<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 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 No 0-21075
First Enterprise Financial Group, Inc.
--------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3688499
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Davis Street, Suite 1005, Evanston, Illinois 60201
- ------------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 866-8665
______________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $.01 par value, 5,444,474 shares outstanding as of July 31, 1997.
<PAGE> 2
FIRST ENTERPRISE FINANCIAL GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Balance Sheets........................................................................ 3
Statements of Income.................................................................. 4
Statements of Cash Flows.............................................................. 5
Notes to Financial Statements......................................................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................... 10
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..................................................................... 19
Item 2. CHANGES IN SECURITIES................................................................. 19
Item 3. DEFAULTS UPON SENIOR SECURITIES....................................................... 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................................................... 19
Item 5. OTHER INFORMATION.................................................................... 19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................... 19
SIGNATURES............................................................................ 20
INDEX OF EXHIBITS..................................................................... 21
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- -------------
ASSETS
<S> <C> <C>
Cash........................................................................ $ 2,604,492 $ 1,323,149
Restricted cash............................................................. 6,234,635 4,586,780
Automobile finance receivables.............................................. 85,704,284 118,537,808
Allowance for credit losses................................................. (8,705,292) (11,349,783)
------------ ------------
Finance Receivables, net.................................................. 76,998,992 107,188,025
Property and equipment - at cost............................................ 1,429,078 1,255,777
Repossessed assets.......................................................... 1,303,775 929,560
Deferred tax asset.......................................................... 1,926,000 2,241,000
Retained interest........................................................... 7,684,524
Other assets................................................................ 4,724,775 2,231,660
------------ ------------
TOTAL ASSETS............................................................ $102,906,271 $119,755,951
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Senior debt................................................................. $ 44,651,000 $ 61,153,000
Notes payable - securitized pool............................................ 27,781,540 36,732,987
Servicing liability......................................................... 3,773,121 --
Accounts payable - dealers.................................................. 4,237,843 2,704,455
Other accounts payable and accrued expenses................................. 1,913,070 2,524,003
Other liabilities........................................................... 1,005,058 325,208
------------ ------------
Total liabilities....................................................... 83,361,632 103,439,653
Stockholders' equity:
Common stock, $.01 par value; 20,000,000
shares authorized; 5,444,474 and 5,285,955 shares issued
and outstanding at June 30, 1997 and December 31, 1996, respectively 54,445 52,860
Additional paid-in capital................................................ 14,099,523 13,921,286
Unrealized gain - retained interest....................................... 561,637 --
Retained earnings ........................................................ 4,829,034 2,342,152
------------ ------------
Total stockholders' equity.............................................. 19,544,639 16,316,298
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.................................................... $102,906,271 $119,755,951
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Finance charges and interest.................................. $4,722,964 $3,759,751 $10,660,173 $7,015,704
Interest expense.............................................. 1,785,253 1,532,641 3,804,359 2,890,221
----------- ---------- ------------ -----------
Net interest income....................................... 2,937,711 2,227,110 6,855,814 4,125,483
Provision for credit losses................................... 1,539,659 225,000 3,420,000 625,000
----------- ---------- ------------ -----------
Net interest income after provision for credit losses..... 1,398,052 2,002,110 3,435,814 3,500,483
Other income:
Servicing income............................................ 1,440,619 1,441,759 2,406,260 2,567,488
Insurance commissions....................................... 566,806 756,860 1,029,157 1,407,767
Gain on sale of finance receivables......................... 1,960,000 115,343 4,985,000 524,343
Fees and other income....................................... 535,018 318,335 996,021 676,285
----------- ---------- ------------ -----------
Total other income........................................ 4,502,443 2,632,297 9,416,438 5,175,883
----------- ---------- ------------ -----------
Income before operating expenses.......................... 5,900,495 4,634,407 12,852,252 8,676,366
Operating expenses:
Salaries and employee benefits.............................. 2,814,851 1,972,972 5,454,838 3,938,012
Rent expense................................................ 203,879 116,363 392,120 229,536
Depreciation and amortization............................... 114,798 84,976 231,132 168,556
Professional services....................................... 155,032 179,549 366,333 254,467
Other expenses.............................................. 1,147,980 806,948 2,362,947 1,522,874
----------- ---------- ------------ -----------
Total operating expenses.................................. 4,436,540 3,160,808 8,807,370 6,113,445
----------- ---------- ------------ -----------
Income before income taxes................................ 1,463,955 1,473,599 4,044,882 2,562,921
Income taxes.................................................. 565,000 591,000 1,558,000 1,018,000
Deferred income tax effect of S corporation termination....... -- -- -- (267,000)
----------- ---------- ------------ -----------
Net income................................................ $ 898,955 $ 882,599 $ 2,486,882 $1,811,921
=========== ========== ============ ===========
Net income per share.......................................... $0.16 -- $0.44 --
=========== ========== ============ ===========
Pro forma net income per share................................ -- $0.19 -- $0.39
=========== ========== ============ ===========
Weighted average number of common and common
equivalent shares outstanding............................... 5,666,028 -- 5,648,135 --
=========== ========== ============ ===========
Pro forma weighted average number of common
and common equivalent shares outstanding.................... -- 5,674,675 -- 5,674,675
=========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
FIRST ENTERPRISE FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1997 1996
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 2,486,882 $ 1,811,921
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization..................................... 231,132 225,279
Provision for credit losses....................................... 3,420,000 625,000
Deferred income taxes............................................. 315,000 (501,000)
Deferred income tax effect of S corporation termination........... -- (267,000)
Changes in assets and liabilities:
Restricted cash................................................... (1,647,855) (2,546,083)
Repossessed assets................................................ (374,215) (161,071)
Retained interest................................................. (7,122,887) --
Other assets...................................................... (2,493,115) (1,666,112)
Servicing liability............................................... 3,773,121 --
Accounts payable - dealers........................................ 1,533,388 609,781
Other accounts payable and accrued expenses....................... (610,933) 1,013,052
Other liabilities................................................. 679,850 (268,734)
------------ ------------
Total adjustments............................................... (2,296,514) (2,936,888)
------------ ------------
Net cash provided by (used in) operating activities............. 190,368 (1,124,967)
Cash flows from investing activities:
Automobile installment contracts purchased.......................... (66,828,837) (62,251,117)
Proceeds from sale of automobile installment contracts.............. 73,541,280 31,665,399
Principal collections on automobile installment contracts........... 20,056,590 15,378,188
Capital expenditures................................................ (404,433) (300,177)
------------ ------------
Net cash provided by (used in) investing activities............. 26,364,600 (15,507,707)
Cash flows from financing activities:
Borrowings under senior debt........................................ 69,709,000 47,335,000
Payments on senior debt............................................. (86,211,000) (76,155,000)
Proceeds from issuance of securitized notes......................... -- 45,087,652
Payments on securitized notes....................................... (8,951,447) --
Proceeds from issuance of common stock.............................. 179,822 110,883
------------ ------------
Net cash provided by (used in) financing activities............. (25,273,625) 16,378,535
------------ ------------
INCREASE (DECREASE) IN CASH..................................... 1,281,343 (254,139)
Cash at beginning of period........................................... 1,323,149 1,703,320
------------ ------------
Cash at end of period................................................. $ 2,604,492 $ 1,449,181
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................................... $ 4,437,451 $ 2,846,679
Income taxes...................................................... 1,723,000 1,287,000
Supplemental shedule of non-cash financing activities:
Gain on sale of automobile installment contracts.................... $ 4,985,000 $ 524,343
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
First Enterprise Financial Group, Inc., which operates through a
wholly-owned subsidiary, First Enterprise Acceptance Company, including its
wholly-owned special purpose subsidiaries, First Enterprise Securitization
Corp. and First Enterprise Securitization Co. II, (collectively, the
"Company"), is a specialty finance company engaged primarily in purchasing and
servicing installment sales contracts originated by automobile dealers for
financing the sale of used automobiles, vans and light trucks.
The unaudited interim consolidated financial statements of the Company,
in the opinion of management, reflect all necessary adjustments, consisting
only of normal recurring adjustments, for a fair presentation of results as of
the dates and for the interim periods covered by the financial statements. The
results for the interim periods are not necessarily indicative of the results
of operations to be expected for the entire year.
The unaudited interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
reporting practices. Certain information in footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission; however the Company
believes the disclosures are adequate to make the information not misleading.
The unaudited interim consolidated financial statements contained herein should
be read in conjunction with the audited financial statements and notes thereto
included in the Company's 1996 Annual Report.
IMPACT OF NEW ACCOUNTING STANDARDS
Effective January 1, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities."
As a result, for the securitization transactions completed on March 7, 1997 and
June 11, 1997, which met the specific criteria of SFAS No. 125, the Company
treated the securitizations as sales and has removed the securitized finance
receivables and related liabilities from its balance sheet and recognized the
applicable retained interest asset, servicing liability, and gain on the sale
of the finance receivables.
The Financial Accounting Standards Board, ("FASB"), has issued SFAS No.
128, "Earnings Per Share," which is effective for financial statements issued
after December 15, 1997. Early adoption of the new standard is not permitted.
The new standard eliminates primary and fully dilutive earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The adoption of this
new standard is not expected to have a material impact on the disclosure of
earnings per share in the financial statements.
NET INCOME PER SHARE
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. There will be no effect on the
Company's recognition or measurement of income or operations, but will require
changes in the disclosure and reporting of the change in equity during a period
from nonowner sources, such as unrealized gains (losses) on investment
securities. Adoption of SFAS No. 130 is required for the fiscal year beginning
January 1, 1998.
Net income per share amounts for 1997 are calculated based on net
income divided by the weighted average number of shares of common stock
outstanding during the period after consideration of the dilutive effect of
common stock equivalents. Pro forma net income per share for 1996 periods
reflect the issuance of the Company's common stock in it's Initial Public
Offering and are calculated based on pro forma net income divided by the pro
forma weighted average shares outstanding after consideration of the dilutive
effect of common stock equivalents.
6
<PAGE> 7
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FINANCE RECEIVABLES
Finance receivables are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- ---------------
<S> <C> <C>
Contractual payments due............................................ $ 109,007,796 $ 160,224,969
Unearned finance charges............................................ (23,356,008) (41,673,797)
------------- --------------
Net principal balance............................................... 85,561,788 118,551,172
Unearned insurance commission....................................... 52,496 (13,364)
------------- --------------
Automobile finance receivables...................................... 85,704,284 118,537,808
Allowance for credit losses......................................... (8,705,292) (11,349,783)
------------- --------------
Finance Receivables, net............................................ $ 76,998,992 $ 107,188,025
============= ==============
</TABLE>
Automobile finance receivables are accounted for on a discount basis
and generally have terms of 24 to 42 months, with a maximum term 54 months.
A summary of the activity in allowance for credit losses is as follows
for six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Balance at beginning of year.............................................. $11,349,783 $ 5,010,919
Additions from new business............................................... 6,956,755 6,329,755
Related to finance receivables sold or securitized........................ (7,844,279) (2,946,826)
Finance receivables charged off, net of recoveries....................... (5,176,967) (2,518,894)
Provision for credit losses............................................... 3,420,000 625,000
----------- -----------
Balance at end of period.................................................. $ 8,705,292 $ 6,499,954
=========== ===========
</TABLE>
FINANCE RECEIVABLE SALE TRANSACTIONS
The Company utilized Asset Purchase Agreements and Servicing Agreements
to sell automobile finance receivables totaling $74.8 million between 1993 and
1996. All sales under these agreements have been without recourse to the
Company and have been accounted for as sales of receivables. Under the terms
of the agreements, the Company retains rights for the sold receivables and
receives a contractual annualized servicing fee equal to 3% of the net
outstanding receivables from the purchaser. The outstanding balance of all
receivables sold under these agreements and serviced by the Company totaled
$19,771,344 and $30,918,651 at June 30, 1997, and December 31, 1996,
respectively. The Company is eligible to receive additional bonus servicing
fees under these agreements based upon portfolio performance. The bonus
servicing fees represent the difference between the yield received by the
Company and the sum of the Company's 3% contractual servicing fee, the yield
retained by the purchaser and the addition or reduction necessary to maintain
the purchaser's reserve at the required level.
7
<PAGE> 8
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - FINANCE RECEIVABLES - CONTINUED
Gains of $524,000 were recorded on sales of $35.2 million of finance
receivables for the six months ended June 30, 1996. The gains were determined
by the difference between the sales proceeds and the cost of the finance
receivables and adjusted for the present value of the difference between the
estimated future servicing revenues (net of a fixed rate to the purchaser) and
normal servicing costs ("excess servicing rights"). The excess servicing
rights have been capitalized and are being amortized over the expected
repayment life of the sold finance receivables. The unamortized balance of
excess servicing rights at June 30, 1997 was $212,735.
NOTE C - SENIOR DEBT
Senior debt consists of the following at:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
<S> <C> <C>
Senior Debt:
$75,000,000, senior secured Credit Facility, due June 1, 1998,
with interest at the reference rate as defined in the agreement,
plus .25%, which was 8.75% at June 30,1997, and included
a placement option of 250 basis points over the LIBOR rate................ $44,651,000 $61,153,000
=========== ===========
</TABLE>
Borrowings under the Credit Facility are collateralized by all finance
receivables not subject to the securitized pool and certain other assets. The
agreement requires the maintenance of certain financial covenants which
include, among others, ratio of debt to net worth and ratio of reserves to the
finance receivable portfolio. The Company was in compliance with all financial
covenants at June 30, 1997.
NOTE D - SECURITIZATION OF FINANCE RECEIVABLE ACTIVITIES
The Company has entered into a securitization facility with a placement
agent for the issuance of up to $200 million of securitized notes through
wholly-owned subsidiaries.
On June 18, 1996, the Company completed a $45.1 million debt
financing consisting of 6.84% fixed rate automobile securitized notes. The
notes were issued by First Enterprise Securitization Corporation, a
wholly-owned special purpose subsidiary of First Enterprise Financial Group,
Inc., and had an outstanding balance of $27,781,540 at June 30, 1997. The
proceeds received by the Company were used to repay indebtedness under the
Credit Facility. Principal and interest on the notes are payable monthly from
collections and recoveries on the pool of finance receivables. Financial
Security Assurance Inc. ("FSA") issued a financial guaranty insurance policy
for the benefit of the noteholders.
On March 7, 1997, the Company completed the sale of finance receivables
to First Enterprise Securitization Co. II, a wholly-owned special purpose
subsidiary of First Enterprise Financial Group, Inc., and the issuance of $44.1
million of 6.45% fixed rate notes. The proceeds received by the Company were
used to repay indebtedness under the Credit Facility. Principal and interest
on the notes are payable monthly from collections and recoveries on the pool of
finance receivables. FSA issued a financial guarantee insurance policy for the
benefit of the noteholders. The transaction was accounted for as a sale in
accordance with the criteria of SFAS No. 125
8
<PAGE> 9
FIRST ENTERPRISE FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - SECURITIZATION OF FINANCE RECEIVABLE ACTIVITIES - CONTINUED
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." Accordingly, the Company has removed the securitized finance
receivables sold in March 1997, and related liabilities from its balance sheet
and recognized the applicable retained asset and servicing liability. The
Company recognized a gain on the sale of the finance receivables in the amount
of $3,025,000, which was determined through computing the present value of the
expected future net cash flows of the securitized assets.
On June 11, 1997, the Company completed the sale of finance receivables
to First Enterprise Securitization Co. II, a wholly-owned special purpose
subsidiary of First Enterprise Financial Group, Inc., and the issuance of $32.3
million of 6.62% fixed rate notes. The proceeds received by the Company were
used to repay indebtedness under the Credit Facility. Principal and interest
on the notes are payable monthly from collections and recoveries on the pool of
finance receivables. FSA issued a financial guarantee insurance policy for the
benefit of the noteholders. The transaction was accounted for as a sale in
accordance with the criteria of SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." Accordingly,
the Company has removed the securitized finance receivables sold in June 1997
and related liabilities from its balance sheet and recognized the applicable
retained asset and servicing liability. The Company recognized a gain on the
sale of the finance receivables in the amount of $1,960,000, which was
determined through computing the present value of the expected future net cash
flows of the securitized assets.
For the above securitization transactions, the Company is required to
establish and maintain cash reserve and collection accounts with a trustee with
respect to the securitized pool of finance receivables ("restricted cash").
The amounts set aside would be used to supplement certain shortfalls in
payments, if any, to investors. These balances are subject to an increase up
to a maximum amount as specified in the securitization indentures and are
invested in certain instruments as permitted by the trust agreement. To the
extent balances on deposit exceed specified levels, distributions are made to
the Company and, at the termination of the transaction, any remaining amounts
on deposit are distributed to the Company. The indentures require the Company
to maintain specified delinquency and credit loss ratios. The Company was in
compliance with these covenants at June 30, 1997.
NOTE E - STOCK OPTION PLANS
The following table summarized the Company's stock option plans for the
six months ended June 30, 1997.
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------ --------------
<S> <C> <C>
Option outstanding at December 31, 1996..................... 487,950 $1.13 - $7.00
Option changes
Granted..................................................... 6,000 6.13
Exercised.............. .................................... (158,519) 1.13 - 1.36
---------
Options outstanding at June 30, 1997........................ 335,431 $1.13 - $7.00
=========
</TABLE>
The Company continues to apply the provisions of Accounting Principles
Board Option No. 25, "Accounting for Stock Issued to Employees", in the
computation of employee compensation expense. The Company has provided pro
forma net income and income per share disclosures in its annual audited
financial statements contained in its 1996 Annual Report as if the fair value
based accounting method in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," had been used to account for
stock-based employee compensation expense.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition of the Company at June 30, 1997 as compared with December 31, 1996
and the results of operations for the six months ended June 30, 1997 and 1996.
The financial information provided below has been rounded in order to simplify
its presentation. The ratios and percentages provided below are calculated
using the detailed financial information contained in the unaudited interim
consolidated financial statements, the notes thereto and the financial data
elsewhere in this report.
RECENT DEVELOPMENTS
On June 11, 1997, the Company completed the sale of finance receivables
to First Enterprise Securitization Co. II, a wholly-owned special purpose
subsidiary of First Enterprise Financial Group, Inc. and the issuance of $32.3
million of 6.62% fixed rate notes. The proceeds received by the Company were
used to repay indebtedness under the Credit Facility. Principal and interest
on the notes are payable monthly from collections and recoveries on the pool of
finance receivables. FSA issued a financial guarantee insurance policy for the
benefit of the noteholders. The transaction was accounted for as a sale in
accordance with the criteria of SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." Accordingly,
the Company has removed such securitized finance receivables and related
liabilities from its balance sheet and recognized the applicable retained
interest asset and servicing liability. The Company recorded a gain on the
sale of finance receivables in the amount of $1,960,000, which was determined
through computing the present value of the expected future net cash flows of
the securitized assets.
GENERAL
The Company is a specialty finance company engaged primarily in
purchasing and servicing installment contracts originated by dealers in the
sale of automobiles. The Company derives most of its revenue from (i) finance
charges earned on the installment contracts, (ii) the recognition of gains
resulting from the sale of installment contracts, (iii) contractual servicing
fees and bonus servicing fees resulting from the sales of certain receivables
and (iv) fees and commissions derived from the sale of ancillary products. The
following table summarizes the Company's sources of revenues,
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1997 1996
---- ----
<S> <C> <C>
Finance charges from installment contracts.......................... 53.1% 57.5%
Gain on sale of installment contracts............................... 24.8 4.3
Servicing income.................................................... 12.0 21.1
Other fees and commissions.......................................... 10.1 17.1
----- -----
Total............................................................... 100.0% 100.0%
===== =====
</TABLE>
Installment contracts are purchased from dealers at a discount from the
principal amount financed by consumers which is non-refundable to dealers
("non-refundable contract acquisition discount"). The amount of the
non-refundable contract acquisition discount is negotiated between the dealers
and the branch managers based on several factors, including the
creditworthiness of the consumers, the value and condition of the automobiles
and the relationship between the amount to be financed and the automobile's
value. Installment contracts purchased during the six months ended June 30,
1997 and 1996 had a weighted average discount of approximately 11.0% and 10.8%,
respectively. Installment contracts purchased during the three months ended
June 30, 1997 and 1996 were 11.3% and 10.8%, respectively. The portfolio of
owned and sold installment contracts is grouped into pools on a chronological
basis (quarterly beginning in 1995) for purposes of evaluating the
non-refundable contract acquisition discounts. The non-refundable contract
acquisition discount represents both a credit allowance and a yield
enhancement, with the portion necessary to absorb credit losses allocated to
the allowance for credit losses. The remaining portion of the non-refundable
contract acquisition discount, if any, is allocated to the unamortized
10
<PAGE> 11
contract acquisition discount and is accreted into finance charge income over
the estimated life of the installment contracts using the
sum-of-the-months'-digits method which approximates the interest method. Since
August 1995, all of the Company's non-refundable contract acquisition discount
has been allocated to the allowance for credit losses. See "---Credit Loss
Experience."
The Company records an installment contract on its books as the total
of contractually scheduled payments under such contract, reduced by: (i)
unearned finance charges, which are recognized as income using the interest
method; (ii) unearned insurance commissions, which are recognized as income
over the average terms of the related policies using the
sum-of-the-months'-digits method; (iii) the unamortized contract acquisition
discount, which represents the portion of the non-refundable contract
acquisition discount not allocated to the allowance for credit losses and (iv)
that portion of the contract acquisition discount allocated to the allowance
for credit losses. If an installment contract becomes 90 or more days
contractually delinquent and no full contractual payment is received in the
month the account reaches such delinquency status, the accrual of income is
suspended until one or more full contractual monthly payments are received.
Late charges, deferment fees and extensions fees are recognized as income when
collected.
11
<PAGE> 12
RESULTS OF OPERATIONS:
The following table sets forth certain financial data relating to the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PORTFOLIO DATA:
Total Portfolio (1)............................... $179,962 $118,715 $179,962 $118,715
Average Total Portfolio (1)....................... 173,225 110,902 166,721 100,068
Average Owned Portfolio (2)....................... 100,214 64,924 110,328 61,124
Average indebtedness (3).......................... 84,404 57,901 91,372 53,889
Number of installment contracts purchased......... 3,873 3,934 7,940 8,324
Installment contracts purchased................... $ 31,330 $ 29,818 $ 66,829 $ 62,251
OPERATING DATA:
Total Portfolio yield (4)......................... 19.84% 23.51% 20.33% 23.52%
Owned Portfolio yield (5)......................... 18.90% 23.29% 19.48% 23.08%
Cost of borrowed funds (3)........................ 8.48% 10.65% 8.40% 10.78%
Net interest spread .............................. 10.42% 12.64% 11.09% 12.30%
Net interest margin (6)........................... 11.69% 13.80% 12.53% 13.57%
Allowance for credit losses as a
percentage of Owned Portfolio................... 10.16% 8.61% 10.16% 8.61%
Net charge-offs in the Owned Portfolio as a
percentage of average Owned Portfolio........... 12.50% 8.46% 9.46% 8.24%
Net charge-offs in the Total Portfolio as a
percentage of average Total Portfolio........... 9.96% 6.41% 9.15% 6.73%
Operating expenses as a percentage of
average Total Portfolio......................... 10.23% 11.46% 10.65% 12.28%
Number of branch offices.......................... 41 29 41 29
Number of dealers................................. 1,664 1,025 1,664 1,025
</TABLE>
(1) The Total Portfolio represents the principal amount of contracts owned
and/or serviced by the Company. Averages were computed using the beginning
and ending balances for each month during the periods presented.
(2) The Owned Portfolio represents the principal amount of contracts owned by
the Company. Averages were computed using the beginning and ending
balances for each month during the periods presented.
(3) Average indebtedness represents the average dollar balance of borrowings
outstanding under the Credit Facility, subordinated notes and notes payable
- securitized pool throughout the period presented. Cost of borrowed funds
represents interest expense as a percentage of average indebtedness.
Averages were computed using the daily outstanding balances.
(4) Represents automobile finance charge income from the Total Portfolio as a
percentage of the average Total Portfolio.
(5) Represents automobile finance charge income as a percentage of the average
Owned Portfolio.
(6) Represents net interest income as a percentage of the average Owned
Portfolio.
12
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Interest Income
Finance charges and interest increased $3.7 million, or 51.9%, from
$7.0 million for the six months ended June 30, 1996 to $10.7 million for the
six months ended June 30, 1997. The growth in finance charges and interest
resulted from an increase in the Owned Portfolio due to an increase in the
number of installment contracts purchased. Installment contracts purchased
increased $4.6 million, or 7.4%, from $62.2 million for the six months ended
June 30, 1996 to $66.8 million for the six months ended June 30, 1997. The
average Owned Portfolio increased $49.2 million, or 80.5%, from $61.1 million
for the six months ended June 30, 1996, to $110.3 million for the six months
ended June 30, 1997. The Company expanded from 29 branch offices at June 30,
1996 to 41 branch offices at June 30, 1997, including the opening of six branch
offices during the six months ended June 30, 1997.
The average Owned Portfolio yield decreased from 23.1% for the six
months ended June 30, 1996 to 19.5% for the six months ended June 30, 1997, and
from 23.3% for the three months ended June 30, 1996, to 18.9% for the three
months ended June 30, 1997. The decrease is attributable to the following
factors (i) the increase in forced placed collateral protection insurance
("CPI"), for which the Company does not charge interest, as a percentage of the
Owned Portfolio for the six months ended June 30, 1997 as compared to the six
months ended June 30, 1996, (ii) a decrease in the weighted average contract
rate of installment contracts purchased during the three and six months ended
June 30, 1997 as compared to the three and six months ended June 30, 1996,
resulting from increased penetration in states which have laws which limit the
maximum amount of finance charges, fees, and premiums and other charges that
can be charged, and (iii) and increase in the level of accounts 90 or more days
past due, resulting in the suspension of interest accruals.
Interest expense increased $914,000, or 31.6%, from $2.9 million for
the six months ended June 30, 1996 to $3.8 million for the six months ended
June 30, 1997. The increase in interest expense resulted from an increase in
borrowings under the Credit Facility and the securitization of installment
contracts in June 1996, March 1997 and June 1997. Average indebtedness
increased $37.5 million, or 69.6% , from $53.9 million for the six months ended
June 30, 1996 to $91.4 million for the six months ended June 30, 1997. The
average cost of borrowed funds decreased from 10.8% for the six months ended
June 30, 1996 to 8.4% for the six months ended June 30, 1997. The decrease in
average cost of borrowed funds was due to the following factors (i) the
extinguishment of subordinated debt bearing interest at a weighted average rate
of 13.3% in July 1996 from the proceeds of the Initial Public Offering, (ii) a
reduction of the interest rate on the Credit Facility from an average of 9.9%
for the six months ended June 30, 1996 to 8.5% for the six months ended June
30, 1997, and (iii) the securitization in June 1996, March 1997 and June 1997,
of installment contracts as a fixed rate debt transaction bearing interest at
rates of 6.8%, 6.5%, and 6.6%, respectively, the proceeds of which were used to
pay down borrowings under the Credit Facility. In addition to the weighted
average interest rates on the subordinated debt, the Company amortized both the
fees associated with the debt and the discount related to the detachable
warrants attached to the debt. Further, in addition to the stated rates of
6.8% , 6.5% and 6.6% on the fixed rate securitized notes, the Company is
amortizing fees associated with the securitization, which collectively totaled
approximately $2.1 million at June 30, 1997.
Net interest income increased $2.7 million, or 66.2%, from $4.1 million
for the six months ended June 30, 1996 to $6.8 million for the six months ended
June 30, 1997. The net interest margin on the Owned Portfolio decreased from
13.6% for the six months ended June 30, 1996 to 12.5% for the six months ended
June 30, 1997, and from 13.8% for the three months ended June 30, 1997 to 11.7%
for the three months ended June 30, 1997, due to the reduction in Owned
Portfolio yield, offset by the lower average cost of borrowed funds, as
discussed above.
Provision for Credit Losses
For the six months ended June 30, 1997, the Company made a provision for
credit losses of $3.4 million as compared to a provision for credit losses of
$625,000 for the six months ended June 30, 1996. The provision for credit
losses contributed to maintaining the allowance for credit losses as a
percentage of the Owned Portfolio at 10.2% as of June 30, 1997 as compared to
8.6% as of June 30, 1996. See "Credit Loss Experience."
13
<PAGE> 14
Other Income
Other income increased $4.2 million, or 81.9%, from $5.2 million for
the six months ended June 30, 1996 to $9.4 million for the six months ended
June 30, 1997. The increase in other income was primarily due to the increase
in gains recognized from the sales of installments contracts, offset by
decreases in servicing income derived from installment contracts sold and
commissions recognized from the sale of ancillary products.
For the six months ended June 30, 1997, the Company recognized $5.0
million in gains on the securitization of $82.5 million of installment
contracts, including a $2.0 million gain on the securitization of $35.1 million
of installment contracts for the three months ended June 30, 1997. The gains
were determined through computing the net present value of the expected future
cash flows of the securitizations, and the recognition of applicable retained
interests in the securitized installment contracts and servicing liabilities.
The securitization transactions are deemed to have met the criteria of
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities."
Accordingly, the Company has removed the securitized installment contracts and
related liabilities from its balance sheet. The retained interest in the
securitized installment contracts has been classified as "available for sale"
and accordingly has been marked to its estimated fair market value, with a
corresponding unrealized gain, net of taxes, recorded in stockholders' equity.
For the six months ended June 30, 1996, the Company recognized gains of
$524,000 on the sale of $35.2 million of installment contracts. The gains on
the sale of installment contracts were determined by the difference between
sales proceeds and the cost of the installment contracts adjusted for the
present value of the excess servicing rights. The excess servicing rights were
capitalized and are being amortized over the expected life of the installment
contracts in direct proportion to the reduction in the related pool of
installment contracts sold.
Servicing income decreased $161,000, or 6.32%, from $2.6 million for
the six months ended June 30, 1996 to $2.4 for the six months ended June 30,
1997. The decrease in servicing income was due primarily to the recognition of
gains on the securitization of installment contracts for the six months ended
June 30, 1997, which reduce the amount of excess servicing fees to be
recognized on the securitized contracts. The average balance of sold
contracts increased $17.5 million from $38.9 million for the six months ended
June 30, 1996 to $56.4 million for the six months ended June 30, 1997.
Income from insurance commissions decreased $379,000 from $1.4 million
for the six months ended June 30, 1996, to $1.1 million for the six months
ended June 30, 1997. The decrease was attributable to continued increased
penetration of an insurance product offered to customers in which the term of
the insurance product is longer in duration than products previously offered.
Commissions received on this product are deferred and recorded as commission
income over the term of the product. The Company continues to experience
increased sales of insurance products in connection with the increase in the
volume of installment contracts purchased.
Fee and other income increased $320,000 from $676,000 for the six
months ended June 30, 1996, to $996,000 for the six months ended June 30, 1997.
The increase was attributable to increased fees collected in connection with
the growth of the Total Portfolio due to an increase in the number of
installment contracts purchased.
Operating Expenses
Operating expenses increased $2.7 million, or 44.1%, from $6.1 million
for the six months ended June 30, 1996, to $8.8 million for the six months
ended June 30, 1997. The increase in operating expenses was due to increases
in salaries and employee benefits, rent and other expenses relating to the
opening of new branch offices as well as the addition of administrative
personnel at the Evanston, Illinois and Enterprise, Alabama offices. Salaries
and employee benefits increased $1.6 million, or 38.5%, from $3.9 million for
the six months ended June 30, 1996 to $5.5 million for the six months ended
June 30, 1997. Although operating expenses increased for the six months ended
June 30, 1997, compared to the six months ended June 30, 1996, the Total
Portfolio grew at a faster rate than
14
<PAGE> 15
the increases in operating expenses. As a result, operating expenses as a
percentage of the average Total Portfolio decreased from 12.3% for the six
months ended June 30, 1996 to 10.2% for the six months ended June 30, 1997.
Income Taxes
Income taxes increased $540,000 from $1.1 million for the six months
ended June 30, 1996 to $1.6 million for the six months ended June 30, 1997.
The increase is due to increased net income attributable to the growth in the
total portfolio and related factors discussed above.
Upon termination of the Company's S Corporation status on January 1,
1996, and in compliance with SFAS No. 109, the Company recognized a deferred
tax benefit of $267,000 for the six months ended June 30, 1996 representing the
cumulative temporary differences between the financial reporting and tax basis
in its assets and liabilities.
Net Income
Net income increased $674,000, or 37.3%, from $1.8 million for the six
months ended June 30, 1996 to $2.5 million for the six months ended June 30,
1997. Net income increased $16,000 from $883,000 for the three months ended
June 30, 1996, to $899,000 for the three months ended June 30, 1997. The
increases in net income were primarily attributable to the growth in the Total
Portfolio and related factors as discussed above.
CREDIT LOSS EXPERIENCE
The Company maintains an allowance for credit losses at a level
management believes adequate to absorb potential losses in the Owned Portfolio.
The adequacy of the allowance for credit losses is evaluated by management on
an ongoing basis through static pool analysis of credit losses, delinquencies,
the value of the underlying collateral, the level of the finance contract
portfolio and general economic conditions and trends. An account is charged
off against the allowance for credit losses at the earliest of the time the
account's collateral is repossessed, the account is 150 days or more past due
or the account is otherwise deemed to be uncollectible.
The Total Portfolio is grouped into pools on a chronological basis
(quarterly beginning in 1995) for purposes of evaluating trends and loss
experience on a more detailed basis. If management determines that the
allowance for credit losses is not adequate to provide for potential losses of
an individual pool, amounts will be transferred, to the extent available, from
the unamortized contract acquisition discounts for that pool to the allowance
for credit losses. Any remaining shortfall in the allowance for credit losses
would be provided through a charge against income. If management determines
that the allowance for credit losses is in excess of amounts required to
provide for losses of an individual pool, the allowance for credit losses
charge to income, if any, will be reduced or the contract acquisition discounts
will be amortized into income over the remaining life of the contracts in the
pool. For the six months ended June 30, 1997, the Company increased its
allowance for credit losses by $3.4 million through charges against income
based upon continued historical analysis, particularly evaluation of the
earliest pools.
15
<PAGE> 16
The following table sets forth the cumulative net charge offs as a
percentage of the original pool balance based on the quarter of origination and
segmented by the number of months elapsing since origination.
POOL'S CUMULATIVE NET LOSSES AS A PERCENTAGE OF ORIGINAL POOL BALANCE
<TABLE>
<CAPTION>
% of
Original
Principal
Number of Months Since Origination Balance
Pool 3 6 9 12 15 18 21 24 27 30 Remaining
- ---- ----- ----- ------ ------ ----- ------ ----- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995:
1st Qtr 0.10% 0.67% 2.06% 3.55% 5.79% 6.96% 7.68% 8.38% 9.67% 10.30% 19.7%
2nd Qtr 0.01% 0.63% 1.81% 3.39% 4.71% 5.69% 6.67% 7.85% 8.97% 25.0%
3rd Qtr 0.06% 0.57% 2.26% 4.17% 5.92% 7.13% 8.51% 9.70% 31.3%
4th Qtr 0.01% 0.41% 2.07% 3.73% 5.39% 7.66% 9.31% 42.6%
1996:
1st Qtr 0.01% 0.25% 1.53% 3.30% 6.16% 8.42% 57.8%
2nd Qtr 0.00% 0.32% 1.07% 3.12% 5.05% 61.0%
3rd Qtr 0.00% 0.10% 1.24% 2.84% 73.9%
4th Qtr 0.00% 0.13% 0.69% 83.2%
1997:
1st Qtr 0.00% 0.08% 89.7%
2nd Qtr 0.00% 96.6%
</TABLE>
DELINQUENCY EXPERIENCE
A payment is considered past due if the customer fails to make any full
payment on or before the due date as specified by the terms of the installment
contract. The Company typically contacts delinquent customers within one to
two days after the due date.
The following table summarizes the Company's delinquency experience for
accounts with payments 60 days or more past due on a dollar basis for the Total
Portfolio and Owned Portfolio. The delinquency experience data excludes
automobiles which have been repossessed.
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
TOTAL PORTFOLIO:
Installment contracts, gross $235,828 $ 159,207
Past due accounts, gross:
60 to 89 days 3,761 993
90 days or more 2,843 891
-------- ---------
Total 60 days or more $ 6,604 $ 1,884
======== =========
Contracts with payments 60 days or more past due as a
percentage of total installment contracts, gross 2.80% 1.18%
======== =========
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997 1996
------- -------
<S> <C> <C>
OWNED PORTFOLIO:
Installment contracts, gross $109,689 $103,216
Past due accounts, gross:
60 to 89 days 2,208 489
90 days or more 1,810 470
-------- --------
Total 60 days or more $ 4,019 $ 959
======== ========
Contracts with payments 60 days or more past due as a
percentage of owned installment contracts, gross 3.66% 0.93%
======== ========
</TABLE>
Liquidity and Capital Resources
The Company has funded its operations, branch office openings and the
growth of the Total Portfolio through six principal sources of funds: (i)
payments received under installment contracts, (ii) borrowings under the Credit
Facility, (iii) proceeds from the issuance of subordinated notes, (iv) proceeds
from the sale of installment contracts and (v) proceeds from asset
securitization transactions.
Net cash flows provided by operating activities were $190,000 for the
six months ended June 30, 1997, and net cash flows used in operating activities
were $1.1 million for the six months ended June 30, 1996.
The Company's cash flows used in investing activities since inception
have been used primarily for the purchase of installment contracts. Cash used
for the purchase of installment contracts was $66.8 million and $62.3 million
for the six months ended June 30, 1997, and 1996, respectively. Capital
expenditures were $404,000, and $300,000 for the six months ended June 30, 1997
and 1996, respectively. Cash used in investing activities was offset by (i) the
collection of principal on installment contracts of $20.1 million and $15.4
million for the six months ended June 30, 1997 and 1996, respectively and (ii)
net proceeds of $73.5 million and $31.7 million from the sales of installment
contracts for the six months ended June 30, 1997, and 1996, respectively.
Cash was used in financing activities, primarily through payments on
the Credit Facility, and payments on the securitized notes. Net reductions
under the Credit Facility were $16.5 million and $28.8 million for the six
months ended June 30, 1997, and 1996, respectively. Payments on the
securitized notes were $9.0 million for the six months ended June 30, 1997, and
proceeds from the issuance of securitized notes were $45.1 million for the six
months ended June 30, 1996. Cash was provided by the issuance of common stock
in the amounts of $180,000 and $111,000 for the six months ended June 30, 1997,
and 1996, respectively.
As of the date hereof, the Company has a $75 million Credit Facility
with a group of six banks, for which LaSalle National Bank acts as agent, and
which expires June 1, 1998. The Company has received notice from one of the
Credit Facility banks that it will withdraw from the Credit Facility upon its
expiration. Management is currently engaged in negotiations to replace the
existing Credit Facility with a new and expanded facility. The Company has no
commitment for any such facility and there can be no assurance that any such
facility will be obtained. The Credit Facility is collateralized by a lien on
all the Company assets not subjected to the securitized pool. Interest is
payable at the agent bank's reference rate plus .25% (8.75% at June 30, 1997)
and the Company has a option of 2.50% over the LIBOR rate. The Credit
Facility requires the Company to maintain minimum capital funds (as defined) of
$11.5 million. The Credit Facility also requires that total loss reserves be
maintained at not less than 8% of net installment contracts receivable and no
more than 3% of net installment contracts receivable in the Total Portfolio may
be more than 60 days past due. The Credit Facility also requires that earnings
before interest and taxes to cash interest expense may not be less than
125% and the ratio of unsubordinated debt to tangible net worth plus
subordinated debt cannot exceed 5 to 1. At June 30, 1997, the Company was in
compliance with all of these covenants.
In order to meet its funding needs, the Company will require additional
financing to supplement its expected cash flows from operations, the
anticipated borrowings under its Credit Facility and proceeds from the
17
<PAGE> 18
issuance of securitized notes. To that end, the Company is seeking to augment
its capital base through the issuance of subordinated notes to one or more
financial institutions. The Company also has a securitization facility with a
placement agent for the issuance of up to $200 million of securitized notes
through one or more wholly-owned special purpose subsidiaries. Initially, on
June 18, 1996, First Enterprise Securitization Corporation sold approximately
$45.1 million of 6.84% fixed rate securitized notes in an asset securitization
transaction. The debt incurred in this securitization is reflected on the
balance sheet of the Company and did not result in a gain on sale. On March 7,
1997 and June 11, 1997, First Enterprise Securitization Co. II sold
approximately $44.1 million and $32.3 million of fixed rate securitized notes
bearing interest at 6.45% and 6.62%, respectively. These securitization
transactions met the criteria of SFAS No. 125, and accordingly, the Company
removed the securitized assets and related liabilities from its balance sheet
and recognized applicable retained interests in the securitized installment
contracts and servicing liabilities and recorded a gain on the sale.
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed above in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those factors as
discussed in the Company's 1996 Annual Report and herein.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders
Date of meeting - May 6, 1997
Type of meeting - Annual Meeting of Shareholders
1) Election of Directors
<TABLE>
<CAPTION>
Votes Cast
---------- Votes
Name of Directors Voted For Against Withheld
---------------------- --- ------- --------
<S> <C> <C> <C>
Michael P. Harrington 4,414,928 0 0
Louis J. Glunz, Ph.D. 4,412,128 0 2,800
M. William Isbell 4,412,298 0 2,000
Thomas G. Parker 4,350,380 0 64,548
Joseph H. Stegmayer 4,414,428 0 500
Paul A. Stinneford 4,414,628 0 300
Kenneth L. Stucky 4,350,380 0 64,548
</TABLE>
There were no abstentions or broker non-votes in the
election of Directors.
Item 5. Other Information - Not Applicable
Item 6. (a) Exhibits
10.1 Sale and Servicing Agreement, by and between
First Enterprise Financial Group, Inc., First
Enterprise Acceptance Company, First Enterprise
Securitization Co. II and LaSalle National Bank
11 Statement Regarding Computation of Net
Income Per Share
(b) Reports on Form 8-K - None
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST ENTERPRISE FINANCIAL GROUP, INC.
August 13, 1997 /s/ Michael P. Harrington
Date: __________________________ ____________________________________
Michael P. Harrington
Chairman of the Board,
President and Chief Executive
Officer (Principal Executive Officer)
August 13, 1997 /s/ Jan W. Erfert
Date: __________________________ ____________________________________
Jan W. Erfert
Vice President and Treasurer
(Principal Accounting and
Financial Officer)
20
<PAGE> 21
INDEX OF EXHIBITS
Exhibit No. Description
10.1 Sale and Servicing Agreement, by and between First
Enterprise Financial Group, Inc., First Enterprise
Acceptance Company, First Enterprise Securitization Co. II
and LaSalle National Bank
11 Statement Regarding Computation of Net Income Per Share
21
<PAGE> 1
Exhibit 10.1
SALE AND SERVICING AGREEMENT
among
FIRST ENTERPRISE SECURITIZATION CO. II
Issuer
FIRST ENTERPRISE FINANCIAL GROUP, INC.
In its individual capacity and as Servicer
FIRST ENTERPRISE ACCEPTANCE COMPANY
In its individual capacity and as Initial Subservicer
and
LASALLE NATIONAL BANK
Backup Servicer
dated as of
June 1, 1997
<PAGE> 2
THIS SALE AND SERVICING AGREEMENT, dated as of June 1, 1997, is made among
First Enterprise Securitization Co. II, a Delaware corporation, as Issuer (the
"Issuer"), First Enterprise Financial Group, Inc., an Illinois corporation, in
its individual capacity and as Servicer (in its individual capacity, "FEFG"; in
its capacity as Servicer, the "Servicer"), First Enterprise Acceptance Company,
in its individual capacity and as Initial Subservicer (in its individual
capacity, "FEAC" and, collectively with FEFG, the "Sellers"; in its capacity as
Initial Subservicer, the "Initial Subservicer") and LaSalle National Bank, a
national banking institution, as Backup Servicer (the "Backup Servicer").
In consideration of the mutual agreements herein contained, and of other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section I.1. Definitions. All terms defined in the Spread Account
Agreement or the Indenture (each as defined below) shall have the same meaning
in this Agreement. Whenever capitalized and used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the following meanings:
Accountants' Report: The report of a firm of nationally recognized
independent accountants described in Section 3.11.
Accounting Date: With respect to a Payment Date, the last day of the
Monthly Period immediately preceding such Payment Date.
Actuarial Method: The methods of allocating a fixed level payment between
principal and interest, pursuant to which the portion of such payment that is
allocated to interest is the product of the fixed rate of interest multiplied
by the unpaid principal balance multiplied by the fixed period of time
(expressed as a fraction of a year) between scheduled payments.
Administrative Receivable: With respect to any Monthly Period, a
Receivable (including any Liquidated Receivable) which the Servicer is required
to purchase pursuant to Section 3.7 on the Deposit Date with respect to such
Monthly Period.
Administration Agreement: The Administrative Services and Facilities
Agreement by and between FEFG and the Issuer dated June 1, 1997.
Affiliate: With respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct
<PAGE> 3
or indirect common control with such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
Aggregate Principal Balance: With respect to the Closing Date, the Cutoff
Date Principal Balance, and with respect to any Determination Date, the sum of
the Principal Balances (computed as of the related Accounting Date) for all
Receivables (other than (i) any Receivable that became a Liquidated Receivable
during the related Monthly Period, (ii) any Receivable that became a Purchased
Receivable as of the related Accounting Date and (iii) in the sole discretion
of the Security Insurer, any Receivable (other than a Purchased Receivable)
that the Servicer was required to repurchase on or prior to the related Deposit
Date).
Agreement: This Sale and Servicing Agreement, all amendments and
supplements thereto and all exhibits and schedules to any of the foregoing.
Amount Available: With respect to any Payment Date, the sum of (i) the
Available Funds for the immediately preceding Determination Date, plus (ii) the
Deficiency Claim Amount, if any, received by the Trustee with respect to such
Payment Date, plus (iii) the Policy Claim Amount, if any, received by the
Trustee with respect to such Payment Date.
Amount Financed: With respect to a Receivable, the aggregate amount
initially advanced under such Receivable toward the purchase price of the
Financed Vehicle and related costs, including amounts advanced in respect of
accessories, insurance premiums, service and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts or
promissory notes, and related costs.
Annual Percentage Rate or APR: With respect to a Receivable, the rate
per annum of finance charges stated in such Receivable as the "annual
percentage rate" (within the meaning of the Federal Truth-in-Lending Act);
provided, however, that if after the Closing Date, the rate per annum with
respect to a Receivable as of the Closing Date is reduced as a result of (i) an
insolvency proceeding involving the Obligor or (ii) pursuant to the Soldiers'
and Sailors' Civil Relief Act of 1940, Annual Percentage Rate or APR shall
refer to such reduced rate.
Applications: As defined in Section 2.2(a).
-2-
<PAGE> 4
Available Funds: With respect to any Determination Date, the sum of (i)
the Collected Funds for such Determination Date, (ii) all amounts deposited in
the Collection Account in respect of Purchased Receivables as of the related
Deposit Date, and (iii) all income from investments of funds in the Trust
Accounts during the prior Monthly Period.
Backup Servicer: LaSalle National Bank, or any successor thereto pursuant
to the terms of this Agreement.
Business Day: Any day other than a Saturday, Sunday, legal holiday or
other day on which commercial banking institutions in the States of New York,
Illinois or the principal place of business of any successor Servicer,
successor Issuer, successor Trustee or successor Collateral Agent, are
authorized or obligated by law, executive order or governmental decree to be
closed.
Closing Date: June 11, 1997.
Collateral Agent: The Spread Account Trustee named in the Spread Account
Agreement, and any successor thereto pursuant to the terms of the Spread
Account Agreement.
Collected Funds: With respect to any Determination Date, the amount of
funds in the Collection Account representing collections on the Receivables
(including Liquidated Receivables and Purchased Receivables) during the related
Monthly Period, including (i) all administrative fees, expenses and charges,
late fees and other amounts paid by or on behalf of Obligors and (ii) all
Liquidation Proceeds collected during the related Monthly Period (but excluding
any Purchase Amounts).
Collection Account: The account designated as the Collection Account in,
and which is established and maintained pursuant to, Section 4.1(a) hereof.
Collection Records: All manually prepared or computer generated records
relating to collection efforts or payment histories with respect to the
Receivables.
Computer Tape: The computer tape or disks generated on behalf of the
Issuer which provide information relating to the Receivables and which were
used by the Sellers in selecting the Receivables conveyed to the Issuer
hereunder.
Corporate Trust Office: The principal office of the Trustee at which at
any particular time its corporate trust business shall be administered, which
office at the Closing Date is located at 135 South LaSalle Street, Chicago,
Illinois 60674, Attention: ABS Trust Services - First Enterprise 1997-B; the
Telecopy No.: (312) 904-2084.
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Cram Down Loss: With respect to a Receivable, if a court of appropriate
jurisdiction in an insolvency proceeding has issued an order reducing the
amount owed on a Receivable or otherwise modifying or restructuring the
Scheduled Receivables Payments to be made on a Receivable, an amount equal to
the excess of the principal balance of such Receivable immediately prior to
such order over the greater of (a) the principal balance of such Receivable as
so reduced and (b) the net present value (using as the discount rate the higher
of the contract rate or the rate of interest, if any, specified by the court in
such order) of the Scheduled Receivables Payments as so modified or
restructured. A Cram Down Loss will be deemed to have occurred on the date of
issuance of such order.
Custodian: The Servicer and any other Person named from time to time as
custodian in accordance with Article VI acting as agent for the Trustee, which
Person must be acceptable to the Controlling Party.
Cutoff Date: April 30, 1997.
Cutoff Date Principal Balance: $35,147,591.87.
Dealer: A seller of Motor Vehicles that originated one or more of the
Receivables and sold the respective Receivable, directly or indirectly, to any
Seller under a Dealer Assignment.
Dealer Agreement: An agreement between any Seller and a Dealer relating
to the sale of retail installment sale contracts and installment notes to such
Seller and all documents and instruments relating thereto.
Dealer Assignment: With respect to a Receivable, the executed assignment
executed by a Dealer conveying such Receivable to the applicable Seller.
Deficiency Claim Amount: As defined in Section 5.1(a).
Deficiency Claim Date: With respect to any Payment Date, the fourth
Business Day immediately preceding such Payment Date.
Deficiency Notice: As defined in Section 5.1(a).
Delinquency Ratio: With respect to any Determination Date, the fraction,
expressed as a percentage, the numerator of which is equal to the sum of the
Gross Receivable Balances (as of the related Accounting Date) of all
Receivables (other than Repossessed Inventory Receivables, Liquidated
Receivables and Purchased Receivables) with part or all of one or more
scheduled payments more than 30 days past due as of the related Accounting Date
and the denominator of which is equal to the sum of the Gross
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Receivable Balances of all Receivables (other than Repossessed
Inventory Receivables, Liquidated Receivables and Purchased Receivables)
as of the related Accounting Date.
Deposit Date: With respect to any Determination Date, the Business Day
immediately preceding such Determination Date.
Determination Date: With respect to any Payment Date, the earlier of (i)
the fifth Business Day preceding such Payment Date and (ii) the eighth day of
the calendar month in which such Payment Date occurs.
Draw Date: With respect to any Payment Date, the third Business Day
immediately preceding such Payment Date.
Electronic Ledger: The electronic master record of the retail installment
sales contracts or installment loans of any Seller.
Eligible Investments: Any one or more of the following types of
investments, excluding any security with the "r" symbol attached to the rating
and all mortgage-backed securities:
(a) direct interest-bearing obligations of, and interest-bearing
obligations guaranteed as to timely payment of principal and interest by,
the United States or any agency or instrumentality of the United States
the obligations of which are backed by the full faith and credit of the
United States;
(b) demand or time deposits in, certificates of deposit of, demand
notes of, or bankers' acceptances issued by any depository institution or
trust company organized under the laws of the United States or any State
and subject to supervision and examination by federal and/or State
banking authorities (including, if applicable, the Trustee, the Issuer or
any agent of either of them acting in their respective commercial
capacities); provided that the short-term unsecured debt obligations of
such depository institution or trust company (or, if such depository
institution or trust company is LaSalle National Bank, the direct or
indirect holding company thereof) at the time of such investment, or
contractual commitment providing for such investment, are rated "A-1+" by
Standard & Poor's and "P-1" by Moody's;
(c) short-term repurchase obligations pursuant to a written
agreement (i) with respect to any obligation described in clause (a)
above, where the Trustee has taken actual or constructive delivery of
such obligation in accordance with Section 4.1, and (ii) entered into
with the corporate trust department of a depository institution or trust
company organized under the laws of the United States or any State
thereof, the deposits of which are insured by the Federal
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Deposi Insurance Corporation and the short-term unsecured debt
obligations of which are rated "A-1+" by Standard & Poor's and "P-1" by
Moody's (including, if applicable, the Trustee, or any agent of the
Trustee acting in its commercial capacity);
(d) short-term securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States or any State whose long-term unsecured debt obligations are
assigned the highest credit rating by each Rating Agency at the time of
such investment or contractual commitment providing for such investment;
provided, however, that securities issued by any particular corporation
will not be Eligible Investments to the extent that an investment therein
will cause the then outstanding principal amount of securities issued by
such corporation and held in the Trust Accounts to exceed 10% of the
Eligible Investments held in the Trust Accounts (with Eligible
Investments held in the Trust Accounts valued at par);
(e) commercial paper that (i) is payable in United States dollars
and (ii) is rated in the highest credit rating category by each Rating
Agency;
(f) if approved in writing by the Security Insurer, money market
mutual funds that are rated in the highest credit rating category by
Moody's and "AAAm" or "AAAm-g" by Standard & Poor's; or
(g) any other demand or time deposit, obligation, security or
investment as may be acceptable to the Rating Agencies and the
Controlling Party, as evidenced by the prior written consent of the
Controlling Party and the Rating Agencies, as may from time to time be
confirmed in writing to the Trustee by the Controlling Party; provided,
however, that securities issued by any entity (except as provided in
paragraph (a)) will not be Eligible Investments to the extent that an
investment therein will cause the then outstanding principal amount of
securities issued by such entity and held in the Trust Accounts to exceed
$10 million (with Eligible Investments held in the Trust Accounts valued
at par).
Eligible Investments may be purchased by or through the Trustee or any of its
Affiliates.
Eligible Servicer: FEFG, the Backup Servicer or another Person which at
the time of its appointment as Servicer (i) is servicing a portfolio of motor
vehicle retail installment sales contracts and/or motor vehicle installment
loans, (ii) is legally qualified and has the capacity to service the
Receivables, (iii) has demonstrated the ability professionally and competently
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to service a portfolio of motor vehicle retail installment sales contracts
and/or motor vehicle installment loans similar to the Receivables with
reasonable skill and care, (iv) is qualified and entitled to use, pursuant to a
license or other written agreement, the software which the Servicer uses in
connection with performing its duties and responsibilities under this Agreement
or otherwise has available software which is adequate to perform its duties and
responsibilities under this Agreement, (v) has a minimum net worth of
$50,000,000 and (vi) is acceptable to the Controlling Party.
Excess Amounts: As determined, with respect to Series 1997-B Notes,
pursuant to the terms of the Spread Account Agreement.
Executive Officer: With respect to any Seller or the Issuer, the
President, Chief Financial Officer or any Vice President thereof.
Final Scheduled Payment Date: May 15, 2002 (or, if such day is not a
Business Day, the next succeeding Business Day thereafter).
Financed Vehicle: A Motor Vehicle, together with all accessories thereto,
securing an Obligor's indebtedness under a Receivable.
Indenture: The Indenture, dated as of June 1, 1997, between the Issuer
and the Trustee, as the same may be amended and supplemented from time to time.
Independent Accountants: As defined in Section 3.11(a).
Insolvency Event: With respect to a specified Person, (a) the entry of a
decree or order for relief by a court having jurisdiction in the premises in
respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or ordering the
winding-up or liquidation of such Person's affairs, or the commencement of an
involuntary case under the federal bankruptcy laws, as now or hereinafter in
effect, or another present or future federal or state bankruptcy, insolvency or
similar law and such case is not dismissed within 60 days; or (b) the
commencement by such Person of a voluntary case under any applicable Federal or
state bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by such Person to the entry of an order for relief in an
involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or the making by such Person
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of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due, or the taking
of action by such Person in furtherance of any of the foregoing.
Insurance Agreement: The Insurance and Indemnity Agreement, dated as of
June 1, 1997, among the Security Insurer, the Issuer and the Sellers.
Insurance Agreement Event of Default: An "Event of Default" as defined in
the Insurance Agreement.
Insurance Policy: With respect to a Receivable, any insurance policy
benefiting the holder of the Receivable, providing loss or physical damage,
credit life, credit disability, theft, mechanical breakdown or similar coverage
with respect to the Financed Vehicle or the Obligor.
Insurer Default: The occurrence and continuance of any of the following:
(a) the Security Insurer shall have failed to make a payment
required under the Policy in accordance with its terms;
(b) The Security Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the
United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its
creditors, or (iii) had an order for relief entered against it under the
United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for the Security Insurer or for all
or any material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Security
Insurer (or the taking of possession of all or any material portion of
the property of the Security Insurer).
Lien: Any security interest, lien, charge, pledge, preference, equity or
encumbrance of any kind, including tax liens, mechanics' liens and any liens
that attach by operation of law.
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Lien Certificate: With respect to a Financed Vehicle, an original
certificate of title, certificate of lien or other notification issued by the
Registrar of Titles of the applicable state to a secured party which indicates
that the lien of the secured party on the Financed Vehicle is recorded on the
original certificate of title. In any jurisdiction in which the original
certificate of title is required to be given to the Obligor, the term "Lien
Certificate" shall mean only a certificate or notification issued to a
secured party.
Liquidated Receivable: With respect to any Monthly Period, a Receivable,
as to which (i) 60 days have elapsed since the Servicer repossessed the
Financed Vehicle (net of any applicable redemption period), (ii) the Servicer
has determined in good faith that all amounts it expects to recover have been
received, (iii) all or any portion of a Scheduled Receivables Payment shall
have become 120 days or more delinquent (or, if the Servicer has received a
notice of commencement of case under chapter 13 of the United States Bankruptcy
Code with respect to the Obligor of such Receivable, 180 days) or (iv) such
Receivable has been liquidated through the sale of the related Financed
Vehicle.
Liquidation Proceeds: With respect to a Liquidated Receivable, all
amounts realized with respect to such Liquidated Receivable (other than amounts
withdrawn from the Spread Account or drawn under the Policy) net of (i)
reasonable expenses incurred by the Servicer in connection with the collection
thereof and the repossession and disposition of the Financed Vehicle and (ii)
amounts that are required to be refunded to the Obligor on such Liquidated
Receivable; provided, however, that the Liquidation Proceeds with respect to
any Liquidated Receivable shall in no event be less than zero.
Local Collection Accounts: The accounts designated as the Local
Collection Accounts in, and which are established and maintained pursuant to,
Section 4.2(a), for the deposit of collections with respect to receivables
serviced by the Servicer, including the Receivables.
Losses: As defined in Section 8.2.
Monthly Period: With respect to a Payment Date or a Determination Date,
the calendar month immediately preceding the month in which such Payment Date
or Determination Date occurs (such calendar month being referred to as the
"related" Monthly Period with respect to such Payment Date or Determination
Date). With respect to an Accounting Date, the calendar month in which such
Accounting Date occurs is referred to herein as the "related" Monthly Period to
such Accounting Date.
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Monthly Records: All records and data maintained by the Servicer with
respect to the Receivables, including the following with respect to each
Receivable: the account number; the identity of the originating Dealer;
Obligor name; Obligor address; Obligor home phone number; Obligor business
phone number; original Principal Balance; original term; Annual Percentage Rate;
current Principal Balance; current remaining term; origination date; first
payment date; final scheduled payment date; next payment due date; date of most
recent payment; collateral description; days currently delinquent; number of
contract deferments (months) to date; amount of the Scheduled Receivables
Payment; current Insurance Policy expiration date; and past due late charges,
if any.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Motor Vehicle: A new or used automobile, van, minivan or light truck.
MSI: Military Services, Inc.
Net Loss Ratio: With respect to any Determination Date, the fraction
expressed as a percentage, the numerator of which is equal to 12 times the
excess of (A) the sum of Principal Balances plus accrued interest of all
Receivables (as of the related Accounting Date) which become Liquidated
Receivables during the related Monthly Period over (B) the Liquidation Proceeds
received by the Issuer during the related Monthly Period and the denominator of
which is equal to the Aggregate Principal Balance as of the related Accounting
Date.
Note Balance: Initially, the original principal amount of Notes issued by
the Issuer on the Closing Date, and as of any date of determination thereafter,
the aggregate Outstanding principal balance of the Notes, unless otherwise
specified, after giving effect to any distribution in respect of principal on
the Notes on or prior to such date.
Note Interest Rate: 6.62% per annum (computed on the basis of a 360-day
year of twelve 30-day months).
Note Majority: As of any date, Noteholders representing not less than 51%
of the Note Balance as of such date.
Note Payment Account: The account designated as such, established and
maintained pursuant to Section 4.1(b).
Note Pool Factor: With respect to any Payment Date, an eight-digit
decimal figure equal to the Note Balance as of such Payment Date divided by the
original Note Balance as of the Closing Date, taking into account disbursements
made on such Payment Date.
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Noteholders or Holders: Registered holders of Notes.
Noteholders' Excess Principal Payment Amount: (A) With respect to each
Payment Date on which an Insurer Default has occurred and is continuing, all
funds on deposit in the Spread Account (other than amounts pledged in
connection with another series of notes of the Issuer and after giving effect
to the payments set forth in Section 4.6(i)-(iv)) and (B) with respect to each
Payment Date (so long as an Insurer Default shall not have occurred and be
continuing) to the extent of Excess Amounts with respect to such Payment Date:
(1) if such Payment Date is a Trigger Date but an Insurance Agreement Event of
Default has not occurred as of such Payment Date, the lesser of (i) the amount
such that the Aggregate Principal Balance as of the related Determination Date,
plus the amount on deposit in the Spread Account on such Payment Date after
giving effect to deposits required to be made to and distributions to be made
from the Spread Account on such Payment Date in accordance with the terms of
the Spread Account Agreement minus the Note Balance (after giving effect to
distribution of the Noteholders' Principal Payment Amount with respect to such
Payment Date) is equal to 21% of the Aggregate Principal Balance as of the
related Determination Date and (ii) the Note Balance (after giving effect to
distribution of the Noteholders' Principal Payment Amount with respect to such
Payment Date); (2) if an Insurance Agreement Event of Default has occurred as
of such Payment Date, the Note Balance (after giving effect to distribution of
the Noteholders' Principal Payment Amount with respect to such Payment Date);
and (3) if such Payment Date is not a Trigger Date and an Insurance Agreement
Event of Default has not occurred as of such Payment Date, 0.
Noteholders' Interest Carryover Shortfall: With respect to any Payment
Date, the excess of the Noteholders' Monthly Interest Payment Amount for the
preceding Payment Date and any outstanding Noteholders' Interest Carryover
Shortfall on such preceding Payment Date, over the amount in respect of
interest that was actually deposited in the Note Payment Account on such
preceding Payment Date, plus interest on the amount of interest due but not
paid to Noteholders on the preceding Payment Date, to the extent permitted by
law, at the Note Interest Rate from such preceding Payment Date to the date
prior to the current Payment Date.
Noteholders' Interest Payment Amount: With respect to any Payment Date,
the sum of the Noteholders' Monthly Interest Payment Amount for such Payment
Date and the Noteholders' Interest Carryover Shortfall for such Payment Date.
Noteholders' Monthly Interest Payment Amount: With respect to any Payment
Date, 30 days' interest (or, in the case of the first Payment Date, interest
accrued from and including the Closing Date to but excluding such Payment Date)
at the Note Interest Rate on
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the Note Balance on the immediately preceding Payment Date, after giving
effect to all payments of principal to Noteholders on such Payment Date (or,
in the case of the first Payment Date, on the Closing Date).
Noteholders' Monthly Principal Payment Amount: With respect to any
Payment Date, the amount equal to the Noteholders' Percentage of the excess of
(i) the Aggregate Principal Balance as of the second preceding Accounting Date
(after giving effect to all payments of principal on the Receivables during the
related Monthly Period) or, with respect to the first Payment Date, the Cutoff
Date Principal Balance over (ii) the Aggregate Principal Balance as of the
immediately preceding Accounting Date (after giving effect to all payments of
principal on the Receivables during the related Monthly Period).
Noteholders' Percentage: 89%; provided, however, that the Noteholders'
Percentage with respect to any Payment Date which is a Trigger Date shall equal
100% to the extent the quotient (expresses as a percentage) of the Note Balance
divided by the Aggregate Principal Balance as of the immediately preceding
Accounting Date (after giving effect to all payments of principal on the
Receivables during the related Monthly Period) exceeds 89%.
Noteholders' Principal Carryover Shortfall: As of the close of any
Payment Date, the excess of the sum of the Noteholders' Monthly Principal
Payment Amount and any outstanding Noteholders' Principal Carryover Shortfall
from the preceding Payment Date over the amount in respect of principal that is
actually deposited in the Note Payment Account on such Payment Date.
Noteholders' Principal Payment Amount: With respect to any Payment Date
(other than the Final Scheduled Payment Date), the sum of the Noteholders'
Monthly Principal Payment Amount for such Payment Date, and any outstanding
Noteholders' Principal Carryover Shortfall as of the close of business on the
preceding Payment Date; provided, however, the Noteholders' Principal Payment
Amount shall not exceed the Note Balance prior to the distribution on such
Payment Date. The "Noteholders' Principal Payment Amount" on the Final
Scheduled Payment Date will equal the Note Balance on the Final Scheduled
Payment Date prior to the distribution on such Payment Date.
Notes: 6.62% Fixed Rate Automobile Loan Notes issued pursuant to the
Indenture.
Obligor: The purchaser or the co-purchasers of the Financed Vehicle and
any other Person or Persons who are primarily or secondarily obligated to make
payments under a Receivable.
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Opinion of Counsel: A written opinion of counsel (who may be counsel to
or an employee of the Servicer) acceptable in form and substance and from
counsel acceptable to the Issuer and, if such opinion or a copy thereof is
required to be delivered to the Trustee or the Security Insurer, reasonably
acceptable (as to form, substance and identity of counsel) to the Trustee or
the Security Insurer, as applicable.
Original Pool Balance: As of any date, the Cutoff Date Principal Balance.
Other Conveyed Property: All property, other than the Receivables,
conveyed by the applicable Seller to the Issuer pursuant to this Agreement as
set forth in Section 2.1(a)(2).
Outstanding: As defined in the Indenture.
Payment Amount: With respect to a Payment Date, the sum of (i) the
Available Funds for such Payment Date and (ii) the Deficiency Claim Amount, if
any, received by the Trustee with respect to such Payment Date.
Payment Date: The 15th day of each calendar month, or if such 15th day is
not a Business Day, the next succeeding Business Day, commencing July 15, 1997
and including the Final Scheduled Payment Date.
Person: Any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, estate, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof, or any other entity.
Placement Agency Agreement: The Placement Agency Agreement, dated as of
June 3, 1997 among the Sellers, the Issuer and the Placement Agent.
Placement Agent: Banc One Capital Corporation.
Policy: The financial guaranty insurance policy issued by the Security
Insurer to the Trustee on behalf of the Noteholders, Policy No. 50598-N,
including any endorsements thereto.
Principal Balance: With respect to any Receivable, as of any date, the
Amount Financed minus (i) that portion of all amounts received on or prior to
such date and allocable to principal in accordance with the terms of the
Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
Purchase Amount: With respect to a Receivable, the Principal Balance and
all accrued and unpaid interest on the Receivable as of
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the Accounting Date on which the obligation to purchase such Receivable arises.
Purchased Receivable: As of any Accounting Date, any Receivable
(including any Liquidated Receivable) that became a Warranty Receivable or
Administrative Receivable as of such Accounting Date (or which the Servicer
elected to purchase as of an earlier Accounting Date, as permitted by Section
2.5 or 3.7), and as to which the Purchase Amount has been deposited in the
Collection Account by the Servicer on or before the related Deposit Date.
Rating Agency: Each of Moody's and Standard & Poor's, so long as such
Persons maintain a rating on the Notes; and if either Moody's or Standard &
Poor's no longer maintains a rating on the Notes, such other nationally
recognized statistical rating organization selected by FEFG and the Note
Majority and (so long as an Insurer Default shall not have occurred and be
continuing) acceptable to the Security Insurer.
Receivable: A retail installment sale contract or promissory note (and
related security agreement) for a Motor Vehicle (and all accessories thereto)
that is included in any Schedule of Receivables, and all rights and obligations
under such a contract or note, but not including (1) any Liquidated Receivable
(other than for purposes of calculating Noteholders' Payment Amounts hereunder
and for the purpose of determining the obligations pursuant to Section 2.5 and
3.7 to purchase Receivables), or (2) any Purchased Receivable on or after the
Accounting Date immediately preceding the Deposit Date on which payment of the
Purchase Amount is made in connection therewith pursuant to Section 4.5.
Receivable File: The documents, electronic entries, instruments and
writings listed in Section 2.2 pertaining to a particular Receivable.
Receivables Purchase Price: $35,147,591.87.
Registrar of Titles: With respect to any state, the governmental agency
or body responsible for the registration of, and the issuance of certificates
of title relating to, motor vehicles and liens thereon.
Related Documents: The Indenture, this Agreement, the Notes, the Policy,
the Spread Account Agreement, the Insurance Agreement, the Administration
Agreement, the Stock Pledge Agreement and the Placement Agency Agreement. The
Related Documents executed by any party are referred to herein as "such party's
Related Documents," "its Related Documents" or by a similar expression.
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Repossessed Inventory Receivable: A Receivable (other than a Liquidated
Receivable or Purchased Receivable) for which the Financed Vehicle has been
repossessed.
Repossessed Inventory Receivables Ratio: With respect to any
Determination Date, the fraction expressed as a percentage, the numerator of
which is equal to the sum of the Gross Receivable Balances of all Repossessed
Inventory Receivables as of the related Accounting Date and the denominator of
which is the sum of the Gross Receivable Balances of all Receivables (other
than Liquidated Receivables and Purchased Receivables) as of the related
Accounting Date.
Required Deposit Rating: A rating on short-term unsecured debt
obligations of "P-1" by Moody's and at least "A-1" by Standard & Poor's (or
such other rating as may be acceptable to the Rating Agencies and the
Controlling Party).
Responsible Officer: When used with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Secretary or Assistant Secretary, or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to any other Person that is not an individual, the President,
any Vice-President or Assistant Vice-President or the Controller of such
Person, or any other officer or employee having similar functions.
Schedule of Receivables: With respect to each Seller, the schedule of
retail installment sales contracts and promissory notes sold and transferred to
the Issuer by such Seller pursuant to this Agreement which is attached hereto
as Schedule A and to the Indenture as Exhibit A, as such schedule may be
amended from time to time.
Schedule of Representations: The Schedule of Representations and
Warranties attached hereto as Schedule B.
Scheduled Receivables Payment: With respect to any Monthly Period for any
Receivable, the amount set forth in such Receivable as required to be paid by
the Obligor in such Monthly Period. If after the Closing Date, the Obligor's
obligation under a Receivable with respect to a Monthly Period has been
modified so as to differ from the amount specified in such Receivable as a
result of (i) the order of a court in an insolvency proceeding involving the
Obligor, (ii) pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940
or (iii) modifications or deferments of the Receivable permitted by Section
3.2(b), the Scheduled Receivables Payment with
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respect to such Monthly Period shall refer to the Obligor's payment obligation
with respect to such Monthly Period as so modified.
Security Insurer: Financial Security Assurance Inc., a monoline insurance
company incorporated under the laws of the State of New York, or any successor
thereto, as issuer of the Policy.
Series: Any series of securities issued by the Issuer in connection with
its purchase of additional pools of receivables from any Seller.
Servicer: First Enterprise Financial Group, Inc., an Illinois
corporation, its successor in interest pursuant to Section 8.2 or, after any
termination of the Servicer upon a Servicer Termination Event, the Backup
Servicer or any other successor Servicer.
Servicer Extension Notice: The notice delivered pursuant to Section 3.14.
Servicer Termination Event: An event described in Section 8.1.
Servicer's Certificate: With respect to each Determination Date, a
certificate, completed by and executed on behalf of the Servicer, in
accordance with Section 3.9, substantially in the form attached hereto as
Exhibit B.
Servicing Fee: With respect to any Monthly Period, the fee payable to the
Servicer for services rendered during such Monthly Period, which shall be equal
to one-twelfth of the Servicing Fee Rate multiplied by the Aggregate Principal
Balance with respect to the Determination Date falling in such Monthly Period;
provided, however, that for the first Payment Date, the Servicing Fee shall
equal the product of (i) 1/360, (ii) the number of days from the Cutoff Date
through the Accounting Date immediately preceding such Payment Date, (iii) the
Servicing Fee Rate, and (iv) the Aggregate Principal Balance as of the close of
business on such Accounting Date.
Servicing Fee Rate: 3.00% per annum, payable monthly at one-twelfth of
the annual rate.
Spread Account: The Series 1997-B Spread Account established and
maintained pursuant to the Spread Account Agreement.
Spread Account Agreement: The Master Spread Account Agreement, dated as
of June 1, 1996, among the Security Insurer, the Issuer, First Enterprise
Securitization Corp., FEFG, the Collateral Agent and the trustees specified
therein, as the same may be amended, supplemented or otherwise modified in
accordance with the terms thereof.
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Standard & Poor's: Standard & Poor's Ratings Services, or any successor
thereto.
Trigger Date: A Payment Date which occurs (i) on or after the date of
occurrence of a Trigger Event and prior to the date, if any, on which such
Trigger Event is Deemed Cured or (ii) on or after the date of occurrence of an
Insurance Agreement Event of Default.
Trigger Notice: As specified in Section 5.2.
Trust Accounts: The meaning specified in Section 4.1(c).
Trustee: The Person acting as Trustee under the Indenture, its successors
in interest and any successor Trustee under the Indenture.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
Warranty Receivable: With respect to any Monthly Period, a Receivable
(including any Liquidated Receivable) which the Servicer has become obligated
to repurchase pursuant to Section 2.5 on the Deposit Date with respect to such
Monthly Period.
Section I.2. Usage of Terms. With respect to all terms used in this
Agreement, the singular includes the plural and the plural the singular, words
importing any gender include the other gender, references to "writing" include
printing typing lithography, and other means of reproducing words in a visible
form; references to agreements and other contractual instruments 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 terms "include"
or "including" mean "include without limitation" or "including without
limitation."
Section I.3. Calculations. All calculations of the amount of interest
accrued on the Notes and all calculations of the amount of the Servicing Fee
shall be made on the basis of a 360-day year consisting of twelve 30-day
months. All references to the Principal Balance of a Receivable as of an
Accounting Date shall refer to the close of business on such day.
Section I.4. Section References. All references to Articles, Sections,
paragraphs, subsections, exhibits and schedules shall be to such portions of
this Agreement unless otherwise specified.
Section I.5. No Recourse. No recourse may be taken, directly or
indirectly, under this Agreement or any certificate or other writing delivered
in connection herewith or therewith, against any
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stockholder, officer, or director, as such, of any Seller, the Servicer,
the Trustee, the Backup Servicer or the Issuer or of any predecessor or
successor of any Seller, the Servicer, the Trustee, the Backup Servicer or the
Issuer. By way of clarification, the foregoing sentence shall not limit
recourse to any Seller for its obligations under this Agreement and the other
Related Documents.
Section I.6. Material Adverse Effect. Whenever a determination is to be
made under this Agreement as to whether a given event, action, course of
conduct or set of facts or circumstances could or would have a material
adverse effect on the Issuer or the Noteholders (or any similar or analogous
determination), such determination shall be made without taking into account
the insurance provided by the Policy.
ARTICLE II
CONVEYANCE OF RECEIVABLES AND OTHER CONVEYED PROPERTY
Section II.1. Purchase and Sale of Receivables and Other Conveyed
Property. On the Closing Date, subject to the terms and conditions of this
Agreement, each Seller agrees to sell to the Issuer, and the Issuer agrees to
purchase from such Seller, the Receivables identified on such Seller's Schedule
of Receivables and the Other Conveyed Property relating thereto. The
conveyance to the Issuer of such Receivables and Other Conveyed Property
relating thereto is intended as a sale free and clear of all liens and it is
intended that the property of the Issuer shall not be part of any Seller's
estate in the event of the filing of a bankruptcy petition by or against any
Seller under any bankruptcy or similar law.
(a) Transfer of Receivables and Other Conveyed Property. On the Closing
Date and simultaneously with the transactions to be consummated pursuant to the
Indenture, each Seller shall sell, transfer, assign, grant, set over and
otherwise convey to the Issuer, without recourse (subject to the obligations
herein), (1) all right, title and interest of such Seller in and to the
Receivables listed in the Schedule of Receivables delivered by such Seller, all
monies received thereunder after the Cutoff Date and all Liquidation Proceeds
and recoveries received with respect to such Receivables; and (2)(i) all right,
title and interest of such Seller in and to the security interests in the
Financed Vehicles granted by Obligors pursuant to the Receivables and any other
interest of such Seller in such Financed Vehicles, including, without
limitation, the certificates of title with respect to such Financed Vehicles;
(ii) all right, title and interest of such Seller in and to any proceeds from
claims on any repossession loss, physical damage, credit life and credit
accident and health insurance policies covering such Financed Vehicles or the
Obligors; (iii) all right, title and interest of such Seller in and to refunds
for the costs of service contracts with respect to such
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Financed Vehicles, refunds of unearned premiums with respect to credit life
and credit accident and health insurance policies covering an Obligor or
Financed Vehicle or his or her obligations with respect to a Financed Vehicle
and any recourse to Dealers for any of the foregoing; (iv) all right, title
and interest of such Seller under the Dealer Agreements and Dealer
Assignments as the same may relate to the Receivables; (v) the Receivable File
related to each Receivable; (vi) all right, title and interest of such Seller
in all funds on deposit in the Trust Accounts, and all investments and proceeds
thereof (including all income therein); and (vii) the proceeds of any and all
of the foregoing (collectively, the "Other Conveyed Property").
(b) Receivables Purchase Price. In consideration for the Receivables and
Other Conveyed Property described in Section 2.1(a), the Issuer shall, on the
Closing Date, pay to the Sellers the Receivables Purchase Price. An amount
equal to $2,812,235.01 and $28,767,975.93 of the Receivables Purchase Price
shall be paid to FEFG and FEAC, respectively, in cash by federal wire transfer
(same day) funds. The remaining $3,567,380.93 of the Receivables Purchase
Price shall be deemed paid and returned to the Issuer and be considered a
contribution to capital from FEFG.
(c) The Closing. The sale and purchase of the Receivables and the Other
Conveyed Property shall take place at a closing (the "Closing") at the offices
of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603 on
the Closing Date, simultaneously with the closing under the Indenture pursuant
to which the Issuer shall (i) grant all of its right, title and interest in and
to the Receivables and the Other Conveyed Property to the Trustee for the
benefit of the Noteholders and (ii) issue the Notes.
Section II.2. Custody of Receivable Files.
(a) In connection with the sale, transfer and assignment of the
Receivables and the Other Conveyed Property to the Issuer pursuant to this
Agreement and simultaneously with the execution and delivery of this Agreement,
the Trustee hereby revocably appoints FEFG (in its capacity as the Servicer) to
act as Custodian, and the Servicer hereby accepts such appointment, to act as
the agent of the Trustee as custodian of the following documents and/or
instruments in its possession which shall be delivered to the Custodian as
agent of the Trustee within ten days following the Closing Date (with respect
to each Receivable):
The original credit application, or a copy thereof, of each Obligor,
fully executed by each such Obligor on the applicable Seller's customary
form, or on a form approved by such Seller, for such application (the
"Applications").
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The Trustee may act as Custodian with respect to the foregoing documents
and/or instruments, and shall act as custodian with respect to the following
documents and/or instruments which shall be delivered to the Trustee on or
prior to the Closing Date (with respect to each Receivable):
(i) The fully executed original of the Receivable (together with
any agreements modifying the Receivable, as applicable, including without
limitation any deferment agreements); and
(ii) The original certificate of title (when received) and
otherwise such documents, if any, that the applicable Seller keeps on
file in accordance with its customary procedures indicating that the
Financed Vehicle is owned by the Obligor and subject to the interest of
such Seller as first lienholder or secured party (including any Lien
Certificate received by such Seller), or, if such original certificate of
title has not yet been received, a copy of the application therefor,
showing such Seller as secured party.
To the extent that the Trustee acts as Custodian, it shall be deemed to
have assumed the obligations of the Custodian specified in Article VI.
(b) Upon payment in full of any Receivable, the Servicer will notify the
Trustee pursuant to a certificate of an officer or authorized representative of
the Servicer (which certificate shall include a statement to the effect that
all amounts received in connection with such payments which are required to be
deposited in the Collection Account pursuant to Section 3.1 have been so
deposited) and shall request delivery of the Receivable and Receivable File to
the Servicer. From time to time as appropriate for servicing and enforcing any
Receivable, the Custodian or the Trustee, as the case may be, shall, upon
written request of an officer or authorized representative of the Servicer and
delivery to the Custodian or the Trustee, as the case may be, of a receipt
signed by such officer or authorized representative, cause the original
Receivable and/or the related Receivable File to be released to the Servicer.
The Servicer's receipt of a Receivable and/or Receivable File shall obligate
the Servicer to return the original Receivable and the related Receivable File
to the Custodian or the Trustee, as the case may be, when its need by the
Servicer has ceased unless the Receivable is repurchased as described in
Section 2.5 or 3.7.
Section II.3. Conditions Precedent.
(a) Conditions to Purchase and Issuance by Issuer. The Issuer's
obligation to purchase the Receivables and the Other Conveyed Property
hereunder and to execute and deliver the Notes on
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the Closing Date is subject to the satisfaction of the following conditions on
or before the Closing Date:
(i) Representations and Warranties True. The representations and
warranties of each Seller and the Servicer hereunder shall be true and correct
on the Closing Date with the same effect as if then made, and each Seller and
the Servicer shall have performed all obligations to be performed by it
hereunder on or prior to the Closing Date.
(ii) Computer Files Marked. Each Seller shall, at its own expense, on or
prior to the Closing Date, indicate in its computer files that the Receivables
have been sold to the Issuer pursuant to this Agreement and shall deliver to
the Issuer a Schedule of Receivables, certified by the Chairman, the President,
a Vice President or the Treasurer of such Seller to be true, correct and
complete.
(iii) Receivable Files Delivered. The Trustee shall, at FEFG's expense,
cause the Applications to be delivered to the Custodian within ten days
following the Closing Date.
(iv) Documents to be delivered by the Sellers at the Closing.
(A) The Assignment. At the Closing, each Seller will execute
and deliver an Assignment, dated as of June 1, 1997, in
substantially the form of Exhibit A hereto.
(B) Evidence of UCC-1 Filing. On or prior to the Closing
Date, each Seller shall record and file, at its own expense, a
UCC-1 financing statement in each jurisdiction in which required by
applicable law, executed by such Seller, as seller or debtor, and
naming the Issuer, as purchaser or secured party, naming the
Receivables and the Other Conveyed Property conveyed hereafter as
collateral, meeting the requirements of the laws of each such
jurisdiction and in such manner as is necessary to perfect the sale,
transfer, assignment and conveyance of such Receivables and Other
Conveyed Property to the Issuer. Each Seller shall deliver a
file-stamped copy, or other evidence satisfactory to the Trustee of
such filing, to the Trustee on or prior to the Closing Date.
(C) Evidence of Release of Liens. On or prior to the Closing
Date, each Seller shall have had estoppel and release letters and
related UCC-2 termination statements and/or UCC-3 amendment
statements (for each appropriate jurisdiction), to release all
security interests or
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similar rights of any Person in the Receivables and the Other
Conveyed Property, including without limitation, the security
interests in the Financed Vehicles securing the Receivables and any
proceeds of such security interests or the Receivables, executed by
each such Person and delivered to the Trustee. Upon closing, the
Trustee shall release such UCC-2 termination statements and/or UCC-3
amendment statements to each Seller for filing pursuant to Section
2.16.
(D) Resolutions. Copies of resolutions of the Board of
Directors of each Seller approving the execution, delivery and
performance of this Agreement, the Related Documents and the
transactions contemplated hereby and thereby, certified by a
Secretary or an Assistant Secretary of such Seller.
(E) Evidence of Other Filings. Evidence that all filings
(including, without limitation, UCC filings) required to be made by
any Person and actions required to be taken or performed by any
Person in any jurisdiction to give the Trustee a first priority
perfected lien on, or ownership interest in, the Receivables and
the Other Conveyed Property have been made, taken or performed.
(F) Policy and Spread Account Agreement. An executed copy of
the Policy and the Spread Account Agreement (including the
supplement thereto).
(G) Other Documents. At the closing, each Seller shall
deliver such other documents as the Issuer may reasonably request.
(v) Other Transactions. The transactions contemplated by the Indenture
and the Placement Agency Agreement shall be consummated on the Closing Date.
(b) Conditions to Obligation of each Seller. The obligation of each
Seller to sell the Receivables identified in such Seller's Schedule of
Receivables to the Issuer is subject to the satisfaction of the following
conditions:
(i) Representations and Warranties True. The representations and
warranties of the Issuer hereunder shall be true and correct on the Closing
Date with the same effect as if then made, and the Issuer shall have performed
all obligations to be performed by it hereunder on or prior to the Closing
Date.
(ii) Receivables Purchase Price. At the Closing Date, the Issuer will
deliver to the Sellers the Receivables Purchase Price as provided in Section
2.1(b). FEFG and FEAC hereby direct
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the Issuer to wire $2,812,235.01 and $28,767,975.93, respectively, of the
Receivables Purchase Price pursuant to wire instructions to be delivered to the
Issuer on or prior to the Closing Date.
Section II.4. Representations and Warranties of each Seller. Each Seller
makes the following representations and warranties on which the Issuer relies
in accepting the Receivables and the Other Conveyed Property and in executing
and issuing the Notes and upon which the Security Insurer relies in issuing the
Policy and upon which the Trustee has relied in authenticating the Notes.
Unless otherwise specified, such representations and warranties speak as of the
Closing Date, but shall survive the sale, transfer, and assignment of the
Receivables to the Issuer and the pledge thereof to the Trustee pursuant to the
Indenture.
(a) [Reserved].
(b) Organization and Good Standing. Such Seller has been duly organized
and is validly existing as a corporation in good standing under the laws of the
State of Illinois, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such business
is currently conducted, and had at all relevant times, and now has, power,
authority and legal right to acquire, own and sell the Receivables and the
Other Conveyed Property transferred to the Issuer.
(c) Due Qualification. Such 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 where the failure to do so would materially
and adversely affect (i) such Seller's ability to transfer the Receivables and
the Other Conveyed Property to the Issuer pursuant to this Agreement, (ii) the
validity or enforceability of the Receivables and the Other Conveyed Property
or (iii) such Seller's ability to perform its obligations hereunder and under
such Seller's Related Documents.
(d) Power and Authority. Such Seller has the power and authority to
execute and deliver this Agreement and its Related Documents and to carry out
its terms and their terms, respectively; such Seller has full power and
authority to sell and assign the Receivables and the Other Conveyed Property to
be sold and assigned to and deposited with the Issuer by it and has duly
authorized such sale and assignment to the Issuer by all necessary corporate
action; and the execution, delivery and performance by such Seller of this
Agreement and such Seller's Related Documents have been duly authorized by such
Seller by all necessary corporate action.
(e) Valid Sale, Binding Obligations. This Agreement effects a valid
sale, transfer and assignment of the Receivables and the Other Conveyed
Property, enforceable against such Seller and creditors of and purchasers from
such Seller; and this Agreement
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and such Seller's Related Documents, when duly executed and delivered, shall
constitute legal, valid and binding obligations of such Seller enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(f) No Violation. The consummation of the transactions contemplated by
this Agreement and the Related Documents and the fulfillment of the terms of
this Agreement and the Related Documents shall not conflict with, result in any
breach of any of the terms and provisions of or constitute (with or without
notice, lapse of time or both) a default under the articles of incorporation or
by-laws of such Seller, or any indenture, agreement, mortgage, deed of trust or
other instrument to which such Seller is a party or by which it or its
properties are bound, or result in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument, other than this Agreement, or
violate any law, order, rule or regulation applicable to such Seller of any
court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over such Seller or any
of its properties.
(g) No Proceedings. There are no proceedings or investigations pending
or threatened against such Seller before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over such Seller or its properties (A) asserting the invalidity of
this Agreement or any of the Related Documents, (B) seeking to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Related Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by such Seller of its obligations under, or the validity or
enforceability of, this Agreement or any of the Related Documents, or (D)
seeking to materially and adversely affect the federal income tax or other
federal, state or local tax attributes of the Notes.
(h) No Consents. No consent, approval, license, authorization or order of
or declaration or registration or filing with any governmental authority,
bureau or agency is required to be made by such Seller in connection with the
execution, delivery or performance of this Agreement or its Related Documents
or the consummation of the transactions contemplated hereby or thereby, except
such as have been duly made, effected or obtained.
(i) Chief Executive Office. The chief executive office of FEFG is at 500
Davis Street, Suite 1005, Evanston, Illinois 60201
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and of FEAC is at 1032 Highway 84 By Pass, Enterprise Alabama 36331.
Section II.5. Repurchase of Receivables Upon Breach of Warranty. Upon
discovery by any of the Sellers, the Servicer, the Security Insurer, the
Trustee or the Issuer of a breach of any of the representations and warranties
of the Servicer contained in Section 3.6(b)(ix), the party discovering such
breach shall give prompt written notice to the others; provided, however, that
the failure to give any such notice shall not affect any obligation of the
Servicer. As of the last day of the second month (or, at the Servicer's
election, the last day of the first month) following the month of the
Servicer's discovery or its receipt of notice of any breach of the
representations and warranties set forth on the Schedule of Representations
which materially and adversely affects the interests of the Noteholders, the
Security Insurer or the Issuer in any Receivable (including any Liquidated
Receivable) FEFG, as Servicer, shall, unless such breach shall have been cured
in all material respects, purchase such Receivable from the Issuer and, on or
before the related Deposit Date, pay the Purchase Amount to the Issuer
pursuant to Section 4.5. Upon knowledge of the Trustee that FEFG, as Servicer,
has failed to effect its repurchase obligation, the Trustee for the benefit of
the Noteholders shall enforce directly the obligation of FEFG, as Servicer, to
repurchase any Receivable materially and adversely affected by such a breach.
It is understood and agreed that, except as set forth in this Section 2.5, the
sole remedy of the Issuer, the Trustee on behalf of the Noteholders and the
Security Insurer with respect to a breach of FEFG's representations and
warranties pursuant to Section 3.6(b)(ix) shall be to require FEFG, as
Servicer, to repurchase Receivables pursuant to this Section 2.5.
In addition to the foregoing and notwithstanding whether the related
Receivable shall have been purchased by FEFG, as Servicer, FEFG, as Servicer,
shall indemnify the Issuer, the Trustee, the Backup Servicer, the Collateral
Agent, the Security Insurer, the Issuer and the Noteholders 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.
Section II.6. Issuer's Assignment of Administrative Receivables and
Warranty Receivables. With respect to all Administrative Receivables and all
Warranty Receivables purchased by the Servicer, the Issuer shall take any and
all actions reasonably requested by the Servicer, at the expense of the
requesting party, to assign, without recourse, representation or warranty, to
the Servicer all the Issuer's right, title and interest in and to such
purchased Receivable, all monies due thereon, the security interests in the
related Financed Vehicles,
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proceeds from any Insurance Policies, proceeds from recourse against
Dealers on such Receivables and the interests of the Issuer in certain rebates
of premiums and other amounts relating to the Insurance Policies and any
documents relating thereto, such assignment being an assignment outright and
not for security; and the Servicer shall thereupon own such Receivable, and all
such security and documents, free of any further obligation to the Issuer, the
Trustee, the Security Insurer or the Noteholders with respect thereto.
Section II.7. Collecting Lien Certificates. In the case of any
Receivable in respect of which written evidence from the Dealer selling the
related Financed Vehicle that the Lien Certificate for such Financed Vehicle
showing the applicable Seller as first lienholder has been applied for from the
Registrar of Titles was delivered to the Trustee in lieu of a Lien Certificate,
the Servicer shall use its best efforts to collect such Lien Certificate from
the Registrar of Titles as promptly as practicable. If such Lien Certificate
showing the applicable Seller as first lienholder is not received by the
Trustee within 180 days after the Closing Date then the representation and
warranty in paragraph 8 of the Schedule of Representations in respect of such
Receivable shall be deemed to have been incorrect in a manner that materially
and adversely affects the Noteholders, the Security Insurer and the Issuer.
Section II.8. Protection of Right, Title and Interest.
(a) Filings. Each Seller shall cause all financing statements and
continuation statements and any other necessary documents covering the right,
title and interest of the Issuer in and to the Receivables and the Other
Conveyed Property to be promptly filed, and at all times to be kept recorded,
registered and filed, all in such manner and in such places as may be required
by law fully to preserve and protect the right, title and interest of the
Issuer hereunder to the Receivables and the Other Conveyed Property. Each
Seller shall deliver to the Issuer (with copies to the Security Insurer and the
Trustee) file stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recordation, registration or filing. The Issuer shall cooperate fully with
such Seller in connection with the obligations set forth above and will execute
any and all documents reasonably required to fulfill the intent of this Section
2.8(a). In the event such Seller fails to perform its obligations under this
subsection, the Issuer or the Trustee may do so at the expense of such Seller.
(b) Name and Other Changes. At least 60 days prior to the date any
Seller makes any change in its name, identity or corporate structure which
would make any financing statement or continuation statement filed in
accordance with subsection (a) above seriously
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misleading within the applicable provisions of the UCC or any title statute,
such Seller shall give the Trustee, the Issuer and the Security Insurer (so
long as an Insurer Default shall not have occurred and be continuing) written
notice of any such change and no later than five days after the effective date
thereof, shall file appropriate amendments to all previously filed financing
statements or continuation statements. At least 60 days prior to the date of
any relocation of its principal executive office, such Seller shall give the
Trustee, the Issuer and the Security Insurer (so long as an Insurer Default
shall not have occurred and be continuing) written notice thereof 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 and such Seller shall within five
days after the effective date thereof, file any such amendment or new financing
statement. Promptly after taking the foregoing actions, such Seller shall
deliver to the Issuer, the Trustee and the Security Insurer (so long as an
Insurer Default shall not have occurred and be continuing), 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 Issuer and the
Trustee in the Receivables and the Other Conveyed Property, 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 is necessary to preserve and protect such interest. Each Seller shall
at all times maintain each office from which it shall service Receivables, and
its principal executive office, within the United States of America.
(c) Accounts and Records. Each Seller shall maintain accounts and
records as to each Receivable sold by it hereunder accurately and in sufficient
detail to permit 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).
(d) Maintenance of Computer Systems. Each Seller shall maintain its
computer systems so that, from and after the time of sale hereunder of the
Receivables by it to the Issuer, such Seller's master computer records
(including any back-up archives) that refer to any such Receivable shall
indicate clearly the interest of the Issuer and the Trustee in such Receivable
and that such Receivable is owned by the Issuer. Indication of the Issuer's
ownership of such Receivable shall be deleted from or modified on such Seller's
computer systems when, and only when, such Receivable shall have been paid in
full or repurchased.
(e) Sale of Other Receivables. If at any time any Seller shall propose
to sell, grant a security interest in, or otherwise transfer any interest in
any retail installment contract (other
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than the Receivables) to any prospective purchaser, lender, or other
transferee, such Seller 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 Issuer and pledged to the Trustee unless such Receivable has
been paid in full or repurchased.
(f) Access to Records. Each Seller shall permit the Issuer, the Security
Insurer, the Trustee, the Backup Servicer and their respective agents at any
time during normal business hours to inspect, audit, and make copies of and
abstracts from the Issuer's records regarding any Receivable.
(g) List of Receivables. Upon request, each Seller shall furnish to the
Trustee or the Security Insurer, within five (5) Business Days, a list of all
Receivables (by contract number and name of Obligor) sold by it hereunder and
then owned by the Issuer, together with a reconciliation of such list to each
Schedule of Receivables.
Section II.9. Costs and Expenses. Each Seller agrees to pay all
reasonable costs and disbursements in connection with the performance of its
obligations hereunder and under its Related Documents.
Section II.10. Delivery of Receivable Files. On or prior to the Closing
Date, each Seller shall cause the Receivable Files with respect to the
Receivables sold by it hereunder to be delivered to the Trustee.
Section II.11. Restrictions on Liens. No Seller shall (i) create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any Lien on, or restriction
on transferability of, the Receivables, except for the Lien in favor of the
Trustee, for the benefit of the Noteholders, the Lien imposed by the Spread
Account Agreement in favor of the Collateral Agent for the benefit of the
Trustee and Financial Security and the restrictions on transferability imposed
by this Agreement or (ii) sign or file under the UCC of any jurisdiction any
financing statement which names such Seller or the Issuer as a debtor, or sign
any security agreement authorizing any secured party thereunder to file such
financing statement, with respect to the Receivables, except in each case any
such instrument solely securing the rights and preserving the Lien of the
Trustee, for the benefit of the Noteholders and the Security Insurer. Each
Seller shall defend the right, title and interest of the Issuer in, to and
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under the Receivables against all claims of third parties claiming through or
under such Seller.
Section II.12. Sale. Each Seller agrees to treat this conveyance for all
purposes (including without limitation tax and financial accounting purposes)
as a sale on all relevant books, records, tax returns, financial statements and
other applicable documents; provided, however, that the foregoing shall not
prevent the Issuer from being included in the consolidated financial statements
of FEFG. On and after the Closing Date, the Issuer shall own the Receivables
and the Other Conveyed Property and no Seller shall take any action
inconsistent with such ownership or claim any ownership interest in any such
Receivables or Other Conveyed Property.
Section II.13. Indemnification By Each Seller.
(a) Each Seller shall defend, indemnify and hold harmless the Issuer, the
Trustee, the Security Insurer, the Servicer, the Backup Servicer and the
Noteholders for any liability as a result of the failure of a Receivable listed
on the Schedule of Receivables delivered by such Seller to be originated in
compliance with all requirements of law and for any breach of any of its
representations and warranties contained herein;
(b) Each Seller shall defend, indemnify and hold harmless the Issuer, the
Trustee, the Security Insurer, the Servicer, the Backup Servicer and the
Noteholders 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 such Seller or any Affiliate thereof of a Financed Vehicle;
(c) The Sellers, jointly and severally, shall defend, indemnify, and hold
harmless the Issuer, the Trustee, the Security Insurer, the Servicer, the
Backup Servicer and the Noteholders from and against any and all taxes, except
for taxes on the net income of the Issuer, the Trustee, the Security Insurer,
the Servicer, the Backup Servicer and the Noteholders, that may at any time be
asserted against the Issuer, the Trustee, the Security Insurer, the Servicer,
the Backup Servicer and the Noteholders, with respect to the transactions
contemplated herein, including, without limitation, any sales, gross receipts,
general corporation, tangible or intangible personal property, privilege, or
license taxes and costs and expenses in defending against the same;
(d) Each Seller agrees to pay, and to defend, indemnify and hold harmless
the Issuer, the Trustee, the Security Insurer, the Servicer, the Backup
Servicer and the Noteholders from, any taxes which may at any time be asserted
against such Persons with respect to, and as of the date of, the conveyance or
ownership of the Receivables listed on the Schedule of Receivables delivered by
such
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Seller or the Other Conveyed Property hereunder or the assignment of such
Receivables or the Other Conveyed Property under the Indenture or the issuance
and original sale of the Notes, including, without limitation, any sales, gross
receipts, personal property, tangible or intangible personal property,
privilege or license taxes (but not including any federal or other income
taxes, including franchise taxes, arising out of the transactions contemplated
hereby or transfer taxes arising in connection with the transfer of Notes) and
costs and expenses in defending against the same;
(e) FEFG shall defend, indemnify and hold harmless, the Issuer, the
Trustee, the Security Insurer, the Servicer, the Backup Servicer and the
Noteholders from and against any loss, liability or expense incurred by reason
of the violation by each Seller of federal or state securities laws in
connection with the registration or the sale of the Notes;
(f) Each Seller shall defend, indemnify and hold harmless, the Issuer,
the Trustee, the Security Insurer, the Servicer, the Backup Servicer and the
Noteholders from and against any loss, liability or expense imposed upon, or
incurred by, the Issuer, the Trustee, or Noteholders as a result of the failure
of any Receivable listed on the Schedule of Receivables delivered by such
Seller or any Other Conveyed Property, or the sale of the related Financed
Vehicle, to comply with all requirements of applicable law; and
(g) Each Seller shall defend, indemnify, and hold harmless the Issuer,
the Trustee, the Security Insurer, the Servicer, the Backup Servicer and the
Noteholders from and against any and all costs, expenses, losses, damages,
claims and liabilities to the extent that such cost, expense, loss, damage,
claim or liability arose out of, or was imposed upon the Issuer, the Trustee,
the Security Insurer, the Servicer, the Backup Servicer or the Noteholders
through, the negligence, misfeasance, or bad faith of such Seller in the
performance of its duties under this Agreement, or by reason of disregard of
such Seller's obligations and duties under this Agreement;
(h) Notwithstanding the indemnity provisions contained in Sections
2.13(a)-(g) above, no Seller shall be required to indemnify the Issuer, the
Trustee, the Security Insurer, the Servicer, the Backup Servicer or the
Noteholders against any tax, costs, expenses, losses, damages, claims or
liabilities to the extent the same shall be due to (i) the misfeasance, bad
faith or gross negligence of such party, or (ii) (except as to the Trustee)
recourse for uncollectible or uncollected Receivables.
Indemnification under this Section shall survive the termination of this
Agreement and shall include fees and expenses
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of litigation. These indemnity obligations shall be in addition to any
obligation that any Seller may otherwise have.
Section II.14. Representations and Warranties of the Issuer. The Issuer
hereby represents and warrants to each Seller as of the date of its
incorporation and as of the Closing Date:
(a) Organization and Good Standing. The Issuer 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 and the
Other Conveyed Property and to pledge the Receivables and the Other Conveyed
Property to the Trustee pursuant to the Indenture.
(b) Due Qualification. The Issuer is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions where the failure to do so would materially
and adversely affect (i) the Issuer's ability to pledge the Receivables and the
Other Conveyed Property to the Trustee pursuant to the Indenture, (ii) the
validity or enforceability of the Receivables and the Other Conveyed Property
or (iii) the Issuer's ability to perform its obligations hereunder and under
the Related Documents.
(c) Power and Authority. The Issuer has the power and authority to
execute and deliver this Agreement and its Related Documents and to carry out
the terms hereof and thereof; and the execution, delivery and performance of
this Agreement and its Related Documents have been duly authorized by the
Issuer by all necessary corporate action.
(d) Binding Obligation. Each of this Agreement and the Related Documents
to which the Issuer is a party shall constitute a legal, valid and binding
obligation of the Issuer enforceable in accordance with its terms and the terms
of the Related Documents to which the Issuer is a party.
(e) No Violation. The execution, delivery and performance by the Issuer
of this Agreement and its Related Documents and the consummation of the
transactions contemplated hereby and thereby and the fulfillment of the terms
hereof and thereof do not and will not conflict with, result in a breach of any
of the terms and provisions of, nor constitute (with or without notice or lapse
of time) a default under, the articles of incorporation, as amended, or by-laws
of the Issuer, or any indenture, agreement, mortgage, deed of trust, or other
instrument to which the Issuer is a party or by which it is bound or any of its
properties are subject; nor result in the creation or imposition of any Lien
upon any of its
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properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust, or other instrument; nor violate any law, order, rule or
regulation applicable to the Issuer or its properties of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Issuer or its properties.
(f) No Proceedings. There are no proceedings or investigations pending or
threatened before any court, regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Issuer or its
properties: (i) asserting the invalidity of this Agreement or any of the
Related Documents; (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Related Documents;
(iii) seeking any determination or ruling that might materially and adversely
affect the performance by the Issuer of its obligations under, or the validity
or enforceability of, this Agreement or any of the Related Documents; or (iv)
that may materially and adversely affect the federal, state or local income,
excise, franchise or similar tax attributes of, or seeking to impose any
excise, franchise, transfer or similar tax upon, the transfer and acquisition
of the Receivables and the Other Conveyed Property hereunder or the pledge
of the Receivables and the Other Conveyed Property to the Trustee under
the Indenture.
(g) No Consents. No consent, approval, license, authorization or order of
or declaration or registration or filing with any governmental authority,
bureau or agency is required in connection with the execution, delivery or
performance of this Agreement or its Related Documents or the consummation of
the transactions contemplated hereby or thereby, except such as have been duly
made, effected or obtained.
Section II.15. Nonpetition Covenant. Until the date that is one year and
one day following the payment in full of all amounts due in respect of the
Notes, none of the Servicer, the Issuer, the Backup Servicer nor any Seller
shall petition or otherwise invoke the process of any court or government
authority for the purpose of commencing or sustaining a case against the Issuer
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 Issuer or any substantial part of its respective
property, or ordering the winding up or liquidation of the affairs of the
Issuer.
Section II.16. Covenants Regarding UCC-2 and UCC-3 Filing. Within two
Business Days following the Closing Date, each Seller and the Issuer shall
cause to be recorded and filed, at its own expense, UCC-2 termination
statements and UCC-3 amendment statements in each jurisdiction in which
required by applicable law, meeting the requirements of the laws of each such
jurisdiction
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and in such manner as is necessary to release all security interests or
similar rights of any Person in the Receivables and the Other Conveyed Property
sold by it, including without limitation, the security interests in the
Financed Vehicles securing such Receivables and any proceeds of such security
interests or the Receivables. Each Seller or the Issuer shall (i) confirm to
the Trustee within three Business Days following the Closing Date that such
Seller or the Issuer has received oral confirmation of such filing from each
applicable jurisdiction and (ii) deliver a file-stamped copy, or other evidence
satisfactory to the Trustee of such filing, to the Trustee within ten Business
Days following the Closing Date.
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section III.1. Duties of the Servicer. The Servicer is hereby authorized
to act as agent for the Issuer and in such capacity shall manage, service,
administer and make collections on the Receivables, and perform the other
actions required by the Servicer under this Agreement. The Servicer agrees
that its servicing of the Receivables shall be carried out in accordance with
customary and usual procedures of institutions which service motor vehicle
retail installment sales contracts and, to the extent more exacting, the degree
of skill and attention that the Servicer exercises from time to time with
respect to all comparable Motor Vehicle receivables that it services for
itself. In performing such duties, so long as FEFG is the Servicer, it shall
comply with its current servicing policies and procedures, as such servicing
policies and procedures may be amended from time to time, so long as such
amendments will not materially adversely affect the interests of the
Noteholders. The Servicer's duties shall include, without limitation,
collection and posting of all payments, responding to inquiries of Obligors on
the Receivables, investigating delinquencies, sending payment coupons to
Obligors, reporting any required tax information to Obligors, monitoring the
collateral, accounting for collections and furnishing monthly and annual
statements to the Issuer, the Trustee and the Security Insurer with respect to
distributions, monitoring the status of Insurance Policies with respect to the
Financed Vehicles and performing the other duties specified herein. The
Servicer shall also administer and enforce all rights and responsibilities of
the holder of the Receivables provided for in the Dealer Agreements (and shall
maintain possession of the Dealer Agreements, to the extent it is necessary to
do so), the Dealer Assignments and the Insurance Policies, to the extent that
such Dealer Agreements, Dealer Assignments and Insurance Policies relate to the
Receivables, the Financed Vehicles or the Obligors. To the extent consistent
with the standards, policies and procedures otherwise required hereby, the
Servicer shall follow its customary standards,
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policies, and procedures and shall have full power and authority, acting alone,
to do any and all things in connection with such managing, servicing,
administration and collection that it may deem necessary or desirable. Without
limiting the generality of the foregoing, the Servicer is hereby authorized and
empowered by the Issuer to execute and deliver, on behalf of the Issuer, any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to the
Receivables and with respect to the Financed Vehicles. The Servicer is hereby
authorized to commence, in its own name or in the name of the Issuer (provided
the Servicer has obtained the Issuer's consent, which consent shall not be
unreasonably withheld), a legal proceeding to enforce a Receivable pursuant to
Section 3.3 or to commence or participate in any other legal proceeding
(including, without limitation, a bankruptcy proceeding) relating to or
involving a Receivable, an Obligor or a Financed Vehicle. If the Servicer
commences or participates in such a legal proceeding in its own name, the
Issuer shall thereupon be deemed to have automatically assigned such Receivable
to the Servicer solely for purposes of commencing or participating in any such
proceeding as a party or claimant, and the Servicer is authorized and empowered
by the Issuer to execute and deliver in the Servicer's name any notices,
demands, claims, complaints, responses, affidavits or other documents or
instruments in connection with any such proceeding. The Issuer shall furnish
the Servicer with any powers of attorney and other documents which the Servicer
may reasonably request and which the Servicer deems necessary or appropriate
and take any other steps which the Servicer may deem necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
under this Agreement.
Section III.2. Collection of Receivable Payments; Modifications of
Receivables.
(a) Consistent with the standards, policies and procedures required by
this Agreement, the Servicer shall make reasonable 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 Motor Vehicle receivables that it
services for itself and otherwise act with respect to the Receivables, the
Dealer Agreements, the Dealer Assignments, the Insurance Policies and the Other
Conveyed Property in such manner as will, in the reasonable judgment of the
Servicer, maximize the amount to be received by the Issuer with respect
thereto. The Servicer is authorized in its discretion to waive any prepayment
charge, late payment charge or any other similar fees that may be collected in
the ordinary course of servicing any Receivable.
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(b) The Servicer may at any time agree to a modification or amendment of
a Receivable in order to (i) change the Obligor's regular due date to a date
within the Monthly Period in which such due date occurs or (ii) re-amortize the
Scheduled Receivables Payments on the Receivable following a partial prepayment
of principal.
(c) The Servicer may grant payment deferments on, or other modifications
or amendments to, a Receivable (in addition to those modifications permitted by
Section 3.2(b)) in accordance with its customary procedures if the Servicer
believes in good faith that such deferment, modification or amendment is
necessary to avoid a default on such Receivable, will maximize the amount to be
received by the Issuer with respect to such Receivable, and is otherwise in the
best interests of the Issuer; provided, however, that:
(i) In no event may a Receivable be deferred for more than two
one-month periods during any calendar year;
(ii) In no event may a Receivable be deferred more than five times;
(iii) In no event may a Receivable be deferred beyond the Monthly
Period immediately preceding the Final Scheduled Payment Date; and
(iv) So long as an Insurer Default shall not have occurred and be
continuing, the Servicer shall not amend or modify a Receivable (except
as provided in Section 3.2(b) and this Section 3.2(c)) without the
consent of the Security Insurer or a Note Majority (if an Insurer Default
shall have occurred and be continuing).
(d) In the case of Obligors whose payments are administered by MSI, the
Servicer shall obtain a written acknowledgment from MSI on or before the
Closing Date that all payments on Receivables administered by MSI shall be
deposited into a Local Collection Account.
Notwithstanding any third-party processing arrangement, or any of the
provisions of this Agreement relating to any third-party processing
arrangement, the Servicer shall remain obligated and liable to the Issuer,
Trustee, the Security Insurer and Noteholders for servicing and administering
the Receivables and the Other Conveyed Property in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue thereof.
(e) The Servicer shall remit all payments by or on behalf of the Obligors
received directly by the Servicer to the Local Collection Accounts for deposit
into the Collection Account, in
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either case, without deposit into any intervening account and as soon as
practicable, but in no event later than the Business Day after receipt thereof.
Section III.3. Realization Upon Receivables.
(a Consistent with the standards, policies and procedures required by
this Agreement, the Servicer shall use its best efforts to repossess (or
otherwise comparably convert the ownership of) and liquidate any Financed
Vehicle securing a Receivable with respect to which the Servicer has determined
that payments thereunder are not likely to be resumed, as soon as is
practicable after default on such Receivable but in no event later than the
date on which all or any portion of a Scheduled Receivables Payment has become
91 days delinquent; provided, however, that the Servicer may elect not to
repossess a Financed Vehicle within such time period if it determines that the
proceeds ultimately recoverable with respect to such Receivable would be
increased by forbearance. The Servicer is authorized to follow such customary
practices and procedures as it shall deem necessary or advisable, consistent
with the standard of care required by Section 3.1, which practices and
procedures may include reasonable efforts to realize upon any recourse to
Dealers, the sale of the related Financed Vehicle at public or private sale,
the submission of claims under an Insurance Policy and other actions by the
Servicer in order to realize upon such a Receivable. The foregoing is 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 any
repair or towards the repossession of such Financed Vehicle unless it shall
determine in its discretion that such repair and/or repossession shall increase
the proceeds of liquidation of the related Receivable by an amount greater than
the amount of such expenses. All amounts received upon liquidation of a
Financed Vehicle shall be remitted directly by the Servicer to the Local
Collection Accounts without deposit into any intervening account as soon as
practicable, but in no event later than the Business Day after receipt thereof.
The Servicer shall be entitled to recover all reasonable expenses incurred by
it in the course of repossessing and liquidating a Financed Vehicle into cash
proceeds, but only out of the cash proceeds of such Financed Vehicle, any
deficiency obtained from the Obligor or any amounts received from the related
Dealer, which amounts in reimbursement may be retained by the Servicer (and
shall not be required to be deposited as provided in Section 3.2(e)) to the
extent of such expenses. The Servicer shall pay on behalf of the Issuer any
personal property taxes assessed on repossessed Financed Vehicles. The
Servicer shall be entitled to reimbursement of any such tax from Liquidation
Proceeds with respect to such Receivable.
(b If the Servicer elects to commence a legal proceeding to enforce a
Dealer Agreement or Dealer Assignment, the act of
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commencement shall be deemed to be an automatic assignment from the Issuer
to the Servicer of the rights under such Dealer Agreement and Dealer Assignment
for purposes of collection only. If, however, in any enforcement suit or legal
proceeding it is held that the Servicer may not enforce a Dealer Agreement or
Dealer Assignment on the grounds that it is not a real party in interest or a
Person entitled to enforce the Dealer Agreement or Dealer Assignment, the
Issuer, at the Servicer's expense, shall take such steps as the Servicer deems
necessary to enforce the Dealer Agreement or Dealer Assignment, including
bringing suit in its name or the name of any Seller or of the Issuer and the
Trustee for the benefit of the Issuer Secured Parties. All amounts recovered
under this Section shall be remitted directly by the Servicer as provided in
Section 3.2(e). Notwithstanding the foregoing, if FEFG is not the Servicer, the
successor Servicer shall be entitled to reimbursement out of recoveries for all
expenses of enforcing any Dealer Agreement or Dealer Assignment.
Section III.4. Insurance.
The Servicer may sue to enforce or collect upon the Insurance Policies, in
its own name, if possible, or as agent of the Issuer. If the Servicer elects
to commence a legal proceeding to enforce an Insurance Policy, the act of
commencement shall be deemed to be an automatic assignment of the rights of the
Issuer under such Insurance Policy to the Servicer for purposes of collection
only. If, however, in any enforcement suit or legal proceeding it is held that
the Servicer may not enforce an Insurance Policy on the grounds that it is not
a real party in interest or a holder entitled to enforce the Insurance Policy,
the Issuer, at the Servicer's expense, shall take such steps as the Servicer
deems necessary to enforce such Insurance Policy, including bringing suit in
its name or the name of the Issuer and the Trustee for the benefit of the
Noteholders and the Security Insurer. Notwithstanding the foregoing, if FEFG
is not the Servicer, the successor Servicer shall be entitled to reimbursement
out of recoveries for all expenses of enforcing any Insurance Policy.
Section III.5. Maintenance of Security Interests in Vehicles.
(a Consistent with the policies and procedures required by this
Agreement, the Servicer shall take such steps on behalf of the Issuer as are
necessary to maintain perfection of the first priority 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-filing, and re-registering of all
security agreements, financing statements and continuation statements as are
necessary to maintain the security interest granted by the Obligors under the
respective Receivables. The Trustee hereby authorizes the Servicer, and the
Servicer agrees, to take any and all steps
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necessary to re-perfect such security interest on behalf of the Issuer as
necessary because of the relocation of a Financed Vehicle or for any other
reason. In the event that the assignment of a Receivable to the Issuer is
insufficient, without a notation on the related Financed Vehicle's certificate
of title, or without fulfilling any additional administrative requirements
under the laws of the state in which the Financed Vehicle is located, to
perfect a first priority security interest in the related Financed Vehicle in
favor of the Trustee, the Servicer hereby agrees that the applicable Seller's
designation as the secured party on the certificate of title is in its capacity
as agent of the Trustee.
(b Upon the occurrence of an Insurance Agreement Event of Default, the
Security Insurer may (so long as an Insurer Default shall not have occurred and
be continuing) instruct the Trustee and the Servicer to take or cause to be
taken, or, if an Insurer Default shall have occurred, upon the occurrence of a
Servicer Termination Event, the Trustee and the Servicer shall take or cause to
be taken such action as may, in the opinion of counsel to the Controlling
Party, be necessary to perfect or re-perfect the security interests in the
Financed Vehicles securing the Receivables in the name of the Issuer by
amending the title documents of such Financed Vehicles or by such other
reasonable means as may, in the opinion of counsel to the Controlling Party, be
necessary or prudent. Each Seller hereby agrees to pay all expenses related to
such perfection or re-perfection and to take all action necessary therefor. In
addition, prior to the occurrence of an Insurance Agreement Event of Default,
the Controlling Party may instruct the Trustee and the Servicer to take or
cause to be taken such action as may, in the opinion of counsel to the
Controlling Party, be reasonably necessary to perfect or re-perfect the
security interest in the Financed Vehicles underlying the Receivables in the
name of the Issuer, including by amending the title documents of such Financed
Vehicles or by such other reasonable means as may, in the opinion of counsel
to the Controlling Party, be necessary or prudent; provided, however, that if
the Controlling Party requests that the title documents be amended prior to
the occurrence of an Insurance Agreement Event of Default, the out-of-pocket
expenses of the Servicer or the Trustee in connection with such action shall
be reimbursed to the Servicer or the Trustee, as applicable, by the
Controlling Party. Each Seller hereby appoints the Trustee as its
attorney-in-fact to take any and all steps required to be performed by such
Seller pursuant to this Section 3.5(b), including execution of certificates of
title or any other documents in the name and stead of such Seller, and the
Trustee hereby accepts such appointment.
Section III.6. Covenants, Representations and Warranties of Servicer.
The Servicer makes the following representations, warranties and covenants on
which the Issuer relies in accepting the Receivables and issuing the Notes, on
which the Trustee relies
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in authenticating the Notes and on which the Security Insurer relies in
issuing the Policy.
(a The Servicer covenants as follows:
(i Liens in Force. The Financed Vehicle securing each
Receivable shall not be released in whole or in part from the
security interest granted by the Receivable, except upon payment in
full of the Receivable or as otherwise contemplated herein;
(ii No Impairment. The Servicer shall do nothing to impair
the rights of the Issuer or the Trustee for the benefit of the
Noteholders and the Security Insurer in the Receivables, the Dealer
Agreements, the Dealer Assignments, the Insurance Policies or the
Other Conveyed Property;
(iii No Amendments. The Servicer shall not defer or
otherwise amend the terms of any Receivable, except in accordance
with Section 3.2; and
(iv Restrictions on Liens. The Servicer shall not (i)
create, incur or suffer to exist, or agree to create, incur or
suffer to exist, or consent to cause or permit in the future
(upon the happening of a contingency or otherwise) the creation,
incurrence or existence of any Lien or restriction on
transferability of the Receivables except for the Lien in favor of
the Trustee for the benefit of the Noteholders and the Security
Insurer, the Lien imposed by the Spread Account Agreement in favor
of the Collateral Agent for the benefit of the Trustee and
Financial Security, and the restrictions on transferability
imposed by this Agreement; provided, however, that the Servicer
(if FEFG is not the Servicer) shall only be liable for any losses,
costs or expenses resulting from any Lien arising from any action
or omission of the Servicer, or (ii) sign or file under the UCC of
any jurisdiction any financing statement which names any Seller,
the Servicer or the Issuer as a debtor, or sign any security
agreement authorizing any secured party thereunder to file such
financing statement, with respect to the Receivables, except in
each case any such instrument solely securing the rights and
preserving the Lien of the Trustee for the Noteholders and the
Security Insurer.
(b FEFG, as Servicer, represents, warrants and covenants as to
itself and the Receivables as of the Closing Date:
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(i Organization and Good Standing. The Servicer has been
duly organized and is validly existing and in good standing under
the laws of its jurisdiction of organization, with power, authority
and legal right to own its properties and to conduct its business
as such properties are currently owned and such business is
currently conducted, and had at all relevant times, and now has,
power, authority and legal right to enter into and perform its
obligations under this Agreement;
(ii 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) requires or shall require such qualification;
(iii Power and Authority. The Servicer has the power and
authority to execute and deliver this Agreement and its Related
Documents and to carry out its terms and their terms, respectively,
and the execution, delivery and performance of this Agreement and
the Servicer's Related Documents have been duly authorized by the
Servicer by all necessary corporate action;
(iv Binding Obligation. This Agreement and the Servicer's
Related Documents shall constitute legal, valid and binding
obligations of the Servicer enforceable in accordance with their
respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights generally and by
equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a
proceeding in equity or at law;
(v No Violation. The consummation of the transactions
contemplated by this Agreement and the Servicer's Related
Documents, and the fulfillment of the terms of this Agreement and
the Servicer's Related Documents, shall not conflict with, result
in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Servicer, or any
indenture, agreement, mortgage, deed of trust or other instrument
to which the Servicer is a party or by which it or its properties
are bound, or result in the creation or imposition of any Lien upon
any of its properties pursuant to the terms of any such
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indenture, agreement, mortgage, deed of trust or other instrument,
other than this Agreement, or violate any law, 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 any of its properties;
(vi No Proceedings. There are no proceedings or
investigations pending or, to the best of the Servicer's knowledge,
threatened against the Servicer, before any court, regulatory body,
administrative agency or other tribunal or governmental
instrumentality having jurisdiction over the Servicer or its
properties (A) asserting the invalidity of this Agreement or any of
the Related Documents, (B) seeking to prevent the issuance of the
Notes or the consummation of any of the transactions contemplated
by this Agreement or any of the Related Documents, (C) 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 any of the Related
Documents or (D) seeking to adversely affect the federal income tax
or other federal, state or local tax attributes of the Notes;
(vii No Consents. The Servicer is not required to obtain
the consent of any other party or any consent, license, approval or
authorization, or registration or declaration with, any
governmental authority, bureau or agency in connection with the
execution, delivery, performance, validity or enforceability of
this Agreement which has not already been obtained;
(viii Information to Backup Servicer. The Servicer
represents and warrants to the Backup Servicer that the database
and information furnished to the Backup Servicer hereunder
concerning the Receivables is accurate and complete in all material
respects; and
(ix Schedule of Representations. The representations and
warranties set forth on the Schedule of Representations attached
hereto as Schedule B are true and correct.
(c The Servicer covenants and agrees:
(i Database File. The Servicer will provide the Backup
Servicer with a magnetic tape or disk containing the database file
for each Receivable (i) as of the Cutoff Date, (ii) thereafter, as
of the last day of the preceding Monthly Period on each
Determination Date prior
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to a Servicer Termination Event and (iii) on and as of the
Business Day before the actual commencement of servicing functions
by the Backup Servicer following the occurrence of a Servicer
Termination Event.
(ii Backup Servicer Indemnification. The Servicer (if FEFG
is the Servicer) shall defend, indemnify and hold the Backup
Servicer and any officers, directors, employees or agents of the
Backup Servicer harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs,
judgments and any other costs, fees, and expenses that the Backup
Servicer may sustain in connection with claims asserted at any
time by third parties against the Backup Servicer to the extent
the same are not due to gross negligence or wilful misconduct of
the Backup Servicer.
The Backup Servicer will 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 control of the Backup
Servicer.
The Backup Servicer will make arrangements with the Servicer for the
prompt and safe transfer of, and the Servicer shall provide to the Backup
Servicer, all necessary servicing files and records, including (as deemed
necessary by the Backup Servicer at such time): (i) microfiche loan
documentation, (ii) servicing system tapes, (iii) loan payment history, (iv)
collections history, (v) copies of the reconciliation statements for the Local
Collection Accounts of any bank holding a Local Collection Account for the
Monthly Period (or portion thereof) immediately preceding the conversion to the
Backup Servicer and (vi) the trial balances, as of the close of business on the
day immediately preceding conversion to the Backup Servicer, reflecting all
applicable loan information.
The Backup Servicer shall have no responsibility and shall not be in
default hereunder nor incur any liability for any failure, error, malfunction
or any delay in carrying out any of its duties under this Agreement if any such
failure or delay results from the Backup Servicer acting in accordance with
information prepared or supplied by a Person other than the Backup Servicer or
the failure of any such Person to prepare or provide such information. The
Backup Servicer shall have no responsibility, shall not be in default and shall
incur no liability (i) for any act or failure to act by any third party,
including the Servicer, the Issuer, the Controlling Party or the Trustee or for
any inaccuracy or omission in a notice or communication received by the Backup
Servicer from any third party or (ii) which is due to or results from the
invalidity, unenforceability of any Receivable with applicable law
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or the breach or the inaccuracy of any representation or warranty made with
respect to any Receivable.
Section III.7. Purchase of Receivables Upon Breach of Covenant. Upon
discovery by any of the Servicer, the Security Insurer, the Issuer or the
Trustee of a breach of any of the covenants set forth in Sections 3.5(a) or
3.6(a), the party discovering such breach shall give prompt written notice to
the others; provided, however, that the failure to give any such notice shall
not affect any obligation of FEFG, as Servicer, under this Section 3.7.
Subject to the proviso in the second sentence of Section 8.2, as of the last
day of the second month (or, at the Servicer's election, the last day of the
first month) following the month of the Servicer's discovery or receipt of
notice of any breach of any covenant set forth in Sections 3.5(a) or 3.6(a)
which materially and adversely affects the interests of the Noteholders, the
Issuer or the Security Insurer in any Receivable (including any Liquidated
Receivable), the Servicer shall, unless such breach shall have been cured in
all material respects, purchase from the Issuer the Receivable affected by such
breach and, on the related Deposit Date, the Servicer shall pay the related
Purchase Amount. It is understood and agreed that the obligation of the
Servicer to purchase any Receivable (including any Liquidated Receivable) with
respect to which such a breach has occurred and is continuing shall, if such
obligation is fulfilled, constitute the sole remedy against the Servicer for
such breach available to the Security Insurer, the Noteholders, the Issuer or
the Trustee on behalf of Noteholders and the Security Insurer; provided,
however, that the Servicer shall indemnify the Issuer, the Backup Servicer, the
Collateral Agent, the Security Insurer, the Trustee and the Noteholders 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.
Section III.8. Servicing Fee; Payment of Certain Expenses by Servicer.
On each Payment Date, the Servicer shall be entitled to receive out of the
Collection Account the Servicing Fee for the related Monthly Period pursuant to
Section 4.6. The Servicer shall be required to pay all expenses incurred by it
in connection with its activities under this Agreement (including taxes imposed
on the Servicer and expenses incurred in connection with distributions and
reports made by the Servicer to Noteholders or the Security Insurer). In
addition, FEFG, as Servicer, and any successor to FEFG pursuant to Section
7.2(a), shall be liable for all other taxes, fees and expenses of the Issuer.
Section III.9. Servicer's Certificate. No later than 10:00 a.m. New York
City time on each Determination Date, the Servicer shall deliver to the Issuer,
the Placement Agent, the Trustee, the
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Backup Servicer, the Security Insurer, the Collateral Agent and each Rating
Agency a Servicer's Certificate executed by a Responsible Officer of the
Servicer containing among other things, (i) all information necessary to enable
the Trustee to make any withdrawal and deposit required by Section 5.1, to give
any notice required by Section 5.1(b), to make the distributions required by
Section 4.6, (ii) all information necessary to enable the Trustee to send the
statements to Noteholders and the Security Insurer required by Section 4.8,
(iii) a listing of all Warranty Receivables and Administrative Receivables
purchased as of the related Deposit Date, identifying the Receivables so
purchased and (iv) all information necessary to enable the Trustee to reconcile
all deposits to, and withdrawals from, the Collection Account for the related
Monthly Period and Payment Date. Receivables purchased by the Servicer on the
related Deposit Date and each Receivable which became a Liquidated Receivable
or which was paid in full during the related Monthly Period shall be identified
by account number (as set forth in the applicable Schedule of Receivables).
The Trustee shall deliver a copy of such certificate to each Noteholder. In
addition to the information set forth in the preceding sentence, the Servicer's
Certificate delivered to the Security Insurer, the Placement Agent, the
Collateral Agent and the Trustee on the Determination Date shall also contain
the following information: (a) the Delinquency Ratio, Average Delinquency
Ratio, Repossessed Inventory Receivables Ratio, Average Repossessed Inventory
Receivables Ratio, Net Loss Ratio and Average Net Loss Ratio for such
Determination Date; (b) whether any Trigger Event has occurred as of such
Determination Date; (c) whether any Trigger Event that may have occurred as of
a prior Determination Date is Deemed Cured as of such Determination Date; and
(d) whether to the knowledge of the Servicer an Insurance Agreement Event of
Default has occurred.
Section III.10. Annual Statement as to Compliance; Notice of Servicer
Termination Event.
(a The Servicer shall deliver to the Issuer, the Placement Agent, the
Trustee, the Backup Servicer, the Security Insurer, the Noteholders and each
Rating Agency, on or before April 30 (or 120 days after the end of the
Servicer's fiscal year, if other than December 31) of each year, beginning on
April 30, 1998, an officer's certificate signed by any Responsible Officer of
the Servicer, dated as of the immediately preceding December 31 (or other
applicable date), stating that (i) a review of the activities of the Servicer
during the preceding 12-month period (or such other period as shall have
elapsed from the Closing Date (or the date a successor Servicer began to act
as Servicer hereunder) to the date of the first such certificate) and of its
performance under this Agreement has been made under such officer's
supervision, and (ii) to such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
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period, 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.
(b The Servicer shall deliver to the Issuer, the Placement Agent, the
Trustee, the Backup Servicer, the Security Insurer, the Noteholders, the
Collateral Agent, and each Rating Agency, promptly after having obtained
knowledge thereof, but in no event later than two (2) 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 a Servicer Termination Event
under Section 8.1.
Section III.11. Annual Independent Accountants' Report.
The Servicer shall cause a firm of nationally recognized independent
certified public accountants (the "Independent Accountants"), who may also
render other services to the Servicer or to any Seller, to deliver to the
Issuer, the Placement Agent, the Trustee, the Backup Servicer, the Noteholders,
the Security Insurer and each Rating Agency, on or before April 30 (or 120 days
after the end of the Servicer's fiscal year, if other than December 31) of each
year, beginning on April 30, 1998, with respect to the twelve months ended the
immediately preceding December 31 (or other applicable date) (or such other
period as shall have elapsed from the Closing Date (or the date a successor
Servicer began to act as Servicer hereunder) to the date of such certificate),
a statement (the "Accountants' Report") addressed to the Board of Directors of
the Servicer, to the Issuer, the Trustee, the Backup Servicer and to the
Security Insurer, to the effect that such firm has audited the books and
records of the Servicer and issued its report thereon, and if FEFG is the
Servicer in connection with the audit report on the financial statements of
FEFG, and that (1) such audit 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, (2) the firm is independent of the Sellers and the Servicer
within the meaning of the Code of Professional Ethics of the American Institute
of Certified Public Accountants, and (3) certain agreed upon procedures were
performed relating to three randomly selected Servicer's Certificates
including the delinquency, default and loss statistics required to be
specified therein and except as disclosed in the Accountants' Report, no
exceptions or errors in the Servicer's Certificates were found.
Section III.12. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to representatives of the Issuer, the
Placement Agent, the Trustee, the Backup Servicer, the Noteholders and the
Security Insurer reasonable access to the documentation regarding the
Receivables. In each case, such access shall be afforded without charge but
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only upon reasonable request and during normal business hours. Nothing in this
Section 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
as a result of such obligation shall not constitute a breach of this Section.
Section III.13. Monthly Tape. On or before the third Business Day, but in
no event later than the fifth calendar day, of each month, the Servicer will
deliver to the Trustee and the Backup Servicer a computer tape or a diskette
(or any other electronic transmission acceptable to the Trustee and the Backup
Servicer) in a format acceptable to the Trustee and the Backup Servicer
containing the information with respect to the Receivables as of the preceding
Accounting Date necessary for preparation of the Servicer's Certificate
relating to the immediately succeeding Determination Date and necessary to
determine the application of collections as provided in Section 4.3. The
Backup Servicer shall use such tape or diskette (or other electronic
transmission acceptable to the Trustee and the Backup Servicer) to verify the
Servicer's Certificate delivered by the Servicer, and the Backup Servicer shall
certify to the Controlling Party that it has verified the Servicer's
Certificate in accordance with this Section 3.13 and shall notify the Servicer
and the Controlling Party of any discrepancies, in each case, on or before the
second Business Day following the Determination Date. In the event that the
Backup Servicer reports any discrepancies, the Servicer and the Backup Servicer
shall attempt to reconcile such discrepancies prior to the related Payment
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 Payment Date. In the event that the Backup Servicer and the
Servicer are unable to reconcile discrepancies with respect to a Servicer's
Certificate by the related Payment Date, the Servicer shall cause the
Independent Accountants, at the Servicer's expense, to audit the Servicer's
Certificate and, prior to the third Business Day, but in no event later than
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. In addition, upon the
occurrence of a Servicer Termination Event the Servicer shall, if so requested
by the Controlling Party, deliver to the Backup Servicer its Collection Records
and its Monthly Records within 15 days after demand therefor and a computer
tape containing as of the close of business on the date of demand all of the
data maintained by the Servicer in computer format in connection with servicing
the Receivables. Other than the duties specifically set forth in this
Agreement, the Backup Servicer shall have no obligations hereunder, including,
without limitation, to supervise, verify, monitor or administer the performance
of the
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Servicer. The Backup Servicer shall have no liability for any actions
taken or omitted by the Servicer.
Section III.14. Retention and Termination of Servicer. The Servicer
hereby covenants and agrees to act as such under this Agreement for an initial
term, commencing on the Closing Date and ending on September 30, 1997, which
term shall be extendible by the Controlling Party for successive quarterly
terms ending on each successive December 31, March 31, June 30 and September 30
(or, pursuant to revocable written standing instructions from time to time to
the Servicer, the Trustee and the Issuer, for any specified number of terms
greater than one), until the Notes are paid in full. Each such notice
(including each notice pursuant to standing instructions, which shall be deemed
delivered at the end of successive quarterly terms for so long as such
instructions are in effect) (a "Servicer Extension Notice") shall be delivered
by the Controlling Party to the Issuer, the Trustee and the Servicer. The
Servicer hereby agrees that, as of the date hereof and upon its receipt of any
such Servicer Extension Notice, the Servicer shall become bound, for the
initial term beginning on the Closing Date and for the duration of the term
covered by such Servicer Extension Notice, to continue as the Servicer subject
to and in accordance with the other provisions of this Agreement. Until such
time as an Insurer Default shall have occurred and be continuing the Trustee
agrees that if as of the fifteenth day prior to the last day of any term of the
Servicer the Trustee shall not have received any Servicer Extension Notice from
the Controlling Party, the Trustee will, within five days thereafter, give
written notice of such non-receipt to the Issuer, the Controlling Party and
the Servicer.
Section III.15. Duties of the Servicer under the Indenture. The Servicer
(or, with respect to clause (b), FEFG if it is not the Servicer hereunder)
shall, and hereby agrees that it will, perform on behalf of the Issuer the
following duties of the Issuer under the Indenture (references are to the
applicable Sections in the Indenture):
(a the direction to the Paying Agents, if any, to deposit moneys
with the Trustee (Section 3.3);
(b the obtaining and preservation of the Issuer's qualification to
do business in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of the Indenture,
the Notes, the Indenture Collateral and each other instrument and
agreement included in the Trust Estate (Section 3.4);
(c the preparation of all supplements, amendments, financing
statements, continuation statements, instruments of further assurance and
other instruments, in accordance with Section 3.5 of the Indenture,
necessary to protect the Trust Estate (Section 3.5);
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(d the delivery of the Opinion of Counsel on the Closing Date and
the annual delivery of Opinions of Counsel, in accordance with Section
3.6 of the Indenture, as to the Trust Estate, and the annual delivery of
the Officers' Certificate and certain other statements, in accordance
with Section 3.9 of the Indenture, as to compliance with the Indenture
(Sections 3.6 and 3.9);
(e the preparation and obtaining of documents and instruments
required for the release of the Issuer from its obligations under the
Indenture (Section 3.10(b));
(f the monitoring of the Issuer's obligations as to the
satisfaction and discharge of the Indenture and the preparation of an
Officers' Certificate and the obtaining of the Opinion of Counsel and the
Independent Certificate relating thereto (Section 4.1);
(g the preparation of any written instruments required to confirm
more fully the authority of any co-trustee or separate trustee and any
written instruments necessary in connection with the resignation or
removal of any co-trustee or separate trustee (Sections 6.8 and 6.10);
(h the preparation of Issuer Orders, Officers' Certificates and
Opinions of Counsel and all other actions necessary with respect to
investment and reinvestment of funds in the Trust Accounts (Sections 8.2
and 8.3);
(i the preparation of Issuer Orders and the obtaining of Opinions
of Counsel with respect to the execution of supplemental indentures
(Sections 9.1, 9.2 and 9.3);
(j the preparation of all Officers' Certificates, Opinions of
Counsel and Independent Certificates with respect to any requests by the
Issuer to the Trustee to take any action under the Indenture (Section
11.1(a));
(k the preparation and delivery of Officers' Certificates and the
obtaining of Independent Certificates, if necessary, for the release of
property from the lien of the Indenture (Section 11.1(b)); and
(l the recording of the Indenture, if applicable (Section 11.14).
Section III.16. Fidelity Bond and Errors and Omissions Policy. The
Servicer has obtained, and shall continue to maintain in full force and effect,
a Fidelity Bond and Errors and Omissions Policy of a type and in such amount as
is customary for servicers engaged in the business of servicing automobile
receivables.
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ARTICLE IV
DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS
Section IV.1. Trust Accounts.
(a The Trustee shall establish the Collection Account in the name of the
Trustee for the benefit of the Issuer Secured Parties (as defined in the
Indenture). The Collection Account shall be a segregated trust account
established by the Trustee with a depository institution acceptable to the
Controlling Party, and initially maintained with the Trustee.
(b The Trustee shall establish the Note Payment Account in the name of
the Trustee for the benefit of the Issuer Secured Parties. The Note Payment
Account shall be a segregated trust account established by the Trustee with a
depository institution acceptable to the Controlling Party, and initially
maintained with the Trustee.
(c All amounts held in the Collection Account and the Note Payment
Account (collectively, the "Trust Accounts") shall, to the extent permitted by
applicable laws, rules and regulations, be invested by the Trustee, as directed
by the Servicer (or, if the Servicer fails to so direct, as directed by the
Controlling Party), in Eligible Investments that, in the case of amounts held
in the Collection Account and the Note Payment Account mature not later than
one Business Day prior to the Payment Date for the Monthly Period to which such
amounts relate. Any such written direction shall certify that any such
investment is authorized by this Section 4.1. Investments in Eligible
Investments shall be made in the name of the Trustee on behalf of the Issuer,
and such investments shall not be sold or disposed of prior to their maturity.
Any investment of funds in the Trust Accounts shall be made in Eligible
Investments held by a financial institution with respect to which (a) such
institution has noted the Trustee's interest therein by book entry or otherwise
and (b) a confirmation of the Trustee's interest has been sent to the Trustee
by such institution, provided that such Eligible Investments are (i) specific
certificated securities (as such term is used in the Illinois UCC) and (ii)
either (A) in the possession of such institution or (B) in the possession of a
clearing corporation (as such term is used in Illinois UCC), registered in the
name of such clearing corporation, not endorsed for collection or surrender or
any other purpose not involving transfer, not containing any evidence of a
right or interest inconsistent with the Trustee's security interest therein,
and held by such clearing corporation in an account of such institution.
Subject to the other provisions hereof, the Trustee shall have sole control
over each such investment and the income thereon, and any certificate or other
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instrument evidencing any such investment, if any, shall be delivered directly
to the Trustee or its agent, together with each document of transfer, if any,
necessary to transfer title to such investment to the Trustee in a manner which
complies with this Section 4.1. All interest, dividends, gains upon sale and
other income from, or earnings on, investments of funds in the Trust Accounts
shall be deposited in the Collection Account and distributed on the next
Payment Date pursuant to Section 4.6 hereof. The Servicer shall deposit in the
applicable Trust Account an amount equal to any net loss on such investments
immediately as realized.
(d On the Closing Date, the Servicer shall deliver to the Trustee for
deposit in the Collection Account (i) all Scheduled Receivables Payments and
prepayments of Receivables received by the Servicer after the Cutoff Date and
on or prior to the Business Day immediately preceding the Closing Date and (ii)
all Liquidation Proceeds and proceeds of Insurance Policies realized in respect
of a Financed Vehicle and applied by the Servicer after the Cutoff Date.
Section IV.2. Collections.
(a The Servicer has established the Local Collection Accounts with the
banks listed on Exhibit C with any changes from time to time to be promptly
reported to the Trustee. On the Closing Date, the Trustee shall provide notice
of the location of the Trust Accounts and the Local Collection Accounts (as
well as prompt notice thereafter of any changes) to the Security Insurer. The
Servicer shall remit directly to the Local Collection Accounts without deposit
into any intervening account all payments by or on behalf of the Obligors on
the Receivables and all Liquidation Proceeds received by the Servicer, in each
case, as soon as practicable, but in no event later than the Business Day after
receipt thereof. Within three Business Days of deposit of payments into a
Local Collection Account, the Servicer shall cause all amounts credited to such
Local Collection Account on account of such payments to be transferred to the
Collection Account. Amounts in the Local Collection Accounts shall not be
invested.
(b Notwithstanding the provisions of subsection (a) hereof, the Servicer
will be entitled to be reimbursed from amounts on deposit in the Collection
Account with respect to a Monthly Period (i) for amounts previously deposited
in the Collection Account but later determined by the Servicer to have resulted
from mistaken deposits or postings or checks returned for insufficient funds
and (ii) if FEFG is not the Servicer, for amounts payable pursuant to the
proviso in Section 3.15(b) and to the proviso in the second sentence of Section
8.2. The amount to be reimbursed hereunder shall be paid to the Servicer on
the related Payment Date pursuant to Section 4.6(i) upon certification by the
Servicer of such
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amounts and the provision of such information to the Trustee and the Security
Insurer as may be necessary in the opinion of the Trustee and the
Security Insurer to verify the accuracy of such certification. In the event
that the Security Insurer has not received evidence satisfactory to it of the
Servicer's entitlement to reimbursement pursuant to this Section 4.2(b), the
Security Insurer shall (unless an Insurer Default shall have occurred and be
continuing) give the Trustee notice to such effect, following receipt of which
the Trustee shall not make a distribution to the Servicer in respect of such
amount pursuant to Section 4.6, or if the Servicer prior thereto has been
reimbursed pursuant to Section 4.6 or Section 4.8, the Trustee shall withhold
such amounts from amounts otherwise distributable to the Servicer on the next
succeeding Payment Date.
Section IV.3. Application of Collections. For the purposes of this
Agreement, all collections for a Monthly Period shall be applied by the
Servicer as follows:
(a With respect to each Receivable, payments by or on behalf of
the Obligor thereof shall be applied first to any applicable late payment
fee, second to interest accrued through the date immediately preceding
the date of payment and third to unpaid principal. With respect to each
Liquidated Receivable, Liquidation Proceeds shall be applied to interest
and principal with respect to such Liquidated Receivable in accordance
with the Actuarial Method.
(b With respect to each Receivable that has become a Purchased
Receivable on any Deposit Date, the Purchase Amount shall be applied to
interest and principal on the Receivable in accordance with subsection
(a) above as if the Purchase Amount had been paid by the Obligor on the
Accounting Date. Nothing contained herein shall relieve any Obligor of
any obligation relating to any Receivable.
(c Notwithstanding the foregoing, all payments by or on behalf of
an Obligor received with respect to any Purchased Receivable after the
Accounting Date immediately preceding the Deposit Date on which the
Purchase Amount was paid by the Servicer and all collections on
Receivables, including any late fees, administrative fees or similar
charges allowed by applicable law with respect to the Receivables, shall
be deposited into the Collection Account and distributed in accordance
with Section 4.6.
Section IV.4. Net Deposits. Provided that no Servicer Termination Event
shall have occurred and be continuing with respect to such Servicer, the
Servicer may make the remittances to be made by it pursuant to Sections 4.2 and
4.5 net of amounts (which amounts may be netted prior to any such remittance
for a
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Monthly Period) to be distributed to it pursuant to the first sentence of
Section 3.8 and Sections 4.2(b) and 4.6(i); provided, however, that the
Servicer shall account for all of such amounts in the related Servicer's
Certificate as if such amounts were deposited and distributed separately; and
provided, further, that if an error is made by the Servicer in calculating the
amount to be deposited or retained by it, with the result that an amount less
than required is deposited in the Collection Account, the Servicer shall make a
payment of the deficiency to the Collection Account, immediately upon becoming
aware, or receiving notice from the Trustee, of such error.
Section IV.5. Additional Deposits. On or before each Deposit Date, the
Servicer shall deposit in the Collection Account the aggregate Purchase Amounts
with respect to Administrative Receivables and Warranty Receivables,
respectively. All such deposits of Purchase Amounts shall be made in
immediately available funds. On or before each Draw Date, the Trustee shall
deposit in the Collection Account any amounts delivered to the Trustee by the
Collateral Agent pursuant to Section 5.1.
Section IV.6. Distributions. On each Payment Date, the Trustee shall
(based on the information contained in the Servicer's Certificate delivered on
the related Determination Date) distribute the following amounts and in the
following order of priority:
(i first, from the Payment Amount, to the Servicer, the Servicing
Fee for the related Monthly Period and any amounts specified in Section
4.2(b);
(ii second, from the Payment Amount, to the Trustee, any accrued
and unpaid fees and expenses of the Trustee in accordance with the
Indenture; to any Custodian, Backup Servicer or Collateral Agent
(including the Servicer, Issuer or Trustee if acting in any such
additional capacity), any accrued and unpaid fees and expenses;
(iii third, from the Amount Available, to the Note Payment
Account, an amount equal to the Noteholders' Interest Payment Amount for
such Payment Date;
(iv fourth, from the Amount Available, to the Note Payment
Account, an amount equal to the Noteholders' Principal Payment Amount for
such Payment Date;
(v fifth, from the Payment Amount, to the Security Insurer, to the
extent of any amounts owing to the Security Insurer under the Insurance
Agreement and not paid, whether or not any Seller is also obligated to
pay such amounts;
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(vi sixth, any remaining Available Funds to the Collateral Agent
for deposit in the Spread Account to be applied in accordance with the
terms of the Spread Account Agreement;
(vii seventh, an amount equal to the Noteholders' Excess Principal
Payment Amount, if any, for such Payment Date; and
(viii eighth, from the Spread Account, from amounts released under
priority SEVENTH of Section 3.03(b) of the Spread Account Agreement,
first, to the Note Payment Account, an amount equal to the excess of (a)
the Note Balance (after giving effect to the amount paid under 4.6(iv))
over (b) the Noteholders' Percentage of the Aggregate Principal Balance
as of the immediately preceding Accounting Date (after giving effect to
all payments of principal on the Receivables during the related Monthly
Period), and, second, any excess to the Issuer.
Section IV.7. Trustee as Agent. The Trustee, in making distributions as
provided in this Agreement, shall act solely on behalf of and as agent for the
Noteholders.
Section IV.8. Statements to Noteholders. On each Payment Date, the
Trustee shall include with each distribution to each Noteholder, a statement
prepared by the Servicer (which statement shall also be provided to the
Security Insurer and to each Rating Agency) and based on information in the
Servicer's Certificate delivered on the related Determination Date pursuant to
Section 3.9, setting forth for the Monthly Period relating to such Payment Date
the following information:
(i the amount of such distribution allocable to interest;
(ii the amount of such distribution allocable to principal;
(iii the amount of such distribution payable out of amounts
withdrawn from the Spread Account or pursuant to a claim on the Policy
and the amount remaining in the Spread Account;
(iv the Note Balance (after giving effect to distributions made on
such Payment Date);
(v the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall and the change in such amount from the
preceding statement;
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(vi the amount of fees and expenses paid under Section 4.6(i) and
(ii) by the Trustee with respect to such Monthly Period;
(vii the Note Pool Factor (after giving effect to distributions
made on such Payment Date);
(viii the Delinquency Ratio, Repossessed Inventory Receivables
Ratio and Net Loss Ratio for such Determination Date;
(ix whether any Trigger Event has occurred as of such
Determination Date;
(x whether any Trigger Event that may have occurred as of a prior
Determination Date is Deemed Cured as of such Determination Date;
(xi whether a waiver of any Trigger Event has occurred;
(xii the cumulative losses on the Receivables (net of recoveries)
since the Cutoff Date; and
(xiii whether to the knowledge of the Servicer an Insurance
Agreement Event of Default has occurred.
Each amount set forth pursuant to subclauses (i) through (iv) above may be
expressed as a dollar amount per $1,000 of original principal balance of a
Note.
Section IV.9. [Reserved].
Section IV.10. Optional Deposits by the Security Insurer. The Security
Insurer shall at any time, and from time to time, have the option (but shall
not be required) to deliver amounts to the Trustee for any of the following
purposes as specified to the Trustee: (1) to provide funds in respect of the
payment of fees or expenses of any Person referenced in Section 4.6(ii), (2)
as a component of Available Funds for distribution on a Payment Date in
reduction of the Note Balance to the extent that but for such distribution the
Note Balance would exceed the Aggregate Principal Balance as of the related
Determination Date, and (3) as a component of Available Funds for distribution
on a Payment Date in respect of the Noteholders' Interest Payment Amount or
Noteholders' Principal Payment Amount for such Payment Date, to the extent
that without such distribution a draw would be made on the Policy on such
Payment Date.
ARTICLE V
THE SPREAD ACCOUNT
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Section V.1. Withdrawals from Spread Account in respect of Deficiency
Claim Amount.
(a) In the event that the Servicer's Certificate with respect to any
Determination Date shall state that the sum of the amount of the Available
Funds deposited in the Collection Account with respect to such Determination
Date is less than the sum of the amounts payable on the related Payment Date
pursuant to clauses (i) through (v) of Section 4.6 for the related Payment Date
(such deficiency being a "Deficiency Claim Amount") then on the Deficiency
Claim Date immediately preceding such Payment Date, the Trustee shall deliver
to the Collateral Agent, the Security Insurer, the Issuer and the Servicer, by
hand delivery, telex or facsimile transmission, a written notice (a "Deficiency
Notice") specifying the Deficiency Claim Amount for such Payment Date.
(b) Any Deficiency Notice shall be delivered by 1:00 p.m., New York City
time, on the Deficiency Claim Date immediately preceding such Payment Date (so
long as the Trustee received the Servicer's Certificate no later than 10:00
a.m., New York City time, at least one Business Day prior to the Deficiency
Claim Date). The Deficiency Claim Amount (to the extent of the funds available
to be distributed pursuant to the Spread Account Agreement) distributed by the
Collateral Agent to the Trustee pursuant to a Deficiency Notice shall be
deposited by the Trustee into the Collection Account pursuant to Section 4.5.
Section V.2. Withdrawals from Spread Account in respect of Noteholders'
Excess Principal Payment Amount or following the occurrence of an Insurer
Default. So long as an Insurer Default shall not have occurred and be
continuing, in the event that the Servicer's Certificate with respect to any
Determination Date shall state that the next succeeding Payment Date is a
Trigger Date, or in the event that the Trustee has received notice from the
Security Insurer of the occurrence of an Insurance Agreement Event of Default,
no later than 1:00 p.m. New York City time on the Deficiency Claim Date
immediately preceding such Payment Date or following receipt of such notice (so
long as the Trustee received such notice no later than 10:00 a.m., New York
City time, at least one Business Day prior to the Deficiency Claim Date), as
the case may be, the Trustee shall deliver to the Collateral Agent, the
Placement Agent, the Security Insurer, the Issuer and the Servicer, by hand
delivery, telex or facsimile transmission, a written notice (a "Trigger
Notice"). Such Trigger Notice shall state that such Payment Date is a Trigger
Date, and for the purpose of the Collateral Agent's calculation of the
Noteholders' Excess Principal Payment Amount, shall state the Aggregate
Principal Balance as of the related Determination Date and the Note Balance
(after giving effect to distribution of the Noteholders' Principal Payment
Amount with respect to such Payment Date). Upon receipt of the
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Noteholders' Excess Principal Payment Amount, the Trustee shall deposit such
amount directly into the Note Payment Account.
ARTICLE VI
SERVICER AS CUSTODIAN
Section VI.1. Duties of Servicer as Custodian.
(a) Safekeeping. The Servicer, in its capacity as Custodian, shall hold
(or have agents hold on behalf of the Servicer) the Applications on behalf of
the Trustee. In performing its duties as Custodian hereunder, the Custodian
shall act with reasonable care, exercising the degree of skill and care that
the Custodian exercises with respect to similar applications and that is
consistent with industry standards. The Custodian shall implement such
policies and procedures in writing with respect to the handling and custody of
the Applications, so that the integrity and physical possession of the
Applications shall be maintained, and, in general, shall attend to all details
in connection with maintaining custody of the Applications as agent of the
Trustee. The Custodian shall maintain the Applications in such a manner as
shall enable the Trustee to verify, if the Trustee so elects, the accuracy of
the recordkeeping of the Custodian. The Custodian shall promptly report to
the Trustee any failure on its part to hold the Applications and shall
promptly take appropriate action to remedy any such failure.
(b) Maintenance of and Access to Records. The Servicer (if it is the
Custodian) shall maintain each Application at 500 Davis Street, Evanston,
Illinois (or, in the case of any successor Servicer, at its principal place of
business), or at such other office of the Servicer as shall be specified to the
Trustee by 30 days' prior written notice. The Custodian shall make available
to the Trustee (or, when requested in writing by the Trustee, to its attorneys
or auditors) the Applications at such times during the normal operating hours
as the Trustee shall reasonably instruct.
(c) Release of Documents. Upon written instructions from the Trustee, the
Custodian shall release or cause to be released any Application to the Trustee,
the Trustee's agent, or the Trustee's designee, as the case may be, at such
place or places as the Trustee may designate, as soon thereafter as is
practicable. Any Application so released shall be handled by the Trustee with
due care and returned to the Custodian for safekeeping as soon as the Trustee
or its agent or designee, as the case may be, shall have no further need
therefor. The Custodian shall not be responsible for any loss occasioned by
the failure of the Trustee, its agent or its designee to return any documents
or any delay in doing so.
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(d) Title to Applications. The Custodian agrees that, in respect of any
Application held as custodian hereunder, the Custodian will not at any time
have or in any way attempt to assert any interest in such Application, other
than solely for the purpose of collecting or enforcing the related Receivable
for the benefit of the Trustee and that the entire equitable interest in such
Receivable and the related Application shall at all times be vested in the
Trust.
Section VI.2. Instructions; Authority to Act. The Custodian shall be
deemed to have received proper instructions with respect to the Applications
upon its receipt of written instructions signed by the Trustee. A certified
copy of excerpts of certain resolutions of the Board of Directors of the
Trustee shall constitute conclusive evidence of the authority of any signatory
to act and shall be considered in full force and effect until receipt by the
Custodian of written notice to the contrary given by the Trustee.
Section VI.3. Custodian's Indemnification. The Custodian shall indemnify
and hold harmless the Trustee, its officers, directors, employees and agents,
the Security Insurer and the Noteholders from and against any and all
liabilities, obligations, losses, compensatory damages, payments, costs or
expenses (including legal fees if any) of any kind whatsoever that may be
imposed on, incurred, or asserted against the Trustee, the Security Insurer or
the Noteholders as the result of any act or omission by the Custodian relating
to the maintenance and custody of the Applications; provided, however, that the
Custodian shall not be liable hereunder to the extent, but only to the extent,
that such liabilities, obligations, losses, compensatory damages, payments,
costs or expenses result from the willful misfeasance, bad faith or gross
negligence of the Trustee or the Security Insurer.
Section VI.4. Effective Period and Termination. The Servicer's
appointment as Custodian shall become effective as of the Cutoff Date and shall
continue in full force and effect until terminated pursuant to this Section 6.4
or until this Agreement shall be terminated. The Custodian may perform its
duties through one or more agents, which agents may maintain physical
possession of Applications as agent for the Custodian acting as custodian but
no such arrangement shall relieve the Custodian of its obligations as custodian
hereunder. If FEFG shall resign as Servicer or if all of the rights and
obligations of the Servicer shall have been terminated under Section 8.2, the
appointment of the Custodian hereunder may be terminated by the Trustee, the
Security Insurer (or, if an Insurer Default shall have occurred and be
continuing either the Issuer or a Note Majority), in the same manner as the
rights and obligations of the Servicer may be terminated under Section 8.2.
The Trustee or the Security Insurer may terminate the Custodian hereunder at
any time with cause, or with 30 days' prior
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notice without cause, upon written notification to the Custodian. As soon as
practicable after any termination of such appointment the Custodian shall
deliver, or cause to be delivered, the Applications to the Trustee, the
Trustee's agent or the Trustee's designee at such place or places as the
Trustee may reasonably designate.
ARTICLE VII
SERVICER
Section VII.1. Liability of Servicer; Indemnities.
(a) The Servicer (in its capacity as such and, in the case of FEFG,
without limitation of its obligations hereunder in its individual capacity)
shall be liable hereunder only to the extent of the obligations in this
Agreement specifically undertaken by the Servicer and the representations made
by the Servicer.
(b) Subject to the proviso in the second sentence of Section 8.2, the
Servicer shall defend, indemnify and hold harmless the Issuer, the Trustee, the
Backup Servicer, the Security Insurer, their respective officers, directors,
agents and employees, and the Noteholders from and against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation arising out of or resulting
from the use, ownership or operation by the Servicer or any Affiliate thereof
of any Financed Vehicle.
(c) The Servicer (if FEFG is the Servicer) shall indemnify, defend and
hold harmless the Issuer, the Trustee, the Backup Servicer, the Security
Insurer, their respective officers, directors, agents and employees and the
Noteholders from and against any taxes that may at any time be asserted against
any of such parties with respect to the transactions contemplated in this
Agreement, including, without limitation, any sales, gross receipts, tangible
or intangible personal property, privilege or license taxes (but not including
any federal or other income taxes, including franchise taxes asserted with
respect to, and as of the date of, the sale of the Receivables and the Other
Conveyed Property to the Issuer or the issuance and original sale of the Notes)
and costs and expenses in defending against the same.
(d) The Servicer shall indemnify, defend and hold harmless the Issuer,
the Trustee, the Backup Servicer, the Security Insurer, their respective
officers, directors, agents and employees and the Noteholders 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 arose out of,
or was imposed upon the Issuer, the Trustee, the Backup Servicer, the Security
Insurer or the Noteholders by reason of the breach of this
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Agreement by the Servicer, the negligence, misfeasance, or bad faith of the
Servicer in the performance of its duties under this Agreement or by reason of
reckless disregard of its obligations and duties under this Agreement.
(e) Indemnification under this Article shall survive the termination of
this Agreement and shall include, without limitation, reasonable fees and
expenses of counsel and expenses of litigation. If the Servicer has made any
indemnity payments pursuant to this Article and the recipient thereafter
collects any of such amounts from others, the recipient shall promptly repay
such amounts collected to the Servicer, without interest.
(f) Notwithstanding the indemnity provisions contained in Sections
7.1(b)-(e) above, the Servicer shall not be required to indemnify the Issuer,
the Trustee, the Backup Servicer, the Security Insurer or their respective
officers, directors, agents or employees against any tax, costs, expenses,
losses, damages, claims or liabilities to the extent the same shall be due to
(i) the misfeasance, bad faith or gross negligence of such party, or (ii)
recourse for uncollectible or uncollected Receivables.
Section VII.2. Merger or Consolidation of, or Assumption of the
Obligations of the Servicer or Backup Servicer.
(a) The Servicer (if FEFG is the Servicer) shall not merge or
consolidate with any other person, convey, transfer or lease substantially all
its assets as an entirety to another Person, or permit any other Person to
become the successor to the Servicer's business unless, after the merger,
consolidation, conveyance, transfer, lease or succession, the successor or
surviving entity shall be capable of fulfilling the duties of the Servicer
contained in this Agreement, and, if an Insurer Default shall have occurred and
be continuing, shall be an Eligible Servicer. If FEFG is the Servicer, any
corporation (i) into which the Servicer may be merged or consolidated, (ii)
resulting from any merger or consolidation to which the Servicer shall be a
party, (iii) which acquires by conveyance, transfer, or lease substantially all
of the assets of the Servicer, or (iv) succeeding to the business of the
Servicer, in any of the foregoing cases shall execute an agreement of
assumption to perform every obligation of the Servicer under this Agreement
and, whether or not such assumption agreement is executed, shall be the
successor to the Servicer under this Agreement without the execution or filing
of any paper or any further act on the part of any of the parties to this
Agreement, anything in this Agreement to the contrary notwithstanding;
provided, however, that nothing contained herein shall be deemed to release the
Servicer from any obligation. The Servicer shall provide notice of any merger,
consolidation or succession pursuant to this Section 7.2(a) to the Issuer, the
Trustee, the Noteholders, the Security Insurer and each Rating Agency.
Notwithstanding the
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foregoing, the Servicer (if FEFG is the Servicer) shall not merge or
consolidate with any other Person or permit any other Person to become a
successor to the Servicer's business, unless (x) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
Section 3.6 shall have been breached (for purposes hereof, such representations
and warranties shall speak as of the date of the consummation of such
transaction) and no event that, after notice or lapse of time, or both, would
become an Insurance Agreement Event of Default shall have occurred and be
continuing, (y) the Servicer shall have delivered to the Issuer, the Trustee
and the Security Insurer 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 7.2(a) and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with, and (z) the Servicer shall have delivered to the
Issuer, the Trustee and the Security Insurer an Opinion of Counsel, stating in
the opinion of such counsel, either (A) all financing statements and
continuation statements and amendments thereto have been executed and filed
that are necessary to preserve and protect the interest of the Issuer in the
Receivables and the Other Conveyed Property and reciting the details of the
filings or (B) no such action shall be necessary to preserve and protect such
interest.
(b) Any corporation (i) into which the Backup Servicer may be merged or
consolidated, (ii) resulting from any merger or consolidation to which the
Backup Servicer shall be a party, (iii) which acquires by conveyance, transfer
or lease substantially all of the assets of the Backup Servicer, or (iv)
succeeding to the business of the Backup Servicer, in any of the foregoing
cases shall execute an agreement of assumption to perform every obligation of
the Backup Servicer under this Agreement and, whether or not such assumption
agreement is executed, shall be the successor to the Backup Servicer under this
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties to this Agreement, anything in this Agreement to
the contrary notwithstanding; provided, however, that nothing contained herein
shall be deemed to release the Backup Servicer from any obligation.
Section VII.3. Limitation on Liability of Servicer, Backup Servicer and
Others.
(a) None of the Servicer, the Backup Servicer or any of the directors or
officers or employees or agents of the Servicer or the Backup Servicer shall be
under any liability to the Issuer or the Noteholders, except as provided in
this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement; provided, however, that this provision shall
not protect the Servicer, the Backup Servicer or any such person
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against any liability that would otherwise be imposed by reason of a breach
of this Agreement or willful misfeasance, bad faith or negligence (or, with
respect to the Servicer (if FEFG is not the Servicer) and the Backup Servicer,
gross negligence) in the performance of duties; provided further that this
provision shall not affect any liability to indemnify the Issuer and the
Trustee for costs, taxes, expenses, claims, liabilities, losses or damages paid
by the Issuer or the Trustee, each in its individual capacity. The Servicer,
the Backup Servicer and any director, officer, employee or agent of the
Servicer or the Backup Servicer may rely in good faith on the written advice of
counsel or on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.
(b) The Backup Servicer shall not be liable for any obligation of the
Servicer contained in this Agreement, and the Issuer, the Trustee, the Security
Insurer and the Noteholders shall look only to the Servicer to perform such
obligations.
(c) The parties expressly acknowledge and consent to LaSalle National
Bank acting in the possible dual capacity of Backup Servicer or successor
Servicer and in the capacity as Trustee. LaSalle National Bank may, in such
dual capacity, discharge its separate functions fully, without hindrance or
regard to conflict of interest principles, duty of loyalty principles or other
breach of fiduciary duties to the extent that any such conflict or breach
arises from the performance by LaSalle National Bank of express duties set
forth in the this Agreement in any of such capacities, all of which defenses,
claims or assertions are hereby expressly waived by the other parties hereto
except in the case of gross negligence and willful misconduct by LaSalle
National Bank.
Section VII.4. Delegation of Duties. The Servicer may delegate all or
any portion of its servicing duties under this Agreement to the Initial
Subservicer or, after providing written notification to the Rating Agencies and
obtaining the prior written consent of the Security Insurer (unless an Insurer
Default shall have occurred and be continuing), the Trustee, the Issuer and the
Backup Servicer, to another Affiliate of FEFG. The Servicer also may at any
time perform the specific duty of repossession of Financed Vehicles through
sub-contractors who are in the business of servicing automotive receivables and
the specific duty of tracking Financed Vehicles' insurance through
subcontractors, in each case, without the consent of the Security Insurer and
may perform other specific duties through such sub-contractors in accordance
with Servicer's customary servicing policies and procedures, with the prior
consent of the Security Insurer; provided, however, that no such delegation or
sub-contracting duties by the Servicer shall relieve the Servicer of its
responsibility with respect to such duties. So long as no Insurer Default
shall have occurred and be continuing, the Servicer shall
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not appoint any subservicer hereunder (other than the Initial Subservicer)
without the prior written consent of the Security Insurer, the Trustee, the
Issuer and the Backup Servicer. If the Backup Servicer becomes the Servicer
hereunder, such Servicer may delegate its duties to one or more subservicers;
provided, however, that (i) such delegation shall not relieve the Servicer of
its responsibility with respect to such duties, and (ii) so long as an Insurer
Default shall not have occurred and be continuing, the appointment of any
subservicer shall require the written consent of the Security Insurer, which
consent shall not unreasonably be withheld.
Section VII.5. Servicer and Backup Servicer Not to Resign. Subject to
the provisions of Section 7.2, neither the Servicer nor the Backup Servicer
shall resign from the obligations and duties imposed on it by this Agreement as
Servicer or Backup Servicer except upon a 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 have a material adverse effect on the Servicer or the Backup Servicer, as
the case may be, and the Security Insurer (so long as an Insurer Default shall
not have occurred and be continuing) or a Note Majority (if an Insurer Default
shall have occurred and be continuing) does not elect to waive the obligations
of the Servicer or the Backup Servicer, as the case may be, to perform the
duties which render it legally unable to act or to delegate those duties to
another Person. Any such determination permitting the resignation of the
Servicer or Backup Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered and acceptable to the Issuer, the Trustee and the Security
Insurer (unless an Insurer Default shall have occurred and be continuing).
Notwithstanding the foregoing, if the Backup Servicer or the Servicer is the
Trustee and the Trustee resigns or is removed pursuant to Section 6.8 of the
Indenture, the Backup Servicer or the Servicer, as the case may be, may resign
hereunder. No resignation of the Servicer shall become effective until, so
long as no Insurer Default shall have occurred and be continuing the Backup
Servicer or an entity acceptable to the Security Insurer shall have assumed the
responsibilities and obligations of the Servicer or, if an Insurer Default
shall have occurred and be continuing, the Backup Servicer or a successor
Servicer that is an Eligible Servicer shall have assumed the responsibilities
and obligations of the Servicer. No resignation of the Backup Servicer shall
become effective until, so long as no Insurer Default shall have occurred and
be continuing, an entity acceptable to the Security Insurer shall have assumed
the responsibilities and obligations of the Backup Servicer or, if an Insurer
Default shall have occurred and be continuing a Person that is an Eligible
Servicer shall have assumed the responsibilities and obligations of the Backup
Servicer; provided, however, that in the event a successor Backup Servicer is
not appointed within 60 days after the
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Backup Servicer has given notice of its resignation and has provided the
Opinion of Counsel required by this Section 7.5, the Backup Servicer may
petition a court for its removal. The Backup Servicer may resign for any
reason, provided an entity acceptable to the Security Insurer, in its sole
discretion, shall have assumed the responsibilities and obligations of the
Backup Servicer prior to the effectiveness of any such resignation.
ARTICLE VIII
SERVICER TERMINATION EVENTS
Section VIII.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by FEFG (if FEFG is the Servicer) or the Servicer
to deliver to the Trustee for distribution to Noteholders any proceeds or
payment required to be so delivered under the terms of this Agreement
that continues unremedied for a period of two Business Days (one Business
Day with respect to payment of Purchase Amounts) after written notice is
received by FEFG or the Servicer from the Trustee or (unless an Insurer
Default shall have occurred and be continuing) the Security Insurer or
after discovery of FEFG or such failure by a Responsible Officer of
FEFG or the Servicer;
(b) Failure by the Servicer to deliver to the Trustee, the Issuer
and (so long as an Insurer Default shall not have occurred and be
continuing) the Security Insurer the Servicer's Certificate by 10:00 a.m.
(New York City time) on the fifth Business Day prior to the Payment Date,
or failure on the part of the Servicer to observe its covenants and
agreements set forth in Section 7.2(a);
(c) Failure on the part of FEFG or the Servicer duly to observe or
perform any other covenants or agreements of the Servicer set forth in
this Agreement (or, if FEFG is the Servicer, any covenant or agreement of
FEFG set forth in this Agreement) (other than the breach of a covenant or
agreement which constitutes a Servicer Termination Event under another
subsection of this Section 8.1), which failure continues unremedied for a
period of 30 days after knowledge thereof by FEFG or the Servicer or
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the Issuer,
the Trustee or the Security Insurer (or, if an Insurer Default shall have
occurred and be continuing, any Noteholder);
(d) The occurrence of an Insolvency Event with respect to the
Servicer;
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(e) Any representation, warranty or statement of the Servicer made
in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of
the time when the same shall have been made (excluding, however, if FEFG
is the Servicer, any representation or warranty set forth in Section
2.4(a)), and the incorrectness of such representation, warranty or
statement has a material adverse effect on the Issuer and, within 30 days
after knowledge thereof by the Servicer or after written notice thereof
shall have been given to the Servicer by the Issuer, the Trustee or the
Security Insurer (or, if an Insurer Default shall have occurred and be
continuing, a Noteholder), the circumstances or condition in respect of
which such representation, warranty or statement was incorrect shall not
have been eliminated or otherwise cured;
(f) So long as an Insurer Default shall not have occurred and be
continuing, the Security Insurer shall not have delivered a Servicer
Extension Notice pursuant to Section 3.14;
(g) So long as an Insurer Default shall not have occurred and be
continuing, (x) an Insurance Agreement Event of Default shall have
occurred or (y) an insurance agreement event of default arising under
another insurance and indemnity agreement between FEFG, any of FEFG's
affiliates and the Security Insurer with respect to another Series shall
have occurred; or
(h) A claim is made under the Policy.
Section VIII.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur and be continuing, the Security Insurer
(or, if an Insurer Default shall have occurred and be continuing either the
Trustee, (to the extent the Trustee has knowledge thereof) the Issuer or a Note
Majority), by notice given in writing to the Servicer (and to the Trustee and
the Issuer if given by the Security Insurer or the Noteholders) or by
non-extension of the term of the Servicer as referred to in Section 3.14 may
terminate all of the rights and obligations of the Servicer under this
Agreement; provided, however, that the terminated Servicer (if FEFG is the
terminated Servicer) shall remain liable for any breach of its representations,
warranties and covenants described in Section 3.6(b) and for purchases of
Receivables pursuant to Section 2.5. On or after the receipt by the Servicer
of such written notice or upon termination of the term of the Servicer, all
authority, power, obligations and responsibilities of the Servicer under this
Agreement, whether with
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respect to the Notes, the Receivables or the Other Conveyed Property or
otherwise, automatically shall pass to, be vested in and become obligations and
responsibilities of the Backup Servicer (or such other successor Servicer
appointed by the Controlling Party); provided, however, that the successor
Servicer shall have no liability for, and shall be indemnified by the
terminated Servicer, FEFG, and from the Collection Account in accordance with
Section 4.2(b), from and against any and all costs, expenses, losses, damages,
claims and liabilities (collectively, "Losses"), arising out of or resulting
from any act, omission or breach of this Agreement of the terminated Servicer
or FEFG. The successor Servicer shall have no liability to the Noteholders,
the Trustee, the Security Insurer, or to any other person, for any Losses
arising out of or resulting from delays of the terminated Servicer or Custodian
in transmitting Receivable Files, Monthly Records or Collection Records, to the
successor Servicer, or for any other Losses incurred in the Servicing
transition. The successor Servicer is authorized and empowered by this
Agreement to execute and deliver, on behalf of the terminated 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 the Other Conveyed Property and related
documents to show the Issuer as lienholder or secured party on the related Lien
Certificates, or otherwise. The terminated Servicer agrees to cooperate with
the successor Servicer in effecting the termination of the responsibilities and
rights of the terminated Servicer under this Agreement, including, without
limitation, the transfer to the successor Servicer for administration by it of
all cash amounts that shall at the time be held by the terminated Servicer for
deposit, or have been deposited by the terminated Servicer, in the Collection
Account or thereafter received with respect to the Receivables and the delivery
to the successor Servicer of all Receivable Files, Monthly Records and
Collection Records and a computer tape in readable form as of the most recent
Business Day containing all information necessary to enable the successor
Servicer or a successor Servicer to service the Receivables and the Other
Conveyed Property. If requested by the Controlling Party, the successor
Servicer shall direct the Obligors then making payments directly to the
Servicer to make all payments under the Receivables directly to the successor
Servicer (in which event the successor Servicer shall process such payments in
accordance with Section 3.2(e)), or to a lockbox established by the successor
Servicer at the direction of the Controlling Party, at the successor Servicer's
expense. The terminated Servicer shall grant the Issuer, the Trustee, the
successor Servicer and the Controlling Party reasonable access to the
terminated Servicer's premises at the terminated Servicer's expense. At any
time following the occurrence of (x) a Servicer Termination Event or (y) an
event which permits any lender or investor to have direct access to any
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lock-box or P.O. box which then receives payments on the Receivables, the
Servicer shall at the direction of the Security Insurer, (i) establish a new
P.O. box to which such persons shall not have access and (ii) notify the
Obligors to mail their payments to the new P.O. box.
Section VIII.3. Appointment of Successor.
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 8.2, upon non-extension of the servicing term as referred
to in Section 3.14, or upon the resignation of the Servicer pursuant to Section
7.5, the Backup Servicer (unless the Security Insurer shall have exercised its
option pursuant to Section 8.3(b) to appoint an alternate successor Servicer)
shall be the successor in all respects to the Servicer in its capacity as
servicer under this Agreement and the transactions set forth or provided for in
this Agreement, and shall be subject to all the rights, responsibilities,
restrictions, duties, liabilities and termination provisions relating thereto
placed on the Servicer by the terms and provisions of this Agreement except as
otherwise stated herein. The Issuer and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. If a successor Servicer is acting as Servicer hereunder, it shall
be subject to term-to-term servicing as referred to in Section 3.14 and to
termination under Section 8.2 upon the occurrence of any Servicer Termination
Event applicable to it as Servicer.
(b) The Controlling Party may exercise at any time its right to appoint
as Backup Servicer or as successor to the Servicer a Person other than the
Person serving as Backup Servicer at the time, and (without limiting its
obligations under the Policies) shall have no liability to the Issuer, the
Trustee, any Seller, the Servicer, the Person then serving as Backup Servicer,
any Noteholders or any other Person if it does so. Notwithstanding the above,
if the Backup Servicer shall be legally unable or unwilling to act as Servicer,
and an Insurer Default shall have occurred and be continuing, the Backup
Servicer, the Trustee, a Note Majority or the Issuer may petition a court of
competent jurisdiction to appoint any Eligible Servicer as the 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 outgoing Servicer shall continue to act as Servicer until a
successor has been appointed and accepted such appointment. Subject to Section
7.5, no provision of this Agreement shall be construed as relieving the Backup
Servicer of its obligation to succeed as successor Servicer upon the
termination of the Servicer pursuant to Section 8.2, the resignation of the
Servicer pursuant to Section 7.5 or the non-extension of the servicing term of
the Servicer, as referred to in Section 3.14. If upon the termination of the
Servicer pursuant to
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Section 8.2 or the resignation of the Servicer pursuant to Section 7.5, the
Controlling Party appoints a successor Servicer other than the Backup Servicer,
the Backup Servicer shall not be relieved of its duties as Backup Servicer
hereunder.
(c) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the Servicer
would have been entitled to under this Agreement if the Servicer had not
resigned or been terminated hereunder. If any successor Servicer is appointed
as a result of the Backup Servicer's refusal (in breach of the terms of this
Agreement) to act as Servicer although it is legally able to do so, the
Security Insurer and such successor Servicer may agree on reasonable additional
compensation to be paid to such successor Servicer by the Backup Servicer,
which additional compensation shall be paid by such breaching Backup Servicer
in its individual capacity and solely out of its own funds. If any successor
Servicer is appointed for any reason other than the Backup Servicer's refusal
to act as Servicer although legally able to do so, the Security Insurer and
such successor Servicer may agree on additional compensation to be paid to such
successor Servicer, which additional compensation shall be payable as provided
in the Spread Account Agreement and shall in no event exceed $150,000 per
annum. In addition, any successor Servicer shall be entitled, as provided in
the Spread Account Agreement, to reasonable transition expenses incurred in
acting as successor Servicer.
(d) No successor Servicer shall have any duty or liability with respect
to any duty or liability of FEFG, as Servicer, under Section 2.5, 3.6(b) or
3.8.
Section VIII.4. Notification to Noteholders. Upon any termination of, or
appointment of a successor to, the Servicer pursuant to this Article VIII, the
Issuer shall give prompt written notice thereof to each Rating Agency, and the
Trustee shall give prompt written notice thereof to Noteholders at their
respective addresses appearing in the Note Register.
Section VIII.5. Waiver of Past Defaults. The Security Insurer or (if
an Insurer Default shall have occurred and be continuing) a Note Majority may,
on behalf of all Holders of Notes, waive any default by the Servicer in the
performance of its obligations hereunder and its consequences; provided,
however, that the Security Insurer or Note Majority, as the case may be, may
not waive any default in the full and timely payment to LaSalle National Bank
as Trustee, Servicer, Backup Servicer or Collateral Agent of any fees, expenses
or other amounts due to it. Upon any such waiver of a past default, such
default shall cease to exist, and any Servicer Termination Event 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
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impair any right consequent thereon. The Security Insurer (if an Insurer
Default shall have occurred and be continuing) shall provide prompt written
notice of any such waiver to the Issuer and the Trustee. The Trustee shall
provide the Noteholders with notice of any waiver of any default by the
Servicer hereunder.
ARTICLE IX
TERMINATION
Section IX.1. Optional Purchase of All Receivables. On each
Determination Date as of which the Note Balance is equal to or less than 10% of
the original Note Balance, the Servicer shall have the option to purchase all,
but not part, of the Receivables (with the consent of the Security Insurer, if
a claim has previously been made under the Policy or if such purchase would
result in a claim on the Policy or if such purchase would result in any amount
owing and remaining unpaid under the Transaction Documents to the Security
Insurer or any other Person). To exercise such option, the Servicer shall pay
the aggregate Purchase Amounts for the Receivables and shall succeed to all
interests in and to the Receivables; provided, however, that the amount to be
paid for such purchase (as set forth in the following sentence) shall be
sufficient to pay the full amount of principal and interest then due and
payable on the Notes. The party exercising such option to repurchase shall
deposit the aggregate Purchase Amounts for the Receivables into the Collection
Account, and the Trustee shall distribute the amounts so deposited in
accordance with Section 4.6.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section X.1. Amendment.
(a) This Agreement may be amended by the Sellers, the Servicer and the
Issuer, with the prior written consent of the Trustee, the Backup Servicer and
the Security Insurer (so long as an Insurer Default shall not have occurred and
be continuing) but without the consent of any of the Noteholders, (i) to cure
any ambiguity, (ii) to correct or supplement any provisions in this
Agreement or (iii) for the purpose of adding any provision to or changing in
any manner or eliminating any provision of this Agreement or of modifying in
any manner the rights of the Noteholders; provided, however, that such action
shall not, as evidenced by an Opinion of Counsel delivered to the Issuer, the
Trustee and (so long as an Insurer Default shall not have occurred and is
continuing) the Security Insurer, adversely affect in any material respect the
interests of the Noteholders.
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(b) This Agreement may also be amended from time to time by the Sellers,
the Servicer and the Issuer with the prior written consent of the Trustee, the
Backup Servicer and the Security Insurer (so long as an Insurer Default shall
not have occurred and be continuing) and with the consent of a Note Majority
(which consent of any Holder of a Note 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 Note and of any Note
issued upon the transfer thereof or in exchange thereof or in lieu thereof
whether or not notation of such consent is made upon the Note) 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 Notes; provided, however, that, subject to the express rights of the
Security Insurer under the Related Documents, including its rights to agree to
certain modifications of the Receivables pursuant to Section 3.2 and its rights
to cause the Trustee to liquidate the Collateral under the circumstances and
subject to the provisions of Section 5.04 of the Indenture, 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
required to be made on any Note or the Note Interest Rate, (b) amend any
provisions of Section 4.6 in such a manner as to affect the priority of payment
of interest or principal to Noteholders, or (c) reduce the aforesaid percentage
required to consent to any such amendment or any waiver hereunder, without the
consent of the Holders of all Notes then Outstanding.
(c) Prior to the execution of any such amendment or consent, the Issuer
shall furnish written notification of the substance of such amendment or
consent to each Rating Agency.
(d) Promptly after the execution of any such amendment or consent, the
Issuer shall furnish written notification of the substance of such amendment or
consent to the Trustee, who shall furnish prompt notification thereof to the
Noteholders.
(e) Prior to the execution of any amendment to this Agreement, the Issuer
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,
in addition to the Opinion of Counsel referred to in Section 10.2(i). The
Issuer may, but shall not be obligated to, enter into any such amendment which
affects the Issuer's own rights, duties or immunities under this Agreement or
otherwise.
Section X.2. Protection of Title to the Receivables and Other Conveyed
Property.
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(a) The Servicer shall execute and file such financing statements and
cause to be executed and filed such continuation and other 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 Issuer and the Trustee in the
Receivables and Other Conveyed Property and in the proceeds thereof. The
Servicer shall deliver (or cause to be delivered) to the Issuer, the Trustee
and the Security Insurer file-stamped copies of, or filing receipts for, any
document filed as provided above, as soon as available following such filing.
(b) Neither the Servicer nor the Issuer shall change its name, identity
or corporate structure in any manner that would, could or might make any
financing statement or continuation statement filed by the Servicer in
accordance with paragraph (a) above seriously misleading within the meaning of
Section 9-402(7) of the UCC, unless it shall have given the Issuer, the Trustee
and the Security Insurer (so long as an Insurer Default shall not have occurred
and be continuing) at least 60 days' (or, with respect to the Servicer (if FEFG
is not the Servicer), 30 days') prior written notice thereof, and shall
promptly file appropriate amendments to all previously filed financing
statements and continuation statements.
(c) Each of the Servicer and the Issuer shall give the Trustee and the
Security Insurer at least 60 days' (or, with respect to the Servicer (if FEFG
is not the Servicer), 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. The Servicer shall at all times maintain each office from which it
services 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 Collection
Account in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables to the Issuer,
the Servicer's master computer records (including any backup archives) that
refer to any Receivable indicate clearly (with reference to the Issuer) that
the Receivable is owned by the Issuer. Indication of the Issuer's ownership of
a Receivable shall be deleted from or modified on the Servicer's
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computer systems when, and only when, the Receivable has been paid in full or
repurchased hereunder.
(f) If at any time the Servicer proposes 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 printouts (including any restored from backup archives) that, if
they refer in any manner whatsoever to any Receivable, indicate clearly that
such Receivable has been sold and is owned by the Issuer unless such Receivable
has been paid in full or repurchased hereunder.
(g) The Servicer shall permit the Issuer, the Trustee, the Backup
Servicer, the Noteholders, the Security Insurer and their respective agents, at
any time to inspect, audit and make copies of and abstracts from the Servicer's
records regarding any Receivables or any other portion of the Other Conveyed
Property.
(h) The Servicer shall furnish to the Issuer, the Trustee, the Backup
Servicer and the Security Insurer at any time upon request a list of all
Receivables then held by Issuer, together with a reconciliation of such list to
each Schedule of Receivables and to each of the Servicer's Certificates
furnished before such request indicating removal of Receivables from the
Issuer. Upon request, the Servicer shall furnish a copy of any list to each
Seller. The Issuer shall hold any such list and each Schedule of Receivables
for examination by interested parties during normal business hours at the
offices of the Servicer upon reasonable notice by such Persons of their desire
to conduct an examination.
(i) The Servicer shall deliver to the Issuer, the Trustee and the
Security Insurer simultaneously with the execution and delivery of this
Agreement and of each amendment thereto and upon the occurrence of the events
giving rise to an obligation to give notice pursuant to Section 10.2(b) or (c),
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
Issuer and the Trustee in the Receivables and the Other Conveyed Property, 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 is necessary to preserve and protect such interest.
(j) The Servicer shall deliver to the Issuer, the Trustee and the
Security Insurer, on or before June 1 of each calendar year commencing in 1998,
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
Issuer
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and the Trustee in the Receivables and the Other Conveyed Property, 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 action shall be necessary to preserve and protect such interest.
Section X.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois without regard
to the principles of conflicts of laws thereof and the obligations, rights and
remedies of the parties under this Agreement shall be determined in accordance
with such laws.
Section X.4. 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 Notes or
the rights of the Holders thereof.
Section X.5. Assignment. Notwithstanding anything to the contrary
contained in this Agreement, except as provided in Section 7.2 or Section 8.2
(and as provided in the provisions of the Agreement concerning the resignation
of the Servicer and the Backup Servicer), this Agreement may not be assigned
by any Seller or the Servicer without the prior written consent of the Issuer,
the Trustee, the Backup Servicer and the Security Insurer (or, if an Insurer
Default shall have occurred and be continuing, the Issuer, the Trustee
and a Note Majority).
Section X.6. Third-Party Beneficiaries. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. The Security Insurer and its successors and
assigns shall be a third-party beneficiary to the provisions of this Agreement,
and shall be entitled to rely upon and directly to enforce such provisions of
this Agreement so long as no Insurer Default shall have occurred and be
continuing. Nothing in this Agreement, express or implied, shall give to any
Person, other than the parties hereto and their successors hereunder and
permitted assigns, any benefit or any legal or equitable right, remedy or claim
under this Agreement. Except as expressly stated otherwise herein or in the
Related Documents, any right of the Security Insurer to direct, appoint,
consent to, approve of, or take any action under this Agreement, shall be a
right exercised by the Security Insurer in its sole and absolute discretion.
Section X.7. Disclaimer by Security Insurer. The Security Insurer may
disclaim any of its rights and powers under this
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Agreement (but not its duties and obligations under the Policy) upon delivery
of a written notice to the Issuer and the Trustee.
Section X.8. Counterparts. For the purpose of facilitating its execution
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.
Section X.9. Notices. All demands, notices and communications under this
Agreement shall be in writing, personally delivered or mailed by certified
mail-return receipt requested, and shall be deemed to have been duly given upon
receipt (a) in the case of any Seller or the Servicer, at the following
address: 500 Davis Street, Suite 1005, Evanston, Illinois 60201, Attention:
Jan W. Erfert, Telecopy No.: (847) 866-8822, with a copy to: Rudnick & Wolfe,
203 North LaSalle Street, Chicago, Illinois 60601-1239, Attention: Hal M.
Brown, Telecopy No.: (312) 236-7516, (b) in the case of the Issuer, at the
following address: 42-C Read's Way, New Castle, Delaware 19720, with a copy
to: Rudnick & Wolfe, 203 North LaSalle Street, Chicago, Illinois 60601-1239,
Attention: Hal M. Brown, Telecopy No.: (312) 236-7516, (c) in the case of the
Trustee and, for so long as the Trustee is the Backup Servicer or the
Collateral Agent, at the following address: 135 South LaSalle Street,
Suite 1740, Chicago, Illinois 60674-4105 , Attention: ABS Trust Services -
First Enterprise 1997-B, Telecopy No.: (312) 904-2084, (d) in the case of each
Rating Agency, at the following address: 99 Church Street, New York, New York
10007, Attention: ABS Monitoring Department (for Moody's) and 26 Broadway, New
York, New York 10004 (for Standard & Poor's), Attention: Asset-Backed
Surveillance, and (e) in the case of the Security Insurer, at the following
address: 350 Park Avenue, New York, New York 10022, Attention: Surveillance
Department, Telex No.: (212) 688-3103, Confirmation: (212) 826-0100, Telecopy
Nos.: (212) 339-3518, (212) 339-3529 (in each case in which notice or other
communication to Financial Security refers to an Event of Default, a claim on
the Policy or with respect to which failure on the part of Financial Security
to respond shall be deemed to constitute consent or acceptance, then a copy of
such notice or other communication should also be sent to the attention of the
General Counsel and the Head-Financial Guaranty Group "URGENT MATERIAL
ENCLOSED"), or at such other address as shall be designated by any such party
in a written notice to the other parties. Any notice required or permitted to
be mailed to a Noteholder shall be given by first class mail, postage prepaid,
at the address of such Noteholder as shown in the Note Register (as the case
may be), and any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Noteholder receives such notice. Notwithstanding any provision hereof to the
contrary, a copy of each notice required to be
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provided hereunder shall be provided to each of the Rating Agencies.
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IN WITNESS WHEREOF, the Issuer, each Seller, the Servicer, the Initial
Subservicer and the Backup Servicer have caused this Sale and Servicing
Agreement to be duly executed by their respective officers as of the day and
year first above written.
FIRST ENTERPRISE SECURITIZATION CO. II, as Issuer
By:/s/Jan W. Erfert
--------------------------------------------
Name:Jan W. Erfert
Title:Vice President
FIRST ENTERPRISE FINANCIAL GROUP, INC.,
individually and as Servicer
By:/s/ Paul A. Stinneford
--------------------------------------------
Name:Paul A. Stinneford
Title:Vice President
FIRST ENTERPRISE ACCEPTANCE COMPANY
By:/s/Jan W. Erfert
--------------------------------------------
Name:Jan W. Erfert
Title:Vice President
LASALLE NATIONAL BANK, as
Backup Servicer
By:/s/Barbara L. Marik
--------------------------------------------
Name:Barbara L. Marik
Title:Trust Officer
<PAGE> 77
Acknowledged and Accepted:
LASALLE NATIONAL BANK,
not in its individual capacity but as Trustee
By:/s/Barbara L. Marik
-----------------------------
Name: Barbara L. Marik
Title:Trust Officer
<PAGE> 78
Exhibit A
ASSIGNMENT
----------
For value received, in accordance with the Sale and Servicing Agreement
dated as of June 1, 1997 (the "Sale and Servicing Agreement"), among the
undersigned, First Enterprise Securitization Co. II (the "Issuer") and the
other parties thereto the undersigned does hereby sell, transfer, assign and
otherwise convey unto the Issuer, without recourse (subject to the obligations
in the Sale and Servicing Agreement), (1) all right, title and interest of the
undersigned in and to the Receivables listed in the Schedule of Receivables
delivered by the undersigned, all monies received thereunder after the Cutoff
Date and all Liquidation Proceeds and recoveries received with respect to such
Receivables; and (2)(i) all right, title and interest of the undersigned in and
to the security interests in the Financed Vehicles granted by Obligors pursuant
to the Receivables and any other interest of the undersigned in such Financed
Vehicles, including, without limitation, the certificates of title with respect
to such Financed Vehicles; (ii) all right, title and interest of the
undersigned in and to any proceeds from claims on any repossession loss,
physical damage, credit life and credit accident and health insurance policies
covering such Financed Vehicles or the Obligors; (iii) all right, title and
interest of the undersigned in and to refunds for the costs of service
contracts with respect to such Financed Vehicles, refunds of unearned premiums
with respect to credit life and credit accident and health insurance policies
covering an Obligor or Financed Vehicle or his or her obligations with respect
to a Financed Vehicle and any recourse to Dealers for any of the foregoing;
(iv) all right, title and interest of the undersigned under the Dealer
Agreements and Dealer Assignments as the same may relate to the Receivables;
(v) the Receivable File related to each Receivable; (vi) all right, title and
interest of the undersigned in all funds on deposit in the Trust Accounts, and
all investments and proceeds thereof (including all income therein); and (vii)
the proceeds of any and all of the foregoing. The foregoing sale does not
constitute and is not intended to result in any assumption by the Issuer of any
obligation of the undersigned to the Obligors, insurers or any other person in
connection with the Receivables, the Receivable Files, any insurance policies
or any agreement or instrument relating to any of them.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the Sale
and Servicing Agreement and is to be governed by the Sale and Servicing
Agreement.
<PAGE> 79
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Sale and Servicing Agreement.
This Assignment shall be governed by and construed in accordance with the
internal laws of the State of Illinois.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be duly
executed as of June 11, 1997.
[FIRST ENTERPRISE FINANCIAL GROUP, INC.]
[FIRST ENTERPRISE ACCEPTANCE COMPANY]
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
2
<PAGE> 80
Exhibit B
SERVICER'S CERTIFICATE
----------------------
<PAGE> 81
Exhibit C
LOCAL COLLECTION ACCOUNT BANKS
------------------------------
<PAGE> 82
SCHEDULE A
----------
SCHEDULE OF RECEIVABLES
-----------------------
On file with LaSalle National Bank
<PAGE> 83
SCHEDULE B
REPRESENTATIONS AND WARRANTIES OF THE SERVICER
1. Origination Date. Each Receivable shall have an origination
date on or after October 11, 1995.
2. Maturity of Receivables. Each Receivable shall have an original
maturity of not more than 60 months; the weighted average original
maturity of the Receivables is 42.99 months as of the Cutoff Date; the
remaining maturity of each Receivable was 54 months or less as of the
Cutoff Date; the weighted average remaining maturity of the Receivables
was 40.78 months as of the Cutoff Date.
3. Characteristics of Receivables. (A) Each Receivable (1) 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 in accordance with the applicable Seller's credit approval
guidelines and such Dealer had all necessary licenses and permits to
originate Receivables in the state where such Dealer was located, was
fully and properly executed by the parties thereto, was purchased by the
applicable Sellers from such Dealer under an existing Dealer Agreement or
pursuant to a Dealer Assignment with such Seller and was validly assigned
to such Seller pursuant to a Dealer Assignment, (2) has created a valid,
subsisting, and enforceable first priority security interest in favor of
the applicable Sellers in the Financed Vehicle, which in turn will assign
such security interest to the Issuer pursuant to the Sale and Servicing
Agreement which in turn will assign such security interest to the Trustee
for the benefit of the Noteholders pursuant to the Indenture, (3)
contains 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, (4)
provides for level monthly (or, in some cases, more frequent) payments
that fully amortize the Amount Financed over the original term (except
for the last payment, which may be smaller than the level payment) and
yield interest at the Annual Percentage Rate, (5) has an Annual
Percentage Rate of not less than 17% and not more than 31%, (6) provides
for, in the event that such contract is prepaid, a prepayment that fully
pays the Principal Balance at the Annual Percentage Rate and (7) is a
Receivable under which the portion of the payment allocable to interest
and the portion allocable to principal is determined in accordance with
the Actuarial Method only in North Carolina and in accordance with "Rule
of 78s" in all other states and
B-1
<PAGE> 84
(B) 100% of the aggregate Principal Balance of the Receivables
represents financing of Motor Vehicles and related products; as of the
Cutoff Date no Receivable shall have a payment that is more than 29 days
overdue; and each Receivable shall have a final scheduled payment due no
later than October 31, 2001.
4. Principal Balance. Each Receivable shall have an outstanding
principal balance as of the Cutoff Date of not less than $1,595.54 and
not more than $17,123.27.
5. Characteristics of Obligors. Each Obligor is a resident of the
United States of America and, as of the Cutoff Date, no Obligor on any
Receivable (A) was the subject of any federal, state or other bankruptcy,
insolvency or similar proceeding pending on the date of application that
is not discharged, (B) was currently the subject of a judgment in favor
of any Seller, (C) had its related Financed Vehicle repossessed (or
subject to repossession) or (D) had its related Receivable rewritten.
6. Origination of Receivables. (A) Based on the location of the
originating Dealer and the Aggregate Principal Balances as of the Cutoff
Date, approximately 25.65% of the Receivables were originated in Florida,
approximately 6.23% of the Receivables were originated in Georgia,
approximately 8.34% of the Receivables were originated in North Carolina,
approximately 11.13% of the Receivables were originated in South
Carolina, approximately 8.47% of the Receivables were originated in
Virginia, approximately 12.72% of the Receivables were originated in
Mississippi, approximately 9.61% of the Receivables were originated in
Tennessee and approximately 17.85% of the Receivables were originated in
Alabama and (B) each Receivable was originated in the United States.
7. [Reserved]
8. Location of Receivable Files. A complete Receivable File with
respect to each Receivable containing (A) a fully executed original of
the Receivable, (B) the original executed credit application, or a copy
thereof and (C) the original Lien Certificate or application therefor,
each in a form satisfactory to the Trustee, will be delivered to the
Trustee on or prior to the Closing Date.
9. Schedule of Receivables. The information with respect to the
Receivables set forth in each Schedule of Receivables has been produced
from the Electronic Ledger and is true and correct as of the close of
business on the Cutoff Date.
B-2
<PAGE> 85
10. Adverse Selection. No selection procedures having an adverse
effect on the Noteholders have been utilized in selecting the Receivables
from those receivables owned by the Sellers which met the selection
criteria contained in this Agreement.
11. Compliance with Law. None of the Receivables, the sale of the
related Financed Vehicle, the sale of any physical damage, credit life
and credit accident and health insurance nor any service contracts, at
the time the related Receivable was originated or made, contravened in
any material respect, and, at the execution of this Agreement contravenes
in any material respect, with any 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 Soldiers' and Sailors' Civil Relief Act of 1940, each applicable
state Motor Vehicle Retail Installment Sales Act, and state adaptations
of the National Consumer Act and of the Uniform Consumer Credit Code, and
other consumer credit laws and equal credit opportunity and disclosure
laws.
12. No Government Obligor. None of the Receivables is due from the
United States of America or any state or from any agency, department, or
instrumentality of the United States of America or any state.
13. Security Interest in Financed Vehicle. Immediately prior to
the sale, assignment, and transfer thereof, each Receivable shall be
secured by a validly perfected first priority security interest in the
related Financed Vehicle in favor of the applicable Seller as secured
party, and such security interest is prior to all other liens upon and
security interests in such Financed Vehicle which now exist or may
hereafter arise or be created (except, as to priority, for any tax
liens or mechanics' liens which may arise after the Closing Date). In
connection with the assignment thereof by the applicable Seller to the
Issuer and then by the Issuer to the Trustee, no filing or other action
is necessitated under the UCC or any titling statute or act to continue
the first priority perfected status of the security interest in the
Financed Vehicle against creditors of and transferees from the original
Obligor.
14. Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released
from the lien granted by the related Receivable in whole or in part.
B-3
<PAGE> 86
15. No Waiver. No provision of a Receivable has been waived.
16. No Amendments. No Receivable has been amended, altered or
modified, except as such Receivable may have been amended to grant
deferments which shall not have exceeded (a) two one-month periods within
any calendar year or (b) five deferments over the life of the Receivable.
No Receivable has been modified as a result of application of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended. Copies of
all amendments, alterations and modifications are contained in the
related Receivable File.
17. No Defenses. As of the Closing Date, no right of rescission,
setoff, counterclaim or defense exists (other than defenses existing
under the Federal Trade Commission's "Holder-in-Due-Course" rule) or has
been asserted or 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 (other than defenses available under the Federal Trade
Commission's "Holder-in-Due-Course" rule).
18. No Liens. As of the Cutoff Date, there are no liens or claims
existing or which 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.
19. No Fraud or Misrepresentation. Each Receivable was originated
by a Dealer and was sold by the Dealer to the applicable Seller without
fraud or misrepresentation on the part of such Dealer in either case.
20. Receivables Not Assumable. No Receivable is assumable by
another Person in a manner which would release the Obligor thereof from
such Obligor's obligations to the applicable Seller with respect to such
Receivable.
21. No Impairment. No Seller has done anything to convey any right
to any Person that would result in such Person having a right to payments
due under a Receivable or otherwise to impair the rights of the Issuer,
the Trustee, the Security Insurer or the Noteholders in any Receivable or
the proceeds thereof.
22. No Default; Repossession. Except for payment delinquencies
continuing for a period of not more than twenty-nine days as of the
Cutoff Date, no default, breach, violation
B-4
<PAGE> 87
or event permitting acceleration under the terms of any Receivable
has occurred; 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; neither the
Servicer nor any Seller shall waive, or has waived, any of the foregoing;
and no Financed Vehicle shall have been repossessed as of the Cutoff
Date.
23. Insurance; Other. The Servicer, in accordance with its
customary procedures, has determined (A) that each Obligor, at the time
of origination, had 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 (i) in an amount at least
equal to the lesser of (x) its maximum insurable value or (y) the
principal amount due from the Obligor under the related Receivable and
(ii) naming the applicable Seller as loss payee, (B) each Receivable that
finances the cost of premiums for credit life and credit accident or
health insurance is covered by an insurance policy and certificate of
insurance naming the applicable Seller as policyholder (creditor) under
each such insurance policy and certificate of insurance, and (C) as to
each Receivable that finances the cost of a service contract, the
respective Financed Vehicle which secures the Receivable is or was
covered by a service contract.
24. Title. It is the intention of each Seller that the transfer
and assignment herein contemplated constitute a sale of the Receivables
from such Seller to the Issuer and that the beneficial interest in and
title to such Receivables not be part of such Seller's estate in the
event of the filing of a bankruptcy petition by or against such Seller
under any bankruptcy law. No Receivable has been sold, transferred,
assigned, or pledged by any Seller to any Person other than the Issuer or
any such pledge has been released on or prior to the Closing Date.
Immediately prior to the transfer and assignment herein contemplated, the
applicable 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 (except those
released on the Closing Date) and, immediately upon the transfer thereof,
the Issuer 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 perfected under the UCC. No Dealer has a participation in, or
other right to receive, proceeds of any Receivable. No Seller has taken
any action to convey any right to any Person that
B-5
<PAGE> 88
would result in such Person having a right to payments received
under the related Insurance Policies or the related Dealer Agreements or
Dealer Assignments or to payments due under such Receivables.
25. Marking of Receivables. On or prior to the Closing Date, each
Seller will have caused the portions of the Electronic Ledger relating to
the Receivables to be clearly and unambiguously marked to show that the
Receivables have been sold by such Seller to the Issuer in accordance
with the terms of this Agreement and assigned by the Issuer to the
Trustee for the benefit of the Noteholders in accordance with the terms
of the Indenture.
26. Computer Tape. The Computer Tape made available by the Sellers
to the Issuer on or prior to the Closing Date was complete and accurate
in all material respects as of the Cutoff Date and includes a description
of the same Receivables that are described in each Schedule of
Receivables.
27. Lawful Assignment. No Receivable has been originated in, or is
subject to the laws of, any jurisdiction under which the sale, transfer,
and assignment of such Receivable under this Agreement shall be unlawful,
void, or voidable. No Seller has entered into any agreement with any
account debtor that prohibits, restricts or conditions the assignment of
any portion of the Receivables.
28. All Filings Made. All filings (including, without limitation,
UCC filings) necessary in any jurisdiction to give the Issuer a first
priority perfected ownership interest, and the Trustee a first priority
security interest, in the Receivables and the Other Conveyed Property
have been made.
29. One Original. There is only one original executed copy of each
Receivable.
30. Chattel Paper. Each Receivable constitutes "chattel paper"
under the UCC.
31. 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 the terms of such Receivable have
not been waived or modified in any respect.
B-6
<PAGE> 89
32. Tax Liens. As of the Cutoff Date, there is no lien against any
Financed Vehicle for delinquent taxes.
33. Title Documents. (A) If any 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 and will show, the
applicable Seller named as the original secured party under the related
Receivables as the holder of a first priority security interest in such
Financed Vehicle, and (B) if any 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 the applicable Seller named as
the original secured party under the related Receivable, and in either
case, no further action is required under the UCC or any titling statute
or act to continue the perfected status of the first priority security
interest in the Financed Vehicle against creditors of and transferees
from the original Obligor. With respect to each Receivable for which the
title document has not yet been returned from the Registrar of Titles,
the applicable Seller has received written evidence from the related
Dealer that such title document showing such Seller as first lienholder
has been applied for.
B-7
<PAGE> 90
SCHEDULE C
SERVICING POLICIES AND PROCEDURES
---------------------------------
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS
Section 1.1. Definitions............................................... 1
Section 1.2. Usage of Terms............................................ 17
Section 1.3. Calculations.............................................. 17
Section 1.4. Section References........................................ 17
Section 1.5. No Recourse............................................... 17
Section 1.6. Material Adverse Effect................................... 18
ARTICLE II CONVEYANCE OF RECEIVABLES AND OTHER CONVEYED PROPERTY
Section 2.1. Purchase and Sale of Receivables and
Other Conveyed Property.................................. 18
Section 2.2. Custody of Receivable Files............................... 19
Section 2.3. Conditions Precedent...................................... 20
Section 2.4. Representations and Warranties of each Seller............. 23
Section 2.5. Repurchase of Receivables Upon Breach of Warranty......... 25
Section 2.6. Issuer's Assignment of Administrative
Receivables and Warranty Receivables..................... 25
Section 2.7. Collecting Lien Certificates.............................. 26
Section 2.8. Protection of Right, Title and Interest................... 26
Section 2.9. Costs and Expenses........................................ 28
Section 2.10. Delivery of Receivable Files.............................. 28
Section 2.11. Restrictions on Liens..................................... 28
Section 2.12. Sale...................................................... 29
Section 2.13. Indemnification By Each Seller............................ 29
Section 2.14. Representations and Warranties of the Issuer.............. 31
Section 2.15. Nonpetition Covenant...................................... 32
Section 2.16. Covenants Regarding UCC-2 and UCC-3 Filing................ 32
ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 3.1. Duties of the Servicer.................................... 33
Section 3.2. Collection of Receivable Payments;........................
Modifications of Receivables............................. 34
Section 3.3. Realization Upon Receivables.............................. 36
Section 3.4. Insurance................................................. 37
Section 3.5. Maintenance of Security Interests in Vehicles............. 37
Section 3.6. Covenants, Representations and
Warranties of Servicer................................... 38
Section 3.7. Purchase of Receivables Upon Breach
of Covenant.............................................. 43
Section 3.8. Servicing Fee; Payment of Certain Expenses
by Servicer.............................................. 43
Section 3.9. Servicer's Certificate.................................... 43
Section 3.10. Annual Statement as to Compliance;
Notice of Servicer Termination Event..................... 44
Section 3.11. Annual Independent Accountants' Report.................... 45
Section 3.12. Access to Certain Documentation and
</TABLE>
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<PAGE> 92
<TABLE>
<CAPTION>
<S> <C>
Information Regarding Receivables........................ 45
Section 3.13. Monthly Tape.............................................. 46
Section 3.14. Retention and Termination of Servicer..................... 46
Section 3.15. Duties of the Servicer under the Indenture................ 47
Section 3.16. Fidelity Bond and Errors and Omissions Policy............. 48
ARTICLE IV DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS
Section 4.1. Trust Accounts............................................ 49
Section 4.2. Collections............................................... 50
Section 4.3. Application of Collections................................ 51
Section 4.4. Net Deposits.............................................. 51
Section 4.5. Additional Deposits....................................... 52
Section 4.6. Distributions............................................. 52
Section 4.7. Trustee as Agent.......................................... 53
Section 4.8. Statements to Noteholders................................. 53
Section 4.9. [Reserved]................................................ 54
Section 4.10. Optional Deposits by the Security Insurer................. 54
ARTICLE V THE SPREAD ACCOUNT
Section 5.1. Withdrawals from Spread Account in
respect of Deficiency Claim Amount....................... 55
Section 5.2. Withdrawals from Spread Account in
respect of Noteholders' Excess Principal
Payment Amount or following the occurrence of
an Insurer Default....................................... 55
ARTICLE VI SERVICER AS CUSTODIAN
Section 6.1. Duties of Servicer as Custodian........................... 56
Section 6.2. Instructions; Authority to Act............................ 57
Section 6.3. Custodian's Indemnification............................... 57
Section 6.4. Effective Period and Termination.......................... 57
ARTICLE VII SERVICER
Section 7.1. Liability of Servicer; Indemnities........................ 58
Section 7.2. Merger or Consolidation of, or Assumption
of the Obligations of the Servicer
or Backup Servicer....................................... 59
Section 7.3. Limitation on Liability of Servicer,
Backup Servicer and Others............................... 60
Section 7.4. Delegation of Duties...................................... 61
Section 7.5. Servicer and Backup Servicer Not to Resign................ 62
ARTICLE VIII SERVICER TERMINATION EVENTS
Section 8.1. Servicer Termination Event................................ 63
Section 8.2. Consequences of a Servicer Termination Event.............. 64
Section 8.3. Appointment of Successor.................................. 66
Section 8.4. Notification to Noteholders............................... 67
Section 8.5. Waiver of Past Defaults................................... 67
ARTICLE IX TERMINATION
Section 9.1. Optional Purchase of All Receivables...................... 68
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
<S> <C>
ARTICLE X MISCELLANEOUS PROVISIONS
Section 10.1. Amendment................................................. 68
Section 10.2. Protection of Title to the Receivables
and Other Conveyed Property.............................. 69
Section 10.3. Governing Law............................................. 72
Section 10.4. Severability of Provisions................................ 72
Section 10.5. Assignment................................................ 72
Section 10.6. Third-Party Beneficiaries................................. 72
Section 10.7. Disclaimer by Security Insurer............................ 72
Section 10.8. Counterparts.............................................. 73
Section 10.9. Notices................................................... 73
</TABLE>
-iii-
<PAGE> 94
TABLE OF CONTENTS
(CONTINUED)
PAGE
-iv-
<PAGE> 95
TABLE OF CONTENTS
(CONTINUED)
PAGE
-v-
<PAGE> 96
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Exhibit A Form of Assignment
Exhibit B Servicer's Certificate
Exhibit C Local Collection Account Banks
Schedule A Schedule of Receivables
Schedule B Representations and Warranties of the Servicer
Schedule C Servicing Policies and Procedures of FEFG
</TABLE>
-vi-
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ -----------------------------
1997 1996 1997 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net income........................................... $898,955 $882,599 $2,486,882 $1,811,921
Adjustments for reduction in interest
expense and effects of shares
required to pay offering costs,
and debt of $11,527,000............................ -- 214,000 -- 427,000
---------- ----------- ---------- ----------
Net income........................................... 898,955 2,486,882
========== ==========
Pro forma net income................................. 1,096,599 2,238,921
========== ==========
Average number of common shares outstanding.......... 5,433,640 3,077,654 5,415,747 3,077,654
Common equivalent shares outstanding................. 232,388 427,385 232,388 427,385
Shares included in the offering...................... -- 2,169,636 -- 2,169,636
---------- ----------- ---------- ----------
Pro forma weighted average number of common
and common equivalent shares outstanding........... 5,666,028 5,674,675 5,648,135 5,674,675
========== =========== ========== ==========
Net income per share................................. $0.16 $0.44
========== ==========
Pro forma net income per share....................... $0.19 $0.39
========== ==========
</TABLE>
NOTE: Net income per share figures will not necessarily add due to rounding
adjustments.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,604,492
<SECURITIES> 0
<RECEIVABLES> 85,704,284
<ALLOWANCES> 8,705,292
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,484,367
<DEPRECIATION> 1,005,289
<TOTAL-ASSETS> 102,906,271
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 54,445
<OTHER-SE> 19,490,194
<TOTAL-LIABILITY-AND-EQUITY> 102,906,271
<SALES> 0
<TOTAL-REVENUES> 20,076,611
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,807,370
<LOSS-PROVISION> 3,420,000
<INTEREST-EXPENSE> 3,804,359
<INCOME-PRETAX> 4,044,882
<INCOME-TAX> 1,558,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,486,882
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
