement by Trustee. The Seller hereby acknowledges
and agrees that the following covenants and agreements of the Seller shall be
enforceable by the Trustee at all times until the Trust is terminated:
(a) the Seller shall not engage in any business or activity other
than as currently set forth in its Certificate of Incorporation;
(b) the Seller shall not consolidate or merge with or into any other
entity or convey or transfer its properties and assets substantially as an
entirety to any entity unless (A) the entity (if other than the Seller)
formed or surviving such consolidation or merger, or that acquires by
conveyance or transfer the properties and assets of the Seller
substantially as an entirety, shall be organized and existing under the
laws of the United States of America or any State thereof, and shall
expressly assume in form satisfactory to the Rating Agency and the
Majority Certificateholders, the performance of every covenant on the part
of the Seller to be performed or observed pursuant to this Agreement and
the Purchase Agreement, (B) immediately after giving effect to such
transaction, no default or event of default under this Agreement shall
have occurred and be continuing and (C) the Seller shall have delivered to
the Rating Agency, each Certificateholder and the Trustee an Officers'
Certificate and an Opinion of Counsel,
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each stating that such consolidation, merger, conveyance or transfer
comply with this Agreement;
(c) the Seller shall not dissolve or liquidate, in whole or in part,
except (A) as permitted in paragraph (ii) above or (B) with the prior
written consent of the Trustee and prior written confirmation from the
Rating Agency (a copy of which shall be provided to the Trustee and each
Certificateholder by the Seller) that such dissolution or liquidation will
have no adverse effect on the rating assigned to the Certificates;
(d) the funds and other assets of the Seller shall not be commingled
with those of any other corporation, entity or Person, including, but not
limited to, the parent or Affiliates of the Seller;
(e) the Seller shall not hold itself out as being liable for the
debts of any other party, including, but not limited to, the debts of the
parent or Affiliates of the Seller;
(f) the Seller shall not form, or cause to be formed, or otherwise
have, any subsidiaries;
(g) the Seller shall act solely in its corporate name and through
the duly authorized officers or agents in the conduct of its business, and
shall conduct its business so as not to mislead others as to the identity
of the entity with which they are concerned;
(h) at all times, except in the case of a temporary vacancy, which
shall promptly be filled, the Seller shall have on its board of directors
at least one director who qualifies as an "Independent Director" as such
term is defined in the Seller's Certificate of Incorporation as originally
filed with the Delaware Secretary of State's office;
(i) the Seller shall maintain records and books of account of the
Seller and shall not commingle such records and books of account with the
records and books of account of any Person. The books of the Seller may be
kept (subject to any provision contained in the statutes) inside or
outside the State of New Jersey at such place or places as may be
designated from time to time by the board of directors of the Seller;
(j) the board of directors of the Seller shall hold appropriate
meetings to authorize all of its corporate actions. Regular meetings of
the board of directors of the Seller shall be held not less frequently
than one (1) time per annum;
(k) meetings of the shareholders of the Seller shall be held not
less frequently than one time per annum;
(l) the Seller shall not, without the affirmative unanimous vote of
the whole board of directors of the Seller (including at least one
director referred to in clause (h) above), institute any proceedings to
adjudicate the Seller a bankrupt or insolvent, consent to the institution
of bankruptcy or insolvency proceedings against the Seller, file a
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petition seeking or consenting to reorganization or relief under any
applicable federal or State law relating to bankruptcy, consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Seller or a substantial part of its
property or admit its inability to pay its debts generally as they become
due or authorize any of the foregoing to be done or taken on behalf of the
Seller;
(m) the Seller is not and shall not be involved in the day-to-day
or other management of its parent or any of its Affiliates;
(n) other than the purchase and sale or pledge of assets as provided
in this Agreement and related agreements with respect to this transaction
and other transactions relating to the purchase of auto loan receivables
and the issuance of rated debt or rated certificates of participation, the
Seller shall engage in no other transactions with any of its Affiliates;
(o) the Seller shall maintain a separate business office and
telephone number from any of its Affiliates;
(p) the Seller's financial statements shall reflect its separate
legal existence from any of its Affiliates;
(q) the Seller shall use separate invoices, stationery and checks
from any of its Affiliates;
(r) the Seller shall not suffer or permit the credit or assets of
Asta Funding or any of its Affiliates to be held out as available for the
obligations of the Seller;
(s) the Seller shall enter into transactions with Asta Funding or
its affiliates only on commercially reasonable terms;
(t) the Seller shall not incur any indebtedness other than trade
payables and expense accruals incurred in its ordinary course of business
and any indebtedness contemplated by this Agreement; and
(u) the Seller shall not issue any Securities or incur or issue any
Obligations under any other pooling and servicing agreement, purchase
agreement or otherwise, unless such agreement contains an express
provision limiting recourse to the Seller to the assets involved in the
transaction to which such agreement relates.
Section 7.8 No Bankruptcy Petition. The Seller covenants and agrees
that prior to the date which is one year and one day after the payment in full
of all securities issued by the Seller or by a trust for which the Seller was
the depositor, which securities were rated by any nationally recognized
statistical rating organization, it will not institute any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or State bankruptcy or similar law.
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ARTICLE VIII
THE SERVICER
Section 8.1 Representations of Servicer. The Servicer makes the
following representations to the Trustee on which the Trustee on behalf of
itself and the Certificateholders relies in accepting the Receivables in trust
and executing and authenticating the Certificates. The representations speak as
of the execution and delivery of this Agreement and shall survive the sale of
the Receivables to the Trustee in trust for the benefit of the
Certificateholders.
(a) Due Organization and Good Standing. The Servicer has been duly
organized and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and authority to own its properties
and to conduct its business as such properties shall be currently owned and such
business is presently conducted, and had at all relevant times, and shall have,
power, authority and legal right to acquire, own and service the Receivables.
(b) Due Qualification. The Servicer is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business (including the servicing of the
Receivables as required by this Agreement) shall require such qualifications,
except where failure to qualify will not have a material adverse effect on the
Receivables or the business, prospects or financial condition of the Servicer.
(c) Power and Authority. The Servicer has the power and authority to
execute and deliver this Agreement and to carry out its terms; and the
execution, delivery and performance of this Agreement has been duly authorized
by the Servicer by all necessary corporate action.
(d) Valid and Binding Obligation. This Agreement constitutes a
legal, valid and binding obligation of the Servicer, enforceable in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the enforcement
of creditors' rights in general and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law), or
by public policy considerations underlying the securities laws, to the extent
that such public policy considerations limit the enforceability of the
provisions of this Agreement which purport to provide indemnification from
liabilities under applicable securities laws.
(e) No Violation. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the certificate of
incorporation or by-laws of the Servicer, or any indenture, loan agreement,
mortgage or other agreement or other instrument to which the Servicer is a party
or by which it is bound; nor result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any indenture, loan
agreement, mortgage or other agreement or other instrument (other than this
Agreement); nor violate any law or, to the best of the
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Servicer's knowledge, any order, rule or regulation applicable to the Servicer
of any court or of any federal or State regulatory body, administrative agency
or other governmental instrumentality having jurisdiction over the Servicer or
its properties.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best of the Servicer's knowledge, threatened, before any
court, regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or its properties: (i)
asserting the invalidity of this Agreement or the Certificates, (ii) seeking to
prevent the issuance of the Certificates or the consummation of any of the
transactions contemplated by this Agreement, (iii) seeking any determination or
ruling that might materially and adversely affect the performance by the
Servicer of its obligations under, or the validity or enforceability of, this
Agreement or the Certificates, or (iv) relating to the Servicer and which might
adversely affect the federal income tax attributes of the Certificates.
Section 8.2 Indemnities of Servicer.
(a) The Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Servicer hereunder and
the representations made by the Servicer herein.
(i) the Servicer shall defend, indemnify and hold harmless the
Trustee, the Custodian, the Backup Servicer and the Seller, including
officers, directors, employees and agents of each such entity, and the
Trust and the Certificateholders from and against any and all costs,
expenses, losses, damages, claims and liabilities, arising out of or
resulting from the use, ownership, or operation by the Servicer or any
Affiliate thereof of a Financed Vehicle;
(ii) The Servicer shall indemnify, defend and hold harmless the
Trustee, the Custodian, the Backup Servicer, and the Seller, including
officers, directors, employees and agents of each such entity, and the
Trust from and against any taxes that may at any time be asserted against
the Trustee, the Custodian, the Backup Servicer, the Trust or the Seller
with respect to the Trust including, without limitation, any sales, gross
receipts, general corporation, tangible personal property, privilege or
license taxes and costs and expenses in defending against the same;
(iii) the Servicer shall indemnify, defend and hold harmless the
Trustee, the Backup Servicer and the Seller, including officers,
directors, employees and agents of each such entity, and the Trust and the
Certificateholders from and against any and all costs, expenses, losses,
claims, damages and liabilities to the extent that such cost, expense,
loss, claim, damage or liability was proximately caused by, arose out of,
or was imposed upon the Trustee, the Backup Servicer, the Seller, the
Trust or the Certificateholders through, the negligence, willful
misfeasance or bad faith of the Servicer in the performance of its duties
hereunder or by reason of reckless disregard of its obligations and duties
hereunder; and
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(iv) the Servicer shall indemnify, defend and hold harmless the
Trustee, the Backup Servicer and the Custodian, including their officers,
directors, employees and agents, from and against all costs, expenses,
losses, claims, damages and liabilities arising out of or incurred in
connection with the acceptance or performance of the trusts and duties
herein contained, or contained in the documents contemplated hereby or
thereby, if any, except to the extent that such cost, expense, loss,
claim, damage or liability: (A) shall be due to the willful misfeasance,
bad faith or negligence (except for errors in judgment) of the Trustee;
(B) relates to any tax other than the taxes with respect to which the
Servicer shall be required to indemnify the Trustee, the Backup Servicer
or the Custodian; or (C) shall arise from the Trustee's, the Backup
Servicer's or the Custodian's breach of any of its representations or
warranties set forth in Section 10.12.
(b) For purposes of this Section, in the event of the termination of
the rights and obligations of a Servicer (or any successor thereto pursuant to
Section 8.3) as Servicer pursuant to Section 9.1, or a resignation by such
Servicer pursuant to this Agreement, such Servicer shall be deemed to be the
Servicer pending appointment of a successor Servicer pursuant to Section 9.2.
The provisions of this Section 8.2(b) shall in no way affect the survival
pursuant to Section 8.2(c) of the indemnification by the Servicer provided by
Section 8.2(a).
(c) Indemnification under this Section 8.2 shall survive the
termination of this Agreement and the resignation or removal of the Servicer and
shall include reasonable fees and expenses of counsel and expenses of
litigation. If the Servicer shall have made any indemnity payments pursuant to
this Section and the recipient thereafter collects any of such amounts from
others, the recipient shall promptly repay such amounts to the Servicer, without
interest.
(d) Except to the extent resulting from the Servicer's willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of its obligations or duties hereunder, the
Servicer shall not be liable to any party indemnified under this Agreement, for
any liability, cost, expense or financial loss which may arise solely as a
result of the economic performance of the Receivables or other assets.
Section 8.3 Merger or Consolidation of, or Assumption of the
Obligations of, Servicer or Backup Servicer.
(a) Any Person (i) into which the Servicer may be merged or
consolidated, (ii) which may result from any merger or consolidation to which
the Servicer shall be a party, or (iii) which may succeed to the properties and
assets of the Servicer substantially as a whole, shall execute an agreement of
assumption to perform every obligation of the Servicer hereunder, and whether or
not such assumption agreement is executed, shall be the successor to the
Servicer hereunder without further act on the part of any of the parties hereto;
provided, however, that (A) immediately after giving effect to such transaction,
no Event of Default, and no event which, after notice or lapse of time, or both,
would become an Event of Default shall have happened and be continuing, (B) the
Servicer shall have delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section 8.3 and that all
conditions precedent provided for in this Agreement relating to such transaction
have been complied with, (C) the Servicer
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shall have delivered to the Trustee an Opinion of Counsel either (1) stating
that, in the opinion of such counsel, all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the Trustee in the
Receivables (other than any notations or filings with respect to the title
documents for the Financed Vehicles) and reciting the details of such filings,
or (2) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest and (D) nothing herein shall be
deemed to release the Servicer from any obligation. Notwithstanding anything
herein to the contrary, the execution of the foregoing agreement or assumption
and compliance with clauses (A), (B) or (C) above shall be conditions to the
consummation of the transactions referred to in clause (i), (ii) or (iii) above.
(b) Any Person (i) into which the Backup Servicer may be merged or
consolidated, (ii) which may result from any merger or consolidation to which
the Backup Servicer shall be a party, or (iii) which may succeed to the
properties and assets of the Backup Servicer substantially as a whole, shall
execute an agreement of assumption to perform every obligation of the Backup
Servicer hereunder, and whether or not such assumption agreement is executed,
shall be the successor to the Backup Servicer hereunder without further act on
the part of any of the parties hereto; provided, however, that nothing herein
shall be deemed to release the Backup Servicer from any obligation.
Section 8.4 Limitation on Liability of Servicer and Others. Neither
the Servicer nor any of the directors or officers or employees or agents of the
Servicer shall be under any liability to the Trust or the Certificateholders,
except as provided hereunder, for any action taken or for refraining from the
taking of any action pursuant hereto; provided, however, that this provision
shall not protect the Servicer or any such person against any liability that
would otherwise be imposed by reason of a breach of this Agreement or willful
misfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties hereunder. The Servicer and any
director or officer or employee or agent of the Servicer may rely in good faith
on any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder.
Except as specifically provided in this Agreement, the Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action that shall not be incidental to its duties to service the Receivables in
accordance with this Agreement, and that in its opinion may involve it in any
expense or liability.
Section 8.5 Servicer and Backup Servicer Not to Resign. Subject to
the provisions of Section 8.3 hereof, neither the Servicer nor the Backup
Servicer may resign from the obligations and duties hereby imposed on it as
Servicer or Backup Servicer, as the case may be, under this Agreement except
upon determination that by reason of a change in legal requirements the
performance of its duties under this Agreement would cause it to be in violation
of such legal requirements in a manner which would result in a material adverse
effect on the Servicer or the Backup Servicer, as the case may be. Notice of any
such determination permitting the resignation of the Servicer or the Backup
Servicer, as the case may be, shall be communicated to the Trustee at the
earliest practicable time (and, if such communication is not in writing, shall
be confirmed in writing at the earliest practicable time) and any such
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determination shall be evidenced by an Opinion of Counsel to such effect
delivered to and satisfactory to the Trustee concurrently with or promptly after
such notice. No such resignation of the Servicer shall become effective until a
successor servicer shall have assumed the responsibilities and obligations of
Asta Funding in accordance with Section 9.2 hereof. No such resignation of the
Backup Servicer shall become effective until an entity acceptable to the Trustee
shall have assumed the responsibilities and obligations of the Backup Servicer;
provided, however, that if no such entity shall have assumed such
responsibilities and obligations of the Backup Servicer within 30 days of the
resignation of the Backup Servicer, the Backup Servicer may petition a court of
competent jurisdiction for the appointment of a successor to the Backup
Servicer.
ARTICLE IX
DEFAULT
Section 9.1 Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit under this Agreement that shall continue unremedied for a period of
three (3) Business Days; or the certificate required by Section 4.9, the
statement required by Section 4.10 or the report required by Section 4.11 shall
not have been delivered within ten (10) days after the date such certificates or
statements or reports, as the case may be, are required to be delivered; or
(b) failure on the part of the Servicer, or the Seller, as the case
may be, duly to observe or to perform in any material respect any other
covenants or agreements of the Servicer or the Seller (as the case may be) set
forth in the Certificates or in this Agreement, which failure shall continue
unremedied for a period of 30 days after the date on which written notice of
such failure requiring the same to be remedied, shall have been given (i) to the
Servicer or the Seller as the case may be, by the Trustee, or (ii) to the
Servicer or the Seller, as the case may be, and to the Trustee by the Majority
Certificateholders; or
(c) the filing of a petition against the Seller or Servicer in any
court or agency or supervisory authority having jurisdiction in the premises for
(i) the appointment of a conservator, receiver or liquidator for the Servicer or
the Seller (or, so long as Asta Funding is Servicer, Asta Funding or any of its
subsidiaries) in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for (ii) the winding up or liquidation of
its affairs, and the continuance of any such petition unstayed and in effect for
a period of 60 consecutive days; or
(d) the consent by the Servicer or the Seller (or, so long as Asta
Funding is Servicer, Asta Funding or any of its subsidiaries) to the appointment
of a conservator, trustee, receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Servicer or the Seller (or, so long as Asta
Funding is Servicer, Asta Funding or any of its subsidiaries) of or relating to
substantially all
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of its property; or the Servicer or the Seller (or, so long as Asta Funding is
Servicer, Asta Funding or any of its subsidiaries) shall admit in writing its
inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations; or
(e) So long as Asta Funding is Servicer, (i)(A) the occurrence or
existence of an event or condition in respect of Asta Funding under one or more
agreements or instruments relating to any obligation (whether present or future,
contingent or otherwise, as principal or surety or otherwise) in respect of
borrowed money in an aggregate amount of not less than $500,000 (the
"Cross-Acceleration Amount") which has resulted in such obligation becoming due
and payable under such agreements or instruments, before it would otherwise have
been due and payable or (B) the failure by Asta Funding to make one or more
payments at maturity in an aggregate amount of not less than the
Cross-Acceleration Amount under such agreements or instruments; or (ii) one or
more judgments are entered against Asta Funding within any twelve month period
involving in the aggregate a liability (to the extent not paid or fully covered
by insurance) of $100,000 or more at any one time and either (A) enforcement
proceedings have been commenced and are continuing by any party entitled to
enforce such judgment or (B) there is a period of ten (10) consecutive days
during which a stay of enforcement of such judgment or judgments are not bonded
or discharged or such judgment or judgments are not in effect; or
(f) the cumulative Net Losses in the current and all prior
Collection Periods exceeds 15.00% of the Original Pool Balance; or
(g) the occurrence of a 60 Day + Delinquency Rate in any Collection
Period exceeding 6.00% of the Pool Balance during such Collection Period;
then, and in each and every case, so long as an Event of Default shall not have
been remedied, then either the Trustee or the Majority Certificateholders, by
notice then given in writing to the Servicer, the Trustee, and the Rating Agency
may terminate all of the rights and obligations of the Servicer hereunder. The
Servicer shall be entitled to its pro rata share of the Servicing Fee for the
number of days in the Collection Period prior to the effective date of its
termination. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer hereunder, whether with respect to the
Certificates or the Receivables or otherwise, shall, without further action,
pass to and be vested in (i) the Backup Servicer or (ii) such successor Servicer
as may be appointed under Section 9.2; provided, however, that the successor
Servicer shall have no liability with respect to any obligation which was
required to be performed by the predecessor Servicer prior to the date the
successor Servicer becomes the Servicer or any claim of a third party based on
any alleged action or inaction of the predecessor Servicer; and, without
limitation, the Trustee is hereby authorized and empowered to execute and
deliver, on behalf of the predecessor Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of the
Receivables and related documents, or otherwise.
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The predecessor Servicer shall cooperate with the successor Servicer
(which shall initially be the Backup Servicer) and the Trustee in effecting the
termination of the responsibilities and rights of the predecessor Servicer
hereunder, including the transfer to the successor Servicer for administration
by it of all cash amounts that shall at the time be held or should have been
held by the predecessor Servicer for deposit, or shall thereafter be received
with respect to a Receivable and the delivery to the successor Servicer of all
files and records concerning the Receivables and a computer tape or diskette in
readable form containing all information necessary to enable the successor
Servicer to service the Receivables and the other property of the Trust. All
reasonable costs and expenses (including attorneys' fees) incurred in connection
with transferring the Receivable Files to the successor Servicer and amending
this Agreement to reflect such succession as Servicer pursuant to this Section
9.1 shall be paid by the predecessor Servicer (unless such predecessor Servicer
was previously a Backup Servicer) upon presentation of reasonable documentation
of such costs and expenses. In addition, any successor Servicer shall be
entitled to payment from the immediate predecessor Servicer for reasonable
transition expenses incurred in connection with acting as successor Servicer,
and to the extent not so paid, such payment shall be made pursuant to Section
5.5(c)(i) hereof. Upon receipt of notice of the occurrence of an Event of
Default, the Trustee shall give notice thereof to the Rating Agency. The
predecessor Servicer shall grant the Trustee and the Backup Servicer reasonable
access to the predecessor Servicer's premises at the predecessor Servicer's
expense. If requested by the Backup Servicer or successor Servicer, the
predecessor Servicer shall terminate any arrangements relating to the Lock-Box
and the Lock-Box Account with the Lock-Box Bank and direct the Obligors to make
all payments under the Receivables directly to the Successor Servicer at the
predecessor Servicer's expense (in which event the successor Servicer shall
process such payments directly or through a Lock-Box and a Lock-Box Account with
a Lock-Box Bank).
Section 9.2 Appointment of Successor.
(a) Upon the Servicer's receipt of notice of termination pursuant to
Section 9.1 or the Servicer's resignation in accordance with the terms hereof,
the predecessor Servicer shall continue to perform its functions as Servicer
hereunder, in the case of termination, only until the date (the "Assumption
Date") which is specified in such termination notice or, if no such date is
specified in a notice of termination, until receipt of such notice and, in the
case of expiration and non-renewal of the term of the Servicer upon the
expiration of such term, and in the case of resignation, until the later of (A)
the date 45 days from the delivery to the Trustee of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of this Agreement and (B) the date upon which the predecessor Servicer
shall become unable to act as Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of termination of
the Servicer, the Backup Servicer shall assume the obligations of Servicer
hereunder on the Assumption Date, unless the Backup Servicer is determined to be
incapable of performing such duties as a matter of law in accordance with the
provisions of Section 8.5 hereof. To the extent that any Trustee Officer has
actual notice of the termination of the Servicer, the Trustee shall reasonably
endeavor to give the Backup Servicer notice of the Servicer's termination at
least two weeks prior to the Assumption Date; provided, however, that the
failure of the Trustee to give the Backup Servicer such notice shall not
otherwise relieve the Backup Servicer of its obligation to assume the duties of
the Servicer
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hereunder on the Assumption Date. Notwithstanding the Backup Servicer's
assumption of, and its agreement to perform and observe all duties,
responsibilities and obligations of Asta Funding as Servicer under this
Agreement arising on and after the Assumption Date, the Backup Servicer shall
not be deemed to have assumed or to become liable for, or otherwise have any
liability for, any duties, responsibilities, obligations or liabilities of Asta
Funding or any predecessor Servicer arising on or before the Assumption Date,
whether provided for by the terms of this Agreement, arising by operation of law
or otherwise, including, without limitation, any liability for any duties,
responsibilities, obligations or liabilities of Asta Funding or any predecessor
Servicer arising on or before the Assumption Date under Section 4.7 or 8.2 of
this Agreement, regardless of when the liability, duty, responsibility or
obligation of Asta Funding or any predecessor Servicer arose, whether provided
by the terms of this Agreement, arising by operation of law or otherwise. In
addition, if the Backup Servicer shall be legally unable to act as Servicer and
an Event of Default shall have occurred and be continuing, the Backup Servicer,
the Trustee or the Majority Certificateholders may petition a court of competent
jurisdiction to appoint any successor to the Servicer. Pending appointment
pursuant to the preceding sentence, the Backup Servicer shall act as successor
Servicer unless it is legally unable to do so, in which event the predecessor
Servicer shall continue to act as Servicer until a successor has been appointed
and accepted such appointment. In the event that a successor Servicer has not
been appointed at the time when the predecessor Servicer has ceased to act as
Servicer in accordance with this Section 9.2, then the Trustee shall appoint, or
petition a court of competent jurisdiction to appoint, any established
institution having a net worth of not less than $50,000,000 and whose regular
business shall include the servicing of automotive receivables, as the successor
to the Servicer hereunder.
(b) Upon appointment, the successor Servicer shall be the successor
in all respects to the predecessor Servicer and, except with respect to the
limitations of the Backup Servicer's obligations under Section 9.2(a), shall be
subject to all the responsibilities, duties and liabilities arising thereafter
relating thereto placed on the predecessor Servicer, and shall be entitled to
the Servicing Fee and all of the rights granted to the predecessor Servicer by
the terms and provisions of this Agreement.
Section 9.3 Notification to Certificateholders. Upon any termination
of, or appointment of a successor to, the Servicer pursuant to this Article IX,
the Trustee shall give prompt written notice thereof to Certificateholders at
their respective addresses appearing in the Certificate Register and to the
Rating Agency.
Section 9.4 Action Upon Certain Failures of the Servicer. In the
event that the Trustee shall have knowledge of any failure of the Servicer
specified in Section 9.1 that would give rise to a right of termination under
such Section upon the Servicer's failure to remedy the same after notice, the
Trustee shall give notice thereof to the Servicer, the Certificateholders and
the Rating Agency. For all purposes of this Agreement, in the absence of actual
knowledge by a Trustee Officer, the Trustee shall not be deemed to have
knowledge of any failure of the Servicer as specified in Section 9.1 unless
notified thereof in writing by the Servicer or by a Certificateholder. The
Trustee shall be under no duty or obligation to investigate or inquire as to any
potential default of the Servicer specified in Section 9.1.
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Section 9.5 Waiver of Past Defaults. The Majority Certificateholders
(or, in the case of a default referred to in Section 9.1(a), the Holders of
Certificates evidencing 100% of the Voting Interests thereof) may, on behalf of
all Holders of Certificates, waive any default by the Servicer or the Seller in
their performance of their respective obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
ARTICLE X
THE TRUSTEE
Section 10.1 Duties of Trustee. The Trustee, both prior to the
occurrence of an Event of Default and after an Event of Default shall have been
cured or waived, shall undertake to perform such duties and only such duties as
are specifically set forth in this Agreement. Notwithstanding any other
provision of this Agreement, if an Event of Default shall have occurred and
shall not have been cured or waived, the Trustee shall exercise such of the
rights and powers vested in it hereby and shall use the same degree of care and
skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. The Trustee shall
provide written notice to the Rating Agency immediately upon the occurrence of
any Event of Default, or event which at the expiration of a grace period will
become an Event of Default, in either case, solely to the extent that a Trustee
Officer has actual knowledge of such event (there being no duty of investigation
regarding the existence of such events). The Trustee must promptly notify the
Certificateholders of any Rating Agency action of which a Trust Officer has
actual knowledge.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that shall be specifically required to be furnished pursuant to
any provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement; provided, however, that the
Trustee shall not be responsible for the accuracy or content of any resolution,
certificate, statement, opinion, report, document, order or other instrument
furnished by the Servicer or the Seller hereunder except to the extent set forth
in Section 4.14(c)(ii). If any such instrument is found not to conform in any
material respect to the requirements of this Agreement, the Trustee shall notify
the Certificateholders of such instrument in the event that the Trustee, after
so requesting, does not receive a satisfactorily corrected instrument.
The Trustee shall take and maintain custody of the schedule of
Receivables included as Schedule A hereto and shall retain copies of all
Servicer's Certificates prepared hereunder.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own bad faith; provided, however, that:
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(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred,
the duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be liable
except for the performance of such duties and obligations as shall be
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and, in
the absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely on the truth of the statements and the correctness of
the opinions expressed upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) the Trustee shall not be liable for an error of judgment made
in good faith by a Trustee Officer, unless it shall be proved that the
Trustee shall have been negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken, suffered, or omitted to be taken in good faith in accordance with
this Agreement or at the direction of the Holders of Certificates
evidencing not less than 50% of the Voting Interests thereof relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Agreement;
(iv) the Trustee shall not be charged with knowledge of any Event of
Default, unless a Trustee Officer assigned to the Trustee's Corporate
Trust Office receives written notice of such Event of Default from the
Servicer or the Seller, as the case may be, or the Holders of Certificates
evidencing not less than 10% of the Voting Interests thereof (such notice
shall constitute actual knowledge of an Event of Default by the Trustee).
In the absence of receipt of such notice, the Trustee may conclusively
assume that there is no Event of Default;
(v) without limiting the generality of this Section 10.1 or Section
10.3, the Trustee shall have no duty (A) to see to any recording, filing,
or depositing of this Agreement or any agreement referred to therein or
any financing statement or continuation statement evidencing a security
interest in the Receivables or the Financed Vehicles, or to see to the
maintenance of any such recording or filing or depositing or to any
rerecording, refiling or redepositing of any thereof, (B) to enforce any
Insurance Policy or to effect or maintain any such insurance, (C) to see
to the payment or discharge of any tax, assessment, or other governmental
charge or any Lien or encumbrance of any kind owing with respect to,
assessed or levied against, any part of the Trust, (D) except to the
extent set forth in Section 4. 14(c)(i) hereof, to confirm or verify the
contents of any reports or certificates of the Servicer delivered to the
Trustee pursuant hereto believed by the Trustee to be genuine, to conform
to the requirements hereof as to form and to have been signed or presented
by the proper party or parties or (B) to inspect the Financed Vehicles at
any time or ascertain or inquire as to the performance or observance of
any of the Seller's or the Servicer's representations warranties or
covenants or the Servicer's duties and obligations as Servicer; and
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(vi) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or indemnity
reasonably satisfactory to it against such risk or liability shall not be
reasonably assured to it, and none of the provisions contained herein shall in
any event require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer hereunder except to the
extent set forth in Section 4.14(c) hereof.
Section 10.2 Trustee's Certificate. On or as soon as practicable
after each Distribution Date on which Receivables shall be assigned to Asta
Funding or the Servicer, as applicable, pursuant to this Agreement, notices
received pursuant to this Agreement and the information contained in the
Servicer's Certificate for the related Collection Period, identifying the
Receivables purchased by Asta Funding pursuant to Section 3.5 or purchased by
the Servicer pursuant to Section 4.7 or 11.2, the Trustee shall execute a
Trustee's Certificate (in the form of Exhibit C-1 or Exhibit C-2 attached
hereto, as applicable), and shall deliver such Trustee's Certificate,
accompanied by a copy of the Servicer's Certificate for such Collection Period
to Asta Funding or the Servicer, as the case may be. The Trustee's Certificate
submitted with respect to such Distribution Date shall operate, as of such
Distribution Date, as an assignment, without recourse, representation or
warranty, to Asta Funding or the Servicer, as the case may be, of all the
Trustee's right, title and interest in and to such repurchased Receivable, and
all security and documents relating thereto, such assignment being an assignment
outright and not for security.
Section 10.3 Certain Matters Affecting Trustee. Except as otherwise
provided in Section 10.1:
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, Officer's Certificate,
Servicer's Certificate, certificate of auditors, or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond, or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties.
(b) The Trustee may consult with counsel and any advice or Opinion
of Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel.
(c) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct, or
defend any litigation under this Agreement or in relation to this Agreement, at
the request, order or direction of any of the Certificateholders pursuant to the
provisions of this Agreement, unless such Certificateholders shall have offered
to the Trustee security or indemnity reasonably satisfactory to it against the
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costs, expenses, and liabilities that may be incurred therein or thereby;
nothing contained in this Agreement, however, shall relieve the Trustee of the
obligations, upon the occurrence of an Event of Default (that shall not have
been cured or waived), to exercise such of the rights and powers vested in it by
this Agreement, and to use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.
(d) Prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default that may have occurred, 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 to do so by the Holders of Certificates evidencing not less
than 25% of the Voting Interests thereof; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses, or liabilities
likely to be incurred by it in the making of such investigation shall be, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require indemnity
reasonably satisfactory to it against such cost, expense, or liability as a
condition to so proceeding. The reasonable expense of every such examination
shall be paid by the Person making such request or, if paid by the Trustee,
shall be reimbursed by the Person making such request upon demand. Nothing in
this clause (b) shall affect the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors.
(e) The Trustee may execute any of the trusts or powers hereunder or
perform any duties under this Agreement either directly or by or through agents
or attorneys or a custodian. The Trustee shall not be responsible for any
misconduct or negligence of any such agent or custodian appointed with due care
by it hereunder or of the Servicer in its capacity as Servicer.
(f) Except as may be required by Section 10.1, subsequent to the
sale of the Receivables by the Seller to the Trust, the Trustee shall have no
duty of independent inquiry and the Trustee may rely upon the representations
and warranties and covenants of the Seller and the Servicer contained in this
Agreement with respect to the Receivables and the Receivable Files.
(g) The Trustee may conclusively rely, as to factual matters
relating to the Seller or the Servicer, on an Officer's Certificate of the
Seller or Servicer, respectively.
(h) The Trustee shall not be required to take any action or refrain
from taking any action under this Agreement, or any related documents referred
to herein, nor shall any provision of this Agreement, or any such related
document be deemed to impose a duty on the Trustee to take action, if the
Trustee shall have been advised by counsel that such action is contrary to (i)
the terms of this Agreement, (ii) any such related document or (iii) the law.
(i) The right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Trustee
shall not be answerable for other than its negligence or willful misconduct in
the performance of such act.
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(j) The Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust created hereby or the powers granted
hereunder.
Section 10.4 Trustee Not Liable for Certificates or Receivables. The
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Seller or the Servicer, as the case may be, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee shall make no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the certificate of authentication on the Certificates),
or of any Receivable or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to any directions by the
Servicer to the Lock-Box Bank, the legality, validity, and enforceability of any
security interest in any Financed Vehicle or any Receivable, or the perfection
and priority of such a security interest or the maintenance of any such
perfection and priority, or for or with respect to the efficacy of the Trust or
its ability to generate the payments to be distributed to Certificateholders
hereunder, including, without limitation: the existence, condition, location,
and ownership of any Financed Vehicle; the existence and enforceability of any
physical damage insurance thereon; the existence, contents and completeness of
any Receivable or any Receivable File or any computer or other record thereof;
the validity of the assignment of any Receivable to the Trust or of any
intervening assignment; the performance or enforcement of any Receivable; the
compliance by the Seller or the Servicer with any warranty or representation
made hereunder or in any related document and the accuracy of any such warranty
or representation prior to the Trustee's receipt of notice or other discovery of
any noncompliance therewith or any breach thereof; any investment of monies by
or at the direction of the Servicer or any loss resulting therefrom (it being
understood that the Trustee shall remain responsible for any Trust Property that
it may hold); the acts or omissions of the Seller, the Servicer, or any Obligor;
any action of the Servicer taken in the name of the Trustee; or any action by
the Trustee taken at the instruction of the Servicer; provided, however, that
the foregoing shall not relieve the Trustee of its obligation to perform its
duties hereunder. Except with respect to a claim based on the failure of the
Trustee to perform its duties hereunder or based on the Trustee's negligence or
willful misconduct, no recourse shall be had for any claim based on any
provision of this Agreement, the Certificates, or any Receivable or assignment
thereof against the Trustee in its individual capacity, the Trustee shall not
have any personal obligation, liability, or duty whatsoever to any
Certificateholder or any other Person with respect to any such claim, and any
such claim shall be asserted solely against the Trust or any indemnitor who
shall furnish indemnity as provided in this Agreement. The Trustee shall not be
accountable for the use or application by the Seller of any of the Certificates
or of the proceeds of such Certificates, or for the use or application of any
funds paid to the Servicer in respect of the Receivables. The Seller hereby
certifies to the Trustee that the Rating Agency rating the Certificates is Duff
& Phelps Credit Rating Co. and that its existing address is as set forth in
Section 12.5. The Trustee may rely on the accuracy of such certification until
it receives from the Seller an Officer's Certificate superseding such
certification. It is expressly understood and agreed by the parties hereto that
(a) this Agreement and the Certificates are executed and delivered by The Chase
Manhattan Bank, not individually or personally but solely as Trustee of the Asta
Auto Trust 1997-1, in the exercise of the powers and authority conferred and
vested in it, (b) the representations, undertakings and agreements herein made
on the part of the Trust are made and intended not as personal representations,
undertakings and agreements by The
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Chase Manhattan Bank, but are made and intended for the purpose of binding only
the Trust, and (c) under no circumstances shall The Chase Manhattan Bank be
personally liable for the payment of any indebtedness or expenses of the Trust
or be liable for the breach or failure of any obligation, representations,
warranty or covenant made or undertaken by the Trust under this Agreement and
the Certificates.
Section 10.5 Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
and may deal with the Seller and the Servicer in banking transactions with the
same rights as it would have if it were not Trustee.
Section 10.6 Indemnity of Trustee. The Servicer shall indemnify the
Trustee, including its officers, directors, employees and agents, for, and hold
it harmless against any loss, liability, or expense incurred without willful
misfeasance, negligence, or bad faith on its part, arising out of or in
connection with the acceptance or administration of the Trust, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. Additionally the Seller, pursuant to Section 7.2, shall indemnify the
Trustee with respect to certain matters, the Servicer, pursuant to Section 8.2,
shall indemnify the Trustee with respect to certain matters, and
Certificateholders, pursuant to Section 10.3 shall, upon the circumstances
therein set forth, indemnify the Trustee under certain circumstances. The
provisions of this Section 10.6 shall survive the termination of this Agreement
and the resignation or removal of the Servicer.
Section 10.7 Eligibility Requirements for Trustee. The Trustee or
its parent shall at all times be organized and doing business under the laws of
the United States of America or any State thereof; authorized under such laws to
exercise corporate trust powers; having a combined capital and surplus of at
least $50,000,000 and subject to supervision or examination by federal or State
authorities; and having a rating, both with respect to long-term and short-term
unsecured obligations, of not less than investment grade by the Rating Agency.
If such corporation shall publish reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section 10.7, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 10.7, the Trustee shall resign immediately in the
manner and with the effect specified in Section 10.8.
Section 10.8 Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer, the Seller and each Certificateholder.
Upon receiving such notice of resignation, with the prior written consent of the
Rating Agency and the Majority Certificateholders the Servicer shall promptly
appoint a successor Trustee by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy to the
successor Trustee. If no successor Trustee shall have been so appointed and have
accepted appointment within 60 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 10.7 and shall fail to resign after written
request therefor by the Servicer, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation, then the Servicer may remove the
Trustee. If the Servicer shall remove the Trustee under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the outgoing Trustee so removed and one copy to the successor
Trustee, and pay all fees owed to the outgoing Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 10.8 shall
not become effective until acceptance of appointment by the successor Trustee
pursuant to Section 10.9 and payment of all fees and expenses owed to the
outgoing Trustee. The Servicer shall provide notice of such resignation or
removal of the Trustee to the Rating Agency then rating the Certificates.
Section 10.9 Successor Trustee. Any successor Trustee appointed
pursuant to Section 10.8 shall execute, acknowledge and deliver to the Servicer,
the Backup Servicer and to its predecessor Trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as Trustee. The predecessor Trustee shall upon
payment of its fees and expenses deliver to the successor Trustee all documents
and statements and monies held by it hereunder; and the Servicer and the
predecessor Trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties and
obligations.
No successor Trustee shall accept appointment as provided in this
Section 10.9 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 10.7.
Upon acceptance of appointment by a successor Trustee pursuant to
this Section 10.9, the Servicer shall mail notice of the successor of such
Trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register and to the Rating Agency. If the Servicer shall fail to
mail such notice within ten (10) days after acceptance of appointment by the
successor Trustee, the successor Trustee shall cause such notice to be mailed at
the expense of the Servicer.
Section 10.10 Merger or Consolidation of Trustee. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible pursuant to Section 10.7, without the execution or
filing of any instrument or any
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further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 10.11 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer,
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the Trust,
or any part thereof, and, subject to the other provisions of this Section 10.11,
such powers, duties, obligations, rights and trusts as the Servicer and the
Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee pursuant to Section 10.7, except as to the
rating requirements set forth therein, and no notice of a successor trustee
pursuant to Section 10.9 and no notice to Certificateholders of the appointment
of any co-trustee or separate trustee shall be required pursuant to Section
10.9. Texas Commerce Bank National Association has been appointed as Co-Trustee,
pursuant to this Section 10.11, as of the Closing Date with respect to any
Receivables originated in the State of Pennsylvania.
Each separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred 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
(whether as Trustee hereunder or as successor to the Servicer hereunder), the
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to the Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(b) No trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(c) The Servicer and the Trustee acting jointly may, at any time
accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the other 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
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this Agreement and the conditions of this Article X. 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 Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Each such instrument shall be filed with
the Trustee and a copy thereof given to the Servicer.
Any separate trustee or co-trustee may at any time appoint 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 of this
Agreement 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.
Section 10.12 Representations and Warranties of Trustee. The Trustee
shall make the following representations and warranties on which the Seller and
Certificateholders shall rely:
(a) The Trustee is a New York banking corporation duly organized,
validly existing and in good standing under the laws of its place of
incorporation.
(b) The Trustee has full corporate power, authority and legal right
to execute, deliver and perform this Agreement and shall have taken all
necessary action to authorize the execution, delivery and performance by it of
this Agreement.
(c) This Agreement shall have been duly executed and delivered by
the Trustee and shall be enforceable against the Trustee in accordance with its
terms.
Section 10.13 No Bankruptcy Petition. The Trustee covenants and
agrees that prior to the date which is one year and one day after the payment in
full of all securities issued by the Seller or by a trust for which the Seller
was the depositor it will not institute against, or join any other Person in
instituting against, the Seller or the Trust any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any federal or State bankruptcy or similar law.
Section 10.14 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as Trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Certificateholders in respect of which such judgment has
been obtained.
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Section 10.15 Trustee Not liable for Losses. The Trustee shall not
be liable for the selection of, or for losses incurred in respect, of Eligible
Investments provided that the Trustee complies with the written instructions
provided by the Servicer pursuant to Section 5.1.
Section 10.16 Application of Article X. In the event that the entity
serving as Trustee hereunder is also serving as Custodian hereunder, the rights
and protection afforded to the Trustee pursuant to this Article X shall also be
afforded to such Custodian.
ARTICLE XI
TERMINATION
Section 11.1 Termination of the Trust. The respective obligations
and responsibilities of the Seller, the Servicer, the Trustee and the Trust
created hereby shall terminate upon the payment to Certificateholders of all
amounts required to be paid to them pursuant to this Agreement and the
disposition of all property held as part of the Trust; provided, however, that
in no event shall the trust created hereby continue beyond the expiration of 21
years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States of America to the Court of St.
James, living on the date of this Agreement. The Servicer shall promptly notify
the Trustee of any prospective termination pursuant to this Section 11.1.
Based upon written notice from the Servicer to the Trustee, notice
of any termination, specifying the Distribution Date upon which the
Certificateholders may surrender their Certificates to the Trustee for payment
of the final distribution and cancellation, shall be given promptly by the
Trustee by letter to Certificateholders mailed not earlier than the 15th day and
not later than the 25th day of the month next preceding the specified
Distribution Date stating (A) the Distribution Date upon which final payment of
the Certificates shall be made upon presentation and surrender of the
Certificates at the office of the Trustee therein designated, (B) the amount of
any such final payment, and (C) if applicable, that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Trustee shall give such notice to the Certificate
Registrar (if other than the Trustee) at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Certificates, the
Trustee shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 5.5.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six (6) months after the date
specified in the above-mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one (1) year after the second notice all the Certificates
shall not have been surrendered for cancellation, the Trustee shall take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain
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subject to this Agreement or if none from Asta Funding. Any funds remaining in
the Trust after exhaustion of such remedies shall be distributed by the Trustee
to the Seller.
Section 11.2 Optional Purchase of all Receivables. On the last day
of any Collection Period as of which the Pool Balance as a percentage of the
Original Pool Balance shall be less than or equal to the Optional Purchase
Percentage, the Servicer shall have the option to repurchase the Receivables. To
effect such purchase the Servicer shall (a) give written notice to the Trustee
and the Certificateholders no later than 30 days prior to the Distribution Date
on which such purchase is to be effected and (b) on or before such Distribution
Date, deposit into the Collection Account pursuant to Section 5.4 an amount
equal to the sum of (i) the aggregate Purchase Amount for the Receivables plus
(ii) the market value of any other property held by the Trust. After payment of
the amount specified in this Section 11.2, the Seller shall succeed to all
interests in and to the Trust.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1. Amendment. This Agreement may be amended by the
Seller, the Servicer and the Trustee without the consent of any of the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions in this Agreement or to add any other provisions with respect to
matters or questions arising hereunder which shall not be inconsistent with the
provisions hereof; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel delivered to the Trustee, adversely affect in any
material respect the interests of any Certificateholder; provided, further, that
the written consent of the Backup Servicer to any such amendment hereunder shall
only be required if such amendment materially changes the duties,
responsibilities, liabilities or compensation or priority of compensation of the
Backup Servicer or Servicer and in no event shall such written consent be
unreasonably withheld.
This Agreement may also be amended from time to time by the Seller,
the Servicer and the Trustee with the consent of the Holders of each Class of
Certificates materially affected thereby (which consent of any Holder of a
Certificate given pursuant to this Section or pursuant to any other provision of
this Agreement shall be conclusive and binding on such Holder and on all future
Holders of such Certificate and of any Certificate issued upon the transfer
thereof or in exchange thereof or in lieu thereof whether or not notation of
such consent is made upon the Certificate) evidencing not less than 51 % of the
Voting Interests of all the affected Certificates for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement, or of modifying in any manner the rights of the Holders of
Certificates; provided, however, that no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that shall be required
to be made on any Certificate without the consent of each Certificateholder
affected thereby, (b) reduce the aforesaid percentage of the Voting Interests of
the Certificates required to consent to any such amendment, without the consent
of the Holders of all Certificates of the applicable Class then outstanding or
(c) result in a downgrade or withdrawal of the then-current rating of any Class
of Certificates
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by the Rating Agency without the consent of the Holders of all Certificates of
the applicable Class then outstanding; provided, further, that the written
consent of the Backup Servicer to any such amendment hereunder shall only be
required if such amendment materially changes the duties, responsibilities,
liabilities or compensation of the Backup Servicer or Servicer and in no event
shall such written consent be unreasonably withheld. This Agreement may, upon
the Backup Servicer becoming Servicer, also be amended from time to time by the
Seller, the Servicer and the Trustee with the unanimous consent of the Holders
of each Class of Certificates to provide for an increase in the Servicing Fee.
Promptly after the execution of any such amendment or consent, the
Trustee shall furnish written notification of the substance of such amendment or
consent to each Certificateholder and the Rating Agency.
It shall not be necessary for the consent of Certificateholders
pursuant to this Section 12.1 to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents (and any other
consents of Certificateholders provided for in this Agreement) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement and the Opinion of Counsel referred to in Section 12.2(i)(i). The
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Trustee's own rights, duties or immunities hereunder or otherwise.
Section 12.2 Protection of Title to Trust.
(a) The Seller shall execute and file such financing statements and
cause to be executed and filed such continuation statements, all in such manner
and in such places as may be required by law fully to preserve, maintain and
protect the interest of the Certificateholders and the Trustee in the
Receivables and in the proceeds thereof (other than any notations or filings
with respect to the title documents for the Financed Vehicles). The Seller shall
deliver (or cause to be delivered) to the Trustee file-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing.
(b) Neither the Seller nor Asta Funding shall change its name,
identity, or corporate structure in any manner that would, could, or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of ss. 9-402(7) of
the UCC, unless it shall have given the Trustee at least five (5) days prior
written notice thereof, shall have promptly filed appropriate amendments to all
previously filed financing statements or continuation statements and shall have
delivered an Opinion of Counsel (i) stating that, in the opinion of such
counsel, all amendments to all previously filed financing statements and
continuation statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Trustee in the Receivables, and
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reciting the details of such filings, or (ii) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and protect such
interest.
(c) Each of the Seller and Asta Funding shall have an obligation to
give the Trustee at least 30 days prior written notice of any relocation of its
principal executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement, shall promptly file any such amendment and shall deliver an Opinion
of Counsel (i) stating that, in the opinion of such counsel, all amendments to
all previously filed financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the interest
of the Trustee in the Receivables, and reciting the details of such filings, or
(ii) stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest. The Servicer shall at all times
maintain each office from which it shall service Receivables, and its principal
executive office, within the United States of America.
(d) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Certificate
Account in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from
and after the time of sale hereunder of the Receivables to the Trust, the
Servicer's master computer records (including any back-up archives) that refer
to a Receivable shall indicate clearly the interest of the particular grantor
trust or agent as the case may be, in such Receivable and that such Receivable
is owned by the Trust. Indication of the Trust's ownership of a Receivable shall
be deleted from or modified on the Servicer's computer systems when, and only
when, such Receivable shall have been paid in full or repurchased.
(f) If at any time the Seller or the Servicer shall propose to sell,
grant a security interest in or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender, or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trustee.
(g) The Servicer shall permit the Trustee and its agents at any time
during normal business hours to inspect, audit and make copies of and abstracts
from the Servicer's records regarding any Receivable.
(h) Upon request the Servicer shall furnish to the Trustee, within
(5) five Business Days, a list of all Receivables (by contract number and name
of Obligor) then held as part of the Trust, together with a reconciliation of
such list to the Schedule of Receivables and
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<PAGE>
to each of the Servicer's Certificates furnished before such request indicating
removal of Receivables from the Trust.
(i) The Servicer shall deliver to the Trustee:
(i) promptly after the execution and delivery of this Agreement and
of each amendment thereto, an Opinion of Counsel either (A) stating that,
in the opinion of such counsel, all financing statements and continuation
statements have been executed and filed that are necessary fully to
preserve and protect the interest of the Trust in the Receivables, and
reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interest; and
(ii) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three (3)
months after the Cutoff Date, an Opinion of Counsel, dated as of a date
during such 90-day period either (A) stating that, in the opinion of such
counsel, all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect the
interest of the Trust in the Receivables (other than any notations or
filings with respect to the title documents for the Financed Vehicles),
and reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given or (B) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve and
protect such interest.
Each Opinion of Counsel referred to in clause (i)(i) or (i)(ii)
above shall specify any action necessary (as of the date of such opinion) to be
taken in the following year to preserve and protect such interest.
(j) For the purpose of facilitating the execution of this Agreement
and for other purposes, this Agreement may be executed simultaneously in any
number of counterparts, each of which counterparts shall be deemed to be an
original, and all of which counterparts shall constitute but one and the same
instrument.
(k) In the event any of the events described in Section 9.1(iii) or
(iv) shall have occurred, or in the event Asta Funding shall have been removed
or replaced as Servicer for any reason, then Asta Funding or the Servicer shall
immediately cause each certificate of title for a Financed Vehicle to be marked
to reflect the security interest of the Trust in the Financed Vehicle, and Asta
Funding hereby appoints the Trustee its attorney-in-fact to effect such marking,
and the Trustee hereby accepts such appointment. The appointment of the Trustee
hereunder shall not operate to relieve Asta Funding and/or the Servicer of its
obligations to mark each Certificate of Title under this Section 12.2(k). Asta
Funding shall be liable for all costs, fees and expenses incurred under this
Section 12.2(k).
Section 12.3 Limitation on Rights of Certificateholders. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to
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<PAGE>
take any action or commence any proceeding in any court for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties to this Agreement or any of them.
No Certificateholder shall have any right to vote (except as
specifically provided herein, including in Section 12.1) or in any manner
otherwise control the operation and management of the Trust, or the obligations
of the parties to this Agreement, nor shall anything in this Agreement set
forth, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
person by reason of any action taken pursuant to any provision of this
Agreement.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, and unless also the Holders of
Certificates evidencing not less than 25% of the Voting Interests thereof shall
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such indemnity as it may reasonably require against the costs, expenses
and liabilities to be incurred therein or thereby and the Trustee, for 30 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding and during
such 30-day period no request or waiver inconsistent with such written request
has been given to the Trustee pursuant to this Section 12.3 or Section 9.4; no
one or more Holders of Certificates shall have any right in any manner whatever
by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of any other such Holder of
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right, under this Agreement except in the
manner provided herein and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 12.3, each Certificateholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
Section 12.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 12.5 Notices. All demands, notices, and communications upon
or to the Seller, the Servicer, the Trustee or the Rating Agency hereunder shall
be in writing, and delivered (a) personally, (b) by certified mail, return
receipt requested, (c) by Federal Express or similar overnight courier service
or (d) by telecopy, and shall be deemed to have been duly given upon receipt (a)
in the case of the Seller, to the agent for service as specified herein, at the
following address: Asta Auto Receivables Company, 210 Sylvan Avenue, Englewood
Cliffs, New Jersey 06830 (Telecopy: (201) 569-6198), or at such other address as
shall be designated by the Seller in a written notice to the Trustee, (b)in the
case of the Servicer, to the Secretary, Asta Funding, Inc., 210 Sylvan Avenue,
Englewood Cliffs, New Jersey 06830 (Telecopy: (201)
84
<PAGE>
569-6198), (c) in the case of the Trustee, at 450 West 33rd Street, 15th Floor,
New York, New York 10001 (Telecopy: (212) 946-3240) Attention: Structured
Finance Services, (d) in the case of the Rating Agency at the following address:
Duff & Phelps Credit Rating Co., 55 East Monroe Street, Chicago, Illinois 60603,
Attention: Asset-Backed Surveillance; (e) in the case of Greenwich Capital
Markets, Inc., at the following address: 600 Steamboat Road, Greenwich,
Connecticut 06830, Attention: Structured Finance Department; and (f) in the case
of the Backup Servicer, 9330 LBJ Freeway, Suite 500, Dallas, Texas 75243-3495.
Any notice required or permitted to be mailed to a Certificateholder shall be
given by first class mail, postage prepaid, at the address of such Holder as
shown in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder shall receive such notice.
Section 12.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions, or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions, or
terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 12.7 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.3 and 8.3 and as provided in
the provisions of this Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Seller or the Servicer without the
prior written consent of the Trustee and the Holders of Certificates evidencing
not less than 66% of the Voting Interests thereof.
Section 12.8 Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust.
The interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever.
Section 12.9 Nonpetition Covenant.
(a) Neither the Seller nor the Servicer shall petition or otherwise
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Trust under any federal or State
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Trust or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Trust.
(b) The Servicer shall not, nor cause the Seller to, petition or
otherwise invoke the process of commencing or sustaining a case against the
Seller under any federal or State bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Seller or any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the Seller.
Section 12.10 Third Party Beneficiaries. Except as otherwise
specifically provided herein with respect to Certificateholders, the parties to
this Agreement hereby manifest
85
<PAGE>
their intent that no third party shall be deemed a third party beneficiary of
this Agreement, and specifically that the Obligors are not third party
beneficiaries of this Agreement.
Section 12.11 Agent for Service. The agent for service for the
Seller shall be The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801.
Section 12.12 Tax Treatment. The Seller and the Trustee on behalf of
the Trust, by entering into this Agreement, and the Holders, by acquiring any
Certificate, express their intention that (i) the Trust be treated as a
partnership for federal income tax purposes, State and local income and
franchise tax purposes and for purposes of any other taxes that are imposed
upon, measured by or based upon gross or net income, and (ii) the Certificates
and the Excess Interest be treated as the interests in such partnership. For
such purposes and unless otherwise required by appropriate taxing authorities,
the Seller, the Trustee and the Holders hereby agree: (i) to treat the
Certificates and the Excess Interest as the interests in such partnership and to
treat any distributions with respect thereto from the Trust as partnership
distributions, (ii) that the Holders of the Certificates will be treated as
limited partners of such partnership and that the Seller, as the holder of the
Excess Interest, will be treated as the general partner, (iii) with respect to
each Holder and the Seller, to include in income its respective share of income,
gain, loss and deduction generated by the Trust Property and related property as
determined under partnership tax accounting rules, and (iv) that the net income
allocated to the Holders of the Certificates will be equal to the interest rate
on their respective Certificates and that all other net income of the Trust will
be allocated to the Seller as holder of the Excess Interest. The Parties agree
that the Trust shall file or cause to be filed annual or other necessary
returns, reports and other forms consistent with the characterization of the
Trust as a partnership and the characterization of the Certificates as
partnership interests therein for such tax purposes and shall make no election
to be treated as a corporation for such tax purposes.
Section 12.13 Seller's Partnership Interest. The Seller shall at all
times retain its Seller Partnership Interest and may not transfer, assign,
pledge, participate, alienate or hypothecate any interest in the same at any
time. Any attempted transfer, assignment, pledge, participation, alienation or
hypothecation of any interest in the Seller Partnership Interest by the Seller
shall be void. Any Certificate issued to the Seller shall contain a legend to
such effect. In addition, the Seller shall at all times remain a party to this
Agreement and shall not withdraw from or terminate this Agreement.
Section 12.14 [Reserved].
Section 12.15 Withholding. The Trustee on behalf of the Trust shall
comply with all requirements of the Code and the Treasury regulations and
applicable state and local law with respect to the withholding from any
distributions made by it to any Holder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith. In that regard, the Trustee shall withhold from amounts
otherwise distributable to a Certificateholder at the highest potentially
applicable rate if such Certificateholder fails to provide a duly executed
Certificate of Non-Foreign Status in the form attached hereto as Exhibit J,
which withholding shall be computed on the basis of such Certificateholder's
allocable net income or, if it produces a larger withholding amount, its gross
86
<PAGE>
income, and such withheld amounts shall be deemed paid to the affected
Certificateholder for all purposes of this Agreement.
Section 12.16 Right to Direct. The Majority Certificateholders shall
have the right to direct and manage the trust, including the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, the Servicer or the Backup Servicer, or exercising any trust or
power conferred on the Trustee, the Servicer or the Backup Servicer; provided,
however, that the Trustee, the Servicer and the Backup Servicer shall have the
right to decline to follow any such direction if (i) the Trustee, the Servicer
or the Backup Servicer, as advised by counsel, determines that the action so
directed may not lawfully be taken, (ii) if in good faith shall, by a Trustee
Officer, Servicing Officer or Backup Servicer, determine that the proceedings so
directed would be illegal, involve it in personal liability, unduly prejudicial
to the rights of Certificateholders not parties to such direction or would not
be possible to be performed by such entity without undue burden or expense; and
provided further that nothing in this Agreement shall impair the right to take
any action deemed proper by the Trustee, the Servicer or the Backup Servicer and
which is not inconsistent with such management and direction by the Majority
Certificateholders.
87
<PAGE>
ASTA FUNDING, INC.
FORM 10-KSB
EXHIBIT 10.2
Consulting Agreement dated November 13, 1997, between the Company and Arthur
Stern.
<PAGE>
CONSULTING AGREEMENT
AGREEMENT made as of the 13th day of November 1997, by and between ASTA
FUNDING, INC., a Delaware corporation (hereinafter referred to as the
"Company"), and ARTHUR STERN (hereinafter referred to as the "Consultant").
RECITALS
The Company and the Consultant desire to enter into this Agreement whereby
the Company will be assured of the right to the Consultant's services for the
period and on the terms and conditions hereinafter set forth, and the Consultant
will be assured of his engagement on such terms and conditions.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants contained in this Agreement, the Company and the Consultant hereby
agree as follows:
1. Engagement.
(a) Subject to the terms and conditions hereinafter set forth, the
Company hereby retains the Consultant and the Consultant hereby agrees to render
services to the Company in such capacities as the Board of Directors of the
Company may, from time to time, designate. The Consultant shall hold, without
additional compensation therefor, such offices and directorships in the Company
and/or any subsidiary of the Company to which, from time to time during the term
of his retention, the Consultant may be elected or appointed. Nothing contained
in this Agreement shall restrict the right of the Consultant to serve as an
employee,
-1-
<PAGE>
officer, agent or member of the boards of directors of corporations which are
engaged in businesses which are not competitive with any businesses then
conducted or contemplated by the Company or any of its subsidiaries, if any, or
the right of the Consultant to manage his private investments, if such
directorships or such investment activities do not interfere with the
performance by the Consultant of his duties under this Agreement. The Consultant
shall render his services with due regard for the prompt, efficient and
economical operation of the business of the Company and its subsidiaries to the
end of maximizing the profitability of the Company and its subsidiaries.
(b) The Consultant agrees that when called upon he will render a
reasonable amount of services to the Company with due regard to the nature of
the services to be performed, the extent of his other business commitments and
the amount of his compensation hereunder.
2. Term.
The term of the engagement of the Consultant by the Company pursuant
to this Agreement shall be for a period commencing on the date hereof and
terminating on the first anniversary of the date hereof, subject to earlier
termination by the Company or the Consultant as provided in Paragraph 4 hereof.
2. Compensation.
In consideration of the services to be rendered by the Consultant
pursuant to this Agreement, including, without limitation, any services rendered
by the Consultant as an officer
-2-
<PAGE>
or director of the Company or any subsidiary of the Company, the Company agrees
to pay to the Consultant monthly in arrears fixed compensation at the rate of
Seventy-five Thousand ($75,000.00) Dollars per annum.
3. Expenses.
During the term of this Agreement, the Company will reimburse the
Consultant, upon written authorization by the Company prior to incurring such
expenses, for all travel, entertainment and other out-of-pocket expenses which
are reasonably and necessarily incurred by the Consultant in the performance of
his duties hereunder.
4. Termination.
(a) This Agreement may be terminated upon thirty (30) days written
notice to the other party (i) by the Consultant for any reason or no reason or
(ii) the Company, if the Consultant dies or becomes disabled or fails to
diligently perform the services the Company requests him to perform under
Paragraph 1 hereof; provided, that the Company has given the Consultant written
notice of such failure and the Consultant does not within thirty (30) days
thereafter adequately perform the required services in the reasonable opinion of
the Company.
(b) In the event that at any time during the stated term of this
Agreement, this Agreement is terminated for any reason, including the
Consultant's death or disability, the Company shall pay to Consultant, his
estate or his legal representative, as the case may be, the Consultant's
compensation through the end of
-3-
<PAGE>
the month in which his employment is terminated. Thereafter, the Company shall
have no obligation to the Consultant to make any further payments to him, his
estate or legal representatives hereunder.
5. Non-Disclosure of Confidential Information and Non-Competition.
(a) The Consultant acknowledges that it is the policy of the Company
to maintain as secret and confidential all valuable and unique information
heretofore and hereafter acquired, developed or used by the Company relating to
the business, operations, employees, suppliers, dealers and customers of the
Company, which gives the Company or its subsidiaries a competitive advantage in
its industry (all such information is hereinafter referred to as "Confidential
Information"). The parties recognize that the services to be performed by the
Consultant pursuant to this Agreement are special and unique, and that by reason
of his retention by the Company, the Consultant has acquired and will acquire
Confidential Information. The Consultant recognizes that all such Confidential
Information is the property of the Company. In consideration of the Consultant's
retention by the Company pursuant to this Agreement, the Consultant agrees that:
(i) except as required by his duties hereunder, the Consultant
shall never, directly or indirectly use, publish, disseminate
or otherwise disclose any Confidential Information obtained
during the term of this Agreement without the prior written
consent of the Board of Directors of the Company acting
independently, it being understood that the provisions of this
subparagraph (a) (i) shall survive the termination of this
Agreement; and
-4-
<PAGE>
(ii) during the term of this Agreement, the Consultant shall
exercise all due and diligent precautions to protect the
integrity of business plans, customer, supplier and dealer
lists, statistical data and compilations, agreements,
contracts, manuals or other documents of the Company and
embodying any Confidential Information and, upon termination
of this Agreement the Consultant shall return to the Company
any and all such documents (and copies thereof) which are in
the possession or under the control of the Consultant.
The Consultant agrees that the provisions of this Paragraph (a) are
reasonably necessary to protect the proprietary rights of the Company and the
subsidiaries of the Company in the Confidential Information and their trade
secrets, good will and reputation.
(b) During the term of this Agreement, the Consultant shall not, in
any manner, be engaged, directly or indirectly, within the United States of
America (its territories and possessions) and Canada (or for such lesser
geographical area as may be determined by a court of law or equity to be a
reasonable limitation on the competitive activities of the Consultant) as an
employee, partner, officer, director, representative, consultant, agent or
stockholder of any corporation, partnership, proprietorship or other form of
business entity which is engaged in a competitive business to that of the
Company. The Consultant shall not either during or subsequent to the term of
this Agreement, seek to persuade any director or officer or employee of the
Company or any subsidiary or affiliate of the Company to discontinue that
individual's status or employment with the Company, nor to become employed in
any activity similar to or
-5-
<PAGE>
competitive with the activities of the Company or any subsidiary or affiliate of
the Company, nor will the Consultant hire or retain any such person, nor will he
solicit (or cause or authorize), directly or indirectly, to be solicited, for or
on behalf of himself or any third party, any business from others who are, at
any time within three (3) years prior to the cessation of his employment
hereunder, customers of the Company or any subsidiary or affiliate of the
Company.
(c) The Consultant acknowledges that any breach or threatened breach
or alleged breach or threatened alleged breach by the Consultant of any of the
provisions of Paragraph 5 of this Agreement can cause irreparable harm to the
Company, for which the Company would have no adequate remedy at law. In the
event of a breach or threatened breach or an alleged breach or alleged
threatened breach by the Consultant of any of the provisions of Paragraph 5, the
Company, in addition to any and all other rights and remedies it may have under
this Agreement or otherwise, may immediately seek any judicial action which the
Company may deem necessary or advisable including, without limitation, the
obtaining of temporary and preliminary injunctive relief.
6. Notices
Any notice, request, instruction or other document to be given under
this Agreement to any party hereunder by any other party hereunder shall be in
writing and delivered personally, or sent by registered or certified mail,
postage prepaid, to the following addresses:
-6-
<PAGE>
If to the Company:
Asta Funding, Inc.
210 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
Attention: President
If to the Consultant:
Mr. Arthur Stern
3333 Henry Hudson Parkway
Riverdale, New York 10463
or to such other address as a party hereto may hereafter designate in writing to
the other party, provided that any notice of a change of address shall become
effective only upon receipt thereof.
7. Benefit; Assignment.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns, and the Consultant and his
heirs, legal representatives, successors and permitted assigns.
(b) This Agreement is personal to the Consultant and the Consultant
may not assign any of his rights or delegate any of his duties under this
Agreement.
8. Entire Agreement; Amendment.
This Agreement contains the entire understanding between the Company
and the Consultant with respect to the retention of the Consultant and
supersedes all prior negotiations and understandings between the Company and the
Consultant with respect to the retention of the Consultant by the Company. This
Agreement may not be amended or modified except by a written instrument signed
by both the Company and the Consultant.
-7-
<PAGE>
9. Severability.
In the event any one or more provisions of this Agreement is held to
be invalid or unenforceable, such illegality or unenforceability shall not
affect the validity or enforceability of the other provisions hereof, and such
other provisions shall remain in full force and effect, unaffected by such
invalidity or unenforceability.
10. Governing Law.
This Agreement shall be construed and governed in accordance with
the laws of the State of New Jersey.
11. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
ASTA FUNDING, INC.
By: /s/ Gary Stern
----------------------------
Gary Stern, President
/s/ Arthur Stern
----------------------------
Arthur Stern
-8-
<PAGE>
ASTA FUNDING, INC.
FORM 10-KSB
EXHIBIT 22
At September 30, 1997, the only subsidiary of the Company was Asta Auto
Receivables Company, a Delaware corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 503,715
<SECURITIES> 0
<RECEIVABLES> 5,641,587
<ALLOWANCES> 397,926
<INVENTORY> 0
<CURRENT-ASSETS> 5,747,376
<PP&E> 238,735
<DEPRECIATION> 84,130
<TOTAL-ASSETS> 9,369,544
<CURRENT-LIABILITIES> 882,440
<BONDS> 0
0
0
<COMMON> 39,450
<OTHER-SE> 8,447,654
<TOTAL-LIABILITY-AND-EQUITY> 9,369,544
<SALES> 5,674,201
<TOTAL-REVENUES> 5,674,201
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,588,189
<LOSS-PROVISION> 2,381,700
<INTEREST-EXPENSE> 430,726
<INCOME-PRETAX> (726,414)
<INCOME-TAX> (370,100)
<INCOME-CONTINUING> (356,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (356,314)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
