<PAGE> 1
As filed with the Securities and Exchange Commission on April 7, 2000.
Registration No. 333-92573
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
ONYX ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6141 33-0577635
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------
27051 TOWNE CENTRE DRIVE, SUITE 100
FOOTHILL RANCH, CALIFORNIA 92610
(949) 465-3900
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
------------------
DON P. DUFFY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
27051 TOWNE CENTRE DRIVE, SUITE 100
FOOTHILL RANCH, CALIFORNIA 92610
(949) 465-3900
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------
copies to:
<TABLE>
<S> <C> <C>
THOMAS R. POPPLEWELL MICHAEL A. KRAHELSKI MARK S. WEITZ
ANDREWS & KURTH L.L.P. ONYX ACCEPTANCE CORPORATION LEONARD, STREET AND DEINARD
1717 MAIN STREET, SUITE 3700 27051 TOWNE CENTRE DRIVE, SUITE 100 PROFESSIONAL ASSOCIATION
DALLAS, TEXAS 75201 FOOTHILL RANCH, CALIFORNIA 92610 150 SOUTH FIFTH STREET, SUITE 2300
(214) 659-4400 (949) 465-3900 MINNEAPOLIS, MINNESOTA 55402
(612) 335-1500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
=========================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SECURITY(4) PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Subordinated Notes
due 2006...................... $13,800,000 $960 $13,248,000 $3,643.20
=========================================================================================================================
</TABLE>
(1) Includes $1,800,000 principal amount of subordinated notes that the
underwriters have the option to purchase to cover over- allotments, if
any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
(3) Fee of $6,072 previously paid to the commission on December 10, 1999 in
connection with the original filing of the Registration Statement.
(4) The Subordinated Notes are being offered to the public at a discount of 4%
off the face value of the notes.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 7, 2000
PROSPECTUS
LOGO
$12,000,000
ONYX ACCEPTANCE CORPORATION
% SUBORDINATED NOTES DUE , 2006
------------------------
The notes will mature and their principal will be payable on
, 2006. They will bear interest at a rate of % per year, and
we will make the first interest payment on , 2000. After that, we
will pay interest on the notes each year on the 15th of ,
, and . The notes are unsecured
obligations and your right to payment is subordinated in right of payment to all
of our senior indebtedness. We cannot redeem the notes prior to ,
2002. On and after , 2002, we may redeem all or a portion of the
notes at certain prices described in this prospectus. You may require us to
repurchase the notes if we experience a change in control.
The notes will not be listed on any securities exchange or quoted on Nasdaq
or any over-the-counter market. Miller & Schroeder Financial, Inc. and Peacock,
Hislop, Staley & Given, Inc., the underwriters, may make a market in the notes,
but they are not obligated to do so.
INVESTING IN THE NOTES INVOLVES RISKS WHICH ARE DESCRIBED IN "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- --------
<S> <C> <C>
Public offering price.......................................
Underwriting discounts and commissions......................
Proceeds to Onyx, before expenses...........................
</TABLE>
The underwriters may also purchase, in the aggregate, up to an additional
$1,800,000 principal amount of notes at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments.
The underwriters expect to deliver the notes through the facilities of The
Depository Trust Company against payment in New York, New York on ,
2000.
------------------------
MILLER & SCHROEDER
PEACOCK, HISLOP, STALEY & GIVEN, INC.
------------------------
The date of this Prospectus is , 2000.
<PAGE> 3
Onyx Acceptance Corporation provides prime and near-prime automobile
lending to franchise and select independent car dealers. It provides service to
those dealers from its auto finance centers throughout the United States. Since
its inception in 1993, Onyx has purchased and securitized publicly over $3.8
billion in auto receivables. Onyx services its retail customers from its
Foothill Ranch complex in California.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Total revenues................... $ 5,618 $ 22,627 $ 33,811 $ 60,392 $ 88,943
Net income (loss)................ (3,763) 6,116 1,302 6,075 9,792
Net income (loss) per diluted
share.......................... $ (1.68) $ 1.09 $ 0.21 $ 0.95 $ 1.50
Diluted shares outstanding....... 2,234 5,586 6,294 6,425 6,514
Total assets................... $136,077 $ 54,083 $141,836 $ 275,422 $ 393,835
Stockholders' equity (deficit)... (7,896) 36,358 37,717 43,824 53,108
Servicing portfolio at period
end............................ $218,207 $400,665 $757,277 $1,345,961 $2,133,460
Contracts purchased.............. $199,397 $319,840 $605,905 $1,038,535 $1,559,004
</TABLE>
BAR CHARTS:[Bar chart showing dollar amount of revenues for the years ended
December 31, 1995, 1998 and 1999]
[Bar chart showing the number of contracts the years ended December 31, 1995,
1996, 1997, purchased for 1996, 1997, 1998 and 1999]
[Bar chart showing dollar amount of servicing portfolio for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999]
[Bar chart showing the number of dealer relationships for each quarter from the
first quarter of 1998 through the fourth quarter of 1999]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY .................................................................. 1
Onyx .......................................................................... 1
Business ...................................................................... 1
The Offering .................................................................. 3
Summary Financial Data ........................................................ 6
RISK FACTORS ........................................................................ 8
Risk Factors Relating to the Notes ............................................ 8
Risk Factors Relating to Onyx ................................................. 10
Risks Associated with the Year 2000 Problem ................................... 17
USE OF PROCEEDS ..................................................................... 18
CAPITALIZATION ...................................................................... 18
SELECTED FINANCIAL DATA ............................................................. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL AND RESULTS OF OPERATIONS ......... 21
Overview ...................................................................... 21
Results of Operations ......................................................... 24
Financial Condition ........................................................... 26
Liquidity and Capital Resources ............................................... 31
Securitizations ............................................................... 33
Interest Rate Exposure and Hedging ............................................ 34
Dividend Policy ............................................................... 34
New Accounting Pronouncements ................................................. 34
Year 2000 Readiness ........................................................... 34
Quantitative and Qualitative Disclosure about Market Risk ..................... 35
BUSINESS ............................................................................ 37
General ....................................................................... 37
Background .................................................................... 37
Market and Competition ........................................................ 37
Business Strategy ............................................................. 37
Operations .................................................................... 38
Underwriting and Purchasing of Contracts ...................................... 40
Servicing Procedures .......................................................... 43
Collection Procedures ......................................................... 43
Modifications and Extensions .................................................. 45
Insurance ..................................................................... 45
Financing and Sale of Contracts ............................................... 45
Government Regulation ......................................................... 45
Litigation .................................................................... 47
Employees ..................................................................... 48
Properties .................................................................... 48
MANAGEMENT .......................................................................... 49
Directors and Executive Officers .............................................. 49
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Executive Compensation ........................................................ 51
Directors' Compensation ....................................................... 54
Employment Agreements ......................................................... 54
Stock Option Grants ........................................................... 54
Compensation Committee Interlocks and Insider Participation ................... 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...................................... 55
Certain Business Relationships ................................................ 55
Indebtedness of Management .................................................... 55
PRINCIPAL STOCKHOLDERS .............................................................. 56
DESCRIPTION OF THE NOTES ............................................................ 59
General ....................................................................... 59
Interest ...................................................................... 59
Optional Redemption By Us ..................................................... 60
Repurchase at Option of Holder ................................................ 60
Subordination ................................................................. 61
Events of Default And Remedies ................................................ 62
Restrictive Covenants ......................................................... 63
Modifications of the Indenture ................................................ 66
Satisfaction and Discharge .................................................... 66
Legal Defeasance and Covenant Defeasance ...................................... 66
Governing Law ................................................................. 67
Concerning the Trustee ........................................................ 68
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ............................................ 68
General ....................................................................... 68
Payments of Interest .......................................................... 68
Taxation of Dispositions ...................................................... 69
Information Reporting and Backup Withholding .................................. 70
UNDERWRITING ........................................................................ 71
LEGAL MATTERS ....................................................................... 72
EXPERTS ............................................................................. 72
WHERE YOU CAN FIND MORE INFORMATION ................................................. 73
GLOSSARY ............................................................................ 74
INDEX TO FINANCIAL STATEMENTS ....................................................... F-1
</TABLE>
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<PAGE> 6
FORWARD LOOKING STATEMENTS
This prospectus contains certain statements of a forward-looking nature
relating to future events or our future performance. These forward-looking
statements are based on our current expectations, assumptions, estimates and
projections about us and our industry. When used in this prospectus, the words
"expects," "believes," "anticipates," "estimates," "intends" and similar
expressions are intended to identify forward-looking statements. These
statements include, but are not limited to, statements of our plans, strategies
and prospects under the captions "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and other statements contained elsewhere in
this prospectus.
These forward-looking statements are only predictions and are subject to
risks and uncertainties that could cause actual events or results to differ
materially from those projected. The cautionary statements made in this
prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this prospectus. We assume no obligation to
update these forward looking statements publicly for any reason. Actual results
could differ materially from those anticipated in these forward-looking
statements.
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<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all the information that may be important to you. You should read
the entire prospectus, including the financial data and related notes, before
making an investment decision. Unless we state otherwise, the terms
"Onyx,""our,"and "we" refer to Onyx Acceptance Corporation and its subsidiaries,
and the term "notes" refers to the ___% Subordinated Notes due _____ 2006 we are
offering pursuant to this prospectus. Certain industry terms that we use are
defined in the Glossary which begins on page 74.
ONYX
We are a specialized consumer finance company engaged principally in the
business of providing indirect automobile financing to franchised new car
dealerships and select used car dealerships throughout the United States. We
primarily purchase motor vehicle contracts from such dealerships. We focus our
efforts on acquiring motor vehicle contracts that are secured by late model used
motor vehicles and, to a lesser extent, new motor vehicles, that were entered
into with purchasers whom we believe have favorable credit profiles. We generate
revenues primarily through the purchase, warehousing, securitization and ongoing
servicing of motor vehicle contracts. Since we started purchasing, originating
and servicing motor vehicle contracts in February 1994, we have purchased or
originated more than $3.8 billion in motor vehicle contracts from approximately
7,600 dealers, and we have expanded our operations from a single office in
Orange County, California to major markets throughout the United States.
BUSINESS
Our principal objective is to become one of the leading sources of
near-prime auto lending in the United States by leveraging the experience of our
senior management team in this industry. We seek to attain and increase
profitability through the implementation of the following strategies:
- Targeted Market and Product Focus. We have positioned ourselves as
one of the lowest loan-to-value and payment-to-income lenders in the
near-prime auto finance market. We target the near-prime auto
lending market because we believe that it produces greater
origination and operating efficiencies than does the sub-prime
lending market. We focus on late model used motor vehicles, rather
than new motor vehicles, because we believe the risk of loss on used
vehicles is lower due to lower depreciation rates. Furthermore,
motor vehicle contracts secured by used motor vehicles generally
bear interest at rates that are higher than new motor vehicle
contracts. In addition, we believe that the late model used motor
vehicle finance market is growing at a faster rate than is the
finance market for new motor vehicles.
- Localized Dealership Service. We provide a high level of service to
our dealership base by marketing to and servicing dealerships on a
local level through our auto finance centers. Our credit and account
manager teams service our dealers locally and are able to provide a
quick decision process with respect to potential motor vehicle
contracts submitted to us by our dealers for purchase. These teams
use our proprietary credit evaluation system based on our
underwriting standards. We strategically locate our auto finance
centers in geographic areas with many dealerships in order to
facilitate personal service.
-1-
<PAGE> 8
- Expansion of Dealership Customer Base. We establish active
relationships with a substantial percentage of franchised
dealerships in the regions in which we do business through our
existing auto finance centers. We intend to establish additional
dealer relationships as we continue our expansion plans in the
future.
- Maintenance of Underwriting Standards and Portfolio Performance. We
have developed an underwriting process that is designed to achieve
attractive yields while minimizing delinquencies and losses. The
underwriting process emphasizes a personal, hands on analysis of the
creditworthiness of each applicant rather than sole reliance on a
credit scoring system. We also audit most motor vehicle contracts
that we purchase within days of their origination to further assure
adherence to our underwriting guidelines.
- Technology-Supported Operational Controls. We have developed and
instituted control and review systems that enable us to monitor both
our operations and the performance of the motor vehicle contracts we
service. These systems allow us to monitor motor vehicle contract
production, yields and performance on a daily basis.
- Liquidity Through Warehousing and Securitizations. Our strategy is
to complete securitizations on a regular basis and to use warehouse
credit facilities to fund the acquisition or origination of motor
vehicle contracts prior to securitization. We also utilize both
securitization and hedging strategies to leverage our capital
efficiently and substantially reduce our interest rate risk.
As these strategies indicate, our focus is on controlled growth, rather
than increasing our volume at any cost. We are committed to a long term
profitable growth strategy in the near-prime auto lending market.
We were incorporated in California in 1993, and reincorporated in Delaware
in 1996 in connection with our initial public offering of common stock in March
1996. Our principal executive offices are located at 27051 Towne Centre Drive,
Suite 100, Foothill Ranch, California 92610, and our telephone number is (949)
465-3900.
-2-
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Issuer............................. Onyx Acceptance Corporation.
Trustee............................ Bankers Trust Company.
Securities Offered................. Up to $13,800,000 principal amount of ___% subordinated
notes, which includes $1,800,000 principal amount of
subordinated notes that the underwriters have the option to
purchase to cover over-allotments, if any.
Offering Price..................... 96% of the principal amount per note plus accrued interest, if
any, from _________, 2000.
Maturity........................... ____________, 2006.
Interest Payment Dates............. ________ 15, ________ 15, ________ 15 and ________ 15
of each year. The first interest payment will be ________ 15,
2000, which will represent interest accrued from __________, 2000.
Principal Payment.................. We will not pay principal over the term of the notes. We plan
to pay the entire principal balance of the outstanding notes on
____________, 2006.
Optional Redemption................ On and after _______ 2002, we may redeem all or a portion of
the notes at a price equal to their outstanding principal amount
plus accrued interest, plus a premium as set forth in the
following table:
Date of Optional Redemption Premium Payable
--------------------------- ---------------
_______, 2002 through _______, 2003 5%
_______, 2003 through _______, 2004 3%
_______, 2004 through _______, 2005 1%
_______, 2005 through _______, 2006 None
See "Description of Notes - Optional Redemption By Us."
Ranking............................ The notes:
- are unsecured;
- rank junior to our current and future senior debt, including debt
we may incur under our existing and future credit facilities;
- rank equally with our existing and future subordinated debt; and
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C>
- rank senior to any subordinated debt held by any of our affiliates or
subsidiaries.
Assuming we had issued the notes and applied the proceeds as of December
31, 1999, we would have had outstanding $278 million of senior debt and
$22 million of subordinated debt, including the notes.
Restrictive Covenants.............. The indenture governing the notes, among other things, will:
- require us to maintain a minimum tangible net worth of $35 million,
subject to adjustments;
- restrict us from paying dividends on our capital stock or making
certain investments;
- require us to maintain certain financial ratios;
- restrict us from entering into certain transactions with affiliates;
and
- require us to maintain the listing for our common stock on the Nasdaq
National Market System.
The covenants set forth in the indenture are more fully described under
"Description of Notes - Restrictive Covenants." These covenants have
significant exceptions.
Change of Control.................. If we experience a change of control, you will have the option to require
us to repurchase your notes, in whole, at a price equal to 101% of their
principal amount plus accrued and unpaid interest. For a description of
the change of control provisions, see "Description of the Notes -
Repurchase at Option of Holder."
Use of Proceeds.................... We expect to receive approximately $10.1 million of net proceeds from this
offering after deducting the underwriters' discounts and commissions and
estimated offering expenses payable by us. We intend to use the net
proceeds to pay down our lines of credit used to finance residual
interests in our securitizations and for general corporate purposes. See
"Use of Proceeds."
Absence of Public Market........... There is no existing market for the notes. We cannot provide you with any
assurance as to:
- the liquidity of any market that may develop for the notes;
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C>
- your ability to sell your notes; or
- the prices at which you will be able to sell your notes.
Miller & Schroeder Financial, Inc. and Peacock, Hislop,
Staley & Given, Inc., the underwriters, have advised us that
they currently intend to make a market in the notes after the
completion of this offering. The underwriters do not,
however, have any obligation to do so, and may discontinue
any market-making activities at any time without any notice.
We do not intend to apply for listing of the notes on any
securities exchange or for quotation of the notes in any
automated dealer quotation system.
</TABLE>
RISK FACTORS
You should carefully read "Risk Factors" beginning on page 8 for a discussion
of factors you should carefully consider before deciding to invest in the notes.
-5-
<PAGE> 12
SUMMARY FINANCIAL DATA
The following table sets forth our summary consolidated financial and
operating data at the dates and for the periods indicated. You should also read
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included elsewhere in this prospectus.
As required by the Financial Accounting Standards Board's Special Report, "A
Guide to Implementation of Statement 125 on Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, Second
Edition," dated December 1998, and related guidance set forth in statements made
by the staff of the Securities and Exchange Commission on December 8, 1998, our
consolidated financial statements for 1997 and the first three fiscal quarters
of 1998 have been restated to reflect the change in the method of measuring and
accounting for credit enhancement assets on our securitization transactions to
the cash-out method from the cash-in method.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income .................................... $ 5,036 $ 7,312 $ 6,146
Servicing fee income ................................... 9,189 16,663 28,877
Gain on sale of contracts .............................. 19,586 36,417 53,920
-------- ---------- ----------
Total revenues ......................................... 33,811 60,392 88,943
---------- ----------
Provision for credit losses ............................ 785 1,580 1,246
Operating expenses ..................................... 30,740 48,427 70,959
-------- ---------- ----------
Total expenses ......................................... 31,525 50,007 72,205
-------- ---------- ----------
Income before income taxes ............................. 2,286 10,385 16,738
Income taxes ........................................... 984 4,310 6,946
-------- ---------- ----------
Net income ............................................. $ 1,302 $ 6,075 $ 9,792
======== ========== ==========
OPERATING DATA:
Contracts purchased during the period .................. $605,905 $1,038,535 $1,559,004
Number of contracts purchased during the period ........ 50,214 86,150 127,628
Contracts securitized and sold during the period ....... $527,276 $ 926,760 $1,450,000
Number of active dealerships (at end of period) ........ 2,846 5,401 7,617
Operating expenses as a percentage of the average
servicing portfolio during the period(1) ............. 5.5% 4.7% 4.1%
SELECTED PORTFOLIO DATA:
Servicing portfolio (at end of period) ................. $757,277 $1,345,961 $2.133,460
Average servicing portfolio during the period(1) ....... $563,343 $1,023,237 $1,728,875
Number of contracts in servicing portfolio (at
end of period) ....................................... 73,502 131,862 209,745
Weighted average annual percentage rate (at end
of period)(2) ........................................ 14.66% 14.72% 14.77%
Delinquencies as a percentage of the dollar
amount of servicing portfolio (at end of
period) .............................................. 2.51% 2.83% 3.24%
Net charge-offs as a percentage of the average
servicing portfolio during the period(1) ............. 2.03% 1.72% 1.85%
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............................. $ 991 $ 1,929 $ 5,190
Contracts held for sale(3) ............................. 63,380 151,952 229,475
Credit enhancement assets .............................. 71,736 112,953 142,884
Total assets ........................................... 141,836 275,422 393,835
Warehouse borrowings ................................... 60,506 150,044 232,288
Excess servicing and residual lines .................... 30,000 49,556 55,879
Subordinated debt ...................................... 0 10,000 10,000
Stockholders' equity ................................... 37,717 43,824 53,108
OTHER DATA:
Ratio of earnings to fixed charges (4) ................. 1.29x 1.69x 1.86x
EBITDA(5) .............................................. $ 10,742 $ 27,128 $ 38,507
Ratio of EBITDA to cash interest expenses(5) ........... 1.53x 1.92x 2.19x
</TABLE>
- ---------------
(1) Averages are based on daily balances.
(2) The weighted averages are based on contracts outstanding at the end of the
period.
(3) Contracts held for sale excludes dealer participation and allowance for
credit losses. See Note 4 to the Consolidated Financial Statements
(4) For purposes of computing our ratios of earnings to fixed charges, we
calculated earnings by adding fixed charges to income before income taxes.
Fixed charges consist of gross interest expense and one third of our rent
expense, which is the amount we believe is representative of the interest
factor component of our rent expense.
(5) EBITDA consists of earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented as additional information because it
is a commonly used financial measure. We also believe it to be a useful
indicator of our ability to meet our debt service requirements. We do not,
however, intend it to be an alternative measure of operating results or
cash flow from operations.
-7-
<PAGE> 14
RISK FACTORS
Before you invest in the notes, you should carefully consider these risk
factors, as well as the other information contained in this prospectus. The
risks described below are not the only ones we face. Additional risks not
presently known to us or that we currently believe are unimportant may also hurt
our business operations.
RISK FACTORS RELATING TO THE NOTES
Our substantial indebtedness could adversely affect our financial health
and prevent us from fulfilling our obligations under the notes.
We have now and, after we sell these notes, will continue to have a
substantial amount of indebtedness. You should be aware that our substantial
indebtedness could have important consequences to you. For example, it could:
- make it more difficult for us to perform our obligations with
respect to the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing amounts
available for working capital, capital expenditures and other
general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors
that have less debt; and
- limit our ability to borrow additional funds.
Our ability to incur substantially more debt could further increase the
risks described above.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture governing the notes set parameters for but do not
prohibit us from doing so. We also expect to enter into additional credit
facilities in the future. Any such borrowings would be senior to the notes. If
we borrow more money, the related risks that we now face could intensify. See
"Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
the Notes."
To service our indebtedness, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our control.
Our ability to repay or refinance our debt depends on our successful
financial and operating performance. We cannot assure you that our business
strategy will continue to succeed or that we will achieve our anticipated
financial results. Our financial and operational performance depends upon a
number of factors, many of which are beyond our control. These factors include:
- the current economic and competitive conditions in the asset-backed
securities market;
- the credit quality of our motor vehicle contracts;
- any operating difficulties or pricing pressures we may experience;
-8-
<PAGE> 15
- our ability to obtain credit enhancement;
- the passage of laws or regulations that affect us adversely; and
- any delays in implementing any strategic projects we may have.
We cannot assure you that we will generate sufficient cash flow from
operations or that we will be able to obtain sufficient funding to satisfy all
of our obligations, including the notes. If we are unable to pay our debts, we
will be required to pursue one or more alternative strategies, such as selling
assets, refinancing or restructuring our indebtedness or selling additional
equity capital. However, we cannot assure you that any alternative strategies
will be feasible at the time or prove adequate. Also, certain strategies would
require the consent of our senior secured and unsecured lenders before we could
take action.
Your right to receive payments on the notes is junior to almost all of our
existing indebtedness and possibly all of our future borrowings.
The notes will be subordinated to the prior payment in full of our current
and future senior indebtedness. As of December 31, 1999, after giving effect to
the sale of the notes, we would have had approximately $278 million of senior
indebtedness outstanding. In addition, we currently have an additional $10
million of subordinated indebtedness which will rank equally with the notes.
Because of the subordination provisions of the notes, in the event of our
bankruptcy, liquidation or dissolution, our assets would be available to pay
obligations under the notes only after all payments had been made on our senior
indebtedness. We cannot assure you that sufficient assets will remain after all
such payments have been made to make any payments on the notes, including
payments of interest when due.
The terms of our credit facilities and the indenture for the notes impose
significant restrictions on our ability and that of our subsidiaries to take
certain actions, which may have an adverse impact on our business, results of
operations and financial condition.
The indenture and our credit facilities impose significant operating and
financial restrictions on us and our subsidiaries and require us to meet certain
financial tests. These restrictions may significantly limit or prohibit us from
engaging in certain transactions, including the following:
- incurring or guaranteeing additional indebtedness;
- paying dividends or other distributions to our stockholders or
redeeming, repurchasing or retiring our capital stock or
subordinated obligations;
- making investments;
- making capital expenditures;
- creating liens on our assets;
- issuing or selling capital stock of our subsidiaries;
- transferring or selling assets currently held by us;
- engaging in transactions with affiliates; and
- engaging in mergers or consolidations.
-9-
<PAGE> 16
The failure to comply with any of these covenants or to maintain certain
indebtedness ratios would cause a default under the indenture and our credit
facilities and may cause a default under our other debt agreements which may be
outstanding from time to time. A default, if not waived, could result in
acceleration of our indebtedness, in which case the debt would become
immediately due and payable. If this occurs, we may not be able to repay our
debt or borrow sufficient funds to refinance it. Even if new financing is
available, it may not be on terms that are acceptable to us. Complying with
these covenants may cause us to take actions that are not favorable to holders
of the notes. See "Description of the Notes -- Restrictive Covenants."
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture.
If a "change of control," as described in "Description of the
Notes--Repurchase at Option of Holder," occurs, you have the right to require us
to repurchase any or all of the notes you own at a price equal to 101% of the
principal amount thereof, together with any interest we owe you. Upon a change
of control, we may be required immediately to repay the outstanding principal,
any accrued interest on the notes, any amounts owed by us under our credit
facilities and other indebtedness or preferred stock then outstanding. We cannot
assure you that we would be able to repay the amounts outstanding under our
credit facilities or the principal amount outstanding of our other indebtedness
or preferred stock, if applicable, or to obtain the necessary consents to
purchase the notes. Any requirement to offer to purchase any outstanding notes
may result in our having to refinance our outstanding indebtedness, which we may
not be able to do. In addition, even if we were able to refinance such
indebtedness, such financing may be on terms unfavorable to us. If we fail to
repurchase all of the notes tendered for purchase upon the occurrence of a
change of control, such failure would be an event of default under the indenture
and under our credit facilities.
An active trading market may not develop for the notes.
The notes will be new securities for which there is currently no trading
market. We do not intend to apply for listing of the notes on any securities
exchange or for quotation through the National Association of Securities Dealers
Automated Quotation system. Although the underwriters have informed us that they
intend to make a market in the notes, the underwriters are not obligated to do
so and may discontinue any such market making at any time without notice. The
liquidity of any market for the notes will depend upon the number of holders of
the notes, the interest of securities dealers in making a market in the notes
and other factors. Accordingly, we cannot assure you as to the development or
liquidity of any market for the notes.
RISK FACTORS RELATING TO ONYX
If we are unable to access the capital markets or obtain acceptable
financing, our results of operations, financial condition and cash flows would
be materially and adversely affected and we may be unable to make payments on
the notes.
We require a substantial amount of cash liquidity to operate our business.
Among other things, we use such cash liquidity to:
- - acquire motor vehicle contracts;
- - pay dealer participation;
- - pay securitization costs and fund spread accounts;
- - settle hedge transactions;
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<PAGE> 17
- - satisfy working capital requirements and pay operating expenses; and
- - pay interest expense.
When we securitize our motor vehicle contracts, we report a gain on the
sale of those contracts. This gain represents a substantial portion of our
revenues. However, although we report this gain at the time of sale, we receive
the monthly cash payments on these contracts which represent these revenues over
the life of the motor vehicle contracts, rather than at the time of sale.
Similarly, we recover the cash paid by us for dealer participation over the life
of the related motor vehicle contracts, rather than at the time of sale. As a
result, a substantial portion of our reported revenues do not represent
immediate cash liquidity.
Cash generated from our operations has been insufficient to fund our
operations due to our current growth. We expect this to continue so long as the
volume of our purchases of motor vehicle contracts continues to grow. We have
historically funded our operations principally through borrowings from financial
institutions, the sale of equity securities and sales of subordinated notes. We
cannot assure you, however, that:
- - we will have access to the capital markets in the future for equity or
debt issuances or for securitizations; or
- - financing through borrowings or other means will be available on
acceptable terms to satisfy our cash requirements.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for additional
discussion of our liquidity needs.
If we are unable to arrange new warehousing credit facilities or extend
our existing credit facilities when they come due, our results of operations,
financial condition and cash flows could be materially and adversely affected
and we may be unable to make payments on the notes.
We depend on credit and warehouse facilities with financial institutions
to finance our purchases of motor vehicle contracts. Our business strategy
requires that these credit and warehouse financing sources continue to be
available to us from the time of purchase or origination of a motor vehicle
contract until its sale through a securitization. We describe our credit and
warehouse facilities in more detail under "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources"
We depend substantially on warehouse lines of credit with each of Triple-A
One Funding Corporation, Merrill Lynch Mortgage Capital, Inc. and Park Avenue
Receivables Corporation. These warehouse facilities remain available to us only
if, among other things, we comply with certain financial covenants contained in
the documents governing these facilities. We cannot assure you that our
warehouse facilities will be available to us or that financing will be available
to us on favorable terms.
The reduction in availability or loss of access to our residual lines of
credit could materially and adversely affect our operations, financial condition
and cash flows and our ability to make payments on the notes.
When we sell our motor vehicle contracts in securitizations, we receive
cash and a residual interest in the securitized assets. This residual interest
represents the future cash flows to be generated by the motor vehicle contracts
in excess of the interest and principal paid on the securities issued in the
securitization and other costs of servicing the motor vehicle contracts and
completing the securitization.
We typically use the residual interest from each securitization as
collateral to borrow cash to finance our operations. The amount of cash advanced
by our lenders under our residual lines of credit depends on a collateral
formula that is determined in large part by how well our securitized motor
vehicle contracts perform. If our portfolio
-11-
<PAGE> 18
of securitized motor vehicle contracts has higher delinquency and loss ratios
than expected, then the amount of money we could borrow under the residual lines
would be reduced. Our residual lines of credit also require us to meet certain
minimum net worth and operating loss tests and contain covenants restricting
delinquencies, losses, prepayments and net yields of the motor vehicle contracts
included in a securitization.
If we are unable to securitize profitably a sufficient number of our motor
vehicle contracts in a particular financial reporting period, then our revenues
for that period could decline and result in lower income or a loss for that
period and we may be unable to make payments on the notes.
We rely significantly upon securitizations to generate cash proceeds to
repay our warehouse credit facilities and to thereby allow us to finance the
purchase of additional motor vehicle contracts. Further, the gain on sale of
motor vehicle contracts generated by our securitizations represents a
significant portion of our revenues. Our ability to complete securitizations of
our motor vehicle contracts is affected by the following factors, among other
things:
- - conditions in the securities markets generally;
- - conditions in the asset-backed securities market specifically;
- - the credit quality of our portfolio of motor vehicle contracts; and
- - our ability to obtain credit enhancement.
Unanticipated delays in closing a securitization could also increase our
interest rate risk by increasing the warehousing period for our motor vehicle
contracts. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity and Capital Resources" and "--
Securitizations."
If we are unable to obtain new financial guarantee insurance policies for
our future securitizations or maintain our existing policies, we could be
subject to higher financing costs, which could have a material adverse effect on
our results of operations, financial condition and cash flows and our ability to
make payments on the notes.
In each of our securitizations, we utilize credit enhancement in the form
of a financial guarantee insurance policy issued by MBIA Insurance Corporation,
or its predecessor. Each of these policies unconditionally and irrevocably
guarantees certain interest and principal payments on the securities issued in
our securitizations. These guarantees enable these securities to achieve the
highest rating available. This form of credit enhancement reduces the costs of
our securitizations relative to alternative forms of credit enhancements
currently available to us. MBIA is not required to insure future securitizations
and we are not restricted in our ability to obtain credit enhancement from
providers other than MBIA or to use other forms of credit enhancement. We cannot
assure you that:
- - we will be able to continue to obtain credit enhancement in any form from
MBIA;
- - we will be able to obtain credit enhancement from any other provider of
credit enhancement on acceptable terms; or
- - our future securitizations will be similarly rated.
We also rely on MBIA's financial guarantee insurance policy to reduce our
borrowing cost under our warehouse facilities with Triple-A One and Park Avenue.
If MBIA's credit rating is downgraded or if it withdraws our credit enhancement
for these warehouse facilities, we could be subject to higher interest costs for
our future securitizations and higher financing costs during the warehousing
period.
-12-
<PAGE> 19
Interest rate fluctuations may materially and adversely affect our results
of operations, financial condition and cash flows and our ability to make
payments on the notes.
Our profitability is largely determined by the difference, or "spread,"
between the effective interest rate received by us on the motor vehicle
contracts which we acquire or originate and the interest rates payable under our
credit facilities during the warehousing period and on the securities issued in
our securitizations.
Several factors affect our ability to manage interest rate risk. First, we
purchase or originate motor vehicle contracts at fixed interest rates, while we
borrow under our credit facilities at variable interest rates that are subject
to frequent adjustment to reflect prevailing rates for short-term borrowings. If
the interest rates applicable to our borrowings under our credit facilities
increase during a warehousing period, our policy is to increase the interest
rate that we quote to dealers at which we will purchase motor vehicle contracts
from those dealers or to increase the interest rates we make available to
consumers for motor vehicle contracts originated by us. However, there is
generally a time lag before our increased borrowing costs can be offset by
increases in these buy rates. In certain instances, the rates charged by our
competitors may limit our ability to pass through all or most of our increased
costs of warehousing financing.
Second, our spread can be materially and adversely affected by increases
in the prevailing interest rates in the commercial paper markets after a motor
vehicle contract is purchased or originated and while it is held during the
warehousing period. While our warehouse facilities with Triple-A One and Park
Avenue permit us to select maturities of up to 270 days for commercial paper
issued under those facilities, under these circumstances, our spread would be
reduced if we selected a shorter maturity or experienced a delay in completing a
securitization.
Third, the interest rate demanded by investors in our securitizations is a
function of prevailing market rates for comparable transactions and the general
interest rate environment. Because the motor vehicle contracts that we purchase
or originate have fixed interest rates, we bear the risk of spreads narrowing
because of interest rate increases during the period from the date the motor
vehicle contracts are purchased or originated until the pricing of our
securitization of such motor vehicle contracts. We employ a hedging strategy
that is intended to minimize this risk and which historically has involved the
execution of forward interest rate swaps or the use of a pre-funding structure
for our securitizations. A pre-funding structure utilizes a portion of the
proceeds of the sale of securities in a securitization to purchase motor vehicle
contracts after the initial closing of the securitization. However, we cannot
assure you that this strategy will consistently or completely offset adverse
interest rate movements during the warehousing period or that we will not
sustain losses on hedging transactions. In order to execute our hedging strategy
we must estimate our monthly motor vehicle contract acquisition volume and the
timing of our securitizations. If such estimates are wrong, then our gains on
sales of motor vehicle contracts, results of operations, financial condition and
cash flows could be materially and adversely affected, including our ability to
make payments on the notes.
We also have exposure to interest rate fluctuations under our residual
lines of credit. The interest rates under these lines of credit are based on the
30 day London Interbank Offered Rate, or LIBOR. The applicable interest rate
under our lines of credit based on LIBOR reset on a monthly basis. In periods of
increasing interest rates, our cash flows, results of operations and financial
condition could be adversely affected, including our ability to fulfill our
obligations under the notes.
In addition, we have some interest rate exposure to falling interest rates
to the extent that the interest rates charged on motor vehicle contracts sold in
a securitization with a pre-funding structure decline below the rates prevailing
at the time of pricing of the securities to be issued in that securitization.
This rate decline would reduce the interest rate spread because the interest
rate on the securities issues in the securitization would remain fixed, while
the interest rates charged on the motor vehicle contracts which are purchased
during the pre-funding period would be declining. This would reduce our gain on
sale of our motor vehicle contracts and adversely affect our results of
operations, financial condition and cash flows and our ability to make payments
on the notes.
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<PAGE> 20
If motor vehicle contracts that we purchase or service are prepaid or
experience defaults, this could materially and adversely affect our results of
operations, financial condition and cash flows and our ability to make payments
on the notes.
Our results of operations, financial condition, cash flows and liquidity,
and consequently our ability to make payments on the notes, depend, to a
material extent, on the performance of motor vehicle contracts which we
purchase, warehouse and securitize. A portion of the motor vehicle contracts
acquired by us may default or prepay during the warehousing period. We bear the
risk of losses resulting from payment defaults during the warehousing period. In
the event of payment default, the collateral value of the motor vehicle securing
a motor vehicle contract may not cover the outstanding principal balance on that
contract and the related costs of recovery. We maintain an allowance for credit
losses on motor vehicle contracts held during the warehousing period which
reflects our estimates of anticipated credit losses during that period. If the
allowance is inadequate, then we would recognize as an expense the losses in
excess of the allowance and our results of operations could be adversely
affected. In addition, under the terms of our warehouse facilities with Triple-A
One and Park Avenue, and our line of credit with Merrill Lynch, we are not able
to borrow against defaulted motor vehicle contracts.
Our servicing income can also be adversely affected by prepayment of, or
defaults under, motor vehicle contracts in our servicing portfolio. Our
contractual servicing revenue is based on a percentage of the outstanding
principal balance of the motor vehicle contracts in our servicing portfolio. If
motor vehicle contracts are prepaid or charged-off, then our servicing revenue
will decline while our servicing costs may not decline proportionately.
The gain on sale of motor vehicle contracts recognized by us in each
securitization and the value of our residual interest in the securitized assets
in each securitization reflects our estimate of future credit losses and
prepayments for the motor vehicle contracts included in such securitization. If
actual rates of credit loss or prepayments, or both, on such motor vehicle
contracts exceed our estimates, the value of our residual interest would be
impaired. We periodically review our credit loss and prepayment assumptions
relative to the performance of the securitized motor vehicle contracts and to
market conditions. Our results of operations and liquidity could be adversely
affected if credit loss or prepayment levels on securitized motor vehicle
contracts substantially exceed anticipated levels. If necessary, we would write
down the value of our residual interest through a reduction to servicing fee
income. Further, any write down of our residual interest would reduce the amount
available to us under our residual lines, thus requiring us to pay down amounts
outstanding under the facilities or provide additional collateral to cure the
borrowing base deficiency.
The loss of our servicing rights could materially and adversely affect our
results of operations, financial condition and cash flows and our ability to
make payments on the notes.
Our results of operations, financial condition and cash flows, and our
ability to make payments on the notes, would be materially and adversely
affected if any of the following were to occur:
- - the loss of our servicing rights under the sale and servicing agreement
for either of our warehouse facilities with Triple-A One or Park Avenue;
- - the loss of our servicing rights under the applicable pooling and
servicing or sale and servicing agreement relating to motor vehicle
contracts which we have sold in our securitizations;
- - the occurrence of certain trigger events under the insurance agreement
between us and MBIA in each of our securitizations that would block the
release of future servicing cash flows from the spread accounts in those
securitizations; or
- - the occurrence of certain trigger events under our Merrill Line that would
allow Merrill Lynch to proceed against any assets they hold pursuant to
any agreement with us or any of our affiliates.
-14-
<PAGE> 21
We are entitled to receive servicing income only while we act as servicer
under the applicable sales and servicing agreement or pooling and servicing
agreement for motor vehicle contracts which we have securitized and sold. Under
our warehouse facilities with Triple-A One and Park Avenue, MBIA can terminate
our right to act as servicer upon the occurrence of certain events, including:
- - our failure generally to observe and perform covenants and agreements
applicable to us;
- - certain bankruptcy events involving us; or
- - the occurrence of certain events of default under the documents governing
the facilities.
The success of our operations depends on certain key personnel.
Our future operating results depend in significant part upon the continued
service of our key senior management personnel, none of whom is bound by an
employment agreement. Our future operating results also depend in part upon our
ability to attract and retain qualified management, technical, and sales and
support personnel for our operations. Competition for such personnel is intense.
We cannot assure you that we will be successful in attracting or retaining such
personnel. The loss of any key employee, the failure of any key employee to
perform in his or her current position or our inability to attract and retain
skilled employees, as needed, could materially and adversely affect our results
of operations, financial condition and cash flows.
Increased competition could materially and adversely affect our operations
and profitability.
Competition in the field of financing retail motor vehicle sales is
intense. The automobile finance market is highly fragmented and historically has
been serviced by a variety of financial entities including the captive finance
affiliates of major automotive manufacturers, banks, savings associations,
independent finance companies, credit unions and leasing companies. Several of
these competitors have greater financial resources than we do. Many of these
competitors also have long-standing relationships with automobile dealerships
and offer dealerships or their customers other forms of financing or services
not provided by us. Our ability to compete successfully depends largely upon our
relationships with dealerships and the willingness of dealerships to offer to us
for purchase those motor vehicle contracts that meet our underwriting criteria.
We cannot assure you that we will be able to continue to compete successfully in
the markets we serve.
Adverse economic conditions could materially and adversely effect our
revenues and cash flows.
Our business is dependent upon the sale of motor vehicles. Our ability to
continue to acquire motor vehicle contracts in the markets in which we operate
and to expand into additional markets is dependent upon the overall level of
sales of new and used motor vehicles in those markets. A prolonged downturn in
the sale of new and used motor vehicles, whether nationwide or in the states
where our motor vehicle contracts are geographically concentrated, could have a
material adverse impact upon us, our results of operations and our ability to
implement our business strategy. Similarly, adverse economic conditions or other
factors particularly affecting the states in which our motor vehicle contracts
are geographically concentrated might adversely affect the performance of those
contracts, including the level of delinquencies, which could materially and
adversely affect our results of operation, financial condition and cash flows
and our ability to perform our obligations under the notes.
The automobile industry generally is sensitive to adverse economic
conditions both nationwide and in California. Periods of rising interest rates,
reduced economic activity or higher rates of unemployment generally result in a
reduction in the rate of sales of motor vehicles and higher default rates on
motor vehicle loans. We cannot assure you that such economic conditions will not
occur, or that such conditions will not result in severe
-15-
<PAGE> 22
reductions in our revenues or the cash flows available to us to permit us to
remain current on our credit facilities or materially and adversely affect our
ability to make payments on the notes.
We are subject to many regulations.
Our business is subject to numerous federal and state consumer protection
laws and regulations, which, among other things:
- - require us to obtain and maintain certain licenses and qualifications;
- - limit the interest rates, fees and other charges we are allowed to charge;
- - limit or prescribe certain other terms of our motor vehicle contracts;
- - require specific disclosures; and
- - define our rights to repossess and sell collateral.
We believe that we are in compliance in all material respects with all
such laws and regulations, and that such laws and regulations have had no
material adverse effect on our ability to operate our business. However, we will
be materially and adversely affected if we fail to comply with:
- - applicable laws and regulations;
- - changes in existing laws or regulations;
- - changes in the interpretation of existing laws or regulations; or
- - any additional laws or regulations that may be enacted in the future.
See "Business -- Government Regulation"
We are subject to litigation risks.
We are party to various legal proceedings, similar to actions brought
against other companies in the motor vehicle finance industry. Companies in the
motor vehicle finance industry have been named as defendants in an increasing
number of class action lawsuits brought by purchasers of motor vehicles claiming
violation of various federal and state consumer credit and similar laws and
regulations. We are defendants in three such consumer class action lawsuits,
one of which was served on us in 2000. One such proceeding served in 1999, in
which we are a defendant, has been brought as a putative class action and is
pending in the State of California. A class has yet to be certified in this case
in which the plaintiffs allege certain defects in post-repossession notice forms
in the State of California. Another proceeding also served in 1999, in which
we are a defendant, has been brought as a putative class action and also is
pending in the State of California. A class was certified in 2000; in this
matter, the plaintiffs raise issues regarding the payment of dealer
participation to dealers.
On January 25, 2000, a putative class action complaint was filed against
us and certain of our officers and directors alleging violations of Section
10(b) and 20(a) of the Securities and Exchange Act of 1934 arising from our use
of the cash-in method of measuring and accounting for credit enhancement assets
in our financial statements. We believe that our previous use of the cash-in
method of measuring and accounting for credit enhancement assets was consistent
with then current generally accepted accounting principles and accounting
practices of other finance companies. As required by Financial Accounting
Standards Board's Special Report, "A Guide to Implementation of
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<PAGE> 23
Statement 125 on Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities, Second Edition," dated December 1998 and related
statements made by the staff of the Securities and Exchange Commission, we
retroactively changed the method of measuring and accounting for credit
enhancement assets to the cash-out method and restated our financial statements
for 1996, 1997 and the first three fiscal quarters of 1998. We intend to
vigorously defend against the complaint.
While we intend to vigorously defend ourselves against such proceedings,
there is a chance that our results of operations, financial condition and cash
flows could be materially and adversely affected by unfavorable outcomes.
RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM
Because of the nature of our consumer finance business and the increasing
number of electronic transactions in the industry, we have come to rely on our
in-house and third party computer systems, business applications and other
information technology systems. Historically, many information technology
systems were developed to recognize the year as a two-digit number, with the
digits "00" being recognized as the year 1900. The year 2000 presents a number
of potential problems for such systems, including potentially significant
processing errors or failure. Given our reliance on our computer systems, our
results of operations, financial condition and cash flows could be materially
adversely affected by any significant errors or failures.
In the event that the we do not complete any additional phases of our
plan, we may be unable to perform our key operating activities, such as the
purchase of motor vehicle contracts and the invoicing, collecting and
application of obligor payments. We could be subject to litigation for computer
systems failure, such as improper application of payments and resulting
incorrect credit reporting to credit bureaus. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect us. The amount of potential liability and lost revenue cannot
reasonably be estimated at this time.
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<PAGE> 24
USE OF PROCEEDS
We expect to receive approximately $10.1 million of net proceeds from this
offering after deducting the underwriters' discounts and commissions and
estimated offering expenses payable by us. We intend to use the net proceeds to
prepay a portion of the amounts outstanding under our residual line of credit
with Salomon Smith Barney Realty Inc. This line bore interest at a weighted
average rate of 7.94% as of December 31, 1999. We used amounts borrowed under
the residual lines to fund our operating requirements. We will continue to
utilize these lines of credit as the need arises. To the extent any proceeds are
remaining following the pre-payment of our residual line of credit with Salomon
Smith Barney Realty Inc., we will use such proceeds to meet our general working
capital requirements.
CAPITALIZATION
The following table sets forth our capitalization, as of December 31,
1999, and as adjusted to give effect to the sale of $12 million principal amount
of the notes and the application of the estimated net proceeds. For a
description of the application of the net proceeds, see "Use of Proceeds." You
should read this information together with the historical consolidated financial
statements and notes thereto contained in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
DEBT:
Warehouse Borrowings ............................................... $ 232,287,908 $ 232,287,908
Residual Facilities ................................................ 55,879,341 45,809,341
Subordinated Loan .................................................. 10,000,000 10,000,000
Other Debt ......................................................... 348,058 348,058
___% Subordinated Notes due 2006 ................................... -- 12,000,000
------------- -------------
Total debt: ............................................... 298,515,307 300,445,307
------------- -------------
STOCKHOLDERS' EQUITY:
Series A Participating Preferred stock $.01 par value,
200,000 shares authorized; no shares issued and outstanding ..... -- --
Preferred stock (undesignated), $.01 par value, 2,800,000
shares authorized; no shares issued and outstanding ............. -- --
Common stock, $.01 par value, 15,000,000 shares authorized;
6,177,804 shares issued and outstanding ......................... 61,778 61,778
Additional paid-in capital ......................................... 37,892,071 37,892,071
Retained earnings .................................................. 15,714,771 15,714,771
Accumulated other comprehensive loss ............................... (560,596) (560,596)
------------- -------------
Total stockholders' equity: ............................... 53,108,024 53,108,024
------------- -------------
Total capitalization: ..................................... $ 351,623,331 $ 353,553,331
============= =============
</TABLE>
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<PAGE> 25
SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial
information as of and for each of the years in the five-year period ended
December 31, 1999. The information as of December 31, 1998 and 1999 and for each
of the three years in the period ended December 31, 1999, is derived from our
audited consolidated financial statements and the related notes thereto included
in this prospectus. You should read the following information together with our
historical consolidated financial statements and the related notes thereto
included in this prospectus, and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,(6)
------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income .............................. $ 2,225 $ 4,140 $ 5,036 $ 7,312 $ 6,146
Servicing fee income ............................. 1,381 3,236 9,189 16,663 28,877
Gain on sale of contracts ........................ 2,012 15,251 19,586 36,417 53,920
--------- -------- -------- ---------- ----------
Total revenues ................................... 5,618 22,627 33,811 60,392 88,943
--------- -------- -------- ---------- ----------
Provision for credit losses ...................... 465 266 785 1,580 1,246
Operating expenses ............................... 8,340 15,394 30,740 48,427 70,959
--------- -------- -------- ---------- ----------
Total expenses ................................... 8,805 15,660 31,525 50,007 72,205
--------- -------- -------- ---------- ----------
Income (loss) before income taxes ................ (3,187) 6,967 2,286 10,385 16,738
Income taxes ..................................... 0 851 984 4,310 6,946
--------- -------- -------- ---------- ----------
Net income (loss) ................................ $ (3,187) $ 6,116 $ 1,302 $ 6,075 $ 9,792
========= ======== ======== ========== ==========
Net income (loss) available to common
shareholders ................................... $ (3,763) $ 6,116 $ 1,302 $ 6,075 $ 9,792
OPERATING DATA:
Contracts purchased during the period ............ $ 199,397 $319,840 $605,905 $1,038,535 $1,559,004
Number of contracts purchased during
the period ..................................... 16,571 26,244 50,214 86,150 127,628
Contracts securitized and sold during
the period ..................................... $ 105,000 $405,514 $527,276 $ 926,760 $1,450,000
Number of active dealerships (at end of
period) ........................................ 769 1,471 2,846 5,401 7,617
Operating expenses as a percentage of the
average servicing portfolio during the
period(1) ...................................... 5.9% 4.9% 5.5% 4.7% 4.1%
SELECTED PORTFOLIO DATA:
Servicing portfolio (at end of period) ........... $ 218,207 $400,665 $757,277 $1,345,961 $2,133,460
Average servicing portfolio during the
period(1)....................................... $ 141,029 $311,340 $563,343 $1,023,237 $1,728,875
Number of contracts in servicing portfolio
(at end of period) ............................. 20,156 38,275 73,502 131,862 209,745
Weighted average annual percentage rate
(at end of period)(2) ......................... 15.00% 14.72% 14.66% 14.72% 14.77%
Delinquencies as a percentage of the
dollar amount of servicing portfolio (at
end of period) ................................. 1.20% 2.03% 2.51% 2.83% 3.24%
Net charge-offs as a percentage of the
average servicing portfolio during the
period(1) ...................................... 0.37% 1.63% 2.03% 1.72% 1.85%
</TABLE>
-19-
<PAGE> 26
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 1,623 $ 603 $ 991 $ 1,929 $ 5,190
Contracts held for sale(3) ............................ 116,893 12,238 63,380 151,952 229,475
Credit enhancement assets ............................. 12,390 37,144 71,736 112,953 142,884
Total assets .......................................... 136,077 54,083 141,836 275,422 393,835
Warehouse borrowings .................................. 112,380 10,108 60,506 150,044 232,288
Excess servicing credit and residual lines ............. 9,569 2,500 30,000 49,556 55,879
Subordinated debt ..................................... 10,000 0 0 10,000 10,000
Stockholders' equity (deficit) ........................ (7,896) 36,358 37,717 43,824 53,108
Redeemable Series A Preferred Stock ................... 9,379 -- -- -- --
OTHER DATA:
Ratio of earnings to fixed charges(4) ................. 0.48x 2.21x 1.29x 1.69x 1.86x
EBITDA(5) ............................................. $ 3,507 $13,328 $ 10,742 $ 27,128 $ 38,507
Ratio of EBITDA to cash interest expenses(5) .......... 0.74x 1.96x 1.53x 1.92x 2.19x
</TABLE>
- --------------
(1) Averages are based on daily balances.
(2) The weighted averages are based on Contracts outstanding at the end of the
period.
(3) Contracts held for sale excludes dealer participation and allowance for
credit losses.
(4) For purposes of computing our ratios of earnings to fixed charges, we
calculated earnings by adding fixed charges to income before income taxes.
Fixed charges consist of gross interest expense and one third of our rent
expense, which is the amount we believe is representative of the interest
factor component of our rent expense.
(5) EBITDA consists of earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented as additional information because it
is a commonly used financial measure. We also believe it to be a useful
indicator of our ability to meet our debt service requirements. We do not,
however, intend it to be an alternative measure of operating results or
cash flow from operations.
(6) As required by the Financial Accounting Standards Board's Special Report,
"A Guide to Implementation of Statement 125 on Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities,
Second Edition", dated December 1998, and related guidance set forth in
statements made by the staff of the Securities and Exchange Commission on
December 8, 1998, our consolidated financial statements for 1996, 1997 and
the first three fiscal quarters of 1998 have been restated to reflect the
change in the method of measuring and accounting for credit enhancement
assets on our securitization transactions to the cash-out method from the
cash-in method.
-20-
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a specialized consumer finance company engaged principally in the
business of providing indirect automobile financing to franchised new car
dealerships and select used car dealerships throughout the United States. We
primarily purchase motor vehicle contracts from such dealerships. We focus our
efforts on acquiring motor vehicle contracts that are secured by late model used
motor vehicles and, to a lesser extent, new motor vehicles, that were entered
into with purchasers whom we believe have favorable credit profiles. Since we
started purchasing, originating and servicing motor vehicle contracts in
February 1994, we have purchased or originated more than $3.8 billion in motor
vehicle contracts from approximately 7,600 dealers, and we have expanded our
operations from a single office in Orange County, California to major markets
throughout the United States.
We generate revenues primarily through the purchase, warehousing,
subsequent securitization and ongoing servicing of motor vehicle contracts. We
earn net interest income on motor vehicle contracts held during the warehousing
period. Upon the securitization and sale of motor vehicle contracts, we:
- - recognize a gain on sale of the motor vehicle contracts;
- - receive future servicing cash flows; and
- - earn fees from servicing the securitized motor vehicle contracts.
The following table illustrates the changes in our motor vehicle contract
acquisition volume, total revenue, securitization activity and servicing
portfolio during the past three fiscal years.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Contracts purchased during the period ................... $605,905 $1,038,535 $1,559,004
Average monthly purchases during the period ............. 50,492 86,544 129,917
Gain on sale of contracts ............................... 19,586 36,417 53,920
Total revenues(1) ....................................... 33,811 60,392 88,943
Contracts securitized and sold during the period ........ 527,276 926,760 1,450,000
Servicing portfolio at period end ....................... 757,277 1,345,961 2,133,460
</TABLE>
- ------------
(1) Total revenues is comprised of net interest income, servicing fee income
and gain on sale of contracts.
-21-
<PAGE> 28
Motor Vehicle Contracts Purchased and Servicing Portfolio
Since our inception, our purchased volume of motor vehicle contracts has
grown significantly. Our acquisition volume for the year ended December 31, 1999
was $1.6 billion compared to $1.0 billion in 1998 and $605.9 million in 1997,
representing an increase of 65% from 1997 to 1998 and an increase of 60% from
1998 to 1999. This growth in acquisition volume is attributable primarily to:
- - the opening of four additional auto finance centers during 1998 and three
additional auto finance centers during 1999; and
- - increased purchases from existing dealers.
Our increase in motor vehicle contract acquisition volume has resulted in
the growth in our servicing portfolio. Our servicing portfolio at December 31,
1999 was $2.1 billion, compared to 1.3 billion at December 31, 1998 and $757.3
million at December 31, 1997, an increase of 72% from 1997 to 1998 and 62% from
1998 to 1999.
Net Interest Income
Net interest income consists primarily of the difference between the
finance revenues earned on motor vehicle contracts held on our balance sheet
during the warehousing period and the interest costs associated with our
borrowings to purchase such motor vehicle contracts. The following table
illustrates the weighted average yield on motor vehicle contracts held on
balance sheet, the weighted average rate paid on warehouse borrowings to fund
these motor vehicle contracts and the corresponding net interest margin realized
by us for the periods shown.
NET INTEREST INCOME MARGIN
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Yield on contracts(1) ................................... 13.85% 13.96% 13.63%
Cost of warehouse borrowings ............................ 6.76 6.72 6.32
------ ------ ------
Net interest income margin .............................. 7.09% 7.24% 7.31%
====== ====== ======
</TABLE>
- ----------
(1) The yield on contracts is net of dealer participation amortized expenses.
To arrive at net interest income, we also deduct the interest associated
with non-warehouse borrowings, including interest expense incurred on
subordinated debt, residual and excess servicing lines, capital lease
outstandings and other miscellaneous long term borrowings.
Gain on Sale of Motor Vehicle Contracts
We compute a gain on sale on our motor vehicle contracts that we
securitize based on the present value of the estimated future excess cash flows
to be received from those contracts using the following assumptions:
- - We assume an average prepayment speed on the underlying motor vehicle
contracts of 1.75% ABS. "ABS" refers to the "Absolute Payment Model,"
which represents an assumed rate of prepayment, including defaults, each
month relative to the original number of motor vehicle contracts
underlying a particular securitization. ABS further assumes that each
motor vehicle contract in each month of its life will either be paid as
scheduled or be prepaid in full. For example, in a pool of motor vehicle
contracts
-22-
<PAGE> 29
originally containing 10,000 contracts, a 1.75% ABS rate means that 175
motor vehicle contracts prepay or default each month;
- - We use a discount rate equal to the weighted average interest rate on the
securities issued in the related securitization, plus 3.5% to 4.5%; and
- - We currently utilize a lifetime loss ranging from 3.5% to 4.0% of the
original balance of the motor vehicle contracts.
We record gains on sale as a credit enhancement asset on our statement of
financial condition. We adjust the gain recorded in the statement of income for
prepaid dealer participation, issuance costs and the effect of hedging
activities. We periodically review the assumptions described above. To the
extent the assumptions used are materially different from actual results, the
amount of cash we receive over the remaining life of the securitization would be
significantly affected and we may be required to take a charge to servicing fee
income which could have a material adverse affect on our results of operations,
financial condition and cash flows.
The amount of motor vehicle contracts which we securitize and the net
interest rate spread on those contracts affects our gain on sale of those
contracts. The following table illustrates the net interest rate spread for each
of our outstanding securitizations:
<TABLE>
<CAPTION>
SECURITIZATION TRANSACTIONS(5)
-----------------------------------------------------------------------------------------
REMAINING WEIGHTED WEIGHTED
BALANCE AT AVERAGE AVERAGE
ORIGINAL DECEMBER 31, CONTRACT INVESTOR GROSS NET
SECURITIZATIONS BALANCE 1999 RATE(1) RATE(2) SPREAD(3) SPREAD(4)
--------------- ---------- ------------ -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1994-1 Grantor Trust........... $ 38,601 Paid in Full 13.75% 6.90% 6.85% 1.94%
1995-1 Grantor Trust........... 105,000 Paid in Full 14.94 7.00 7.94 1.86
1996-1 Grantor Trust........... 100,500 $ 4,923 15.07 5.40 9.67 3.83
1996-2 Grantor Trust........... 85,013 7,665 14.84 6.40 8.44 3.61
1996-3 Grantor Trust........... 120,000 15,271 14.54 6.45 8.09 3.14
1996-4 Grantor Trust........... 100,000 17,148 14.80 6.20 8.60 3.28
1997-1 Grantor Trust........... 90,000 19,113 13.86 6.55 7.31 2.78
1997-2 Grantor Trust........... 121,676 30,802 14.85 6.35 8.50 3.11
1997-3 Grantor Trust........... 149,600 46,996 14.77 6.35 8.42 3.30
1997-4 Grantor Trust........... 166,000 60,118 14.69 6.30 8.39 3.27
1998-1 Grantor Trust........... 173,000 72,133 14.91 5.95 8.96 3.40
1998-A Owner Trust............. 208,759 100,434 14.73 5.87 8.86 3.34
1998-B Owner Trust............. 250,000 140,356 14.73 5.78 8.95 3.18
1998-C Owner Trust............. 280,000 176,354 14.89 5.72 9.17 3.51
1999-A Owner Trust............. 310,000 213,417 14.33 5.73 8.60 3.44
1999-B Owner Trust............. 350,000 276,098 14.65 5.86 8.79 3.54
1999-C Owner Trust............. 400,000 350,806 14.82 6.62 8.20 2.86
1999-D Owner Trust 390,000 365,607 15.01 6.90 8.11 2.87
---------- ------------
TOTAL.................... $3,438,149 $ 1,897,241
========== ============
</TABLE>
-23-
<PAGE> 30
(1) As of related cut-off date. This is the weighted average of the
interest rate on the securitized motor vehicle contracts.
(2) This is the weighted average interest rate on the securities issued
in connection with the related securitization.
(3) This is the difference between the weighted average contract rate
and weighted average investor rate as of the issue date.
(4) This is the difference between the weighted average contract rate
and weighted average investor rate, net of underwriting costs, other
issuance costs, servicing fees, estimated credit losses, ongoing
financial guarantee insurance policy premiums, and the hedging gain
or loss.
(5) We assume an average prepayment speed of 1.75% ABS, a discount rate
ranging from 3.5% to 4.5% above the weighted average investor rate,
and utilize a lifetime loss rate ranging from 3.5% to 4.0% of the
original balance, for all remaining securitizations.
In February 2000, we completed a securitization in the amount of $430
million with a weighted average contract rate of 14.86%, a weighted average
investor rate of 7.26%, a gross spread of 7.60% and a net spread of 2.67%.
Servicing Fee Income
We earn contractual servicing at a rate of 1.0% per annum on the
outstanding principal balance of the motor vehicle contracts which we
securitize, consistent with industry standards. Our servicing fee income is
related to the number and amount of contracts we service and also includes
investment interest, extension fees, document fees and other fees charged to
customer accounts.
RESULTS OF OPERATIONS
Net Income
We had net income of $9.8 million for the year ended December 31, 1999,
compared to net income of $6.1 million for the year ended December 31, 1998 and
$1.3 million for the year ended December 31, 1997. The increase in net income
from 1998 to 1999 was due to several factors, including:
- - a 59% increase in the dollar volume of motor vehicle contracts which we
securitized, resulting in an 48% increase in gains on sale;
- - higher excess servicing fee income due to improved performance of the
motor vehicle contracts that we have securitized and an increase in the
size of our serviced portfolio; and
- - improvements in our cost structure which resulted in a decline in
operating expenses as a percentage of our average servicing portfolio to
4.1% in 1999 from 4.7% in 1998.
The increase in net income from 1997 to 1998 was primarily attributable to a 73%
increase in the dollar volume of motor vehicle contracts which we securitized,
which resulted in an 86% increase in gains on sale.
-24-
<PAGE> 31
Net Interest Income
Net interest income declined by 16% to $6.1 million for 1999, from $7.3
million during 1998, but increased from $5.0 million during 1997. The reduction
from 1998 to 1999 was principally due to a growing percentage of more expensive
non-warehouse borrowings relative to warehouse debt in our capital structure,
which more than offset a 0.07% increase in net interest income margin to 7.31%
in 1999 from 7.24% in 1998. The 46% increase in net interest income from 1997 to
1998 was due to a combination of a 0.15% increase in net interest income margins
and an increase in the average amount of motor vehicle contracts held for sale.
The average amount of motor vehicle contracts held for sale increased to $148.6
million in 1998 from $85.7 million in 1997.
Servicing Fee Income
Servicing fee income increased to $28.9 million for the year ended
December 31, 1999, from $16.7 million for the year ended December 31, 1998, and
from $9.2 million for the year ended December 31, 1997. The increase was
attributable to a significant increase in the size of our average sold servicing
portfolio in addition to the improved performance of securitized motor vehicle
contracts. For the year ended December 31, 1999, the size of our average sold
servicing portfolio increased to $1.6 billion from $874.6 million in 1998 and
from $477.6 million in 1997.
Gain on Sale of Motor Vehicle Contracts
We completed four securitizations totaling $1.45 billion during the year
ended December 31, 1999, resulting in gains on sale of motor vehicle contracts
of $53.9 million, compared to four securitizations totaling $911.8 million and a
sale in the amount of $15 million during the year ended December 31, 1998,
resulting in gains on sale of motor vehicle contracts totaling $36.4 million.
For the year ended December 31, 1997, we completed four securitizations totaling
$527.3 million resulting in gains on sale of motor vehicle contracts of $19.6
million. The weighted average net spread on our securitizations in 1999 was
3.15%, compared to 3.36% in 1998 and 3.16% in 1997.
Interest rate spread is affected by product mix, general market conditions
and overall market interest rates. The risks inherent in interest rate
fluctuations are reduced through our hedging activities. To protect against
changes in interest rates, we hedge our motor vehicle contracts prior to their
securitization with forward interest rate swap agreements. We include the gains
or losses on these forward interest rate swap agreements as part of the basis of
the underlying motor vehicle contracts, and we recognize these gains or losses
when the related motor vehicle contracts are securitized.
Provision for Credit Losses
We maintain an allowance for credit losses to cover anticipated losses for
motor vehicle contracts held for sale. We increase the allowance for credit
losses by adjusting the provision for credit losses to cover additional motor
vehicle contracts originated and increases in loss estimates, and we decrease
the allowance by actual losses on the motor vehicle contracts held for sale or
by the reduction of the amount of motor vehicle contracts held for sale. The
level of the allowance is based principally on the outstanding balance of motor
vehicle contracts held for sale and the historical loss trends for the period of
time the contracts are held before being sold in a securitization. When we sell
motor vehicle contracts in a securitization transaction, we reduce our allowance
for credit losses and we factor potential losses into our calculation of gain on
sale. We believe that the allowance for credit losses is currently adequate to
absorb potential losses.
The provision for credit losses totaled $1.2 million during the year ended
December 31, 1999, compared to $1.6 million for the same period in 1998 and $0.8
million during 1997. The reduction in provision for credit losses in 1999
relative to 1998 was due primarily to a reduction in the year over year net
change in motor vehicle contracts
-25-
<PAGE> 32
held for sale. The increase in provision for credit losses in 1998 relative to
1997 was primarily due to the increase in the year over year net change in motor
vehicle contracts held for sale. At year-end 1999, motor vehicle contracts held
for sale had increased $77.5 million over year-end 1998, while at year-end 1998,
motor vehicle contracts held for sale had increased $88.6 million over year-end
1997.
Salaries and Benefits Expense
We incurred salary and benefit expenses of $40.0 million during the year
ended December 31, 1999, compared to $26.8 million during the year ended
December 31, 1998, and $17.4 million for the year ended December 31, 1997. In
order to support the growth of our operations and our servicing portfolio, our
number of employees increased from 319 at December 31, 1997 to 526 at December
31, 1998 and to 715 at December 31, 1999.
Other Operating Expenses
Other operating expenses, which include depreciation, occupancy and
general and administrative expenses, increased to $30.9 million at December 31,
1999, from $21.7 million at December 31, 1998, and from $13.3 million at
December 31, 1997. The majority of the increases were due to the growth of the
average servicing portfolio from $563.3 million at December 31, 1997 to $1.02
billion at December 31, 1998 and to $1.7 billion at December 31, 1999.
Additionally, we opened additional auto finance centers during the years ended
December 31, 1999, December 31, 1998, and December 31, 1997.
Income Taxes
We file federal and certain state tax returns as part of a consolidated
group. Tax liabilities from the consolidated returns are allocated in accordance
with a tax sharing agreement based on the relative income or loss of each entity
on a stand-alone basis. Our effective tax rate was 41.5% for 1999 and 1998 and
43.0% for 1997. The reduction in tax rates between 1998 and 1997 is due to lower
tax rates in the states where we have opened new auto finance centers.
FINANCIAL CONDITION
Contracts Held for Sale
Motor vehicle contracts held for sale totaled $230.0 million at December
31, 1999, compared to $152.8 million at December 31, 1998. The number and
principal balance of motor vehicle contracts held for sale is largely dependent
upon the timing and size of our securitizations. The increase in the amount of
motor vehicle contracts held for sale from year-end 1998 to year-end 1999 is
primarily attributable to our higher contract volume during the respective
warehousing periods. We believe that the allowance for credit losses is
currently adequate to absorb potential losses in the owned portfolio. The
allowance for credit losses as of December 31, 1999 was approximately $1.4
million compared to 1.0 million as of December 31, 1998. See Note 4 to our
consolidated financial statements for a more detailed discussion of motor
vehicle contracts held for sale and allowance for credit losses.
-26-
<PAGE> 33
The following table illustrates the changes in the our motor vehicle
contract acquisition volume, securitization activity and servicing portfolio
during the past five fiscal quarters:
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1999 1999 1999 1999
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts purchased or originated during
the period ...................................... $ 304,200 $ 357,757 $ 374,075 $ 398,802 $ 428,370
Average monthly purchases during the period .......... 101,400 119,252 124,691 132,934 142,790
Gain on sale of contracts ............................ 10,506 12,328 14,470 13,723 13,399
Total revenues ....................................... 18,414 19,568 22,673 23,626 23,076
Contracts securitized during the period .............. 280,000 310,000 350,000 400,000 390,000
Servicing portfolio (at end of period) ............... $1,345,961 $1,542,612 $1,729,338 $1,924,881 $2,133,460
</TABLE>
Credit Enhancement Assets
Our credit enhancement assets consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1999
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Trust receivable ........................................ $ 3,713 $ 5,713
Retained interest in securitized assets ................. 109,241 137,171
-------- --------
TOTAL ............................................... $112,954 $142,884
======== ========
</TABLE>
Trust receivables represent servicer advances and initial deposits in
spread accounts.
The retained interest in securitized assets, or RISA, consists of the
estimated present value of future servicing cash flows from our related
securitizations. We compute future servicing cash flows by taking into account
certain assumptions principally regarding prepayments, losses and servicing
costs. We then discount these cash flows at a market-based rate until the spread
account under the related securitization releases that cash to us. The following
table provides historical data regarding the RISA. Included in RISA is
restricted cash of $35.8 million and $32.7 million at December 31, 1999 and 1998
respectively.
The balance of the RISA is amortized on a monthly basis over the expected
repayment life of the underlying motor vehicle contracts. RISA is classified in
a manner similar to available for sale securities and as such is marked to
market each quarter. Market value changes are calculated by discounting the
excess spread using a current market discount rate. Any changes in the market
value of the RISA is reported as a separate component of stockholders' equity on
our consolidated statements of financial condition as accumulated other
comprehensive income, or loss, net of applicable taxes.
-27-
<PAGE> 34
RETAINED INTEREST IN SECURITIZED ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1998 1999
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning balance ................................................ $ 64,358 $ 109,241
Additions ........................................................ 80,633 101,586
Amortization ..................................................... (35,750) (72,704)
Change in unrealized loss on securities available for sale ....... 0 (952)
--------- ---------
Ending balance ................................................... $ 109,241 $ 137,171
========= =========
</TABLE>
Asset Quality
We monitor and attempt to minimize delinquencies and losses through timely
collections and the use of a predictive dialing system as described under
"Business - Collection Procedures." At December 31, 1999, delinquencies of
thirty days or more represented 3.24% of the amount of motor vehicle contracts
in our servicing portfolio, compared to 2.83% at December 31, 1998 and 2.51% at
December 31, 1997. Net charge-offs were 1.85% for the year ended December 31,
1999, compared to 1.72% and 2.03% for the years ended December 31, 1998 and
1997, respectively. The levels of delinquencies at December 31, 1999, increased
over December 31, 1998, primarily due to the difficulties we experienced in
attracting and retaining qualified collection staff as a result of a tight labor
market and aggressive pursuit by local competitors for these skilled positions.
The levels of delinquencies at December 31, 1998 increased over December 31,
1997 primarily due to the relocation of our collection and customer service
areas in conjunction with the relocation of our corporate headquarters beginning
in December of 1998. The increase in loan losses from 1998 to 1999 is directly
correlated to the rise in delinquencies.
We have increased our off balance sheet reserves as a percentage of our
serviced portfolio sold. Our reserves have increased from 3.68% at December 31,
1997 to 4.31% at December 31, 1998 to 4.42% at December 31, 1999. Off balance
sheet reserves are those reserves established upon the sale of motor vehicle
contracts to the grantor and owner trusts created in connection with our
securitization of motor vehicle contracts.
-28-
<PAGE> 35
The following table sets forth the delinquency experience of the servicing
portfolio.
DELINQUENCY EXPERIENCE OF THE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Servicing portfolio .................... $757,277 $1,345,961 $2,133,460
Delinquencies(1)(2)
31-59 days ....................... $ 11,902 $ 26,410 $ 38,376
60 - 89 days ..................... 3,370 6,876 16,596
90+ days ......................... 3,743 4,790 14,203
-------- ---------- ----------
Total .................................. $ 19,015 $ 38,076 $ 69,175
======== ========== ==========
Total delinquencies as a percent
of servicing portfolio ........... 2.51% 2.83% 3.24%
</TABLE>
- ----------
(1) Delinquencies include principal amounts only, net of repossessed
inventory.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
The following table sets forth the loan loss experience of our servicing
portfolio for the periods indicated.
LOAN LOSS EXPERIENCE OF THE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------
1997 1998 1999
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of contracts ........................ 73,502 131,862 209,745
Period end servicing portfolio ............. $757,277 $ 1,345,961 $2,133,460
Average servicing portfolio(1) ............. $563,343 $ 1,023,237 $1,728,875
Number of gross charge-offs ................ 2,161 3,761 6,398
Gross charge-offs .......................... $ 13,076 $ 20,640 $ 37,024
Net charge-offs(2) ......................... $ 11,434 $ 17,618 $ 31,963
Net charge-offs as a percent of
average servicing portfolio ............ 2.03% 1.72% 1.85%
On and off balance sheet reserves as
a percent of period end
serviced portfolio sold ............... 3.42% 3.87% 4.00%
</TABLE>
- ----------
(1) Average is based on daily balances.
(2) Net charge-offs are gross charge-offs minus recoveries on contracts
previously charged off.
-29-
<PAGE> 36
The following table illustrates the monthly cumulative net charge-offs of
each of our securitized pools outstanding for the period from the date of
securitization through December 31, 1999.
<TABLE>
<CAPTION>
96-1 96-2 96-3 96-4 97-1 97-2 97-3 97-4 98-1 98-A 98-B 98-C 99-A 99-B 99-C 99-D
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
MONTH
- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2 0.03% 0.07% 0.02% 0.02% 0.00% 0.00% 0.00% 0.00% 0.01% 0.01% 0.00% 0.02% 0.00% 0.00% 0.01% 0.00%
3 0.05% 0.20% 0.07% 0.05% 0.03% 0.02% 0.02% 0.01% 0.02% 0.03% 0.02% 0.02% 0.02% 0.03% 0.03% 0.01%
4 0.11% 0.33% 0.16% 0.14% 0.06% 0.07% 0.09% 0.04% 0.08% 0.07% 0.08% 0.04% 0.05% 0.07% 0.06%
5 0.23% 0.46% 0.43% 0.24% 0.13% 0.22% 0.13% 0.11% 0.14% 0.14% 0.19% 0.15% 0.11% 0.14% 0.16%
6 0.40% 0.78% 0.54% 0.38% 0.26% 0.32% 0.24% 0.20% 0.24% 0.23% 0.33% 0.27% 0.21% 0.27%
7 0.69% 0.98% 0.74% 0.53% 0.37% 0.59% 0.36% 0.28% 0.40% 0.37% 0.45% 0.46% 0.35% 0.43%
8 0.82% 1.15% 0.97% 0.81% 0.52% 0.80% 0.47% 0.43% 0.53% 0.42% 0.61% 0.57% 0.49% 0.60%
9 0,93% 1.39% 1.13% 0.98% 0.60% 0.91% 0.62% 0.55% 0.68% 0.51% 0.82% 0.74% 0.63%
10 1.15% 1.52% 1.32% 1.18% 0.76% 1.07% 0.73% 0.72% 0.85% 0.70% 0.95% 0.94% 0.81%
11 1.25% 1.69% 1.47% 1.43% 0.92% 1.26% 0.81% 0.87% 1.04% 0.85% 1.10% 1.12% 1.04%
12 1.47% 1.94% 1.60% 1.63% 1.02% 1.42% 0.94% 0.95% 1.20% 1.01% 1.20% 1.30%
13 1.65% 2.08% 1.77% 1.73% 1.13% 1.58% 1.10% 1.08% 1.33% 1.17% 1.36% 1.54%
14 1.79% 2.34% 1.94% 1.87% 1.23% 1.68% 1.23% 1.19% 1.46% 1.37% 1.48% 1.73%
15 2.02% 2.52% 2.09% 2.07% 1.40% 1.80% 1.38% 1.36% 1.61% 1.48% 1.64%
16 2.25% 2.76% 2.27% 2.23% 1.56% 1.97% 1.58% 1.42% 1.71% 1.59% 1.89%
17 2.43% 2.89% 2.42% 2.33% 1.68% 2.10% 1.68% 1.52% 1.88% 1.76%
18 2.59% 3.10% 2.57% 2.49% 1.75% 2.23% 1.77% 1.64% 2.01% 1.96%
19 2.77% 3.14% 2.70% 2.62% 1.85% 2.35% 1.91% 1.75% 2.17% 2.07%
20 2.93% 3.30% 2.83% 2.73% 1.92% 2.48% 2.04% 1.85% 2.25%
21 3.06% 3.47% 2.94% 2.84% 1.98% 2.59% 2.11% 1.97% 2.41%
22 3.15% 3.60% 3.00% 2.93% 2.09% 2.72% 2.20% 2.08% 2.52%
23 3.21% 3.70% 3.08% 3.02% 2.17% 2.81% 2.31% 2.12%
24 3.28% 3.81% 3.17% 3.10% 2.22% 2.85% 2.41% 2.23%
25 3.40% 3.93% 3.28% 3.22% 2.31% 2.93% 2.51% 2.36%
26 3.43% 4.06% 3.38% 3.29% 2.38% 2.96% 2.59%
27 3.55% 4.13% 3.43% 3.39% 2.44% 3.09% 2.71%
28 3.60% 4.22% 3.54% 3.46% 2.50% 3.17% 2.79%
29 3.73% 4.23% 3.59% 3.58% 2.55% 3.22%
30 3.75% 4.29% 3.69% 3.61% 2.63% 3.26%
31 3.79% 4.31% 3.77% 3.64% 2.67% 3.33%
32 3.85% 4.33% 3.75% 3.72% 2.73%
33 3.88% 4.37% 3.77% 3.74% 2.77%
34 3.90% 4.39% 3.79% 3.77% 2.84%
35 3.94% 4.39% 3.81% 3.79%
36 3.94% 4.42% 3.83% 3.81%
37 3.94% 4.42% 3.84% 3.83%
38 3.97% 4.43% 3.88%
39 3.99% 4.45% 3.92%
40 3.99% 4.46% 3.92%
41 3.96% 4.45%
42 3.95% 4.45%
43 3.96% 4.45%
44 3.94% 4.48%
45 3.97%
46 3.95%
47 3.90%
</TABLE>
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<PAGE> 37
In February 2000, we completed a securitization in the amount of $430 million,
with net charge-offs in the first month of 0% for the pool of contracts
securitized.
LIQUIDITY AND CAPITAL RESOURCES
We require substantial cash and capital resources to operate our business.
Our primary uses of cash include:
- - acquisition of motor vehicle contracts;
- - payment of dealer participation;
- - securitization costs, including cash held in spread accounts;
- - settlements of hedging transactions;
- - maintenance of working capital requirements and payment of operating
expenses; and
- - interest expense.
The capital resources available to us include:
- - net interest income during the warehousing period;
- - contractual servicing fees;
- - excess servicing cash flows released from spread accounts;
- - settlements of hedging transactions;
- - sales of motor vehicle contracts in securitizations; and
- - borrowings under our warehouse and credit facilities.
These sources can provide capital to fund expansion of our motor vehicle
contract purchasing and servicing capabilities.
Cash used in operating activities was $80.3 million for the year ended
December 31, 1999, compared to $113.6 million for the year ended December 31,
1998. The decrease in cash used in operating activities was primarily due to an
increase in accounts payable and other liabilities. Cash used in investing
activities was $5.4 million for the twelve months ended December 31, 1999
compared to $3.8 million for the twelve months ended December 31, 1998 and $1.8
million in the year ended December 31, 1997. A reduction in the use of our
capital lease lines coupled with the relocation of the our corporate
headquarters contributed to the increase in investing activities.
Cash provided by financing activities was $89.0 million for the year ended
December 31, 1999, compared to $118.4 million provided for the year ended
December 31, 1998 and $77.2 million used in the year ended December 31, 1997.
Higher spread account cash releases from securitization trusts combined with a
lower net change in motor vehicle contracts held for sale during 1999 versus
1998 reduced the requirement for financing sources. We also issued $10.0 million
of subordinated debt during the previous year.
Triple-A One Warehouse Facility
We are a party to a $375 million auto warehouse program with Triple-A One
Funding Corporation, or Triple-A One, through our wholly owned subsidiary, Onyx
Acceptance Financial Corporation, or Finco. Triple-A One is a commercial paper
asset-backed conduit lender sponsored by MBIA and is currently rated A-1 by
Standard & Poor's Ratings Group, a division of The McGraw Hill Companies Inc.,
and P-1 by Moody's Investors Service, Inc. This facility provides Finco with
funds to purchase motor vehicle contracts, which are then pledged to Triple-A
One under the facility. MBIA provides credit enhancement to Triple-A One by
issuing surety bonds covering all principal and interest obligations owed by us
under a loan agreement with Triple-A One. Triple-A One increased our advance
rate during 1998 to 98% from 95% of the adjusted eligible principal balance of
each motor vehicle contract. The advance rate is subject to reduction by MBIA if
the net yield on the motor vehicle contract portfolio
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<PAGE> 38
falls below a target net yield. The remaining 2% of the purchase price of the
motor vehicle contracts generally is funded either from net interest income or
by proceeds from the excess servicing facility or our residual lines of credit
described below. Since the Triple-A One facility is based on commercial paper
rates, we have the ability to manage our interest rate exposure during the
warehouse period between origination and securitization by determining the
maturities (one to 270 days) of commercial paper borrowings. The outstanding
principal amount under this facility as of December 31, 1999 was $232.3 million.
Upon the occurrence of certain wind-down events, Finco will be prohibited
from borrowing any further amounts from Triple-A One and all collections on the
motor vehicle contracts included in the borrowing base will be distributed in
substantially the same manner as before the wind-down event except that Finco
must repay all outstanding Triple-A One advances before we can pay any amounts
to other borrowers or our affiliates. Unless earlier terminated upon the
occurrence of a wind-down event, the Triple-A One facility is subject to renewal
in September 2000 at the option of the lenders, and, if so renewed, will expire
in September 2001.
Park Avenue Warehouse Facility
We are a party to a $150 million commercial paper facility with Park
Avenue Receivables Corporation, or Parco. One of our special purpose
subsidiaries, Onyx Acceptance Receivables Corporation, or Recco, is the borrower
under the facility. The facility is used to fund the purchase or origination of
motor vehicle contracts. Parco is rated as a commercial paper asset-backed
conduit sponsored by Chase Securities, Inc. MBIA provides credit enhancement for
the facility by issuing a financial guarantee insurance policy covering all
principal and interest obligation owed by Recco related to the borrowings under
the facility. Recco pledges its motor vehicle contracts held for sale to borrow
from Parco. The Parco facility was executed in August 1999, and expires in
August 2000, but may be renewed at the option of the lenders. There were no
borrowings under this facility as of December 31, 1999.
Merrill Lynch Line
Our wholly owned subsidiary, Onyx Acceptance Funding Corporation, has a
$100 million line of credit with Merrill Lynch Mortgage Capital, Inc. which
provides funding for the purchase or origination of motor vehicle contracts and
which is used in concert with the Triple-A One and Parco facilities that are
currently in place. The interest rate on the Merrill Lynch line of credit is
based on LIBOR. The Merrill Lynch line was renewed in February 2000 for a one
year term, but can be terminated at the option of the lender at any time. There
is no principal amount outstanding under this facility as of December 31, 1999.
Residual Lines
We have two residual facilities through our wholly-owned subsidiary, Onyx
Acceptance Funding Corporation. We have a $10 million committed residual line of
credit with Merrill Lynch Mortgage Capital, Inc., which is now a stand-alone
line not related to the Merrill Lynch line of credit described above under the
heading "Merrill Lynch Line." We also have a $50 million residual line of credit
with Salomon Smith Barney Realty Corporation. We use our residual lines of
credit with Merrill Lynch and Salomon to finance our operating requirements.
These residual lines utilize a collateral-based formula that sets borrowing
availability to a percentage of the value of excess cash flow to be received
from certain of our securitizations. The Merrill Lynch residual facility was
renewed in February 2000 for a one year term. Each loan under the Salomon
facility matures one year after the date of the loan. We expect each loan to be
renewed at term. The outstanding principal amounts under the Merrill Lynch and
Salomon residual lines as of December 31, 1999 were $9.2 million and $21.7
million, respectively. In March 2000, the Merrill Lynch line was paid down in
its entirety and the Salomon line was paid down in part, in each case, with the
proceeds from the securitization of residual interest certificates in which we
securitized the cash flows from 15 of our outstanding securitizations. Both
lines will remain in place to fund future capital requirements.
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<PAGE> 39
BayView Term Loan
We have subordinated debt outstanding of $10 million. In February 2000, we
exercised our option to extend the term by three years during which the loan
will fully amortize. Final maturity is scheduled for February 2003. The BayView
subordinated debt bears interest at a fixed rate of 9 1/2%. In connection with
this debt, we issued to the lender, BayView Capital Corporation, a warrant to
purchase 180,529 shares of our common stock.
The facilities and lines of credit described above contain affirmative and
negative financial covenants typical of such credit facilities. We were in
compliance with these covenants as of December 31, 1999.
SECURITIZATIONS
Regular securitizations are an integral part of our business plan because
they allow us to increase our liquidity, provide for redeployment of our capital
and reduce risks associated with interest rate fluctuations. We have developed a
securitization program that involves selling interests in pools of motor vehicle
contracts to investors through the public issuance of asset-backed securities
rated in the highest applicable rating category. We completed four AAA/Aaa rated
publicly underwritten asset-backed securitizations in the aggregate amount of
$1.45 billion through Finco during 1999.
We use the net proceeds of our securitizations to pay down the outstanding
indebtedness incurred under our credit facilities used to purchase motor vehicle
contracts, thereby allowing us to purchase additional contracts. At December 31,
1999, we had securitized $3.4 billion of motor vehicle contracts in 18 separate
transactions. In each of these securitizations, we sold motor vehicle contracts
to a newly formed grantor or owner trust which issued certificates or notes in
an amount equal to the aggregate principal balance of the motor vehicle
contracts.
To improve the level of profitability from the sale of securitized motor
vehicle contracts, we arrange for credit enhancement to achieve an improved
credit rating on the asset-backed securities issued. This credit enhancement has
taken the form of a financial guaranty issued by MBIA, or a predecessor, which
issued a financial guaranty insurance policy insuring the payment of principal
and interest due on the asset-backed securities.
We receive servicing fees for our duties relating to the accounting for
and collection of the motor vehicle contracts. In addition, we are entitled to
receive future servicing cash flows arising from the trusts. Generally, we sell
the motor vehicle contracts at face value and without recourse, except that we
provide certain representations and warranties with respect to the contracts in
our capacity as the servicer, and Onyx Acceptance Financial Corporation provides
certain representations and warranties with respect to the contracts in its
capacity as the seller to the trusts.
Gains on sale of motor vehicle contracts arising from our securitizations
provide a significant portion of our revenues. Several factors affect our
ability to complete securitizations of motor vehicle contracts, including
conditions in the securities markets generally, conditions in the asset-backed
securities market specifically, the credit quality of our portfolio of motor
vehicle contracts and our ability to obtain satisfactory credit enhancement.
In the first quarter of 2000, we securitized contracts in the amount of
$430 million.
During the first quarter of 2000, we securitized the cash flows from 15 of
our outstanding securitizations and sold $49.0 million of notes. The transaction
was rated BBB by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. In the future, we intend to complete similar
securitizations or other types of transactions in which we sell or finance the
future cash flows from our outstanding securitizations.
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<PAGE> 40
INTEREST RATE EXPOSURE AND HEDGING
Through the use of varying maturities on advances from our facilities with
Triple-A One and Parco, we effectively lock in rates during the warehousing
period, when we think it is appropriate, to limit our interest rate exposure
during such warehousing period. See "Risk Factors--Risk Factors Relating to
Onyx--Interest rate fluctuations may materially and adversely affect our results
of operations, financial condition and cash flows and our ability to make
payments on the notes."
We have the ability to move interest rates on our motor vehicle contracts
upward in response to rising borrowing costs because we generally do not
purchase contracts near the maximum rates permitted by law. Further, we employ a
hedging strategy which primarily consists of the execution of forward interest
rate swaps. We enter into these hedges in numbers and amounts which generally
correspond to the anticipated principal amount of the related securitization. We
recognize gains and losses relative to these hedges in full at the time of
securitization as an adjustment to the gain on sale of the motor vehicle
contracts. We have only used counterparties with investment grade debt ratings
from national rating agencies for our hedging transactions.
We monitor our hedging activities on a frequent basis to ensure that the
value of hedges, their correlation to the motor vehicle contracts being hedged
and the amounts being hedged continue to provide us with effective protection
against interest rate risk. Our hedging strategy requires us to estimate monthly
motor vehicle contract acquisition volume and the timing of our securitizations.
If such estimates are materially inaccurate, then our gain on sales of motor
vehicle contracts and results of operations and cash flows could be materially
adversely affected. We estimate the amount and timing of hedging transactions
based upon the amount of motor vehicle contracts purchased and the interest rate
environment. We currently expect to hedge substantially all of our motor vehicle
contracts during the warehousing period.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We currently
intend to retain any future earnings for our business and do not anticipate
declaring or paying any dividends on our common stock in the foreseeable future.
In addition, our ability to declare or pay dividends is restricted by the terms
of our credit and warehouse facilities and by the restrictive covenants of the
indenture governing the notes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
contracts and for hedging activities. The new standard requires that all
derivatives be recognized as either assets or liabilities in the consolidated
statements of financial condition and that those instruments be measured at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedging instrument. The accounting for changes in the fair value
of a derivative (that is, unrealized gains and losses) depends on the intended
use of the derivative and the resulting designation. The statement is effective
in the first quarter of year 2001. We are presently assessing the effect of SFAS
133 on our consolidated financial statements.
YEAR 2000 READINESS
We are substantially dependent on our own and third party computer
systems, business applications and other information technology systems, due to
the nature of our consumer finance business and the increasing number of
electronic transactions in the industry. Historically, many information
technology systems were developed to recognize the year as a two-digit number,
with the digits "00" being recognized as the year 1900. The year 2000 presents a
number of potential problems for such systems, including potentially significant
processing errors or failure. Given our reliance on our computer systems, our
results of operations and cash flows could be materially adversely affected by
any significant errors or failures.
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<PAGE> 41
We developed and executed a comprehensive plan designed to address the
"Year 2000" issue for our in-house and third party technology applications. To
date, we have not experienced any significant Year 2000 related disruptions
internally or with any other company with which we interact on a regular basis.
We will continue to monitor our information technology and non-information
technology systems throughout 2000 with respect to Year 2000 issues.
We incurred costs related to Year 2000 compliance remediation for our own
information technology systems and applications of $450,000 in 1999. The amount
expended in 1999 represented approximately 9% of our information technology
budget.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our earnings are affected by changes in interest rates as a result of our
dependence upon the issuance of interest-bearing securities and the incurrence
of debt to fund our lending activities. Several factors can influence the our
ability to manage interest rate risk. First, motor vehicle contracts are
purchased at fixed interest rates, while the amounts borrowed under warehouse
and credit facilities bear interest at variable rates that are subject to
frequent adjustment to reflect prevailing market interest rates. Second, the
interest rate demanded by investors in securitizations is a function of
prevailing market rates for comparable transactions and the general interest
rate environment. Because the motor vehicle contracts originated by us have
fixed interest rates, we bear the risk of smaller gross interest rate spreads in
the event interest rates increase during the period between the date receivables
are purchased and the completion and pricing of securitization transactions.
We use several strategies to minimize interest rate risk, including the
utilization of derivative financial instruments, the regular sale of auto
receivables and pre-funding of securitization transactions. Pre-funding
securitizations is the practice of issuing more asset-backed securities than the
amount of receivables initially sold to the trust. The proceeds from the
pre-funded portion are held in an escrow account until additional receivables
are sold to the trust in amounts up to the balance of pre-funded escrow account.
In pre-funded securitizations, borrowing costs are locked in with respect to the
contracts subsequently delivered to the trust. However, we incur an expense in
pre-funded securitizations equal to the difference between the money market
yields earned on the proceeds held in escrow prior to the subsequent delivery of
receivables and the interest rate paid on the asset-backed securities
outstanding.
Derivative financial instruments are utilized to manage the gross interest
rate spread on our securitizations. We sell fixed rate auto receivables to the
trusts that, in turn, sell fixed rate securities to investors. The fixed rates
on securities issued by the trust are indexed to rates on U.S. Treasury Notes
with similar average maturities or various London Interbank Offered Rates
("LIBOR"). We periodically execute the sale of forward swap agreements to lock
in the indexed rate for specific anticipated securitization transactions. We
utilize these derivative financial instruments to modify its net interest
sensitivity to levels deemed appropriate based on our risk tolerance. All
transactions are entered into for purposes other than trading.
We received a cash payment net of expenses of $1.8 million in 1999, and
made cash payments net of expenses of $4.8 million and $1.3 million in 1998 and
1997, respectively, to settle forward interest rate swap agreements. These
amounts were included in the gain on sale of receivables in securitization
transactions. Cash payments are recovered over time through a higher gross
interest rate spread on the related securitization transaction, while cash
receipts are offset through a lower gross interest rate spread on the related
securitization transaction. As of December 31, 1999, we had $150.0 million of
forward swap agreements outstanding.
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<PAGE> 42
The table below provides information about our derivative financial
instruments by expected maturity date as of December 31, 1999 (dollars in
thousands). Notional amounts, which are used to calculate the contractual
payments to be exchanged under the contracts, represent average amounts that
will be outstanding for each of the years included in the table. Notional
amounts do not represent amounts exchanged by parties and, thus, are not a
measure of our exposure to loss through its use of the agreements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------
FAIR
2000 2001 2002 2003 2004 VALUE
---- ---- ---- ---- ---- -----
Interest Rate Swaps:
<S> <C> <C> <C> <C> <C> <C>
Average Notional Amounts ($000's)...... $113,281 $101,563 $ 64,063 $ 26,563 $ 781 $ 618
Average interest rate paid............. 6.48% 6.48% 6.48% 6.48% 6.48%
Average interest rate received......... Variable Variable Variable Variable Variable
</TABLE>
There can be no assurance that our strategies will be effective in
minimizing interest rate risk or that increases in interest will not have an
adverse effect on our profitability.
-36-
<PAGE> 43
BUSINESS
GENERAL
We are a specialized consumer finance company engaged principally in the
business of providing indirect automobile financing to franchised new car
dealerships and select used car dealerships throughout the United States. We
primarily purchase motor vehicle contracts from such dealerships. We focus our
efforts on acquiring motor vehicle contracts that are secured by late model used
motor vehicles and, to a lesser extent, new motor vehicles, that were entered
into with purchasers whom we believe have favorable credit profiles. We generate
revenues primarily through the purchase, warehousing, securitization and ongoing
servicing of motor vehicle contracts. Since we started purchasing, originating
and servicing motor vehicle contracts in February 1994, we have purchased or
originated more than $3.8 billion in motor vehicle contracts from approximately
7,600 dealers, and we have expanded our operations from a single office in
Orange County, California to major markets throughout the United States.
BACKGROUND
We were incorporated in California in 1993 and reincorporated in Delaware
in 1996 in connection with our initial public offering of common stock in March
1996. We are headed by a management team with extensive experience in the
origination, acquisition, and servicing of indirect and direct automobile
contracts and loans, and who, from 1985 to present, have actively participated
in a number of public securitizations of motor vehicle contracts. Our principal
executive offices are located at 27051 Towne Centre Drive, Suite 100, Foothill
Ranch, California, 92610.
MARKET AND COMPETITION
We operate in a highly competitive market. A variety of financial
entities, including the captive finance affiliates of major automotive
manufacturers, banks, savings associations, independent finance companies,
credit unions and leasing companies, have historically serviced the automobile
finance market. A number of our competitors have greater financial resources
than us. Many of our competitors also have long-standing relationships with
automobile dealerships and may offer dealerships or their customers other forms
of financing or services not provided by us.
We compete for the purchase of motor vehicle contracts which meet our
underwriting criteria on the basis of emphasizing strong relationships with our
dealership customer base through our local presence. We support our dealership
customer base with an operation that is open seven days a week and that has the
ability to finalize purchases of motor vehicle contracts on weekends. We believe
that our strong personal relationships with, and our level of service to, the
dealerships in our customer base provide us with a competitive advantage.
BUSINESS STRATEGY
Our principal objective is to become one of the leading sources of
near-prime auto lending in the United States by leveraging the experience of our
senior management team in this industry. We seek to maintain and increase
profitability through the implementation of the following strategies:
- - Targeted Market and Product Focus. We have positioned ourselves as one of
the lowest loan-to-value and payment-to-income lenders in the near-prime
auto finance market. We target the near-prime auto lending market because
we believe that it produces greater origination and operating efficiencies
than does the sub-prime lending market. We focus on late model used motor
vehicles, rather than new motor vehicles, because we believe the risk of
loss on used vehicles is lower due to lower depreciation rates.
Furthermore, motor vehicle contracts secured by used motor vehicles
generally bear interest at rates that are higher than new motor vehicle
contracts. In addition, we believe that the late model used motor vehicle
finance market is growing at a faster rate than is the finance market for
new motor vehicles.
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<PAGE> 44
- - Localized Dealership Service. We provide a high level of service to our
dealership base by marketing to and servicing dealerships on a local level
through our auto finance centers. We strategically locate our auto finance
centers in geographic areas with many dealerships in order to facilitate
personal service in the local markets, including consistent buying
practices, operations open seven days a week, competitive rates, fast
turnaround time and systems designed to expedite the processing of motor
vehicle contract applications. This personal service is provided by a team
of experienced account managers with an established reputation for
responsiveness and integrity who call on dealerships in a consistent and
professional manner. We believe that our local presence and service
provide the opportunity to build strong and lasting relationships with
dealerships.
- - Expansion of Dealership Customer Base. We establish active relationships
with a substantial percentage of franchised dealerships in the regions in
which we do business through our auto finance centers. We intend to
establish additional dealer relationships as we continue our expansion
plans in the future.
- - Maintenance of Underwriting Standards and Portfolio Performance. We have
developed an underwriting process that is designed to achieve attractive
yields while minimizing delinquencies and losses. Based on our belief that
a standardized commercially available credit scoring system is a less
effective means of assessing credit risk, especially in the near-prime
sector, we employ experienced credit managers in the local auto finance
centers to purchase motor vehicle contracts satisfying our custom
underwriting criteria. Our credit managers and account managers are
compensated as a team and their compensation relies, in part, upon the
quality of underwriting of the motor vehicle contracts they approve. We
also audit most motor vehicle contracts that we purchase within days of
their origination to further assure adherence to our underwriting
guidelines. To further monitor the integrity of the underwriting process,
we regularly track the delinquency and loss rates of motor vehicle
contracts purchased by each credit and account manager team.
- - Technology-Supported Operational Controls. We have developed and
instituted control and review systems that enable us to monitor both our
operations and the performance of the motor vehicle contracts we service.
These systems allow us to monitor motor vehicle contract production,
yields and performance on a daily basis. We believe that our information
systems not only enhance our internal controls but also allow us to
significantly expand our servicing portfolio without a significant
corresponding increase in labor costs.
- - Liquidity Through Warehousing and Securitizations. Our strategy is to
complete securitizations on a regular basis and to use warehouse credit
facilities to fund the acquisition or origination of motor vehicle
contracts prior to securitization. To fund dealer participation and
finance daily operations, we rely to a significant extent on credit
facilities that are collateralized by our retained interest in securitized
assets. We also utilize both securitization and hedging strategies to
leverage our capital efficiently and substantially reduce our interest
rate risk.
OPERATIONS
Dealership Marketing and Service
We have auto finance centers located throughout the United States and, as
of December 31, 1999, had relationships with approximately 7,600 dealerships in
our active dealership customer base located in these regions. Of these
dealerships, approximately 89% are franchised and approximately 11% are
independent automobile dealerships. We believe that franchised and select
independent automobile dealerships are most likely to provide us with motor
vehicle contracts that meet our underwriting standards.
We have significantly expanded our customer base of automobile
dealerships, and have substantially increased our monthly motor vehicle contract
purchases and originations and the size of our servicing portfolio. The
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following table sets forth information about our motor vehicle contracts and
auto finance centers as of the dates indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Number of auto finance centers ............. 5 9 10 14 17
Number of contracts purchased .............. 16,571 26,244 50,214 86,150 127,628
Dollar volume of contracts
collateralized by new vehicles ......... $ 39,706 $ 68,654 $129,178 $ 186,654 $ 245,058
Dollar volume of contracts
collateralized by used vehicles......... $159,691 $251,186 $476,727 $ 851,881 $1,313,946
Dollar volume of contracts ................. $199,397 $319,840 $605,905 $1,038,535 $1,559,004
Average dollar volume of contracts
per auto finance center ................ $ 39,879 $ 35,538 $ 60,591 $ 74,181 $ 91,706
Number of active dealerships ............... 769 1,471 2,846 5,401 7,617
Servicing portfolio (at period end) ........ $218,207 $400,665 $757,277 $1,345,961 $2,133,460
</TABLE>
Our growth objectives over the next 12 months are to open additional auto
finance centers in major markets within the United States and to further develop
relationships with existing dealerships in the markets where we are currently
doing business.
Our account managers work from our auto finance centers to solicit, enroll
and educate new dealerships as well as to maintain relationships with our
existing dealership customer base. Each account manager visits dealership
finance managers at each targeted dealership in his or her territory and
presents information about our dealership services. Our dealership services
include service hours seven days a week and the ability to rapidly respond to
credit applications. Our account managers educate the dealership finance
managers about our underwriting philosophy, including our preference for
near-prime quality motor vehicle contracts collateralized by late model used
motor vehicles and our practice of using experienced credit managers, rather
than sole reliance upon computerized scoring systems, to review applications.
Our account managers also advise the dealership finance managers regarding
our commitment to serve a broad scope of qualified borrowers through our three
near-prime auto lending programs: the "Premier," the "Preferred,"and the
"Standard" Programs. Our Premier Program allows us to market lower interest
rates in order to capture customers of superior credit quality. Our Preferred
Program allows us to offer motor vehicle contracts at higher interest rates to
borrowers with proven credit quality. Our Standard Program allows us to assist
qualified borrowers, who may have experienced previous credit problems or have
not yet established a significant credit history, at interest rates higher than
our other programs.
We enter into non-exclusive dealership agreements containing certain
representations and warranties by the dealership about the motor vehicle
contracts. After this relationship is established, our account managers continue
to actively monitor the relationship to meet our objectives with respect to the
volume of applications satisfying our underwriting standards. Due to the
non-exclusive nature of our relationships with dealerships, the dealerships
retain discretion to determine whether to solicit financing from us, or from
another source or sources, for a customer seeking to finance a vehicle purchase.
Our account managers regularly telephone and visit finance managers to reinforce
to them our objectives and to answer any questions they may have. To increase
the effectiveness of these contacts, our account managers can obtain real-time
information from our management information systems listing,
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<PAGE> 46
by dealership, the number of applications submitted, our response and the
reasons why a particular application was rejected. We believe that the personal
relationships our account managers, credit managers and auto finance center
managers establish with the finance managers at the dealerships are a
significant factor in creating and maintaining productive relationships with our
dealership customer base.
UNDERWRITING AND PURCHASING OF CONTRACTS
Our underwriting standards are applied by experienced credit managers with
a personal, hands-on analysis of the creditworthiness of each applicant, rather
than sole reliance upon standardized commercially available credit scoring
systems as used by several of our competitors. We believe that credit-scoring
systems may approve applicants who are in fact not creditworthy while denying
credit to others who may be an acceptable credit risk for the interest rate
being charged. In addition, we believe that we can enhance the relationship with
our dealership and consumer customer base by having our credit managers utilize
a rules and exception based credit and audit system to personally review each
application and communicate to the submitting dealership the results of the
review, including the reasons why a particular application may have been
declined. This practice encourages the dealership finance managers to submit
motor vehicle contracts meeting our underwriting standards, thereby increasing
our operating efficiency. In order to ensure consistent application of our
underwriting standards as our volume of motor vehicle contract purchases
increases, we have a formal internal training program for new and existing
account managers and credit managers.
We primarily purchase motor vehicle contracts from obligors who have
near-prime credit. While we are typically classified by analysts in an industry
group known as "Automobile Specialty Finance," which includes prime lenders,
near-prime lenders and sub-prime lenders, we do not generally compete with
sub-prime lenders. Moody's Investors Service, Inc. defines these various credit
classifications as follows:
<TABLE>
<CAPTION>
CREDIT IMPLIED STATIC POOL(1) BANKRUPTCY LENGTH OF
CATEGORY CREDIT GRADE LOSSES(%) DISCOUNTS(%) TOLERANCE CLEAN CREDIT(2)
- ----------------- ------------------ ------------------ ------------------ ------------------------ ------------------
<S> <C> <C> <C> <C> <C>
Prime A+ to B <3 none none > 5 years
Near-Prime B- to C+ 3 to 7 none > 2 years discharged 2 to 5 years
Subprime C to C- 7 to 15 < 10 1 to 2 years discharged 1 to 2 years
D+ to D- 15 to 25 10 to 30 < 1 year discharged < 1 year
"EZ" E to Z 25 to 50 30 to 50 irrelevant none
</TABLE>
- -----------------
(1) Static pools reveal loss and delinquency characteristics for pools of
receivables from a common origination period such as monthly or quarterly.
(2) "Clean" credit is a relative term, and its meaning changes depending on
the credit category.
Source: 1998 Year in Review and 1999 Outlook: Subprime and Near-Prime Auto
Credits, Moody's Investors Service, Inc.
The underwriting process begins when an application is faxed by a
dealership to a central toll-free number at the corporate headquarters, where it
is input into our front-end application processing system. Each application is
evaluated by a credit manager in the local auto finance center or corporate
headquarters using uniform underwriting standards developed by us. These
underwriting standards are intended to assess the applicant's ability to timely
repay all amounts due under the motor vehicle contract and the adequacy of the
financed vehicle as collateral. Among the criteria considered by our credit
managers in evaluating each application are:
- - the stability of the applicant with specific regard to his or her
occupation, length of employment and length of residency;
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- - the applicant's payment history based on information known directly by us
or as provided by various credit reporting agencies with respect to
present and past debt;
- - a debt service-to-gross monthly income ratio test, which generally is not
to exceed 45%;
- - a payment-to-income test, generally not to exceed 15%;
- - the principal amount of the motor vehicle contract taking into account the
age, type and market value of the related financed vehicle.
To evaluate credit applications, the credit manager reviews, among other
things, on-line information, including reports of credit reporting agencies,
nationally recognized vehicle valuation services, and ownership of real estate
listed on an application. Our wide area network permits a credit manager in any
auto finance center, or the corporate headquarters, to access an application on
a real-time basis. This computer network enables senior management to
efficiently review and approve motor vehicle contracts requiring approval and
permits us to seamlessly shift underwriting work among any of the auto finance
centers to increase operating efficiency. Finally, our computer network permits
daily review by senior management of operating results sorted by any number of
variables, including by credit manager, auto finance center, or auto dealership.
The funds we advance to purchase a motor vehicle contract generally do not
exceed:
- - for a new financed vehicle, the dealer's invoice plus taxes, title and
license fees, any extended warranty and credit and any other insurance; or
- - for a used financed vehicle, the wholesale value assigned by a
nationally-recognized used-car value guide, plus taxes, title and license
fees, any extended warranty and credit and any other insurance.
However, the actual amount we advance for a motor vehicle contract is
often less than the maximum permissible amount depending on a number of factors,
including:
- - the length of the motor vehicle contract term;
- - the make, model and year of the financed vehicle; and
- - the creditworthiness of the obligor.
We make these adjustments to insure that the financed vehicle constitutes
adequate collateral to secure the motor vehicle contract. Based upon the dealer
invoice for new cars and the wholesale value for used cars reported in
nationally recognized used car value guides, the motor vehicle contracts we
purchased in 1999 had an average loan to value ratio that we believe is one of
the lowest in the industry.
Once review of an application is completed, our credit manager, via an
electronic system, communicates his or her decision to the dealership specifying
approval, conditional approval (such as an increase in the downpayment,
reduction in the term of the financing, or the addition of a co-signer to the
motor vehicle contract), or denial.
The dealership is required to deliver the necessary documentation for each
motor vehicle contract we approve for purchase to the originating auto finance
center, which consists of:
- - a signed credit application;
- - the only original and a copy of the executed motor vehicle contract;
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- - an agreement by the obligor to provide insurance;
- - a report of sale or guarantee of title;
- - an application for registration;
- - a co-signer notification, if applicable;
- - a copy of any supplemental warranty purchased with respect to the financed
vehicle;
- - acceptable vehicle valuation documentation; and
- - any other required documentation.
Once this documentation is in hand for filing, the file is forwarded for a
pre-funding audit. We audit such documents for completeness and consistency with
the application, providing final approval for purchase of the motor vehicle
contract once these requirements have been satisfied. The completed motor
vehicle contract file is then promptly forwarded to our corporate headquarters.
The auto finance center purchasing the motor vehicle contract funds the
purchase and pays a dealer participation fee, if any. We compute the dealer
participation fee by calculating the interest rate differential between the
interest rate charged by the dealership to the purchaser and the buy rate that
we offer to the dealership for that motor vehicle contract. The dealership can
receive 100% of the dealer participation and we are entitled to recover from the
dealership the unearned portion of the dealer participation over the life of the
motor vehicle contract in the event of a prepayment of the purchased motor
vehicle contract or charge-off of the motor vehicle contract. We also offer
three other participation methods in which we pay less than 100% of the dealer
participation but for which the dealership is under no obligation to refund any
unearned participation if the contract defaults or pre-pays after the expiration
of a set period of time after the motor vehicle contract purchase date.
We conduct a post-funding credit review of most of our motor vehicle
contracts. In the review, the approved application is re-examined to be certain
it complies with our underwriting requirements. The results of these reviews are
then reviewed by our senior management to ensure consistent application of our
underwriting standards.
We employ a compensation system for our credit managers, account managers
and auto finance center managers designed to reward those employees whose motor
vehicle contract purchases meet our volume and yield objectives while preserving
credit quality. Generally, these bonuses, which are payable monthly, may
constitute up to 40% of an employee's compensation and are initially calculated
based on the volume of motor vehicle contracts purchased and the yield on such
motor vehicle contracts. This bonus amount is reduced if our post-funding credit
review reveals that a portion of the purchased motor vehicle contracts did not
satisfy our underwriting standards. Under this system, 50% of the bonus payment
is based on attainment of account manager or credit manager team objectives, as
applicable, and 50% is based on attainment of the auto finance center
objectives. We believe this incentive compensation system motivates employees to
purchase only those near-prime quality motor vehicle contracts that meet our
objectives of increasing volume at targeted yields while preserving credit
quality.
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The following table sets forth information about our motor vehicle
contracts as of the dates indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts purchased ................................... $199,397 $319,840 $605,905 $1,038,535 $1,559,004
Average contract amount ............................... $ 12.0 $ 12.2 $ 12.1 $ 12.1 $ 12.2
Weighted average initial term (months) ................ 55.5 56.2 57.0 57.5 57.0
Weighted average annual percentage rate ............... 15.00% 14.72% 14.66% 14.72% 14.77%
Percentage of dollar amount of contracts
collateralized by new motor vehicles purchased ...... 19.91% 21.47% 21.32% 17.97% 15.72%
Percentage of dollar amount of contracts
collateralized by used motor vehicles
purchased ........................................... 80.09% 78.53% 78.68% 82.03% 84.28%
</TABLE>
Periodically, we perform an analysis of our servicing portfolio to
evaluate the effectiveness of our underwriting guidelines. If external economic
factors, credit delinquencies or credit losses change, we may adjust our
underwriting guidelines to maintain the asset quality deemed acceptable by our
management.
SERVICING PROCEDURES
We service all motor vehicle contracts in our servicing portfolio. To
reduce the costs of our servicing operations, we have outsourced certain data
processing and billing functions related to our servicing. This includes a
three-year contract expiring in 2000 with a service bureau to provide certain
loan accounting, reporting, collections and servicing functions. We intend to
take these functions in-house at the expiration of this contract. Through these
service providers, we mail to each obligor a monthly billing statement 20 days
prior to the due date. We believe this method has proven to be more effective in
controlling delinquency, and therefore losses, than payment coupon books which
are delivered to the obligor at the time the motor vehicle contract is
purchased. We charge a late fee, where allowed by law, on any payment received
after the expiration of the statutory or contractual grace period. Most payments
from obligors are deposited directly into a lockbox account while the remainder
of payments are received directly by us and promptly deposited by us into the
lockbox account.
Under the terms of our credit facilities and securitization trusts, we act
as servicer with respect to all motor vehicle contracts purchased or originated
in our servicing portfolio. We receive servicing fees for servicing securitized
motor vehicle contracts equal to one percent per annum of the outstanding
principal balance of such motor vehicle contracts. We service the securitized
motor vehicle contracts by collecting payments due from obligors and remitting
such payments to the applicable trustee in accordance with the terms of the
servicing agreements. We maintain computerized records with respect to each
motor vehicle contract to record receipts and disbursements and to prepare
related servicing reports.
COLLECTION PROCEDURES
We perform collection activities with respect to delinquent motor vehicle
contracts at our collection center located in Foothill Ranch, California.
Collection activities include prompt investigation and evaluation of the causes
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of any delinquency. An obligor is considered delinquent when he or she has
failed to make at least 90% of a scheduled payment under the motor vehicle
contract within 30 days of the related due date.
To automate our collection procedures, we use features of the computer
system of our third party service bureau to provide tracking and notification of
delinquencies. The collection system provides relevant obligor information,
including current addresses, phone numbers and loan information, and records of
all motor vehicle contracts. The system also maintains a record of an obligor's
promise to pay and affords supervisors the ability to review collection
personnel activity and to modify collection priorities with respect to motor
vehicle contracts. We are currently evaluating the feasibility of bringing these
operations in-house.
We utilize a predictive dialing system located at our Foothill Ranch
Collection Center to make phone calls to obligors whose payments are past due by
more than eight days but less than 30 days. The predictive dialer is a
computer-controlled telephone dialing system which dials phone numbers of
obligors from a file of records extracted from the motor vehicle contract
database. By eliminating time wasted on attempting to reach obligors, the system
gives a single collector, on average, the ability to speak with and work 200 to
250 accounts per day. Once a live voice responds to the automated dialer's call,
the system automatically transfers the call to a collector and the relevant
account information to the collector's computer screen. The system also tracks
and notifies collections management of phone numbers that the system has been
unable to reach within a specified number of days, thereby promptly identifying
for management all obligors who cannot be reached by telephone.
Once an obligor is 20 days or more delinquent, his or her account is
assigned to a specific collector at our collection center in Foothill Ranch who
has primary responsibility for such delinquent account until it is resolved. To
expedite collections from late paying obligors, we use Western Union "Quick
Collect", which allows an obligor to pay, at numerous locations, any late
payments which are in turn wired daily to our lockbox account by Western Union.
We also use a Western Union payment system that allows an obligor to authorize
us to present a draft directly to the obligor's bank for payment to us.
Generally, after a scheduled payment under a motor vehicle contract
continues to be past due for between 45 and 60 days, we will initiate
repossession of the financed vehicle. However, if a motor vehicle contract is
deemed uncollectible, if the financed vehicle is deemed by collection personnel
to be in danger of being damaged, destroyed or made unavailable for
repossession, or if the obligor voluntarily surrenders the financed vehicle, we
may repossess it without regard to the length or existence of payment
delinquency. Repossessions are conducted by third parties that are engaged in
the business of repossessing vehicles for secured parties. Under the laws of
most states, after repossession, the obligor generally has an additional period
of time to redeem the financed vehicle before we may resell the financed vehicle
in an effort to recover the balance due under the motor vehicle contract.
Losses may occur in connection with delinquent motor vehicle contracts in
other ways, including the inability to locate the financed vehicle or the
obligor, or because of a discharge of the obligor indebtedness in a bankruptcy
proceeding. Losses of this nature are recognized at the time a motor vehicle
contract is deemed uncollectible or during the month a scheduled payment under a
motor vehicle contract becomes 150 days or more past due. If the proceeds from
the sale of a repossessed vehicle fall short of the balance due on the motor
vehicle contract, we will experience a loss. Our current policy is to recognize
losses on repossessed vehicles in the month in which the vehicle is sold or in
which the scheduled payment becomes 120 days delinquent, whichever occurs first.
Losses may occur in connection with delinquent motor vehicle contracts for which
the vehicle was not repossessed, either because of a discharge of the obligor's
indebtedness in a bankruptcy proceeding or due to our inability to locate the
financed vehicle or the obligor. In these cases, losses are recognized at the
time a motor vehicle contract is deemed uncollectible or during the month a
scheduled payment under the motor vehicle contract becomes 150 days past due,
whichever occurs first.
Upon repossession and sale of the financed vehicle, any deficiency
remaining is pursued against the obligor to the extent deemed practical by us
and to the extent permitted by law. Our loss recognition and collection policies
and practices may change over time in accordance with our business judgment.
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<PAGE> 51
MODIFICATIONS AND EXTENSIONS
We offer certain credit-related extensions to obligors. Generally, we
offer these extensions only when all of the following conditions are met and
there has been no more than one credit-related extension not exceeding two
months granted on the motor vehicle contract in the immediately preceding twelve
months:
- - we believe that the obligor's financial difficulty has been resolved or
will no longer impair the obligor's ability to make future payments;
- - the extension will result in the obligor's payments being brought current;
- - the total number of credit-related extensions granted on the motor vehicle
contract will not exceed three and the total credit-related extensions
granted on the motor vehicle contract will not exceed three months in the
aggregate; and
- - we, or our assignee, have held the motor vehicle contract for at least six
months.
Any deviation from this policy requires the concurrence of a collection
supervisor, our collection manager and our Executive Vice President,
Collections. The total number of annual extensions was less than 4% of the
number of motor vehicle contracts in our servicing portfolio for the years
ending December 31, 1998 and December 31, 1999.
INSURANCE
Each motor vehicle contract requires the obligor to obtain comprehensive
and collision insurance with respect to the related financed vehicle with us
named as a loss payee. In the event that the obligor fails to maintain the
required insurance, however, we have purchased limited comprehensive and
collision insurance, referred to as our "blanket insurance policy" coverage. Our
blanket insurance policy provides us with protection on each uninsured or
underinsured financed vehicle against total loss, damage or theft. We have
obtained our blanket insurance policy from Great American Insurance Companies.
For our blanket insurance policy, we are assessed a premium based on the size of
our servicing portfolio. In 1998, we created an insurance tracking department at
our corporate headquarters. This function has helped reduce our exposure to
uninsured motorists, through our prompt follow-up on non-compliant obligors.
FINANCING AND SALE OF CONTRACTS
We finance our acquisition and origination of motor vehicle contracts
primarily through our warehouse credit facilities and through securitizations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "--Securitizations."
GOVERNMENT REGULATION
Our operations are subject to regulation, supervision, and licensing under
various federal, state and local statutes, ordinances and regulations. We are
required to comply with the laws of those states where we conduct operations. We
believe that we are in compliance with these laws and regulations.
Consumer Protection Laws
Federal and state consumer protection laws and related regulations impose
substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, states' adaptations of the Uniform
Consumer Credit Code and of the Uniform Commercial Code, or UCC, and state motor
vehicle retail installment sales acts and other similar laws. These laws, among
other things, require us to provide
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<PAGE> 52
certain disclosures to applicants, prohibit misleading advertising and protect
against discriminatory financing or unfair credit practices. The Truth in
Lending Act and Regulation Z promulgated thereunder require disclosure of, among
other things, the payment schedule, the finance charge, the amount financed, the
total of payments and the annual percentage rate charged on each retail
installment contract. The Equal Credit Opportunity Act prohibits creditors from
discriminating against applicants (including retail installment contract
obligors) on the basis of race, color, sex, age (provided the applicant has the
capacity to contract), marital status, religion, national origin, the fact that
all or part of the applicant's income derives from a public assistance program,
or the fact that the applicant has in good faith exercised any right under the
Consumer Credit Protection Act. Under the Equal Credit Opportunity Act,
creditors are required to make certain disclosures regarding consumer rights and
advise consumers whose credit applications are not approved of the reasons for
the rejection. The rules of the Federal Trade Commission, or FTC, limit the
types of property a creditor may accept as collateral to secure a consumer
contract and the holder in due course rule provides for the preservation of the
consumer's claims and defenses when a consumer obligation is assigned to a
subject holder. With respect to used vehicles specifically, the FTC requires
that all sellers of used vehicles prepare, complete and display a buyer's guide
which explains any applicable warranty coverage for such vehicles. Also, some
state laws impose finance charge ceilings and other restrictions on consumer
transactions and require contract disclosures in addition to those required
under federal law. These requirements impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, these
provisions could affect our ability to enforce motor vehicle contracts we
purchase or originate.
Certain laws enacted by the federal government and various states
including "lemon laws" provide certain rights to purchasers with respect to
motor vehicles that fail to satisfy express warranties. The application of such
lemon laws or violation of such other federal and state laws may give rise to a
claim or defense of an obligor against a dealership and its assignees, including
us. The dealer agreements contain representations and warranties by the
dealership that, as of the date of the assignment of motor vehicle contracts, no
such claims or defenses have been asserted or threatened with respect to such
motor vehicle contracts and that all requirements of such federal and state laws
have been complied with in all material respects. Although a dealership would be
obligated to repurchase motor vehicle contracts that breached such
representations and warranties, there can be no assurance that the dealership
will have the financial resources to satisfy its repurchase obligations to motor
vehicle contracts.
Soldiers' and Sailors' Civil Relief Act
The Soldiers' and Sailors' Civil Relief Act of 1940, as amended imposes
certain limitations upon the actions of creditors with respect to persons
serving in the armed forces of the United States and, to a more limited extent,
their dependents and guarantors and sureties of debt incurred by such persons.
This act is designed to allow relief to obligor servicemen and servicewomen
whose ability to meet their loan obligations is materially affected by their
being called to active duty in the armed forces. With respect to obligors who
are in the armed forces when a loan obligation is incurred, this act provides
protection when the military service, in fact, has prevented or is preventing
those obligors who are members of the armed forces from meeting their loan
obligations. Among other things, this act can, with respect to obligors falling
within its scope, limit the interest rate of an obligor's motor vehicle contract
to 6% per annum and restrict our ability to repossess the motor vehicle securing
an obligor's motor vehicle contract following a default.
Security Interest in Vehicles
Installment sales contracts such as those purchased by us evidence the
credit sale of automobiles, light duty trucks and vans by dealerships to
obligors. The motor vehicle contracts also constitute personal property security
agreements and include grants of security interests in the motor vehicles under
the UCC. Perfection of security interests in the motor vehicles is generally
governed by the motor vehicle registration laws of the state in which the motor
vehicle is located. In California, a security interest in a motor vehicle is
perfected by notation of the secured party's lien on the motor vehicle's
certificate of title. The motor vehicle contracts prohibit the sale or transfer
of the financed vehicle without our consent.
As servicer for motor vehicle contracts sold in securitizations, we are
obligated to take appropriate steps, at our own expense, to maintain perfection
of security interests in the financed vehicles. In securitization transactions,
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we assign our security interest in the financed vehicles to the trustee for the
securitization trust. Because of administrative inconvenience and expense,
amended certificates of title are not obtained reflecting the trustee's
interest. It is possible that failure to obtain amended certificates of title
could in certain circumstances adversely affect our ability as servicer to
recover the collateral value of the financed vehicle on behalf of the
securitization trust. Future servicing cash flows from the securitization trusts
to us could be adversely affected to that extent. We have not, however,
experienced any significant problems enforcing liens on financed vehicles
securing motor vehicle contracts we have securitized.
Under the laws of most states, including California, the perfected
security interest in a motor vehicle continues for four months after the motor
vehicle is moved to a new state. Most states require surrender of a certificate
of title to re-register a motor vehicle. Since we will have our lien noted on
the certificates of title, in most cases it, as lienholder, will have the
opportunity to re-perfect its security interest in the state of relocation. In
states that do not require a certificate of title for registration of a motor
vehicle, re-registration could defeat protection.
Under the laws of most states, including California, liens for vehicle
repairs and unpaid taxes take priority over a perfected security interest. Liens
for repairs or taxes could arise at any time during the term of a motor vehicle
contract without notice to us.
Secured Party Rights and Obligations
In the event of a default by an obligor, we have all of the remedies of a
secured party under the UCC, except where specifically limited by other state
laws. The remedies of a secured party under the UCC generally include the right
to repossession by self-help, unless such self-help would constitute a breach of
the peace. The UCC requires a secured party who has repossessed collateral to
provide an obligor with reasonable notice of the date, time and place of any
public sale and/or the date after which any private sale of the collateral may
be held. Under such laws, the obligor has the right to redeem the collateral
prior to actual sale.
The proceeds from the resale of a financed vehicle generally will be
applied first to the expenses of repossession and resale and then to the
satisfaction of the obligation evidenced by the applicable motor vehicle
contract. A deficiency judgment can be sought in most states subject to the
requirement that the sale be commercially reasonable and to the satisfaction of
any statutory procedural requirements by the secured party. Generally, any
surplus must be remitted to any holder of a junior lien with respect to the
financed vehicle and if no such lienholder exists, the secured party must remit
the surplus to the former owner of the financed vehicle.
In addition, numerous other statutory provisions, including the federal
bankruptcy law and related laws, may interfere with or affect our ability to
realize upon collateral or enforce a deficiency judgment. The repossession
process and the costs associated therewith generally result in losses on the
underlying motor vehicle contracts, and such losses generally reduce the amount
available for distribution from the related spread accounts of securitizations.
Although we believe that we are currently in compliance with applicable
statutes and regulations, there can be no assurance that we will be able to
maintain such compliance. The failure to comply with such statutes and
regulations could have a material adverse effect upon us. Furthermore, the
adoption of additional statutes and regulations, changes in the interpretation
and enforcement of current statutes and regulations or the expansion of our
business into jurisdictions that have adopted more stringent regulatory
requirements could have a material adverse effect upon us.
LITIGATION
As a consumer finance company, we are subject to various consumer claims
and litigation seeking damages and statutory penalties based upon, among other
things, disclosure inaccuracies and wrongful repossession, which could take the
form of a plaintiff's class action complaint. We, as the assignee of finance
contracts originated by dealers, may also be named as a co-defendant in lawsuits
filed by consumers principally against dealers. The damages and penalties
claimed by consumers in these types of matters can be substantial. The relief
requested by
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<PAGE> 54
the plaintiffs varies but includes requests for compensatory, statutory and
punitive damages. We are a defendant in three consumer class action lawsuits,
one of which was served in 2000. One such proceeding served in 1999, in which we
are a defendant, has been brought as a putative class action and is pending in
the State of California. A class has yet to be certified in this case in which
the plaintiffs allege certain defects in post-repossession notice forms in the
State of California. Another proceeding also served in 1999, in which we are a
defendant, has been brought as a putative class action and is also pending in
the State of California. A class was certified in 2000; in the matter, the
plaintiffs raise issues regarding the payment of dealer participation to
dealers.
We believe that we have taken prudent steps to address the litigation
risks associated with our business activities. However, there can be no
assurance that we will be able to successfully defend against all such claims or
that the determination of any such claim in a manner adverse to us would not
have a material adverse effect on our automobile finance business.
On January 25, 2000, a putative class action complaint was filed against
us and certain of our officers and directors alleging violations of Section
10(b) and 20(a) of the Securities and Exchange Act of 1934 arising from our use
of the cash-in method of measuring and accounting for credit enhancement assets
in our financial statements. We believe that our previous use of the cash-in
method of measuring and accounting for credit enhancement assets was consistent
with then current generally accepted accounting principles and accounting
practices of other finance companies. As required by Financial Accounting
Standards Board's Special Report, "A Guide to Implementation of Statement 125 on
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, Second Edition," dated December 1998 and related statements made by
the staff of the Securities and Exchange Commission, we retroactively changed
the method of measuring and accounting for credit enhancement assets to the
cash-out method and restated our financial statements for 1996, 1997 and the
first three fiscal quarters of 1998. We intend to vigorously defend against the
complaint.
In our opinion, the resolution of the proceedings in this section will not
have a material adverse effect on our financial position, results of operations
or liquidity.
EMPLOYEES
We employ personnel experienced in all areas of loan origination,
documentation, collection and administration. We employ and train specialists in
loan processing and servicing with minimal crossover of duties. At December 31,
1999, we had 715 full-time employees, none of whom were covered by collective
bargaining agreements. We believe we have good relationships with our employees.
PROPERTIES
We did not own any real property on December 31, 1999. In January 1999, we
moved into our new headquarters in Foothill Ranch, California after signing a
10-year lease for approximately 82,000 square feet of office space. We also
lease office space for our auto finance centers. The average size of such
centers is generally four to five thousand square feet. One auto finance center
is located in the corporate headquarters building.
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<PAGE> 55
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning our directors and
executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas C. Stickel 51 Chairman of the Board
John W. Hall 38 President, Chief Executive Officer and Director
Don P. Duffy 45 Executive Vice President, Chief Financial Officer and Director
Bruce R. Hallett 44 Director
G. Bradford Jones 45 Director
C. Thomas Meyers 61 Director
Frank L. Marraccino 44 Executive Vice President
Eugene J. Warner, Jr. 56 Executive Vice President
Todd A. Pierson 37 Senior Vice President
Michael A. Krahelski 44 Secretary, Senior Vice President and General Counsel
Vincent M. Scardina 44 Senior Vice President, Controller and Treasurer
</TABLE>
Our Amended and Restated Certificate of Incorporation provides for the
Board of Directors to be divided into three classes, with each class to be as
nearly equal in number of directors as possible. At each annual meeting of the
stockholders, the successors to the class of directors whose term expires at the
time are elected to hold office for a term of three years, and until their
respective successors are elected and qualified, so that the term of one class
of directors expires at each such annual meeting. The terms of office expire as
follows: Mr. Jones, Class 1, 2002; Mr. Hallett and Mr. Duffy, Class 2, 2000; and
Mr. Stickel, Mr. Hall and Mr. Meyers, Class 3, 2001.
In order that each class of directors will be comprised as nearly as
practicable of an equal number of directors, we intend to call for a vote at
our annual meeting to be held on May 31, 2000 to reassign Mr. Meyers to Class 1
and to elect Mr. Duffy to serve an additional three year term expiring in 2003.
Bruce R. Hallett a Class 2 director, advised us that he will not stand for
election at the annual shareholders meeting and has requested that we withdraw
his name from the nomination and we have done so. Assuming, as recommended by
the Board of Directors. Mr. Duffy is elected and Mr. Meyers is reassigned to
Class 1, the composition of the Board following the annual meeting will be as
follows:
Class 1 (2002) Class 2 (2003) Class 3 (2001)
-------------- -------------- --------------
Thomas Meyers Don Duffy John Hall
Bradford Jones Thomas Stickel
Officers are elected by, and serve at the discretion of, our board of
directors. There are no family relationships among the directors or executive
directors, other than our CEO, John W. Hall, and our Senior Vice President Todd
A. Pierson, who are brothers-in-law. A brief biography of each director and
executive officer follows:
Bruce R. Hallett, a Class 2 director, advised us that he will not stand
for election at the annual shareholders meeting and has requested that we
withdraw his name from the nomination and we have done so.
THOMAS C. STICKEL has served as a director since April 1995 and as our
Chairman of the Board since May, 1996. Mr. Stickel is the chairman, founder, and
CEO of University Ventures Network, a company providing capital and corporate
counsel to major research universities in support of their technological
discoveries. Mr. Stickel is also the founder and former Chairman of American
Partners Capital Group, Inc., T.C.S. Enterprises, Inc., Bank of Southern
California and Point Loma Savings. He currently serves on the board of directors
of Sempra Energy, San Diego Gas and Electric, Blue Shield of California and
Southern California Gas Companies, and is Chairman of eBuilt Corporation. Mr.
Stickel serves on the boards of directors of several non-profit companies as
well, including
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<PAGE> 56
the California Chamber of Commerce, where he is also a Vice President, and the
Del Mar Thoroughbred Club. Finally, he is the founder of the Stickel Christian
Foundation.
JOHN W. HALL has served as our president, and as a director, since August
1993, and as our chief executive officer since September 1996. From 1988 to
1993, Mr. Hall was the M.I.S. director of Western financial bank, developing and
implementing operational technology with an emphasis on the auto finance
division. From 1985 to 1988, Mr. Hall was a founder and president of Micro
Advantage, a developer and seller of software products for the business
education industry. From 1983 to 1985, Mr. Hall was a consultant to several
school districts in Southern California. Mr. Hall received a B.S. in computer
information services from California State Polytechnic University.
DON P. DUFFY has served as an executive vice president and as our chief
financial officer since October 1993 and as a director since January, 1997. From
1988 to October 1993, Mr. Duffy was a senior manager for Ernst & Young,
specializing in the financial services industry. As senior manager as Ernst &
Young, Mr. Duffy was responsible for managing engagements to banks, savings
institutions and finance companies with assets ranging from $100 million to $3
billion. Mr. Duffy was responsible for the public offering of over $2 billion of
automobile collateralized bonds and pass-through certificates. From 1981 through
1988, Mr. Duffy held other positions with Ernst & Young and its predecessor.
BRUCE R. HALLETT has served as a director since November 1993. Since
February 1993, Mr. Hallett has been a partner in the law firm of Brobeck,
Phleger & Harrison, LLP and Managing Partner at the firm's Orange County office
from 1995 to August 1999. Since August 1999 he has served on Brobeck's firmwide
policy committee. He also serves on the board of directors of two privately-held
companies.
G. BRADFORD JONES has served as a director since November 1993. He is a
managing director of Redpoint Ventures, a venture capital firm which invests in
internet communications, media and commerce companies. Mr. Jones is also a
general partner with Brentwood Venture Capital, which he joined in 1981. Mr.
Jones currently serves on the board of directors of Stamps.com, an internet
mailing and shipping services company, Digital Island, a global network for
content hosting and secure delivery for e-commerce companies, Interpore
International, an orthopedic products company, and several privately held
companies. Mr. Jones received a B.S. in chemistry from Harvard College, an M.S.
in physics from Harvard University and a J.D./M.B.A. from Stanford University.
C. THOMAS MEYERS has served as a director since his appointment in June
1998 to fill a vacancy on our board. Mr. Meyers retired from Capital Markets
Assurance Corporation ("CapMAC") in 1998 where he was Managing Director, Credit
Enhancement. A 1960 graduate of Notre Dame University, Mr. Meyers has been in
the financial services business most of his career including 13 years at General
Electric Company where he held various positions. Mr. Meyers was the chief
financial officer for the consumer division of GE Capital prior to joining
CapMAC in 1987. In 1992, Mr. Meyers and 7 others participated in the acquisition
of CapMAC, in a leveraged buy-out, from Citicorp. CapMAC went public on the New
York Stock Exchange in 1995 and was acquired in 1998 by MBIA.
FRANK MARRACCINO has served as an executive vice president since 1996 and
was senior vice president from 1993 to 1996. Mr. Marraccino is responsible for
the operations of all of our auto finance centers and the purchase of motor
vehicle contracts nationwide. From 1981 to 1993, Mr. Marraccino worked for
Western Financial Bank and served in various capacities, including dealer center
manager and collection manager. In 1992 and 1993, Mr. Marraccino was responsible
for the production and servicing of the auto receivables portfolio of Western
Financial Bank.
EUGENE J. WARNER, JR. joined us in December 1996 as executive vice
president of collections. Mr. Warner has over 29 years experience in the
financial services industry in both lending and collections. He also has
extensive experience in automobile financing in both direct and indirect
financing which brings added depth to his position and enables him to be
involved in helping to improve credit risk standards and pricing as well as
dealing with other related issues. Mr. Warner's prior experience includes 6 1/2
years as a senior vice president of collections for Consumer Portfolio Services,
3 1/2 years with Far Western Bank where he served as vice president of
collection
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<PAGE> 57
administration, 14 years in the thrift and loan industry serving as
regional vice president and 5 years in consumer finance with Household Finance.
TODD A. PIERSON is a senior vice president and the chief information
officer responsible for all aspects of technology, including systems,
applications and communications. He joined us in April of 1999. Mr. Pierson has
been in the technology field for 18 years working with client server
architectures, web enabled applications and financial money movement processes.
Before coming to us, Mr. Pierson worked for Ceridian Tax Services as the vice
president of information services. Prior to Ceridian, he was a systems engineer
for Hewlett-Packard.
MICHAEL A. KRAHELSKI joined us in 1998 and has served as senior vice
president. In February 1999, he was appointed our secretary and was named
general counsel later in that year. Prior to joining us, he was vice president
and general counsel for Hyundai Motor Finance Company in California for nine
years from 1990 to 1998. Mr. Krahelski has over 14 years of in-house experience
in the automobile finance industry.
VINCENT M. SCARDINA has served as our controller since 1993 and as senior
vice president and treasurer since 1996. Mr. Scardina has extensive experience
in the auto finance industry, serving as national manager of financial analysis
at Hyundai Motor Finance Company from 1990 through 1993 and as manager of
financial planning at Security Pacific Auto Finance from 1988 through 1990.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned by our Chief Executive Officer and each of the four
additional most highly compensated executive officers for the years ended
December 31, 1999, December 31, 1998 and December 31, 1997, whose compensation
was in excess of $100,000.
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<PAGE> 58
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
compensation
------------------
Salary Securities underlying
Name and Principal Position Year ($) Bonus($) options(#)(1)(2)(4)
- --------------------------- ---- -------- -------- ---------------------
<S> <C> <C> <C> <C>
John W. Hall 1999 $349,800 $165,100 30,000
President, Chief Executive 1998 $318,000 $165,100 262,313
Officer and Director 1997 $318,000 -- 75,000
Don P. Duffy 1999 $202,238 $101,120 15,000
Chief Financial Officer, 1998 $194,565 $101,120 119,374
Executive Vice President 1997 $178,600 -- 25,000
and Director
Frank Marraccino 1999 $173,249 $ 86,625 15,000
Executive Vice President 1998 $169,500 $ 78,750 139,374
1997 $179,301 $ 15,000 20,000
Todd A. Pierson(3) 1999 $119,413 $ 82,500 15,000
Senior Vice President
Vincent M. Scardina 1999 $136,434 $ 34,109 5,000
Senior Vice President,
Controller and Treasurer
Eugene J. Warner, Jr. 1998 $144,200 $ 57,680 60,000
Executive Vice President 1997 $140,000 --
Regan E. Kelley 1998 $137,197 $ 31,299 25,000
Executive Vice President 1997 $133,550 -- 5,000
and General Counsel
</TABLE>
- -----------------
(1) No restricted stock grants were made to any of the named executive
officers during the 1999 fiscal year.
(2) Stock options for shares of Onyx awarded in the year indicated and
exercisable in the future.
(3) Joined us in April 1999.
(4) Stock option figures for 1998 include options granted in 1998 at a new
exercise price which cancelled preexisting options originally granted from
1995 to 1998 but with a higher exercise price, as reported in our Amended
Annual Report on Form 10-K/A filed with the SEC on October 19, 1999.
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<PAGE> 59
The following table contains information concerning the stock option
grants made to each of the executive officers named above for the year ended
December 31, 1999. No stock appreciation rights were granted to these
individuals during such year.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Individual Grant Potential Realizable
------------------------------------------------------------ Value at Assumed Annual
Percent of Rates of Stock Price
Number of Total Options Per Appreciation for
Securities Granted to Share Option Term(1)
Underlying Employees in Exercise Expiration -------------------------
Name Options Granted Fiscal Year Price Date 5% 10%
- ---- --------------- ------------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John W. Hall ............. 30,000(2) 11.7% $5.50 2/23/2009 $268,768 $427,968
Don P. Duffy ............. 15,000(2) 5.9% $5.50 2/23/2009 $134,384 $213,984
Frank L. Marraccino ..... 15,000(2) 5.9% $5.50 2/23/2009 $134,384 $213,984
Todd A. Pierson .......... 15,000(4) 5.9% $5.81 4/12/2009 $141,958 $226,045
Vincent M. Scardina ...... 5,000(3) 2.0% $5.75 2/4/2009 $ 46,831 $ 74,570
</TABLE>
- ----------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are permitted by rules of the Securities and Exchange Commission. There
can be no assurance provided to any executive officer or any other holder
of our securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the common stock
appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
(2) Option granted on February 23, 1999, of which 25% became exercisable one
year from the grant date and balance exercisable thereafter in 36 equal
monthly installments upon the optionee's completion of each month of
service.
(3) Option granted on February 4, 1999, of which 25% became exercisable one
year from the grant date and balance exercisable thereafter in 36 equal
monthly installments upon the optionee's completion of each month of
service.
(4) Option granted on April 12, 1999, of which 25% became exercisable one year
from the grant date and balance exercisable thereafter in 36 equal monthly
installments upon the optionee's completion of each month of service.
The following table sets forth information concerning the value of
unexercised options held by each of our executive officers named above for the
year ended December 31, 1999. No options or stock appreciation rights were
exercised during such year and no stock appreciation rights were outstanding at
the end of that year.
AGGREGATE OPTION EXERCISES AND 1999 FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at 1999 In-The-Money Options at 1999
Fiscal Year End Fiscal Year End(1)
----------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Hall 197,181 86,561 $335,208 $147,154
Don P. Duffy 60,846 45,417 $118,650 $ 88,563
Frank L. Marraccino 55,414 53,959 $ 36,573 $ 35,613
Todd A. Pierson -- 15,000 N/A $ 8,550
Vincent M. Scardina 25,496 19,534 $ 50,227 $ 38,482
</TABLE>
- ----------
(1) Based on the closing market value of the option shares at fiscal year-end
($6.38 per share) less the exercise price payable for such in-the-money
shares.
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<PAGE> 60
DIRECTORS' COMPENSATION
Our directors, with the exception of our Chairman of the Board do not
receive compensation for service on our board of directors or any committee
thereof but are reimbursed for their out-of-pocket expenses in serving on our
board of directors. (In addition, Messrs. Duffy and Hall who are members of our
board, receive salaries for their positions as our CEO - CFO, respectively.)
Certain non-employee members of our board of directors have been granted options
to purchase shares of our common stock from time to time in connection with
their appointment to and performance on the board of directors. Additionally,
each of the non-employee members of our board of directors is eligible to
receive options to purchase common stock under our amended and restated 1996
stock option/stock issuance incentive plan's automatic option grant program.
Under our automatic option grant program, each director receives an option
grant to purchase 10,000 shares of common stock at the time he or she is
initially elected, and at each annual stockholders meeting each individual with
at least six months of service on our board who is to continue to serve as a
non-employee member of our board after the meeting will receive an option grant
to purchase 7,000 shares of common stock, whether or not such individual has
been in our prior employ.
Each automatic grant will have a term of ten years. This term is
conditioned upon the optionee's continuing service on our board. The initial
automatic option grants of 10,000 shares under our automatic option grant
program upon initial board membership will vest in a series of twenty-four
successive equal monthly installments upon the optionee's completion of each
month of board service over this twenty-four month period measured from the
grant date. The annual automatic option grants of 7,000 shares will vest in a
series of twelve equal monthly installments upon the optionee's completion of
each month of board service over this twelve month period measured from the
grant date. However, each outstanding option will immediately vest upon certain
changes in our ownership or control or the death or disability of the optionee
while serving as a board member.
The non-employee directors will receive a grant of 7,000 shares each
following the annual shareholders meeting in 2000.
EMPLOYMENT AGREEMENTS
None of our executive officers have employment agreements with us, and
their employment may be terminated at any time at the discretion of our board of
directors. Stock options granted under our 1996 stock option/stock issuance
incentive plan may be accelerated at the discretion of our board in the event
of a change of control or in the event of an involuntary termination following a
change of control.
STOCK OPTION GRANTS
We use stock options as long-term incentives and expect that we will
continue to issue this compensation alternative in the future. Our compensation
committee grants incentive stock options and, in certain circumstances,
non-qualified stock options to our employees and views such grants less as
compensation and more as an incentive mechanism. Grants were made in 1999 to
some executives as shown in the Summary Compensation Table and to other key
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors during
1999 were Messrs. Stickel and Jones. None of these individuals was at any time
during the year ended December 31, 1999, or at any other time an officer or
employee of ours.
None of our executive officers served as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of our board of directors or compensation
committee during the last completed fiscal year.
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<PAGE> 61
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS
Bruce R. Hallett, one of our directors, is a partner in the law firm of
Brobeck, Phleger & Harrison LLP, or Brobeck. As of December 31, 1999, members of
Brobeck beneficially owned 23,725 shares of our common stock. Brobeck has served
as our counsel since our inception. For the year ended December 31, 1999, we
paid Brobeck approximately $312,000 for legal services and costs incurred in
connection with our operations.
INDEBTEDNESS OF MANAGEMENT
In December 1994, we loaned $175,000 to John Hall, who is our chief
executive officer, president and a director. This loan is evidenced by a
promissory note bearing interest at 6.66% per annum. All principal and accrued
interest under this note is due on December 20, 2000 pursuant to an extension
granted by our Board of Directors. In connection with this loan, Mr. Hall
granted us an option to repurchase, at a price per share of $18.87, up to 9,277
shares of our common stock owned by Mr. Hall. This option is exercisable through
December 20, 2000.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock by:
- - all persons known to Onyx to be the beneficial owner of 5% or more of our
common stock;
- - each director and nominee for director;
- - each executive officer; and
- - all officers and directors as a group.
<TABLE>
<CAPTION>
Name and address of Amount and nature of
beneficial owner(2) beneficial ownership Percent of Class(1)
- ------------------- --------------------- ------------------
<S> <C> <C>
Lincolnshire Associates(4) 621,200 10.0%
Wellington Management 610,000 9.8%
Company, LLP(5)
The Bass Group(6) 594,075 9.6%
Dimensional Fund(3) 406,800 6.6%
John W. Hall(7) 477,897 7.4%
Don P. Duffy (8) 86,893 1.4%
G. Bradford Jones(9) 661,569 10.7%
Frank Marraccino(10) 71,176 1.1%
Thomas C. Stickel(11) 60,016 1.0%
Eugene J. Warner, Jr.(12) 57,631 1.0%
Vincent M. Scardina(13) 44,911 *
Bruce R. Hallett(14) 35,973 *
C. Thomas Meyers(15) 17,000 *
Michael A. Krahelski(16) 6,478 *
Todd A. Pierson(17) 7,762 *
All executive officers and
directors as a group
(12 persons)(18) 1,527,306 22.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Percentage of ownership is based on 6,189,758 shares of common stock
outstanding as of April 3, 2000. Shares of common stock options which
are currently exercisable, or will become exercisable within 60 days
after April 3, 2000 are deemed outstanding for computing the percentage
of the person or group holding such options, but are not deemed
outstanding for computing the percentage of any other person or group.
(2) Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(3) Dimensional Fund Advisors, Inc., 1299 Ocean Avenue, 11th Floor, Santa
Monica, California 90401 in its capacity as an investment advisor
registered under Section 203 of The Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of
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<PAGE> 63
1940, and serves as investment manager to certain other commingled group
trusts and separate accounts. These investment companies, trusts and
accounts are the "Funds." In its role as investment advisor or manager,
Dimensional possesses voting and/or investment power over the securities
described in this schedule that are owned by the Funds. All securities
reported in this schedule are owned by the Funds Dimensional disclaims
beneficial ownership of such securities.
(4) Lincolnshire Associates, LTD., 2550 Midway Road, Suite 220, Carrollton,
Texas 75006, in its capacity as a limited partnership formed for the
purpose of making investments may be deemed to beneficially own 621,200
shares of common stock for its partners.
(5) Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts
02109 in its capacity as investment advisor, may be deemed to beneficially
own 610,000 shares which are held of record by clients at Wellington
Management Company, LLP.
(6) The Bass Group consists of The Bass Management Trust (145,455 shares;
2.4%), Sid R. Bass Management Trust (224,310 shares; 3.6%), Lee M. Bass
through the 820 Management Trust (224,310; 3.6%). The above persons are
collectively referred to as the "Reporting Persons" pursuant to Amendment
No. 1 to Schedule 13G Statement filed January 4, 1998 and made a single
joint filing because they may be deemed to constitute a "group" within the
meaning of Section 13(d)(3) of the Act, although neither the fact of that
filing nor anything therein should be deemed to be an admission by the
Reporting Persons that a group exists.
(7) Includes 226,447 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Hall is our president and chief
executive officer, 27051 Towne Centre Drive, Foothill Ranch, California
92610.
(8) Includes 74,486 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Duffy is our chief financial officer
and our executive vice president, 27051 Towne Centre Drive, Foothill
Ranch, California 92610.
(9) Includes 22,000 shares of common stock issuable upon the exercise of
immediately exercisable shares by Mr. Jones and 639,569 shares of common
stock owned by Brentwood VI, L.P. Mr. Jones, as general partner of
Brentwood Associates VI, L.P., 2730 Sand Hill Road, Suite 250, Menlo Park,
California 94025 may be deemed to share voting and dispositive power with
respect to these shares. Mr. Jones disclaims beneficial ownership of these
shares except for his proportional interest therein.
(10) Includes 71,035 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Marraccino is our executive vice
president, 27051 Towne Centre Drive, Foothill Ranch, California 92610.
(11) Includes 60,016 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Stickel is our chairman of the board,
27051 Towne Centre Drive, Foothill Ranch, California 92610.
(12) Includes 57,603 shares of common stock, issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Warner is our executive vice
president, 27051 Towne Centre Drive, Foothill Ranch, California 92610.
(13) Includes 31,746 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Scardina is our senior vice
president, controller and treasurer, 27051 Towne Centre Drive, Foothill
Ranch, CA 92610.
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<PAGE> 64
(14) Includes 29,623 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Hallett is one of our directors,
27051 Towne Centre Drive, Foothill Ranch, California 92610.
(15) Includes 17,000 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Meyers is one of our directors, 81
Fulling Mill Cir., Fairfield, Connecticut 06430.
(16) Includes 5,728 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Krahelski is our secretary, senior
vice president and general counsel, 27051 Towne Centre Drive, Foothill
Ranch, CA 92610.
(17) Includes 4,062 shares of common stock issuable upon the exercise of
immediately exercisable options or options that will become exercisable
within 60 days of April 3, 2000. Mr. Pierson is our senior vice president
and chief information officer, 27051 Towne Centre Drive, Foothill Ranch,
CA 92610.
(18) Includes (i) 639,569 shares of common stock held by Brentwood Associates
VI, L.P., and (ii) an aggregate of 599,746 shares issuable to our
executive officers and directors upon the exercise of immediately
exercisable options or options that will become exercisable within 60 days
of April 3, 2000, and (iii) does not include shares owned by the Bass
Group, Wellington Management Company, Lincolnshire Associates or
Dimensional Fund.
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DESCRIPTION OF THE NOTES
We will issue the notes under an Indenture dated as of ____________,
2000 between us and Bankers Trust Company, as trustee. Many of the terms and
conditions applicable to the notes will be contained in the Indenture. The
following summarizes some, but not all, of the provisions of the notes and the
indenture. You should refer to the actual terms of the notes and the Indenture
for the definitive terms and conditions. Copies of the proposed forms of
indenture and notes are filed as exhibits to the Registration Statement of which
this prospectus is a part. As used in this description of notes, the words "we,"
"us," or "our" do not include any of our subsidiaries unless expressly stated.
GENERAL
The total principal amount of the notes will be limited to $13,800,000.
The notes represent our general unsecured obligations and are subordinate in
right of payment to our Senior Debt and rank equally with our Parity Debt as
described below under the subheading "Subordination." We will issue the notes in
fully registered form only, without coupons, in denominations of $1,000 each and
any integral multiple of $1,000. The notes will mature on _________, 2006 unless
redeemed or repurchased before the maturity date. See below under the subheading
"Optional Redemption by Us."
The indenture restricts our ability to enter into certain transactions,
unless we first satisfy conditions described in the indenture. If the
transaction involves a Change of Control, you will have the right to require us
to repurchase your notes, as described below under the subheading "Repurchase at
Option of Holder."
The notes will have no sinking fund. A sinking fund is a custodial or
similar account into which regularly scheduled deposits are made for purposes of
funding the redemption or repurchase of the principal amount of the notes.
As long as we are a reporting company under the Securities Exchange Act
of 1934, as amended, we must furnish to the trustee all reports required to be
filed with the Commission under the Exchange Act and to the noteholders all
annual reports required to be filed with the Commission under the Exchange Act.
The holder of any note may present such note for registration, transfer
or exchange at an office of Bankers Trust Company, as trustee, located in the
continental United States. The trustee will maintain a registry for the notes.
We will not charge any fee for registration, transfer or exchange of any notes.
We may request reimbursement for taxes incurred by us in connection with any
registration, transfer or exchange of notes. We are not required to register the
transfer or exchange of any note that has been previously surrendered for
repurchase or redemption.
INTEREST
The notes will accrue interest at an annual rate of ___%. We will pay
the first interest payment on __________, 2000, and quarterly after that date on
the 15th day of __________, __________, __________ and __________. We will also
pay all accrued interest upon maturity, redemption or repurchase of the notes.
Interest will be payable to the person in whose name the note is registered at
the close of business on the first day of the calendar month in which such
interest payment is due. If any date on which an interest payment is due falls
on a day that is not a business day, we will make the payment on the next
business day and we will not pay any additional interest. We will generally make
all interest payments on the notes by check mailed to the holders entitled to
the interest. Whenever interest is paid, the payment will include interest
accrued to, but excluding, the interest payment date or the date of redemption,
conversion, repurchase or maturity. We will compute interest on the notes on the
basis of a 360-day year comprised of twelve 30-day months.
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OPTIONAL REDEMPTION BY US
On or after __________15, 2002, we may elect to redeem the notes. If we
elect to redeem the notes, we must redeem a minimum principal amount of
$100,000. We will not be allowed to redeem the notes before _____15, 2002. We
will provide the holders of the notes at least 30 but not more than 60 days
notice of our intent to redeem the notes.
The redemption price for the notes, expressed as a percentage of the
principal amount of each note thereof, will be as follows for notes redeemed in
the 12-month periods beginning on _____ 15 of each of the following years:
<TABLE>
<CAPTION>
2002 2003 2004 2005 and thereafter
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
Redemption Price: 105% 103% 101% 100%
</TABLE>
We will also pay accrued interest through the date fixed for
redemption. If an interest payment is due before the date fixed for redemption,
the interest payable on such date will be paid to the holder of record as of the
first day of the calendar month in which such interest payment is due. Interest
not so paid will be paid to the party to whom the redemption price is paid.
We have no right to redeem the notes during any period when an event of
default under the indenture, or an event which, with notice or lapse of time or
both, would constitute an event of default under the indenture, has occurred and
is continuing. Events constituting a default under the indenture are described
below under the subheading "Events of Default and Remedies."
REPURCHASE AT OPTION OF HOLDER
If we experience a Change of Control, as defined below, you will have
the right, at your option, to require us to repurchase all or part of your notes
on the 45th calendar day after the date that we mail a notice to you of the
occurrence of a Change of Control. If you exercise this option, we will pay 101%
of the principal amount of the notes, together with accrued interest up to the
date of repurchase. If an interest payment date is due on or before the date
fixed for such repurchase, we will pay the interest payable to the holder of
record as of the first day of the calendar month in which such interest payment
is due. Interest not so paid will be paid to the party to whom the repurchase
price in respect of the principal amount of the note is paid.
You may exercise your repurchase rights by delivering to the trustee,
on or before the close of business on the 30th calendar day after the date of
our repurchase notice, written notice indicating, among other things, that you
have elected to exercise your repurchase rights. The notice is to be accompanied
by the certificate or certificates representing your notes, endorsed for
transfer to us.
A "Change of Control" occurs at such time as any person is or becomes
the beneficial owner, as defined in Rule 13d-3 under the Exchange Act, of shares
of our capital stock entitling such person to exercise 50% or more of the total
voting power of all shares of our capital stock entitled to vote in elections of
directors (or the capital stock of our successor in the case of a merger or
transfer of substantially all of our assets).
In the event that we are required to repurchase the notes, there can be
no assurances that we will have sufficient funds to pay the repurchase price. A
Change of Control may result in a default (directly or by way of a cross-default
provision) under one or more agreements governing our Senior Debt or Parity
Debt. In such a circumstance, the subordination provisions contained in the
Indenture may prevent us from making any payment on the notes, including a
payment of the repurchase price, unless we first obtain the consent of the
holders of defaulted Senior Debt or Parity Debt or repay the Senior Debt or
Parity Debt in full.
Your right to require us to repurchase the notes as a result of a
Change of Control may have the effect of delaying, deferring or preventing a
Change of Control or other attempt to acquire control of us. Consequently, the
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right may increase the difficulty of a merger, consolidation or tender offer, or
an assumption of control by a holder of a large block of our shares and the
removal of incumbent management. The Change of Control repurchase feature is a
result of negotiations between us, Miller & Schroeder and Peacock, Hislop,
Staley & Given, Inc. and is not the result of our knowledge of any specific
effort to accumulate shares of common stock or to obtain control of us by means
of a merger, tender offer, solicitation or otherwise, or part of a plan by us to
adopt a series of anti-takeover provisions. We have no present intention to
engage in a transaction involving a Change of Control, although it is possible
that we would decide to do so in the future.
Rule 13e-4 under the Securities Exchange Act of 1934 requires the
distribution of certain information to security holders in the event of certain
issuer tender offers and may apply in the event of a repurchase. We will comply
with this rule to the extent applicable.
SUBORDINATION
All payments under the notes are, to the extent provided in the
indenture, subordinate and junior to the prior payment in full of all Senior
Debt. The subordination provisions apply to existing Senior Debt as well as
Senior Debt incurred after the date of this prospectus. The notes will be senior
in right of payment to any debt subordinated to the notes and to any debt (other
than the notes) held by an affiliate of ours, whether outstanding at the closing
of this offering or created thereafter. The notes rank equally in right of
payment with the Parity Debt. The Parity Debt is described under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- BayView Term Loan."
Upon any distribution of our assets or our dissolution, winding up,
liquidation or reorganization, the payments on the notes will be subordinated in
right of payment to the prior payment in full of all Senior Debt. Moreover, if
the notes are accelerated following an event of default under the indenture, the
holders of any Senior Debt then outstanding will be entitled to payment in full
before the holders of the notes are entitled to receive any payment on the
notes. However, our obligations to make payments with respect to the notes will
not otherwise be affected. We are the sole obligor on the notes.
Upon any distribution of our assets or our dissolution, winding up,
liquidation or reorganization, the payments on the notes will be made equally
with the payments on the Parity Debt. If the notes are accelerated following an
event of default under the indenture, after payment to the holders of any Senior
Debt then outstanding, any remaining amounts will be paid to the holders of the
notes and the holders of the Parity Debt pro rata in accordance with the
relative principal amount of such Indebtedness then outstanding.
In addition, the subordination provisions will prevent us from making
any payments on the notes if:
- we fail to pay any payment of principal, interest, premium, or
other obligation, if any, due on any Senior Debt beyond the
applicable grace period; or
- any other default occurs and is continuing under any Senior Debt
that permits holders of the Senior Debt to accelerate the maturity
of any Senior Debt.
We may resume making payments on the notes once the default on the
Senior Debt is cured or waived or otherwise ceases to exist.
"Senior Debt" means the principal of any premium and all interest on
(i) any and all our indebtedness (other than the notes, Parity Debt and
Subordinated Debt) in respect of borrowed money, which in accordance with
generally accepted accounting principles, would be included in determining the
total liabilities side of our balance sheet, and (ii) all new financings,
renewals, extensions and refundings thereof; provided that any indebtedness
shall not be Senior Debt if the instrument creating or evidencing any such
indebtedness or pursuant to which such indebtedness is outstanding, provides
that such indebtedness, or such renewal, extension or refunding thereof, is
junior or is not superior in right of payment to or ranks pari passu with the
notes.
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"Parity Debt" means our indebtedness incurred under the BayView Loan
Agreement and any and all of our other indebtedness which had an original
maturity date in excess of one year and contains covenants, conditions and
restrictions on us which are not inconsistent with or violate the covenants,
conditions and restrictions imposed by the Indenture, and is neither Senior Debt
nor Subordinated Debt.
"Subordinated Debt" means all of our indebtedness created, incurred,
assumed or guaranteed by us which, by the terms of the instrument creating such
indebtedness it is provided that such indebtedness and any renewal thereof is
expressly subordinate and junior in right of payment to the notes.
The Indenture permits us to incur additional Senior Debt provided
certain financial tests are met as described below under the subheading
"Restrictive Covenants". As of December 31, 1999, we had approximately $278
million of outstanding indebtedness which is expected to be Senior Debt, and
approximately $10 million of outstanding indebtedness which is Parity Debt.
The subordination provisions of the indenture and the notes will not
prevent the occurrence of any event of default under the indenture or limit the
rights of any holder of notes to pursue any other rights or remedies with
respect to the notes.
As a result of the subordination provisions, in the event of our
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding, holders of the notes may receive less than other creditors on a
ratable basis.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute events of default under the indenture:
- our failure to pay interest on the notes when due if the failure
continues for 15 days;
- our failure to pay the principal of, or premium, if any, on any of
the notes when due;
- our breach of any financial covenant and continuance of such
breach for a period of 30 days after the date of our report to the
trustee;
- our failure to perform any other covenant or warranty in the
indenture if the failure continues for 60 days after appropriate
notice is given to us, the trustee and the noteholders, as
applicable;
- a default by us on any indebtedness that results in the
acceleration of indebtedness in an amount in excess of $5,000,000
and the indebtedness or the acceleration has not been discharged
or waived for 60 days after notice is given in accordance with the
indenture;
- we are replaced as servicer in any transaction which affects more
than 25% of the principal amount of outstanding securities of our
or any of our subsidiaries' securitizations and such event is not
cured within 30 days;
- certain events involving our bankruptcy, insolvency or
reorganization; and
- a final judgment by a court against us for the payment of money in
an amount in excess of $5,000,000, net of insurance proceeds, that
remains unsatisfied or unbonded for 30 days after the right to
appeal such judgment has expired or terminated.
The trustee will generally be required, within 60 days after its
becoming aware of a default, to provide the registered holders of the notes
written notice of the default. Except in the case of a payment default, the
trustee will not be required to deliver a notice of default if it determines in
good faith that withholding the notice is in the best interest of the holders of
the notes.
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If an event of default under the indenture has occurred and is
continuing, the trustee, or the holders of not less than 25% of the aggregate
principal amount of the notes, may declare all amounts outstanding on the notes
to be immediately due and payable.
The indenture will generally provide that the holders of a majority in
principal amount of the outstanding notes may direct the time, method and place
of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee, subject to certain
limitations. Before proceeding to exercise any right or power under the
Indenture at the direction of the holders, the trustee will be entitled to
receive from the holders reasonable security or indemnity against any costs,
expenses and liabilities that it might incur as a result. Following an event of
default for nonpayment, each holder to which the default pertains will have the
absolute right to institute suit to enforce payment of any notes held by it.
Generally, the holders of at least a majority in aggregate principal
amount of the outstanding notes may on behalf of the holders of all notes waive
any default or event of default. The consent of all note holders will be
required to waive any Events of Default relating to a failure to make payment on
any note, or to comply with any of the provisions of the Indenture that would
require the consent of affected holders to modify.
Within 120 days of the end of each fiscal year, we will be required to
send the trustee a statement of certain of our officers stating:
- that such officer has analyzed our activities during such year and
supervised the performance under the Indenture; and
- whether, to the best of such officer's knowledge based on such
analysis, we are in compliance with our obligations under the
Indenture or if we have defaulted on such obligations.
We are also required, if certain of our officers obtain knowledge that
we are not in compliance with the terms of the Indenture or the notes, to
deliver to the trustee a statement specifying the nature of the default and the
action we have taken, are taking or propose to take to cure the default.
RESTRICTIVE COVENANTS
Limitation on Additional Indebtedness
The Indenture prohibits us and our subsidiaries from creating,
incurring, assuming or issuing, directly or indirectly, or guaranteeing or in
any manner becoming, directly or indirectly, liable for any indebtedness except
for:
- the notes;
- indebtedness outstanding on the date the notes are issued by us;
- indebtedness which does not cause our Consolidated Leverage Ratio
described below to exceed 3:1;
- deferrals, renewals, extensions, replacements, refinancing or
refundings of indebtedness listed above;
- indebtedness between us and any of our Restricted Subsidiaries;
- indebtedness incurred in connection with the purchase of notes
required in connection with the Change of Control provided that
the aggregate principal amount of such indebtedness does not
exceed 101% of the aggregate principal amount of the notes
purchased in connection with such Change of Control and that such
indebtedness does not mature prior to the stated maturity of the
notes and ranks pari passu with the notes;
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- indebtedness under certain currency and interest rate swap
agreements;
- indebtedness incurred by us to finance the purchase or origination
of motor vehicle contracts for the purpose of pooling such
contracts prior to securitization, subject to certain limitations
set forth in the Indenture;
- non-recourse indebtedness; and
- indebtedness of up to $8 million incurred in connection with the
purchase or lease of property.
"Consolidated Leveraged Ratio" means the ratio of the aggregate amount
of all of our indebtedness, excluding the indebtedness permitted as described
immediately above, to our consolidated tangible stockholders' equity, as
determined in accordance with generally accepted accounting principles.
"Restricted Subsidiary" means all of our subsidiaries with assets
greater than $1,000 if our Consolidated Leveraged Ratio exceeds 3:1.
Limitations on Transactions With Affiliates
Any indebtedness between us and any of our affiliates will be
subordinate and junior in right of payment to the notes. We cannot permit any of
our Restricted Subsidiaries to engage in any transaction of any kind or nature
with any of our affiliates, other than a Restricted Subsidiary, unless
- the terms of the transaction are no less beneficial to us or our
subsidiary, as the case may be, than a similar transaction with an
unrelated person under the same circumstances and, in the case of
a transaction with a value of over $1,000,000, a majority of our
board's independent members determine that the transaction terms
are fair to us or our subsidiary, as the case may be; or
- if the transaction or series of transactions has a value over
$5,000,000, a person experienced in the nature of the transaction
certifies the transaction to our board of directors as fair to us
or our subsidiary, as the case may be, and the terms are those
that would be found in similar transactions with unrelated persons
under the same circumstances.
The foregoing limitation is subject to certain exceptions, including
- loans or advances to our employees in the ordinary course of
business;
- customary directors fees and indemnities;
- ordinary course commercial agreements or renewals thereof on such
terms as are in effect as of the date the notes are issued and
which terms are no less favorable to us or such Restricted
Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with an unaffiliated person;
- any issuance of securities, or other payments, compensation,
benefits, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by our Board of
Directors;
- the grant of stock options or similar rights to our employees and
directors or the employees or directors of a Restricted
Subsidiary; and
- transactions effected as part of a Qualified Securitization
Transaction and warehouse financings.
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Restricted Payments
Neither we nor any of our Restricted Subsidiaries are permitted to make
any Restricted Payment:
- if an event of default under the indenture shall have occurred and
is continuing at such time;
- if at such time our Consolidated Leveraged Ratio exceeds 3:1; or
- The total amount of restricted payments would exceed an amount
determined pursuant to a formula set forth in the indenture.
The following actions each constitute a "Restricted Payment" under the
indenture:
- the declaration or payment of any dividend or any other
distribution on our capital stock or on the capital stock of our
subsidiaries or any payment made to the direct or indirect holders
(in their capacities as such) of our or our subsidiaries' capital
stock, other than
- dividends or distributions payable solely in capital stock or
in options, warrants or other rights to purchase capital
stock; and
- in the case of any subsidiary of ours, dividends or
distributions payable to us or to any of our subsidiaries;
- the purchase, redemption or other acquisition or retirement for
value of our or our subsidiaries' capital stock other than
purchases of our capital stock which is contributed to a employee
stock ownership plan maintained by us for our employees; or
- investments in any person, other than certain permitted
investments.
For purposes of this definition, "Restricted Payment" does not include:
- payments made in the form of our common stock;
- mandatory repurchase obligations by us with respect to shares
issued by any employee stock ownership plan of ours;
- purchases of common stock of, or investments in, a wholly-owned
subsidiary of ours that is not a "Restricted Subsidiary";
- repurchases of our common stock on the open market made in
compliance with Rule 10b-18 of the Exchange Act so long as there
is no default and we will be in compliance with certain financial
covenants after giving pro forma effect to such repurchases;
- "Permitted Investments" including dividends, debt, payments and
other transactions by us or one of our subsidiaries in connection
with a Qualified Securitization Transaction; or
- repurchases of our common stock on the open market to fund
matching contributions under our 401(k) plan or purchases or
matching contributions under our deferred compensation program.
Minimum Net Worth
We are obligated to maintain a minimum Consolidated Tangible Net Worth
of $35,000,000 as adjusted by a formula in the indenture. The minimum net worth
will be adjusted upward, on a cumulative basis from January 1,
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1999, by 50% of positive consolidated net income, and downward (but never below
$35,000,000), on a cumulative basis from January 1, 1999, up to $3,000,000 in
respect of "FASB Net Worth Adjustments."
- "FASB Net Worth Adjustments" means adjustments in net worth
required by Financial Accounting Standard No. 125 or No. 133
issued by the Financial Accounting Standards Board.
- "Consolidated Tangible Net Worth" means our consolidated tangible
stockholders equity, as determined in accordance with generally
accepted accounting principles.
Nasdaq Listing
We will be required to maintain the listing of our common stock on the
Nasdaq National Market or another market or exchange.
MODIFICATIONS OF THE INDENTURE
The indenture generally allows the trustee and us, with the consent of
the holders of not less than a majority of the aggregate principal amount of the
outstanding notes, to modify the indenture, any supplemental indenture or the
notes. The following modifications require the consent of each affected
noteholder:
- a change of the maturity of any note or any interest or premium
payment;
- a reduction in the rate or an extension of the time or payment of
interest on any note;
- a reduction in the principal amount of any note;
- a reduction in any amount payable upon redemption or repurchase of
any note;
- any modification to our obligation to repurchase any note upon a
Change of Control if adverse to any holder of notes;
- any modification that impairs or adversely affects the right of
any holder to institute suit for the payment of any note;
- any change in currency in which any note is payable; and
- any modification of the subordination provisions that adversely
affects the holders of the notes.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while the notes
remain outstanding if:
- all notes are within one year of their scheduled maturity or the
date on which they are scheduled for redemption; and
- we have deposited with the trustee an amount sufficient to pay all
outstanding notes on their scheduled maturity or the date
scheduled for redemption.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The indenture provides that we may elect either:
- to defease and be discharged from any and all of our obligations
with respect to the notes, except for the obligations to register
the transfer or exchange of such notes, to replace temporary or
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mutilated, destroyed, lost or stolen notes, to maintain an office
or agency in respect of the notes and to hold monies for payment
in trust ("legal defeasance"), or
- to be released from our obligations with respect to the notes
under certain covenants contained in the indenture ("covenant
defeasance"),
upon the deposit with the trustee or other qualifying trustee, in trust for such
purpose, of money and/or non-callable U.S. government obligations which, through
the payment of principal and interest in accordance with their terms, will
provide money, in an amount sufficient to pay the principal of, premium, if any,
and interest on the notes, on the scheduled due dates therefor or on a selected
date of redemption in accordance with the terms of the indenture. Such a trust
may only be established if, among other things,
- we have delivered to the trustee an opinion of counsel as
specified in the indenture:
- to the effect that neither the trust nor the trustee will be
required to register as an investment company under the
Investment Company Act of 1940, as amended;
- in the case of a legal defeasance, stating that (i) we have
received from or there has been published by the Internal
Revenue Service a ruling to the effect that or (ii) there has
been a change in any applicable federal income tax law with
the effect that the holders of the outstanding notes or
persons in their positions will not recognize income, gain or
loss for federal income tax purposes solely as a result of
such defeasance and will be subject to federal income tax on
the same amounts, in the same manner, including as a result of
prepayment, and at the same times as would have been the case
of such defeasance had not occurred; and
- in the case of a covenant defeasance, confirming that the
holders of the outstanding notes will not recognize income,
gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income
tax on the same amounts, and the same manner and at the same
times as would have been the case if such covenant defeasance
had not occurred;
- no default or event of default has occurred and be continuing on
the date of such deposit or insofar as events of default from
bankruptcy, insolvency or reorganization events are concerned, at
any time in the period ending on the 91st day after the date of
deposit or, if longer, ending on the day following the expiration
of the longest preference period under any bankruptcy law
applicable to us in respect of such deposit;
- such legal defeasance or covenant defeasance has not resulted in a
breach or violation of, or constitute a default under the
indenture or any other material agreement or instrument to which
we or any of our subsidiaries is a party or by which we or any of
our subsidiaries is bound;
- we have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent
provided for or relating to the legal defeasance or the covenant
defeasance have been complied with; and
- we have delivered to the trustee an opinion of counsel to the
effect that certain other customary conditions precedent are
satisfied.
GOVERNING LAW
The indenture and the notes will be governed by the laws of the State
of New York.
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CONCERNING THE TRUSTEE
Bankers Trust Company will serve as trustee under the indenture and is
also the note registrar.
The trustee under the indenture has been appointed by us as the initial
paying agent, conversion agent, registrar and custodian with regard to the
notes. We may maintain deposit accounts and conduct other banking transactions
with the trustee or its affiliates in the ordinary course of business.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income
tax matters that may be relevant to the acquisition, ownership and disposition
of the notes, but does not purport to be a complete analysis of all the
potential tax considerations relating to the acquisition, ownership and
disposition of the notes. This summary is based on the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable final,
temporary or proposed Treasury Regulations, judicial authority and current
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis. This summary deals only with holders that will
hold notes as capital assets, and does not address tax considerations applicable
to investors that may be subject to special tax rules such as banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies, persons
that will hold notes as a position in a hedging, straddle or conversion
transactions, non-U.S. persons, or persons that have a functional currency other
than the U.S. dollar. In addition, it does not deal with holders other than
original purchasers, except where otherwise specifically noted.
PAYMENTS OF INTEREST
Stated Interest. The gross amount of stated interest (i.e. interest
payable at the rate stated by the terms of the note) accrued or received in
respect of the notes generally will be includible in the gross income of a
holder in accordance with the holder's method of tax accounting.
Original Issue Discount. Each note will be issued with original issue
discount because the excess of each note's "stated redemption price at maturity"
over its issue price exceeds a de minimis amount equal to 1/4 of 1 percent of
the note's stated redemption price at maturity multiplied by the number of years
to its maturity, based on the anticipated weighted average life of the note,
calculated using the prepayment assumption used in pricing the note and
weighting each payment by reference to the number of full years elapsed from the
issue date to the anticipated date of the payment. The issue price of a note
will be the first price at which a substantial amount of the notes is sold to
other than placement agents, underwriters, brokers or wholesalers. The stated
redemption price at maturity of a note will equal its principal amount.
A holder may be required to include original issue discount on a note
in income before the receipt of cash attributable to the income using a constant
yield method. The amount of original issue discount generally includible in
income is the sum of the daily portions of original issue discount with respect
to a note for each day during the taxable year or portion of the taxable year in
which the holder holds the note. Holders of the notes should consult their own
tax advisors regarding the impact of the original issue discount rules upon
their particular situation.
In the event a holder purchases a note issued with original issue
discount at an acquisition premium ,i.e., at a price in excess of its "adjusted
issue price" but less than its stated redemption price at maturity, the amount
includible in income in each taxable year as original issue discount is reduced
by that portion of the excess properly allocable to such year. The adjusted
issue price of a note is the sum of its issue price plus prior accruals of
original issue discount, reduced by the total payments made with respect to the
note in all prior periods, other than stated interest payments. Acquisition
premium is allocated on a pro rata basis to each accrual of original issue
discount, so that the holder is allowed to reduce each accrual of original issue
discount by a constant fraction.
-68-
<PAGE> 75
Market Discount. The Code generally requires a holder of a "market
discount bond," as defined below, to recognize accrued market discount as
ordinary income as principal payments are received on the bond, in an amount not
exceeding any payment. The holder also generally will be required to treat a
portion of any gain realized on the disposition (including by gift) of the bond
as ordinary income to the extent of the market discount accrued during the
holder's period of ownership, less any accrued market discount reported as
ordinary income as partial principal payments were received. The market discount
rules generally require a holder of a bond to accrue market discount on the bond
in the ratio of original issue discount allocable to the relevant period on the
bond to the sum of the original issue discount for the period plus the remaining
original issue discount as of the end of the period on the bond (computed using
the prepayment assumption). A holder may elect to accrue market discount using a
constant yield method (taking into account the prepayment assumption). A "market
discount bond" is a debt obligation purchased at a market discount, subject to a
statutory de minimis exception. For this purpose, market discount generally
equals, in the case of a note, the excess of the adjusted issue price of the
note over the holder's adjusted tax basis in the note.
A holder who acquires a note that is a market discount bond may be
required to defer the deduction of all or a portion of any interest expense that
may otherwise be deductible on any indebtedness incurred or maintained to carry
the note until the note is disposed of in a taxable transaction.
Instead of recognizing market discount, if any, upon the payment of
principal on, or disposition of, a note, a holder may elect to include market
discount in income as the discount accrues, either on a ratable basis, or, if
elected, on a constant interest rate basis. The current inclusion election, once
made, applies to all market discount obligations acquired on or after the first
day of the first taxable year in which the election applies, and may not be
revoked without the consent of the Internal Revenue Service. The rule deferring
interest deductions does not apply if the holder of a "market discount bond"
elects to include the accrued market discount in income currently.
Amortizable Bond Premium. In general, if a holder purchases a note at a
premium (that is, an amount in excess of the amount payable upon the maturity
thereof), the holder will be considered to have purchased the note with
"amortizable bond premium" equal to the amount of the excess. The holder may
elect to amortize the bond premium as an offset to interest income and not as a
separate deduction item as it accrues under a constant yield method over the
remaining term of the note, using the prepayment assumption. The holder's
adjusted tax basis in the note will be reduced by the amount of the amortized
bond premium. Any election shall apply to all debt instruments (other than
instruments the interest on which is excludible from gross income) held by the
holder at the beginning of the first taxable year for which the election applies
or thereafter acquired and is irrevocable without the consent of the U.S.
Internal Revenue Service. Bond premium on a note held by a holder who does not
elect to amortize the premium will decrease the gain or increase the loss
otherwise recognized on the disposition of the note.
TAXATION OF DISPOSITIONS
Upon the sale or other disposition of notes, a holder that owns the
notes as capital assets will recognize gain or loss for federal income tax
purposes equal to the difference between the amount realized (other than the
portion of the amount, if any, attributable to accrued but unpaid interest not
previously included in income, which amount will be treated as interest income)
and the holder's adjusted tax basis in the notes. A holder's adjusted tax basis
in the notes generally will equal the cost of the notes to the holder, increased
by the amount of any original issue discount and market discount previously
included in income by the holder, and reduced by the amount of any premium
amortized and payments (other than payments of stated interest) previously
received by the holder, with respect to the notes. Gain or loss recognized by a
holder on a sale or other disposition of notes will, in general, be capital gain
or loss, subject to the market discount rules described above. Any gain or loss
recognized by a holder generally will be treated as U.S. source income for U.S.
federal income tax purposes.
-69-
<PAGE> 76
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments in respect of notes may be subject to information reporting to
the Internal Revenue Service and to a 31% backup withholding tax. Backup
withholding will not apply, however, to a holder who furnishes a correct
taxpayer identification number and makes any other required certification or who
is otherwise exempt from backup withholding. Generally, a holder will provide
certification on Form W-9 (Request for Taxpayer Identification Number and
Certification).
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH PROSPECTIVE PURCHASER OF THE NOTES SHOULD CONSULT ITS
OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PURCHASER OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND ANY RECENT OR PROSPECTIVE
CHANGES IN APPLICABLE TAX LAWS.
-70-
<PAGE> 77
UNDERWRITING
Under the terms and subject to the conditions contained in the
underwriting agreement, the underwriters named below have agreed to purchase
from us, and we have agreed to sell to the underwriters, notes in the principal
amounts listed opposite the underwriter's name below at the public offering
price set forth on the cover page of this prospectus, less the underwriting
discounts and commissions.
<TABLE>
<CAPTION>
PRINCIPAL
NAME OF UNDERWRITER AMOUNT OF NOTES
- ------------------- ---------------
<S> <C>
Miller & Schroeder Financial, Inc............................................... $
Peacock, Hislop, Staley & Given, Inc............................................
-----------
Total.................................................................. $12,000,000
===========
</TABLE>
We have agreed to reimburse the underwriters for their out-of-pocket
expenses incurred in connection with the offering, including the fees and
expenses of the underwriters' counsel.
The underwriting agreement provides that the several underwriters will
be obligated to purchase, subject to the terms and conditions set forth therein,
all of the notes being sold pursuant to the underwriting agreement (other than
the notes covered by the over-allotment option) if any of the notes being sold
pursuant to the underwriting agreement are purchased.
The underwriting agreement provides for reciprocal indemnification
between us, the several underwriters and their respective officers, directors
and controlling persons against civil liabilities in connection with this
offering, including certain liabilities under the Securities Act of 1933, as
amended. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted pursuant to such indemnification provisions, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The underwriters propose to offer the notes to the public at the price
to public set forth on the cover page of this prospectus and to certain selected
dealers at such price less a concession of not more than $___ per note. After
the initial public offering, the price to public and concessions to dealers may
be changed by the underwriters.
We have granted to the underwriters an option, exercisable by the
underwriters from time to time within 45 days after the date of this prospectus,
to purchase up to an additional $1,800,000 of notes at the price to public, less
the underwriting discounts and commissions shown on the cover page of this
prospectus. This option may be exercised in whole or in part, but only for the
purpose of covering any over-allotments in the sale of the $12,000,000 in notes
offered hereby. To the extent that the underwriters exercise the option, each
underwriter will be obligated to purchase its pro rata share of the additional
principal amount of the notes based on the underwriter's percentage underwriting
commitment in the offering, which is indicated in the preceding table.
In order to facilitate the offering of the notes, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the notes of the underwriters. Specifically, the underwriters may over-allot the
notes in connection with the offering, creating a short position in the notes
for the account. In addition, to cover over-allotments or to stabilize the price
of the notes, the underwriters may bid for, and purchase, notes in the open
market. The underwriters may also reclaim selling concessions allowed to a
dealer for distributing notes in the offering, if the underwriters repurchase
previously distributed notes in transactions to cover its short positions, in
stabilization transactions or otherwise. Finally, the underwriters may bid for,
and purchase, notes in market making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the notes above the
market level that may otherwise prevail. The underwriters are not required to
engage in these activities and may end any of these activities at any time. Any
such activities will be undertaken in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended, if at all.
-71-
<PAGE> 78
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. Neither we nor the
underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the notes. In addition, neither we nor the underwriters make any
representations that the underwriters will engage in such transactions or that
such transactions, once commenced, will not be discounted without notice.
Prior to the offering, there has been no public market for the notes.
We do not intend to list the notes on any securities exchange or include them
for quotation on the Nasdaq system. The underwriters have advised us that they
intend initially to make a market in the notes, but the underwriters are not
obligated to do so and may discontinue market making at any time without notice.
The following table summarizes the compensation we will pay the
underwriters:
<TABLE>
<CAPTION>
Assuming no Assuming full
exercise of exercise of
Form of Compensation over-allotment option over-allotment option
- -------------------- --------------------- ---------------------
<S> <C> <C>
Total underwriting discounts and commissions ____________ ____________
Reimbursement of underwriters' expenses ____________ ____________
</TABLE>
We estimate that the total expenses of the offering, excluding the
underwriting discounts, commissions and expenses set forth on the table above
will be approximately $400,000. The following table itemizes all of the expenses
we expect to incur in connection with this offering other than the underwriting
discounts, commissions and expenses set forth above. All expenses, other than
the SEC and NASD fees, set forth below are estimates only.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ................ $ 6,072
NASD filing fee .................................................... 2,800
Accounting fees and expenses ....................................... 70,000
Blue Sky fees and expenses ......................................... 1,000
Legal fees and expenses ............................................ 165,000
Printing expenses .................................................. 40,000
Trustee's fees and expenses ........................................ 15,000
Underwriters' counsel fees and expenses ............................ 75,000
Miscellaneous ...................................................... 25,128
--------
TOTAL ...................................................... $400,000
========
</TABLE>
The foregoing is a summary of the material provisions of the
underwriting agreement. The underwriting agreement has been filed as an exhibit
to the registration statement of which this prospectus is a part.
LEGAL MATTERS
Certain legal matters in connection with the notes will be passed upon
for us by Andrews & Kurth L.L.P., Dallas, Texas, and for the underwriters by
Leonard, Street and Deinard Professional Association.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each
of the three years in the period ended December 31, 1999 included in this
Prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
-72-
<PAGE> 79
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
notes offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto, certain parts of which are omitted as permitted by the rules
and regulations of the Commission. For further information with respect to us
and the notes offered in this prospectus, reference is made to the registration
statement and the exhibits and schedules filed therewith. Although all material
terms and provisions of any material contract or other document filed are
referred to in this prospectus and described herein, these descriptions are not
necessarily complete, and in each instance reference is made to the copy of the
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by the reference.
We are subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended, pursuant to
Section 15(d) thereof and, in accordance therewith, file reports, proxy
statements and other information with the Commission. For further information
with respect to us, reference is hereby made to such reports and other
information which, together with the registration statement and the exhibits and
schedules thereto, can be inspected, without charge, at the public reference
facilities maintained by the Commission at the Public Reference Room of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, Suite 1500, New York, New York 10048.
Copies of all or any part of the registration statement can also be obtained
from the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission also maintains a website at http://www.sec.gov,
that contains reports, proxy and information statements, and other information
that has been or will be filed by us.
Our website address is http://www.onyxco.com. The information included
in our website is not made a part of this prospectus.
-73-
<PAGE> 80
GLOSSARY
ASSET-BACKED SECURITIES -- Securities that are backed by financial assets, such
as automobile contracts and loans.
AUTO FINANCE CENTERS -- Regional offices we establish to purchase contracts and
to market to and support relationships with motor vehicle dealerships.
BUY RATE -- An interest rate we quote to dealers at which we will purchase
contracts. The buy rate is equal to the positive difference between the annual
percentage rate borne by the contract and the annual percentage rate equivalent
of the dealer participation we pay.
CONTRACT -- Retail installment sales contract and installment loan agreements
secured by new or used automobiles, light-duty trucks or vans.
CREDIT ENHANCEMENT -- Credit enhancement refers to a mechanism that is intended
to protect the holders of the asset backed securities against losses due to
defaults by the obligors under the contracts.
DEALER PARTICIPATION -- The amount we pay to the dealership to purchase a
contract above the principal amount financed. The dealer participation is based
upon the finance charge that would be paid on the contract if it earned interest
at a rate equal to the positive difference between the contract rate and our
published buy rate. Depending on the option selected by the dealership, we may
pay all or a portion of the dealer participation in advance at the time we
acquire the contract.
EXCESS SERVICING INCOME -- The future servicing cash flows less the amortization
of the excess servicing receivable.
EXCESS SERVICING RECEIVABLE -- The present value of future servicing cash flows
to be distributed to us as determined in accordance with Statement of Financial
Accounting Standards No. 65 ("SFAS 65"). To determine excess servicing
receivable, the future servicing cash flows are first estimated using an assumed
rate of prepayment that is intended to be conservative relative to historical
experience and then discounted at an interest rate commensurate with the risk
associated with this type of investment. Excess servicing receivable is then
reduced by a credit loss provision based upon historical experience and deemed
adequate to cover net losses over the life of the trust. The loss provision is
calculated using a discount rate commensurate with a risk-free investment of
similar maturity in accordance with Emerging Issues Task Force Announcement
92-2. Excess servicing receivable is subsequently amortized against servicing
income on level-yield basis. Periodically we review the assumptions utilized in
determining excess servicing receivable. If the present value of future
servicing cash flows proves to be insufficient to recover the capitalized
amount, we would make a charge to servicing income in accordance with SFAS 65.
To date we have not recorded any such charges.
FUTURE SERVICING CASH FLOWS -- The difference between the cash collected from
contracts in a securitization trust in any period, and the sum of (i) principal
and interest paid in respect of such period on the asset backed securities
issued to investors in the securitized pool of such contracts, (ii) a servicing
fee at the rate of one percent per annum and (iii) other expenses of the trust.
GAIN ON SALE OF CONTRACTS -- The gain on sale of contracts is equal to the
excess servicing receivable less (i) the difference between the aggregate
principal balance of the contracts sold and the proceeds from the
securitization; (ii) prepaid dealer participation; and (iii) net hedging gains
or losses. The excess servicing receivable represents the estimated present
value of future servicing cash flows earned on each trust. The securitizations
are usually sold at or close to the principal balance of the contracts included
therein. The costs of securitization consist of issuance expenses including
surety bond premiums and the securitization underwriter's discounts.
NET INTEREST INCOME -- The difference between the revenue we earn on contracts
held on our balance sheet prior to securitization and the interest costs
associated with our borrowings to finance the warehousing of such contracts.
-74-
<PAGE> 81
POOLING -- The accumulation of a group of contracts to create a package of
receivables for sale through a trust to investors in a securitization.
PRE-FUNDING STRUCTURE -- A way of structuring securitizations involving a
pre-funding account into which a portion of the proceeds received by the trust
upon issuance of the asset-backed securities are deposited and used to purchase
contracts during a set period after the initial closing of the securitization.
SECURITIZATION OR SECURITIZED -- The process through which contracts and other
receivables are pooled and sold to a trust which issues certificates
representing interests in the trust to investors.
SERVICING PORTFOLIO -- All of the contracts that we own and that we have sold in
securitizations and continue to service.
SPREAD ACCOUNT -- An account required by the credit enhancer of a securitization
trust in order to protect the credit enhancer against credit losses. Generally,
excess interest received by the securitization trust from the pool of contracts
is credited to the account and retained until the account balance reaches a
particular maximum balance. If the maximum balance set forth under the terms of
a particular securitization is attained, the future servicing cash flows and any
surplus in the spread account are returned to us or our lenders, as the case may
be. The maximum balance in a particular securitization may increase or decrease
over time, and may never be attained in any particular securitization. Any
remaining spread account balance is released to us or our lenders, as the case
may be, upon termination of the securitization.
WAREHOUSING -- A method in which contracts are financed by financial
institutions on a short-term basis. In a warehousing arrangement, loans are
accumulated or pooled on a daily or less frequent basis and assigned or pledged
as collateral for short-term borrowings until they are sold in a securitization.
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<PAGE> 82
ONYX ACCEPTANCE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998................................ F-3
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Onyx Acceptance Corporation
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of income, stockholders'
equity and cash flows present fairly, in all material respects, the financial
position of Onyx Acceptance Corporation and its subsidiaries (the "Company") as
of December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Costa Mesa, California
January 26, 2000
F-2
<PAGE> 84
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents................................... $ 5,190,271 $ 1,928,991
Contracts held for sale (net of allowance).................. 229,991,667 152,760,781
Credit enhancement assets , at fair value................... 142,883,970 112,953,193
Furniture and equipment (net of accumulated depreciation)... 6,641,918 4,734,857
Other assets................................................ 9,127,284 3,043,902
------------ ------------
Total Assets...................................... $393,835,110 $275,421,724
============ ============
LIABILITIES
Accounts payable............................................ $ 21,066,849 $ 10,959,913
Warehouse borrowings........................................ 232,287,908 150,044,464
Excess servicing credit and residual lines.................. 55,879,341 49,555,597
Subordinated debt........................................... 10,000,000 10,000,000
Capital lease obligations................................... 348,058 696,995
Accrued interest payable.................................... 1,467,495 790,055
Other liabilities........................................... 19,677,435 9,550,979
------------ ------------
Total Liabilities................................. 340,727,086 231,598,003
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common stock
Par value $0.01 per share; authorized 15,000,000 shares;
issued and outstanding 6,177,804 as of December 31,
1999 and issued and outstanding 6,171,034 shares as of
December 31, 1998...................................... 61,778 61,710
Additional paid in capital................................ 37,892,071 37,839,151
Retained earnings......................................... 15,714,771 5,922,860
Accumulated other comprehensive loss, net of tax............ (560,596) --
------------ ------------
Total Equity........................................... 53,108,024 43,823,721
------------ ------------
Total Liabilities and Stockholders' Equity........ $393,835,110 $275,421,724
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 85
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Finance income.................................... $22,303,838 $20,753,734 $11,866,957
Investment income................................. 2,129,528 1,194,477 431,373
----------- ----------- -----------
INTEREST INCOME -- TOTAL............................ 24,433,366 21,948,211 12,298,330
Interest expense.................................. 18,287,107 14,636,534 7,261,645
----------- ----------- -----------
NET INTEREST INCOME................................. 6,146,259 7,311,677 5,036,685
Servicing fee income.............................. 28,877,019 16,663,450 9,189,108
Gain on sale of contracts......................... 53,919,657 36,417,216 19,586,291
----------- ----------- -----------
TOTAL REVENUES...................................... 88,942,935 60,392,343 33,812,084
----------- ----------- -----------
EXPENSES:
Provision for credit losses....................... 1,246,074 1,579,831 785,445
Salaries and benefits............................. 40,034,851 26,754,000 17,424,729
Occupancy......................................... 3,297,431 1,823,290 1,478,349
Depreciation...................................... 3,482,202 2,105,743 1,194,186
General and administrative expenses............... 24,144,418 17,743,525 10,643,087
----------- ----------- -----------
TOTAL EXPENSES...................................... 72,204,976 50,006,389 31,525,796
----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES...................... 16,737,959 10,385,954 2,286,288
Income taxes...................................... 6,946,048 4,310,170 984,017
----------- ----------- -----------
NET INCOME.......................................... $ 9,791,911 $ 6,075,784 $ 1,302,271
=========== =========== ===========
NET INCOME PER SHARE OF COMMON STOCK
Basic............................................. $ 1.59 $ 0.99 $ 0.22
Diluted........................................... $ 1.50 $ 0.95 $ 0.21
=========== =========== ===========
Basic shares outstanding............................ 6,173,922 6,112,370 6,000,431
=========== =========== ===========
Diluted shares outstanding.......................... 6,514,477 6,424,959 6,294,071
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 86
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED COMPREHENSIVE TOTAL
------------------- PAID IN EARNINGS LOSS, NET OF STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) TAX EQUITY
--------- ------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996...... 5,904,768 $59,048 $37,753,725 $(1,455,195) $36,357,578
Issuance of Common Stock.......... 112,867 1,128 56,433 57,561
Net Income........................ 1,302,271 1,302,271
--------- ------- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1997...... 6,017,635 60,176 37,810,158 (152,924) 37,717,410
Issuance of Common Stock.......... 153,399 1,534 28,993 30,527
Net Income........................ 6,075,784 6,075,784
--------- ------- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1998...... 6,171,034 61,710 37,839,151 5,922,860 43,823,721
Issuance of Common Stock.......... 6,770 68 52,920 52,988
Comprehensive income:
Unrealized losses in credit
enhancement assets, net of tax
of $391,545................... $(560,596) (560,596)
Net Income........................ 9,791,911 9,791,911
----------- --------- -----------
Total Comprehensive Income........ 9,791,911 $(560,596) 9,231,315
--------- ------- ----------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1999........ 6,177,804 $61,778 $37,892,071 $15,714,771 $(560,596) $53,108,024
========= ======= =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 87
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income........................................ $ 9,791,911 $ 6,075,784 $ 1,302,271
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of retained interest in
securitized assets........................ 72,703,567 35,749,891 10,775,171
Write-off of unamortized participation on
securitized loans......................... 41,693,823 27,467,086 15,523,390
Provision for credit losses.................. 1,246,074 1,579,831 785,446
Depreciation and amortization................ 3,482,202 2,105,743 1,194,186
Decrease (increase) in trust receivable...... (2,000,000) 3,665,300 (3,763,661)
Increase in retained interest in securitized
assets.................................... (101,586,485) (80,632,733) (41,603,001)
(Increase) decrease in other assets.......... (6,083,382) (1,118,928) 521,949
Increase in accounts payable................. 10,106,936 4,395,467 4,896,659
Increase in accrued interest payable......... 677,440 487,817 229,077
Increase in other liabilities................ 9,837,822 4,057,894 3,245,629
Proceeds from the securitization of contracts
held for sale............................. 1,450,000,000 926,759,606 527,276,091
Purchase of contracts held for sale.......... (1,559,003,536) (1,038,534,757) (605,905,410)
Repurchase of trust contracts................ (6,367,145) (12,387,783) --
Principal payments received on contracts held
for sale.................................. 41,201,966 39,182,459 26,957,179
Payments of participation to dealers (net of
chargeback collections and amortized
expense).................................. (46,002,066) (32,484,915) (16,416,931)
--------------- --------------- -------------
Cash used in operating activities................... (80,300,873) (113,632,238) (74,981,955)
--------------- --------------- -------------
INVESTING ACTIVITIES
Purchase of furniture and equipment............... (5,389,265) (3,835,335) (1,824,853)
--------------- --------------- -------------
Cash used in investing activities................... (5,389,265) (3,835,335) (1,824,853)
--------------- --------------- -------------
FINANCING ACTIVITIES
Payments on capital leases........................ (348,937) (468,060) (425,189)
Proceeds from warehouse line...................... 1,371,842,851 985,997,562 538,897,511
Payments on warehouse line........................ (1,289,599,407) (896,459,000) (488,500,000)
Proceeds from drawdown on excess service
borrowings..................................... 39,257,170 32,000,000 27,500,000
Payments to paydown excess service credit
borrowings..................................... (32,933,427) (12,444,403) --
Proceeds from subordinated debt................... 10,000,000 --
Proceeds from exercise of options/warrants........ 52,988 30,527 57,561
Proceeds from other loans......................... 1,013,323 -- --
Payments on other loans........................... (333,143) (251,072) (335,093)
--------------- --------------- -------------
Cash provided by financing activities............... 88,951,418 118,405,554 77,194,790
--------------- --------------- -------------
Increase in cash and cash equivalents............... 3,261,280 937,981 387,982
Cash and cash equivalents at beginning of period.... 1,928,991 991,010 603,028
--------------- --------------- -------------
Cash and cash equivalents at end of period.......... $ 5,190,271 $ 1,928,991 $ 991,010
=============== =============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash activities:
Additions to capital leases.................... $ -- $ 162,744 $ 884,654
Cash paid:
Interest....................................... $ 17,609,667 $ 14,148,717 $ 7,032,567
Income taxes................................... $ 1,198,090 $ 130,020 $ 541,890
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 88
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Onyx Acceptance Corporation ("Onyx") was incorporated on August 17, 1993,
and commenced operations in February 1994. Onyx and its wholly owned special
purpose finance subsidiaries Onyx Acceptance Financial Corporation ("OAFC"),
Onyx Acceptance Funding Corporation ("OFC") and Onyx Acceptance Receivables
Corporation ("OARC") (collectively, the "Company") specialize in the purchase,
origination, sale and servicing of retail automobile installment loans ("Loans"
or "Contracts") originated by automobile dealers. The Company provides an
independent source to automobile dealers to finance their customers' purchases
of new and used vehicles. The Company attempts to meet the needs of dealers
through consistent buying practices, competitive rates, a dedicated customer
service staff, fast turnaround time and systems designed to expedite the
processing of loan applications.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of Onyx, OAFC, OFC and OARC. All significant
intercompany accounts and transactions have been eliminated upon consolidation.
Cash and Cash Equivalents: The Company considers all significant
investments with maturity at acquisition of three months or less to be cash
equivalents.
Contracts Held for Sale: Contracts held for sale are stated at the lower of
aggregate amortized cost or net realizable value, net of allowance for credit
losses.
The Company defers certain Contract origination fees and participation paid
to dealers. The net amount is amortized as an adjustment to the related
Contract's yield, on the same basis as that used to record income on the
Contracts, over the contractual life of the related Contracts. At the time of
sale or securitization, any remaining amounts are included as part of the
computation of the gain on sale of Contracts.
The current policy of the Company is to recognize losses on repossessed
vehicles in the month in which the vehicle is sold or in which the scheduled
payment becomes 120 days delinquent, whichever occurs first. Losses may occur in
connection with delinquent Contracts for which the vehicle was not repossessed,
either because of a discharge of the obligor's indebtedness in a bankruptcy
proceeding or due to the Company's inability to locate the financed vehicle or
the obligor. In these cases, losses are recognized at the time a Contract is
deemed uncollectable or during the month a scheduled payment under the Contract
becomes 150 days past due, whichever occurs first.
Allowance for Credit Losses: The allowance for credit losses is maintained
at a level believed adequate by management to absorb potential losses in the
Contracts held for sale. The provision rate is established by management using
the following criteria: past loss experience, current economic conditions,
volume, growth and other relevant factors, and is re-evaluated on a quarterly
basis. The allowance is increased by provisions for Contract losses charged
against income. All recoveries on finance receivables previously charged off are
credited to the allowance, while charge-off's of finance receivables are
deducted from the allowance.
Sales of Contracts: The Company purchases Contracts to be sold to investors
with servicing rights retained by the Company. The Company sells a majority of
its Contracts and does not retain any residual interest in securitized or sold
Contracts. Contracts are sold at or near par value with the Company retaining a
participation in the future cash flows released by Trusts in Contracts
securitized but on cash sales no participation is retained in the future cash
flows. As of December 31, 1999 the Company was servicing all the Contracts sold
to the Trusts. As of December 31, 1999 and 1998, 39% and 54% respectively, of
the sold portfolio was originated in California.
Furniture and Equipment: Furniture and equipment are stated at cost less
accumulated depreciation, and are depreciated for financial reporting purposes
on a straight-line basis over a three year estimated life.
F-7
<PAGE> 89
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capitalized leased assets are amortized over the lease term. Leasehold
improvements are amortized over a period not exceeding the term of the lease.
Interest and Fee Income: Interest and fee income on Contracts held for sale
is determined on a monthly basis using either the simple interest (level yield)
method or the sum-of-the-months digits method, which approximates the effective
yield method.
Income Taxes: The Company utilizes Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statements and the tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the tax payable for the period and the
change during the year in deferred tax assets and liabilities. The Company files
consolidated federal and state tax returns.
Net Income Per Share: Net income per share are presented in a dual format,
computed both including and excluding the impact of potential common stock.
Derivative Financial Instruments: The Company employs hedging strategies to
manage its gross interest rate risk. The hedging strategies include the use of
forward swap agreements to manage the interest rate on securitization of the
Contracts held for sale.
The forward swap agreements are entered into by the Company in numbers and
amounts which correspond to the anticipated principal amount of future
securitization transactions. The market value of these forward agreements
responds inversely to the market value change of the underlying Contracts.
Because of this inverse relationship, the Company can effectively lock in its
gross interest rate spread at the time the hedge transaction is entered into.
Unrealized gains and losses relative to these agreements are deferred and
recognized in full at the time of securitization as an adjustment to the gain on
sale of contracts. The Company is not required to maintain any collateral with
respect to its hedging strategies, until the point where the fair value declines
below ($1.0) million. The Company only uses highly rated counterparties. Credit
exposure is limited to those transactions with a positive fair value.
Pervasiveness of Estimates: The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Stock-based Compensation: Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("SFAS No. 123"), encourages, but
does not require companies to recognize compensation expense associated with
stock based compensation plans over the anticipated service period based on the
fair value of the award on the date of grant. As allowed by SFAS 123, however,
the Company has elected to continue to measure compensation costs as prescribed
by APB Opinion No. 25 "Accounting for Stock Issued to Employees." See footnote
12 for Pro Forma disclosures of net income and net income per share, as if SFAS
123 had been adopted.
Comprehensive Income: The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), effective
January 1, 1998. SFAS 130 establishes standards for reporting comprehensive
income and its components in a full set of financial statements. The standard
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income, including an amount
representing total comprehensive income, be reported in a
F-8
<PAGE> 90
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial statement that is displayed with the same prominence as other
financial statements. Pursuant to SFAS 130, the Company has reported
comprehensive income in the accompanying Consolidated Statements of
Stockholders' Equity.
Reclassification: Certain amounts in the prior year consolidated financial
statements have been reclassified to conform to 1999 presentation.
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
contracts, and for hedging activities. The new standard requires that all
derivatives be recognized as either assets or liabilities in the consolidated
statements of financial condition and that those instruments be measured at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedging instrument. The accounting for changes in the fair value
of a derivative (that is, unrealized gains and losses) depends on the intended
use of the derivative and the resulting designation. The statement is effective
in the first quarter of year 2001. The Company is presently assessing the effect
of SFAS 133 on the consolidated financial statements of the Company.
NOTE 4 -- CONTRACTS HELD FOR SALE
Contracts held for sale consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Gross Contracts held for sale........................... $235,694,305 $160,386,439
Less unearned interest.................................. 6,219,049 8,434,206
------------ ------------
Contracts held for sale................................. 229,475,256 151,952,233
Allowance for credit losses............................. (1,453,660) (1,052,178)
------------ ------------
228,021,596 150,900,055
Dealer participation.................................... 1,970,071 1,860,726
------------ ------------
Total......................................... $229,991,667 $152,760,781
============ ============
</TABLE>
As of December 31, 1999 and 1998, 25% and 39% of Contracts held for sale
were originated in California, respectively.
At December 31, 1999, contractual maturities of Contracts held for sale
were as follows:
<TABLE>
<S> <C>
2000........................................................ $ 369,477
2001........................................................ 2,749,083
2002........................................................ 10,278,621
2003........................................................ 25,296,345
2004 and thereafter......................................... 190,781,730
------------
$229,475,256
============
</TABLE>
F-9
<PAGE> 91
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Balance at beginning of period............... $ 1,052,178 $ 316,902 $ 61,190
Provision for credit losses.................. 1,246,074 1,579,831 785,446
Charged-off loans............................ (1,160,883) (1,100,158) (620,781)
Recoveries................................... 316,291 255,603 91,047
----------- ----------- ---------
Balance at end of period..................... $ 1,453,660 $ 1,052,178 $ 316,902
=========== =========== =========
</TABLE>
The fair value of Contracts held for sale was $243.9 million and $163.5
million at December 31, 1999 and 1998, respectively.
At December 31, 1999, the Company had entered into four year amortizing
forward swap agreements with a notional face amount outstanding of $150.0
million with maturities matching the average life of the Contracts being hedged.
At December 31, 1999, these agreements had a fair value of $618,000. In
addition, at December 31, 1999, the Company had offsetting swap agreements of
$73.3 million in notional face amount outstanding with a fair value of
($259,600). At December 31, 1998, the Company had similar agreements with a
notional face amount outstanding of $81.0 million with deferred losses of $1.0
million.
Included in the Gain on Sale of Contracts for the year ended December 31,
1999, is a gain of $1.8 million related to hedging activities. Gain on sale of
Contracts for the years ended December 31, 1998 and 1997 included losses of $4.8
million and $1.3 million respectively, arising from hedging activities.
Contracts serviced by the Company for the benefit of others totaled
approximately $1.9 billion at December 31, 1999 and $1.2 billion at December 31,
1998. These amounts are not reflected in the accompanying consolidated financial
statements.
NOTE 5 -- CREDIT ENHANCEMENT ASSETS
SFAS 125 requires that following a transfer of financial assets, an entity
is to recognize the assets it controls and the liabilities it has incurred, and
derecognize assets for which control has been surrendered and liabilities that
have been extinguished.
Credit enhancement assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Trust receivable........................................ $ 5,712,501 $ 3,712,501
RISA.................................................... 137,171,469 109,240,692
------------ ------------
Total......................................... $142,883,970 $112,953,193
============ ============
</TABLE>
Retained interest in securitized assets ("RISA") capitalized upon
securitization of Contracts represent the present value of the estimated future
earnings to be received by the Company from the excess spread created in
securitization transactions. Excess spread is calculated by taking the
difference between the coupon rate of the Contracts sold and the weighted
average certificate rate paid to the investors less contractually specified
servicing and guarantor fees and projected credit losses, after giving effect to
estimated prepayments.
Prepayment and credit loss assumptions are utilized to project future
earnings and are based on historical experience. Credit losses are estimated
using cumulative loss frequency and severity estimates by management. All
assumptions are evaluated each quarter and adjusted, if appropriate, to reflect
the actual performance of the contracts.
Future earnings are discounted at a rate management believes to be
representative of market at the time of securitization. The balance of RISA is
amortized against actual excess spread income earned on a monthly
F-10
<PAGE> 92
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
basis over the expected repayment life of the underlying contracts. RISA is
classified in a manner similar to available for sale securities and as such is
marked to market each quarter. Market value changes are calculated by
discounting the remaining projected excess spread using a current market
discount rate. Any changes in the market value of the RISA is reported as a
separate component of shareholders' equity as an unrealized gain or loss, net of
deferred taxes. As of December 31, 1999 the market value of RISA was $1.0
million lower than cost. As of December 31, 1998 the market value of RISA
approximated cost. The Company retains the rights to service all contracts it
securitizes.
The following table presents the balances and activity for RISA:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Beginning Balance....................................... $109,240,692 $ 64,357,850
Additions............................................... 101,586,485 80,632,733
Amortization............................................ (72,703,567) (35,749,891)
Change in unrealized loss on securities available for
sale.................................................. (952,141) 0
------------ ------------
Ending Balance................................ $137,171,469 $109,240,692
============ ============
</TABLE>
In initially valuing the RISA, the Company establishes an off balance sheet
allowance for expected future credit losses. The allowance is based upon
historical experience and management's estimate of future performance regarding
credit losses. The amount is reviewed periodically and adjustments are made if
actual experience or other factors indicate that future performance may differ
from management's prior estimates.
The following table presents the estimated future undiscounted retained
interest earnings to be received from securitizations. Estimated future
undiscounted RISA earnings are calculated by taking the difference between the
coupon rate of the Contracts sold and the weighted average certificate rate paid
to the investors, less the contractually specified servicing fee of 1.0% and
financial insurance fees, after giving effect to estimated prepayments and
assuming no losses. To arrive at the RISA, this amount is reduced by the off
balance sheet allowance established for potential future losses and by
discounting to present value.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Estimated net undiscounted RISA earnings............. $ 246,233,703 $ 176,600,869
Off balance sheet allowance for losses............... 83,890,616 51,009,542
Discount to present value............................ 25,171,618 16,350,635
-------------- --------------
Retained interest in securitized assets.............. $ 137,171,469 $ 109,240,692
============== ==============
Outstanding balance of contracts sold through
securitizations.................................... $1,897,241,943 $1,183,157,096
</TABLE>
F-11
<PAGE> 93
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OWNED:
Office furniture........................................ $ 3,095,882 $ 2,031,561
Computer equipment...................................... 10,485,292 5,869,612
Leasehold improvements.................................. 1,454,053 748,292
----------- -----------
Total........................................... 15,035,227 8,649,465
----------- -----------
CAPITALIZED LEASES:
Computer equipment...................................... 449,500 1,441,073
----------- -----------
Total........................................... 449,500 1,441,073
----------- -----------
Total furniture and equipment............................. 15,484,727 10,090,538
Less: accumulated depreciation and amortization........... 8,842,809 5,355,681
----------- -----------
Furniture and equipment, net.............................. $ 6,641,918 $ 4,734,857
=========== ===========
</TABLE>
NOTE 7 -- WAREHOUSE BORROWING
The Company has two commercial paper facilities (the "CP Facilities") with
financial institutions, one with Triple-A One Funding Corporation ("Triple-A")
and the other with The Chase Manhattan Bank ("Chase"). The Chase facility was
entered into in August 1999 and provides $150 million of additional borrowing
capacity. There were no borrowings outstanding under the Chase facility as of
December 31, 1999. The Triple-A facility, which provides borrowing availability
of $375 million, had borrowings outstanding at December 31, 1999 of $232,287,908
and at December 31, 1998 of $150,044,464. Under terms of the agreements the
Company is able to borrow 98% of the principal amount of Contracts purchased.
Borrowings under these facilities become due as the principal payments are
received or the related automobile Contracts are sold. The amount of commercial
paper outstanding under these facilities at any time is collateralized by the
Contracts held for sale. The MBIA facility matures in September 2000 while the
Chase facility matures in August 2000. Both are subject to annual renewals on
each respective anniversary date. The Company is in compliance with certain
ratios and other borrowing covenants under each arrangement. The fair value of
commercial paper was $232.3 million and $150.0 million at December 31, 1999 and
1998 respectively. The commercial paper facilities had an average interest rate
of 6.18% for the year ended December 31, 1999, and 6.47% for the year ended
December 31, 1998.
Additionally, the Company has a repurchase facility with Merrill Lynch (the
"Merrill Line") providing $100 million of borrowing capacity for the purchase or
origination of Contracts. Outstanding debt is collateralized by Contracts held
for sale. As of December 31, 1999 and December 31, 1998, there was no debt
outstanding under this line. This facility was renewed in February 2000 for a
one year term.
NOTE 8 -- EXCESS SERVICING LINES
The Company has three credit lines collateralized by credit enhancement
assets. Total borrowings outstanding under all three lines at December 31, 1999
were $55.9 million and $49.6 million at December 31, 1998.
The Company is party to a collateralized loan ("Excess Servicing Facility")
with a lending group for up to $45 million, which was used for working capital
and other expenditures. The Excess Servicing Facility matured in June 1999. This
line is now in the amortization period and all cash flows from the underlying
securitizations, which are collateral, are being used to repay the outstanding
principal balance. Total
F-12
<PAGE> 94
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
borrowings outstanding under the Excess Servicing Facility were $25.0 million at
December 31, 1999 and $38.5 million at December 31, 1998. The Excess Servicing
Facility had an average interest rate of 8.66% for the year ended December 31,
1999 and 8.76% for 1998. The fair value of the Excess Servicing Facility was
$25.0 million at December 31, 1999 and $38.5 million at December 31, 1998. The
Company is in compliance with certain ratios and other borrowing covenants under
the Excess Servicing Facility.
The Company, through OFC, has two residual Facilities: a $10.0 million
committed facility with MLMCI and a $50.0 million line with Salomon Smith Barney
Realty Corporation ("SBRC") (the "SBRC Line" and together with the facility with
MLMCI, the "Residual Lines"). The Residual Lines are used by the Company to
finance operating requirements. The lines utilize a collateral-based formula
that sets borrowing availability to a percentage of the value of excess cash
flow to be received from certain securitizations. The facility provided by MLMCI
was renewed in February 2000 for a one year term. Each loan under the SBRC Line
matures one year after the date of the loan; the Company expects each loan to be
renewed at term.
Interest paid under each line is tied to the 30 day Libor Rate. The average
interest rates for year ending 1999 were 7.86% for the MLMCI facility and 7.94%
for the SBRC facility compared to 8.19% and 8.06% respectively for the year
ending December 31, 1998. The Residual Lines had a combined fair value of $30.9
million at December 31, 1999, with debt outstanding under the MLMCI line of $9.2
million and debt outstanding under the SBRC line of $21.7 million.
NOTE 9 -- SUBORDINATED DEBT
The Company has a $10.0 million subordinated debt offering. The term of the
subordinated debt is for two years ending February 24, 2000, and bears a fixed
interest rate of 9.5%. In February 2000, the Company exercised its option to
extend the term by three years during which the loan will fully amortize. The
Company also issued to the lender a warrant for Common Stock in the amount of
180,529 shares of the Common Stock of the Company.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
Leases: The Company leases furniture, fixtures and equipment under capital
leases with terms in excess of one year. The Company leases its office space
under operating leases with options to renew. Certain operating lease agreements
provide for escalations based on contractual provisions.
Future minimum lease payments required under capital leases and
noncancelable operating leases are as follows as of December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------------- ----------------
<S> <C> <C>
2000.................................................... $ 210,448 $ 4,555,030
2001.................................................... 120,704 4,435,197
2002.................................................... 102,739 4,222,244
2003.................................................... 15,627 4,098,162
2004 and thereafter..................................... 0 19,949,395
--------- -----------
Total......................................... 449,518 $37,260,028
===========
Less amounts representing interest...................... (101,460)
---------
Present value of net minimum lease payments............. $ 348,058
=========
</TABLE>
Rental expenses for premises and equipment amounted to approximately $3.1
million, $1.7 million and $1.4 million for the year ended December 31, 1999,
1998, and 1997 respectively.
F-13
<PAGE> 95
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- LITIGATION
As a consumer finance company, the Company is subject to various consumer
claims and litigation seeking damages and statutory penalties based upon, among
other things, disclosure inaccuracies and wrongful repossession, which could
take the form of a plaintiff's class action complaint. The Company, as the
assignee of finance contracts originated by dealers, may also be named as a
co-defendant in lawsuits filed by consumers principally against dealers. The
damages and penalties claimed by consumers in these types of matters can be
substantial. The relief requested by the plaintiff's varies but includes
requests for compensatory, statutory and punitive damages. The Company is a
defendant in three consumer class actions, one of which was served in 2000. One
such proceeding served in 1999, in which the Company is a defendant, has been
brought as a putative class action and is pending in the State of California. A
class has yet to be certified in this case in which the plaintiffs allege
certain defects in post-repossession notice forms in the State of California.
Another proceeding also served in 1999, in which the Company is a defendant, has
been brought as a putative class action and also is pending in the State of
California. A class was certified in 2000; in the matter, the plaintiffs raise
issues regarding the payment of dealer participation dealers.
Management believes that the Company has taken prudent steps to address the
litigation risks associated with the Company's business activities. However,
there can be no assurance that the Company will be able to successfully defend
against all such claims or that the determination of any such claim in a manner
adverse to the Company would not have a material adverse effect on the Company's
automobile finance business.
On January 25, 2000, a putative class action complaint was filed against
the Company and certain of the Company's officers and directors alleging
violations of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934
arising from the Company's use of the cash-in method of measuring and accounting
for credit enhancement assets in the financial statements. The Company believes
that its previous use of the cash-in method of measuring and accounting for
credit enhancement assets was consistent with then current generally accepted
accounting principles and accounting practices of other finance companies. As
required by the Financial Accounting Standards Board's Special Report, "A Guide
to Implementation of Statement 125 on Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, Second Edition," dated
December 1998 and related statements made by the staff of the Commission, the
Company retroactively changed the method of measuring and accounting for credit
enhancement assets to the cash-out method and restated the Company's financial
statements for 1996, 1997 and the first three fiscal quarters of 1998. The
Company intends to vigorously defend against the complaint.
In the opinion of management, the resolution of the proceedings described
in this section will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
NOTE 12 -- STOCK OPTIONS
As of December 31, 1999, the Company has reserved 1,539,624 shares for
future issuance to certain employees under its stock option plans. The options
may be exercised at prices ranging from $0.51 per share to $11.50 per share at
any time, in whole or part, within ten years after the date of grant. Reserved,
unoptioned shares totaled 249,488 at December 31, 1999, 240,566 at December 31,
1998, and 185,176 at December 31, 1997.
F-14
<PAGE> 96
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock option plan as of December
31, 1999, 1998 and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------- ---------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 1,120,697 $5.59 802,200 $7.51 597,480 $6.10
Granted................... 256,325 6.11 1,296,878 6.32 402,700 7.89
Exercised................. (6,770) 7.83 (38,118) 0.80 (112,867) 0.51
Forfeited................. (80,116) 6.01 (940,263) 8.39 (85,113) 8.66
---------- ----- ---------- ----- --------- -----
Outstanding at end of
year.................... 1,290,136 $5.66 1,120,697 $5.59 802,200 $7.51
========== ===== ========== ===== ========= =====
Options exercisable at
year end................ 774,506 502,624 321,564
========== ========== =========
Weighted-average fair
value of options granted
during the year......... $ 6.11 $ 6.32 $ 7.89
========== ========== =========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ------------------------------
------------------------------------------------- NUMBER
NUMBER WEIGHTED-AVERAGE EXERCISABLE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE AT WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.51 114,399 4.26 years $ .51 114,399 $ .51
$ 5.50 - 5.81 1,037,199 7.66 5.74 558,687 5.75
$ 6.75 - 8.00 56,380 8.39 7.45 31,046 7.41
$ 8.50 - 9.13 10,700 9.09 8.85 1,000 8.50
$10.29 - 11.50 71,458 7.36 10.94 69,374 10.96
--------- ---------- ------ ------- ------
$ 0.51 - 11.50 1,290,136 7.39 $ 5.66 774,506 $ 5.51
========= ========== ====== ======= ======
</TABLE>
Substantially all of the options granted by the Company vest over a four
year period, 25% after one year and the remaining 75% ratably over the following
36 month period. All of the options are granted at the closing price on the date
of the grant.
SFAS 123 provides for companies to recognize compensation expense
associated with stock based compensation plans over the anticipated service
period based on the fair value of the award on the date of grant. However, SFAS
123 allows companies to continue to measure compensation costs prescribed by APB
Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). Companies
electing to continue accounting for stock based compensation plans under APB 25
must make pro forma disclosures of net income and net income per share, as if
SFAS 123 had been adopted. The company has continued to account for stock-based
compensation plans under APB 25. The fair value of the options was estimated at
date of grant using a Black-Scholes single option pricing model using the
following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Risk free interest rate.......................... 5.6% 5.1% 5.5%
Expected stock price volatility.................. 76.0% 63.9% 52.0%
Expected life of options......................... four years four years four years
Expected dividends............................... none none none
</TABLE>
F-15
<PAGE> 97
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the pro forma disclosures required for SFAS
123 for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Pro forma net income (in thousands)......................... $7,831 $5,322 $ 895
Pro forma net income per share-basic........................ $ 1.27 $ 0.87 $0.15
Pro forma net income per share-diluted...................... $ 1.23 $ 0.83 $0.14
</TABLE>
NOTE 13 -- EMPLOYEE 401K DEFERRED SAVINGS PLAN
The Company has established a salary deferral savings program pursuant to
IRS Code Section 401(k) (the "401(k) Plan") for qualified employees. Under this
plan, employees may contribute a percentage of their pre-tax earnings to the
401(k) Plan. Effective July 1, 1998, the Company amended the 401(k) Plan to
permit matching Company contributions. Employee contributions up to the lesser
of $10,000 or 6% of pre-tax earnings made after one year of service are matched
by a Company contribution equal to 50% of the employee's contribution. Matching
contributions are made in the Company's common stock and begin vesting 20% per
year following the completion of three years of service. Company expense related
to the 401(k) Plan totaled $176,589 in 1999 and $87,000 in 1998.
NOTE 14 -- SHAREHOLDERS' EQUITY
Preferred Stock: The Company has 3 million shares of preferred stock
authorized of which 200,000 shares have been designated Series A participating
Preferred Stock.
In July 1997, the Company's Board of Directors adopted a Stockholder Rights
Plan ("Plan") in which preferred stock purchase rights were distributed as a
dividend at the rate of one preferred share purchase right (a "Right") for each
outstanding share of common stock held by stockholders of record on July 21,
1997. The Rights are designed to guard against partial tender offers and other
abusive tactics that might be used in an attempt to gain control of the Company
or to deprive stockholders of their interest in the long-term value of the
Company. The Rights will be exercisable only if a person or group acquires 15%
or more of the Company's common stock (subject to certain exceptions stated in
the Plan) or announces a tender offer, the consummation of which would result in
ownership by a person or group of 15% or more of the Company's common stock. The
Rights will expire on July 20, 2007.
Dividends: The Company does not intend to declare dividends in the
foreseeable future. The Company's ability to pay or declare dividends is
restricted by the terms of its current credit facilities.
NOTE 15 -- INCOME TAXES
The following table presents the current and deferred provision for federal
and state income taxes for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $2,318,566 $ 698,132 $252,897
State......................................... 1,227,606 17,744 69,332
---------- ---------- --------
Total................................. 3,546,172 715,876 322,229
---------- ---------- --------
Deferred:
Federal....................................... 3,266,896 3,070,600 460,648
State......................................... 132,980 523,694 201,140
---------- ---------- --------
Total................................. 3,399,876 3,594,294 661,788
---------- ---------- --------
Combined Total........................ $6,946,048 $4,310,170 $984,017
========== ========== ========
</TABLE>
F-16
<PAGE> 98
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differs from the amount that would result
from applying the federal statutory rate as follows for the years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory regular federal income tax rate (benefit)......... 34% 34% 34%
State taxes (net of federal benefit)........................ 6 7 8
Other....................................................... 1 0 1
-- -- --
41% 41% 43%
== == ==
</TABLE>
The components of the deferred income tax asset or (liability) as of
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Property and equipment.................................. $ 1,275,232 $ 855,656
Unrealized loss in credit enhancement assets............ (391,545) --
Accrued liabilities..................................... 1,939,275 408,438
Capitalized costs....................................... (904,538) (675,204)
Allowance for credit losses............................. 610,490 441,880
Gain on sale of Contracts............................... (11,726,155) (20,164,719)
Net operating losses.................................... -- 14,055,868
Credit carryover........................................ 18,211 18,211
State taxes............................................. 853,155 525,415
------------ ------------
$ (8,325,875) $ (4,534,455)
============ ============
</TABLE>
NOTE 16 -- WARRANTS
At December 31, 1999, the Company had the following warrants outstanding to
purchase shares of common stock:
<TABLE>
<CAPTION>
BALANCE NET BALANCE NET BALANCE
OUTSTANDING REDUCTIONS OUTSTANDING REDUCTIONS OUTSTANDING
AT TO AT TO AT
EXERCISE DECEMBER 31, OUTSTANDING DECEMBER 31, OUTSTANDING DECEMBER 31,
PRICE 1997 WARRANTS 1998 WARRANTS 1999
-------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Warrants............. $ 0.03 116,922 115,286 1,636 0 1,636
Warrants............. $ 0.51 84,311 0 84,311 0 84,311
Warrants............. $11.50 16,332 0 16,332 0 16,332
Warrants............. $17.15 3,791 0 3,791 0 3,791
Warrants............. $ 8.88 0 0 180,529 0 180,529
------- ------- ------- --- -------
Total...... 221,356 115,286 286,599 0 286,599
======= ======= ======= === =======
</TABLE>
At December 31, 1999, all the Company's warrants outstanding to purchase
shares of common stock were exercisable.
No warrants were exercised during 1999.
F-17
<PAGE> 99
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 -- NET INCOME PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128, the
following is an illustration of the dilutive effect of the Company's potential
common stock on net income per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS, EXCEPT NET
INCOME PER SHARE)
<S> <C> <C> <C>
Net income............................................... $9,792 $6,076 $1,302
------ ------ ------
Weighted average shares outstanding...................... 6,174 6,112 6,000
Net effect of dilutive stock options/warrants............ 340 313 294
------ ------ ------
Fully diluted weighted average shares outstanding........ 6,514 6,425 6,294
====== ====== ======
Net income per share..................................... $ 1.59 $ 0.99 $ 0.22
====== ====== ======
Net income per share assuming full dilution.............. $ 1.50 $ 0.95 $ 0.21
====== ====== ======
</TABLE>
As of December 31, 1999, 1998 and 1997, 310,384, 473,344, and 645,370 of
combined options and warrants, respectively, were not included in the
calculation of full dilution, as they were antidilutive.
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments have been determined by
the Company, using available market information and appropriate valuation
methodologies. However, considerable judgement is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents: The carrying amount approximates fair value
because of the short maturity of those investments.
Warehouse borrowings, residual and excess service lines: The fair value of
the Company's debt is estimated based upon the quoted market prices for the same
or similar issues or on the current rates offered to the Company for debt of the
same remaining maturities and characteristics.
Contracts held for sale: The fair value of Contracts held for sale is based
on the estimated proceeds expected on securitization of the Contracts held for
sale.
Credit enhancement assets: The carrying amount is accounted for at an
estimated fair value which is calculated by discounting the excess spread using
a current market discount rate.
Hedging. The fair value of the Company's outstanding forward agreements are
estimated based on current rates offered to the Company for forward agreements
with similar terms and conditions.
F-18
<PAGE> 100
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows at December 31:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 5.2 $ 5.2 $ 1.9 $ 1.9
Contracts held for sale............................. $ 230.0 $ 243.9 $ 152.8 $ 163.5
Credit enhancement assets........................... $ 142.9 $ 142.9 $ 112.9 $ 112.9
Warehouse borrowings................................ $(232.3) $(232.3) $(150.0) $(150.0)
Excess service and residual lines................... $ (55.9) $ (55.9) $ (49.6) $ (49.6)
Hedging Forward agreements.......................... $ (0.3) $ (0.3) $ (1.2) $ (0.9)
</TABLE>
NOTE 19 -- RELATED PARTIES
The Company has a note receivable from a certain shareholder in the amount
of $175,000. The note bears interest at 6.66% per annum. Principal and accrued
interest are due on December 20, 2000.
NOTE 20 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Interest income.............................. $5,766 $6,723 $7,153 $4,791
Interest expense............................. 4,235 4,331 5,488 4,234
Net interest income.......................... 1,531 2,392 1,665 557
Provision for credit losses.................. 500 249 204 294
Income before income taxes................... 3,714 4,100 4,428 4,496
Income taxes................................. 1,541 1,700 1,838 1,865
Net income................................... 2,173 2,399 2,590 2,630
Net income per common share (Basic).......... $ 0.35 $ 0.39 $ 0.42 $ 0.43
Net income per common share (Diluted)........ $ 0.34 $ 0.37 $ 0.39 $ 0.41
1998
Interest income.............................. $4,481 $5,222 $7,001 $5,245
Interest expense............................. 2,821 3,617 4,214 3,985
Net interest income.......................... 1,660 1,605 2,787 1,260
Provision for credit losses.................. 307 325 598 350
Income before income taxes................... 1,269 1,872 2,996 4,249
Income taxes................................. 527 777 1,243 1,763
Net income................................... 742 1,095 1,753 2,486
Net income per common share (Basic).......... $ 0.12 $ 0.18 $ 0.28 $ 0.40
Net income per common share (Diluted)........ $ 0.12 $ 0.17 $ 0.27 $ 0.39
</TABLE>
NOTE 21 -- SUBSEQUENT EVENTS (UNAUDITED)
In the first quarter of 2000, the Company securitized contracts totaling
$430.0 million.
During the first quarter of 2000, the Company securitized the cash flows
from 15 of its outstanding securitizations and sold $49.0 million of notes. The
transaction was rated BBB by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.
F-19
<PAGE> 101
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[MAP OF THE UNITED STATES SHOWING THE LOCATION OF ONYX'S AUTO FINANCE CENTERS.]
<PAGE> 102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT
INFORMATION FROM THAT CONTAINED IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR THE SALE OF NOTES MEANS THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THESE NOTES IN ANY
CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.
-------------------------
$12,000,000
[ONYX LOGO]
ONYX ACCEPTANCE CORPORATION
% SUBORDINATED NOTES DUE , 2006
------------------------------------
P R O S P E C T U S
------------------------------------
[MILLER & SCHROEDER FINANCIAL, INC.]
PEACOCK, HISLOP, STALEY & GIVEN, INC.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are expenses (other than underwriting discounts,
commissions and expenses) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby. With the
exception of the Securities and Exchange Commission registration fee and the
NASD filing fee, the amounts set forth below are estimates:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ................ $ 6,072
NASD filing fee .................................................... 2,800
Accounting fees and expenses ....................................... 70,000
Blue Sky fees and expenses ......................................... 1,000
Legal fees and expenses ............................................ 165,000
Printing expenses .................................................. 40,000
Trustee's fees and expenses ........................................ 15,000
Underwriters' counsel fees and expenses ............................ 75,000
Miscellaneous ...................................................... 25,128
--------
TOTAL .............................................................. $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of section 145 of the General Corporation Law of the
State of Delaware empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; that indemnification provided for by Section
145 shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of such person's heirs, executors and administrators; and
empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
II-1
<PAGE> 104
Section 102(b)(7) of the General Corporation Law of the State of
Delaware provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director provided that such provision shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Our Articles limit the liability of our directors to the fullest extent
permitted by law. Specifically, our directors will not be personally liable to
the corporation or its stockholders for monetary damages for breach of their
fiduciary duty as directors, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporations Law, or (iv) for any transaction from which the director derived
any improper personal benefit.
Article 8 of our Bylaws provides that we shall indemnify, to the
fullest extent permitted by law, any director, officer, employee or agent of the
corporation against expenses (including attorneys' fees), judgements, fines,
amounts paid in settlement and/or other matters referred to in or covered by
Section 145 of the Delaware General Corporation Law, by reason of the fact that
he is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise.
Under Section 6 of the Underwriting Agreement filed as Exhibit 1.1 to
this Registration Statement, the Underwriters have agreed to indemnify, under
certain conditions, Onyx, its officers and directors, and persons who control
Onyx within the meaning of the Securities Act of 1933, as amended, against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On February 24, 1998, we entered into a Term Loan Agreement with
BayView Capital Corporation in which we borrowed $10 million at a fixed rate of
9 1/2%. In connection with this Term Loan Agreement, we issued a warrant to
purchase 180,529 shares of our common stock to BayView. We believe that this
transaction is exempt from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Rights Agreement dated as of July 8, 1997, between the Company
and American Stock Transfer and Trust Company, as Rights Agent
(which includes the form of Certificate of Designation for the
Series A Participating Preferred Stock and the form of Rights
Certificate of the Company(3)
4.2 Form of Indenture between Onyx Acceptance Corporation and Bankers
Trust Company.*
4.3 Form of Notes (included in Article Two of the Form of Indenture
previously filed as Exhibit 4.2).*
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality of
Notes.*
8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax matters.*
10.1 Form of Indemnification Agreement of the Company. (1)
10.2 Second Amended and Restated 1994 Stock Option Plan.(1)
</TABLE>
II-2
<PAGE> 105
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.3 Form of Notice of Grant of Stock Option under Second Amended and
Restated 1994 Stock Option Plan.(1)
10.4 Form of Stock Option Agreement under Second Amended and Restated
1994 Option Plan.(1)
10.5 Form of Stock Purchase Agreement under Second Amended and
Restated 1994 Stock Option Plan.(1)
10.6 1994 Special Performance Option Grant Plan.(1)
10.7 Form of Notice of Grant of Stock Option under 1994 Special
Performance Option Grant Plan.(1)
10.8 Form of Stock Option Agreement under 1994 Special Performance
Option Grant Plan.(1)
10.9 Form of Stock Purchase Agreement under 1994 Special Performance
Option Grant Plan.(1)
10.10 Third Amendment to Amended and Restated Investors' Rights
Agreement between and among Onyx Acceptance Corporation and the
Investors identified therein dated as of November 27, 1995.(1)
10.11 Senior Subordinated Note and Warrant Purchase Agreement between
and among Onyx Acceptance Corporation, Capital Resource Lenders
II, L.P. and Dominion Fund III, L.P., dated as of November 17,
1994.(1)
10.12 Warrant to purchase Common Stock in favor of Capital Resource
Lenders II, L.P. from Onyx Acceptance Corporation dated as of
November 17, 1994.(1)
10.13 Warrant to purchase Common Stock in favor of Dominion Fund III,
L.P. from Onyx Acceptance Corporation dated as of November 17,
1994.(1)
10.14 Amended and Restated Co-Sale and First Refusal Agreement between
and among Onyx Acceptance Corporation and the Shareholders
identified therein dated as of November 17, 1994.(1)
10.15 Amended and Restated Investors' Rights Agreement between and
among Onyx Acceptance Corporation, the Investors and the
Management Holders identified therein dated as of November 17,
1994.(1)
10.16 Amended and Restated Voting Agreement between and among Onyx
Acceptance Corporation and the Shareholders identified therein
dated as of November 17, 1994.(1)
10.17 Triple-A One Funding Corporation Note in favor of Onyx Acceptance
Financial Corporation from Triple-A One Funding Corporation dated
as of September 12, 1994.(1)
10.18 Seller Note in favor of Onyx Acceptance Corporation from Onyx
Acceptance Financial Corporation dated September 12, 1994.(1)
10.19 Subordinated Note in favor of Onyx Acceptance Corporation from
Onyx Acceptance Financial Corporation dated September 12,
1994.(1)
10.20 Sublease and Administrative Services Agreement between Onyx
Acceptance Corporation and Onyx Acceptance Financial Corporation
dated as of September 8, 1994.(1)
10.21 Tax Allocation Agreement between Onyx Acceptance Corporation and
Onyx Acceptance Financial Corporation dated as of September 1,
1994.(1)
10.22 Corporate Separateness Agreement between Onyx Acceptance
Corporation and Onyx Acceptance Financial Corporation dated
September 8, 1994.(1)
10.23 Amendment Number One to Security Agreement, Subordinated Security
Agreement, Sale and Servicing Agreement and Definitions List
between and among Onyx Acceptance Financial Corporation, Onyx
Acceptance Corporation, Triple-A One Funding Corporation and
Capital Markets Assurance Corporation dated March 1, 1995.(1)
</TABLE>
II-3
<PAGE> 106
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.24 First Amendment to Amended and Restated Investors' Rights
Agreement between and among Onyx Acceptance Corporation and
certain Investors identified therein dated as of December 15,
1994.(1)
10.25 Master Lease Agreement between Onyx Acceptance Corporation and
Comdisco, Inc. dated January 7, 1994.(1)
10.26 Warrant to purchase Series A Preferred Stock in favor of
Comdisco, Inc. from Onyx Acceptance Corporation dated as of
January 7, 1994.(1)
10.27 Warrant to purchase Common Stock in favor of Lighthouse Capital
Partners from Onyx Acceptance Corporation dated November 3,
1995.(1)
10.28 Master Lease Agreement between Lighthouse Capital Partners and
Onyx Acceptance Corporation dated November 3, 1995.(1)
10.29 Second Amendment to Amended and Restated Investors' Rights
Agreement between and among Onyx Acceptance Corporation and the
Investors identified therein dated as of November 3, 1995.(1)
10.30 Agreement for On-Line Services between On-Line Computer Systems,
Inc. and Onyx Acceptance Corporation dated as of November 19,
1993.(1)
10.31 Agreement for On-Line Service between On-Line Computer Systems,
Inc. and Onyx Acceptance Financial Corporation dated as of
September 7, 1994.(1)
10.32 Option Agreement between Onyx Acceptance Corporation and John W.
Hall dated as of December 20, 1994.(1)
10.33 Promissory Note in favor of Onyx Acceptance Corporation from John
Hall dated as of December 20, 1994.(1)
10.34 Option Agreement between Onyx Acceptance Corporation and Brian
MacInnis dated as of December 20, 1994.(1)
10.35 Promissory Note in favor of Onyx Acceptance Corporation from
Brian MacInnis dated as of December 20, 1994.(1)
10.36 Stock Purchase Agreement between and among Brian MacInnis and
certain Investors identified therein dated as of June 7, 1995.(1)
10.37 Stock Purchase Agreement between and among John W. Hall and
certain Investors identified therein dated as of June 7, 1995.(1)
10.38 Sublease Agreement between Onyx Acceptance Corporation and AT&T
Resource Management Corporation dated as of August 31, 1993.(1)
10.39 Office Space Lease (Master Lease) between and among The Irvine
Company and American Telephone and Telegraph Company dated as of
April 29, 1987.(1)
10.40 First Amendment to Sublease between and among AT&T Resource
Management Corporation and Onyx Acceptance Corporation dated as
of September 1, 1993.(1)
10.41 Onyx Acceptance Corporation 401(k) Plan dated January 1, 1994.(1)
10.42 Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust
Company dated as of January 1, 1996.(1)
10.43 Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated January 31, 1996.(1)
</TABLE>
II-4
<PAGE> 107
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.44 Indemnification Agreement by and among Capital Markets Assurance
Corporation, Onyx Acceptance Corporation, Onyx Acceptance
Financial Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated January 31, 1996.(1)
10.45 Indemnification Agreement by and between Onyx Acceptance
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated as of January 31, 1996.(1)
10.46 Subordination and Intercreditor Agreement by and among State
Street Bank and Trust Company, The First National Bank of Boston,
Capital Resource Lenders II, L.P., Dominion Fund III and Onyx
Acceptance Corporation dated as of January 31, 1996.(1)
10.47 1996-1 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust(Delaware) dated as of
February 6, 1996.(1)
10.48 Form of Dealer Agreement Non-Recourse(U) between Dealership and
Onyx Acceptance Corporation.(1)
10.49 Form of Dealer Agreement Non-Recourse (N) between Dealership and
Onyx Acceptance Corporation.(1)
10.50 1996 Stock Option/Stock Issuance Plan.(1)
10.51 1996-2 Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company of New York dated May 17, 1996.(1)
10.52 1996-2 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
May 17, 1996.(1)
10.53 Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated May 10, 1996.(1)
10.54 1996-3 Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company of New York dated September 17, 1996.(1)
10.55 1996-3 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
September 17, 1996.(1)
10.56 Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated September 13, 1996.(1)
10.57 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company in connection with 1997-1 Grantor Trust.(2)
10.58 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner and Smith
Incorporated in connection with 1997-1 Grantor Trust.(2)
10.59 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation, and Bankers
Trust Company in connection with 1997-2 Grantor Trust.(4)
10.60 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation, Merrill Lynch, Pierce, Fenner and Smith Incorporated
in connection with 1997-2 Grantor Trust.(4)
10.61 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company in connection with 1997-3 Grantor Trust.(5)
10.62 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner and Smith
Incorporated in connection with 1997-3 Grantor Trust.(5)
10.63 1997-4 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
December 12, 1997.(6)
</TABLE>
II-5
<PAGE> 108
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.64 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company in connection with 1997-4 Onyx Acceptance Grantor
Trust.(6)
10.65 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Merrill Lynch & Co.
in connection with 1997-4 Onyx Acceptance Grantor Trust.(6)
10.66 Term Loan Agreement by and between Bay View Capital Corporation
and Onyx Acceptance Corporation dated February 24, 1998.(7)
10.67 Master Repurchase Agreement Annex by and between Merrill Lynch
Mortgage Capital Inc. and Onyx Acceptance Financial Corporation
dated February 4, 1998.(7)
10.68 Master Assignment Agreement by and between Merrill Lynch Mortgage
Capital Inc. and Onyx Acceptance Financial Corporation dated
February 4, 1998.(7)
10.69 Second Amendment to Master Assignment Agreement between Onyx
Acceptance funding Corporation and Merrill Lynch Mortgage Capital
Inc. dated July 7, 1999.(15)
10.70 Amended and Restated Residual Interest in Securitized Assets
Revolving Credit Agreement dated June 12, 1998 by and among Onyx
Acceptance Corporation, State Street Bank and Trust Company,
BankBoston and The Travelers Insurance Company.(8)
10.71 Second Amendment to Loan Agreement and Pledge and Security
Agreement by and among Onyx Acceptance Corporation, State Street
Bank and Trust Company, BankBoston and The Travelers Insurance
Company dated August 9, 1999.(15)
10.72 Amended and Restated Pledge and Security Agreement dated June 12,
1998 by and among Onyx Acceptance Corporation, State Street Bank
and Trust Company, Bank Boston and The Travelers Insurance
Company.(8)
10.73 First Amendment to Loan Agreement and Confirmation of Pledge and
Security Agreement dated June 29, 1999.(14)
10.74 Amended and Restated Sale and Servicing Agreement between Onyx
Acceptance Corporation and Onyx Acceptance Financial Corporation
dated as of September 4, 1998.(9)
10.75 Amended and Restated Triple-A One Funding Corporation Credit
Agreement between and among Onyx Acceptance Financial
Corporation, Triple-A One Funding Corporation, CapMAC Financial
Services, Inc. and Capital Markets Assurance Corporation dates as
of September 4, 1998.(9)
10.76 Amended and Restated Triple-A One Funding Corporation Security
Agreement between and among Onyx Acceptance Financial
Corporation, Triple-A One Funding Corporation and Capital Markets
Assurance Corporation dates as of September 4, 1998.(9)
10.77 Amended and Restated Subordinated Security Agreement between Onyx
Acceptance Corporation and Onyx Acceptance Financial Corporation
dated as of September 4, 1998.(9)
10.78 Amended and Restated Insurance and Indemnity Agreement between
and among Onyx Acceptance Corporation, Capital Markets Assurance
Corporation, Onyx Acceptance Financial Corporation and Triple-A
One Funding Corporation dated as of September 4, 1998.(9)
10.79 Master Loan Agreement between Onyx Acceptance Financial
Corporation and Salomon Brothers Realty Corp. dated September 3,
1998.(9)
10.80 Form of Pooling and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation, and Bankers
Trust Company in connection with the 1998-1 Onyx Acceptance
Grantor Trust.(10)
</TABLE>
II-6
<PAGE> 109
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.81 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Merrill Lynch & Co.
in connection with the 1998-1 Onyx Acceptance Grantor Trust.(10)
10.82 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation, and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1998-A.(11)
10.83 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation, and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1998-B.(11)
10.84 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1998-C.(11)
10.85 Amendment Number One dated December 22, 1998 to Amended and
Restated Onyx Warehouse Facility and Assignment and Assumption
Agreement.(12)
10.86 Amendment No. 2 to the Amended and Restated Onyx Warehouse
Facility effective as of March 30, 1999 by and among Onyx
Acceptance Corporation, Onyx Acceptance Financial Corporation,
Triple-A One Funding Corporation, Capital Markets Assurance
Corporation, CapMAC Financial Services, Inc. and MBIA Insurance
Corporation.(13)
10.87 Sale and Servicing Agreement between Onyx Acceptance Corporation
as Seller and Servicer and Onyx Acceptance Receivables
Corporation, as Purchaser, dated August 9, 1999.(15)
10.88 Security Agreement between Onyx Acceptance Receivables
Corporation and The Chase Manhattan Bank as Funding Agent, dated
August 9, 1999.(15)
10.89 Subordinated Security Agreement between Onyx Acceptance
Receivables Corporation, and Onyx Acceptance Corporation, dated
August 9, 1999.(15)
10.90 Asset Purchase Agreement between Park Avenue Receivables
Corporation and The Chase Manhattan Bank and Onyx Acceptance
Receivables Corporation, dated August 9, 1999.(15)
10.91 Funding Agreement between Onyx Acceptance Receivables Corporation
and Park Avenue Receivables Corporation and The Chase Manhattan
Bank, dated August 9, 1999.(15)
10.92 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-A.(16)
10.93 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-B.(17)
10.94 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-C.(18)
10.95 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-D.(19)
10.96 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owner Trust
2000-A.(20)
12.1 Computation of ratio of earnings to fixed charges.*
</TABLE>
II-7
<PAGE> 110
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
12.2 Computation of ratio of EBITDA to cash interest expenses.*
21.1 Subsidiaries of the Registrant(15)
23.1 Consent of Independent Accountants**
23.2 Consent of Independent Accountants****
23.3 Consent of Independent Accountants*
24.1 Power of Attorney**
25.1 Statement of eligibility of Trustee**
27.1 Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith
** Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-92573 on December 10, 1999 and incorporated
herein by reference.
*** Previously filed with the Commission as an exhibit to Amendment No. 1 to
the Registrant's Registration Statement No. 333-92573 on January 19, 2000
and incorporated herein by reference.
**** Previously filed with the Commission as an exhibit to Amendment No. 2 to
the Registrant's Registration Statement No. 333-92573 on February 8, 2000
and incorporated herein by reference.
(1) Incorporated by reference from the Company's Registration Statement
on Form S-1 (Registration No. 333-00680).
(2) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-1 (Registration No.
333-22301).
(3) Incorporated by reference from the Company's Current Report on Form
8-K dated July 8, 1997. (File No. 000-28050).
(4) Incorporated by reference from Onyx Acceptance Financial
Corporation's registration Statement on Form S-1 (Registration No.
333-28893).
(5) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-1 (Registration No.
333-33471).
(6) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-1 (Registration No.
333-40089).
(7) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended March 31, 1998. (File No. 000-28050).
(8) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended June 30, 1998. (File No. 000-28050).
(9) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended September 30, 1998. (File No. 000-28050).
(10) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-3 (Registration No.
333-46359).
(11) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-3 (Registration No.
333-51239).
II-8
<PAGE> 111
(12) Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1998. (File No. 000-28050).
(13) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended March 31, 1999. (File No. 000-28050).
(14) Incorporated by reference from the Company's Form 10-Q quarterly
period ended June 30, 1999. (File No. 000-28050).
(15) Incorporated by reference from the Company's Form 10-Q quarterly
period ended September 30, 1999. (File No. 000-28050).
(16) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated March 11, 1999. (File
No. 333-28893).
(17) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated May 28, 1999. (File
No. 333-28893).
(18) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated September 14, 1999.
(File No. 333-28893).
(19) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated November 12, 1999.
(File No. 333-28893).
(20) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report and Form 8-K dated March 7, 2000. (File
No. 333-28893).
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-9
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to Registration Statement No. 333-92573 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Foothill Ranch, State of California, on April 7, 2000.
ONYX ACCEPTANCE CORPORATION
By: John W. Hall*
---------------------------------
John W. Hall
Director, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT NO. 333-92573 HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John W. Hall* President, Chief Executive Officer and April 7, 2000
- ------------------------------------ Director (Principal Executive Officer)
John W. Hall
/s/ Don P. Duffy Executive Vice President, Chief April 7, 2000
- ------------------------------------ Financial Officer and Director (Principal
Don P. Duffy Financial and Accounting Officer)
/s/ Thomas C. Stickel* Chairman of the Board April 7, 2000
- ------------------------------------
Thomas C. Stickel
/s/ Bruce R. Hallett* Director April 7, 2000
- ------------------------------------
Bruce R. Hallett
/s/ G. Bradford Jones* Director April 7, 2000
- ------------------------------------
G. Bradford Jones
/s/ C. Thomas Meyers* Director April 7, 2000
- ------------------------------------
C. Thomas Meyers
</TABLE>
*By: /s/ Don P. Duffy
------------------------------
Don P. Duffy
Attorney-in-fact
II-10
<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Rights Agreement dated as of July 8, 1997, between the Company
and American Stock Transfer and Trust Company, as Rights Agent
(which includes the form of Certificate of Designation for the
Series A Participating Preferred Stock and the form of Rights
Certificate of the Company(3)
4.2 Form of Indenture between Onyx Acceptance Corporation and Bankers
Trust Company.*
4.3 Form of Notes (included in Article Two of the Form of Indenture
previously filed as Exhibit 4.2).*
5.1 Opinion of Andrews & Kurth L.L.P. with respect to legality of
Notes.*
8.1 Opinion of Andrews & Kurth L.L.P. with respect to tax matters.*
10.1 Form of Indemnification Agreement of the Company.(1)
10.2 Second Amended and Restated 1994 Stock Option Plan.(1)
10.3 Form of Notice of Grant of Stock Option under Second Amended and
Restated 1994 Stock Option Plan.(1)
10.4 Form of Stock Option Agreement under Second Amended and Restated
1994 Option Plan.(1)
10.5 Form of Stock Purchase Agreement under Second Amended and
Restated 1994 Stock Option Plan.(1)
10.6 1994 Special Performance Option Grant Plan.(1)
10.7 Form of Notice of Grant of Stock Option under 1994 Special
Performance Option Grant Plan.(1)
10.8 Form of Stock Option Agreement under 1994 Special Performance
Option Grant Plan.(1)
10.9 Form of Stock Purchase Agreement under 1994 Special Performance
Option Grant Plan.(1)
10.10 Third Amendment to Amended and Restated Investors' Rights
Agreement between and among Onyx Acceptance Corporation and the
Investors identified therein dated as of November 27, 1995.(1)
10.11 Senior Subordinated Note and Warrant Purchase Agreement between
and among Onyx Acceptance Corporation, Capital Resource Lenders
II, L.P. and Dominion Fund III, L.P., dated as of November 17,
1994.(1)
10.12 Warrant to purchase Common Stock in favor of Capital Resource
Lenders II, L.P. from Onyx Acceptance Corporation dated as of
November 17, 1994.(1)
10.13 Warrant to purchase Common Stock in favor of Dominion Fund III,
L.P. from Onyx Acceptance Corporation dated as of November 17,
1994.(1)
10.14 Amended and Restated Co-Sale and First Refusal Agreement between
and among Onyx Acceptance Corporation and the Shareholders
identified therein dated as of November 17, 1994.(1)
10.15 Amended and Restated Investors' Rights Agreement between and
among Onyx Acceptance Corporation, the Investors and the
Management Holders identified therein dated as of November 17,
1994.(1)
10.16 Amended and Restated Voting Agreement between and among Onyx
Acceptance Corporation and the Shareholders identified therein
dated as of November 17, 1994.(1)
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
10.17 Triple-A One Funding Corporation Note in favor of Onyx Acceptance
Financial Corporation from Triple-A One Funding Corporation dated
as of September 12, 1994.(1)
10.18 Seller Note in favor of Onyx Acceptance Corporation from Onyx
Acceptance Financial Corporation dated September 12, 1994.(1)
10.19 Subordinated Note in favor of Onyx Acceptance Corporation from
Onyx Acceptance Financial Corporation dated September 12,
1994.(1)
10.20 Sublease and Administrative Services Agreement between Onyx
Acceptance Corporation and Onyx Acceptance Financial Corporation
dated as of September 8, 1994.(1)
10.21 Tax Allocation Agreement between Onyx Acceptance Corporation and
Onyx Acceptance Financial Corporation dated as of September 1,
1994.(1)
10.22 Corporate Separateness Agreement between Onyx Acceptance
Corporation and Onyx Acceptance Financial Corporation dated
September 8, 1994.(1)
10.23 Amendment Number One to Security Agreement, Subordinated Security
Agreement, Sale and Servicing Agreement and Definitions List
between and among Onyx Acceptance Financial Corporation, Onyx
Acceptance Corporation, Triple-A One Funding Corporation and
Capital Markets Assurance Corporation dated March 1, 1995.(1)
10.24 First Amendment to Amended and Restated Investors' Rights
Agreement between and among Onyx Acceptance Corporation and
certain Investors identified therein dated as of December 15,
1994.(1)
10.25 Master Lease Agreement between Onyx Acceptance Corporation and
Comdisco, Inc. dated January 7, 1994.(1)
10.26 Warrant to purchase Series A Preferred Stock in favor of
Comdisco, Inc. from Onyx Acceptance Corporation dated as of
January 7, 1994.(1)
10.27 Warrant to purchase Common Stock in favor of Lighthouse Capital
Partners from Onyx Acceptance Corporation dated November 3,
1995.(1)
10.28 Master Lease Agreement between Lighthouse Capital Partners and
Onyx Acceptance Corporation dated November 3, 1995.(1)
10.29 Second Amendment to Amended and Restated Investors' Rights
Agreement between and among Onyx Acceptance Corporation and the
Investors identified therein dated as of November 3, 1995.(1)
10.30 Agreement for On-Line Services between On-Line Computer Systems,
Inc. and Onyx Acceptance Corporation dated as of November 19,
1993.(1)
10.31 Agreement for On-Line Service between On-Line Computer Systems,
Inc. and Onyx Acceptance Financial Corporation dated as of
September 7, 1994.(1)
10.32 Option Agreement between Onyx Acceptance Corporation and John W.
Hall dated as of December 20, 1994.(1)
10.33 Promissory Note in favor of Onyx Acceptance Corporation from John
Hall dated as of December 20, 1994.(1)
10.34 Option Agreement between Onyx Acceptance Corporation and Brian
MacInnis dated as of December 20, 1994.(1)
10.35 Promissory Note in favor of Onyx Acceptance Corporation from
Brian MacInnis dated as of December 20, 1994.(1)
10.36 Stock Purchase Agreement between and among Brian MacInnis and
certain Investors identified therein dated as of June 7, 1995.(1)
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
10.37 Stock Purchase Agreement between and among John W. Hall and
certain Investors identified therein dated as of June 7, 1995.(1)
10.38 Sublease Agreement between Onyx Acceptance Corporation and AT&T
Resource Management Corporation dated as of August 31, 1993.(1)
10.39 Office Space Lease (Master Lease) between and among The Irvine
Company and American Telephone and Telegraph Company dated as of
April 29, 1987.(1)
10.40 First Amendment to Sublease between and among AT&T Resource
Management Corporation and Onyx Acceptance Corporation dated as
of September 1, 1993.(1)
10.41 Onyx Acceptance Corporation 401(k) Plan dated January 1, 1994.(1)
10.42 Pooling and Servicing Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Bankers Trust
Company dated as of January 1, 1996.(1)
10.43 Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated January 31, 1996.(1)
10.44 Indemnification Agreement by and among Capital Markets Assurance
Corporation, Onyx Acceptance Corporation, Onyx Acceptance
Financial Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated January 31, 1996.(1)
10.45 Indemnification Agreement by and between Onyx Acceptance
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated dated as of January 31, 1996.(1)
10.46 Subordination and Intercreditor Agreement by and among State
Street Bank and Trust Company, The First National Bank of Boston,
Capital Resource Lenders II, L.P., Dominion Fund III and Onyx
Acceptance Corporation dated as of January 31, 1996.(1)
10.47 1996-1 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
February 6, 1996.(1)
10.48 Form of Dealer Agreement Non-Recourse (U) between Dealership and
Onyx Acceptance Corporation.(1)
10.49 Form of Dealer Agreement Non-Recourse (N) between Dealership and
Onyx Acceptance Corporation.(1)
10.50 1996 Stock Option/Stock Issuance Plan.(1)
10.51 1996-2 Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company of New York dated May 17, 1996.(1)
10.52 1996-2 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
May 17, 1996.(1)
10.53 Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated May 10, 1996.(1)
10.54 1996-3 Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company of New York dated September 17, 1996.(1)
10.55 1996-3 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
September 17, 1996.(1)
10.56 Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated September 13, 1996.(1)
10.57 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company in connection with 1997-1 Grantor Trust.(2)
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
10.58 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner and Smith
Incorporated in connection with 1997-1 Grantor Trust.(2)
10.59 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation, and Bankers
Trust Company in connection with 1997-2 Grantor Trust.(4)
10.60 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation, Merrill Lynch, Pierce, Fenner and Smith Incorporated
in connection with 1997-2 Grantor Trust.(4)
10.61 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company in connection with 1997-3 Grantor Trust.(5)
10.62 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation and Merrill Lynch, Pierce, Fenner and Smith
Incorporated in connection with 1997-3 Grantor Trust.(5)
10.63 1997-4 Spread Account Trust Agreement between Onyx Acceptance
Financial Corporation and Bankers Trust (Delaware) dated as of
December 12, 1997.(6)
10.64 Form of Pooling and Servicing Agreement between Onyx Acceptance
Financial Corporation, Onyx Acceptance Corporation and Bankers
Trust Company in connection with 1997-4 Onyx Acceptance Grantor
Trust.(6)
10.65 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Merrill Lynch & Co.
in connection with 1997-4 Onyx Acceptance Grantor Trust.(6)
10.66 Term Loan Agreement by and between Bay View Capital Corporation
and Onyx Acceptance Corporation dated February 24, 1998.(7)
10.67 Master Repurchase Agreement Annex by and between Merrill Lynch
Mortgage Capital Inc. and Onyx Acceptance Financial Corporation
dated February 4, 1998.(7)
10.68 Master Assignment Agreement by and between Merrill Lynch Mortgage
Capital Inc. and Onyx Acceptance Financial Corporation dated
February 4, 1998.(7)
10.69 Second Amendment to Master Assignment Agreement between Onyx
Acceptance funding Corporation and Merrill Lynch Mortgage Capital
Inc. dated July 7, 1999.(15)
10.70 Amended and Restated Residual Interest in Securitized Assets
Revolving Credit Agreement dated June 12, 1998 by and among Onyx
Acceptance Corporation, State Street Bank and Trust Company,
BankBoston and The Travelers Insurance Company.(8)
10.71 Second Amendment to Loan Agreement and Pledge and Security
Agreement by and among Onyx Acceptance Corporation, State Street
Bank and Trust Company, BankBoston and The Travelers Insurance
Company dated August 9, 1999.(15)
10.72 Amended and Restated Pledge and Security Agreement dated June 12,
1998 by and among Onyx Acceptance Corporation, State Street Bank
and Trust Company, Bank Boston and The Travelers Insurance
Company.(8)
10.73 First Amendment to Loan Agreement and Confirmation of Pledge and
Security Agreement dated June 29, 1999.(14)
10.74 Amended and Restated Sale and Servicing Agreement between Onyx
Acceptance Corporation and Onyx Acceptance Financial Corporation
dated as of September 4, 1998.(9)
10.75 Amended and Restated Triple-A One Funding Corporation Credit
Agreement between and among Onyx Acceptance Financial
Corporation, Triple-A One Funding Corporation, CapMAC Financial
Services, Inc. and Capital Markets Assurance Corporation dates as
of September 4, 1998.(9)
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
10.76 Amended and Restated Triple-A One Funding Corporation Security
Agreement between and among Onyx Acceptance Financial
Corporation, Triple-A One Funding Corporation and Capital Markets
Assurance Corporation dates as of September 4, 1998.(9)
10.77 Amended and Restated Subordinated Security Agreement between Onyx
Acceptance Corporation and Onyx Acceptance Financial Corporation
dated as of September 4, 1998.(9)
10.78 Amended and Restated Insurance and Indemnity Agreement between
and among Onyx Acceptance Corporation, Capital Markets Assurance
Corporation, Onyx Acceptance Financial Corporation and Triple- A
One Funding Corporation dated as of September 4, 1998.(9)
10.79 Master Loan Agreement between Onyx Acceptance Financial
Corporation and Salomon Brothers Realty Corp. dated September 3,
1998.(9)
10.80 Form of Pooling and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation, and Bankers
Trust Company in connection with the 1998-1 Onyx Acceptance
Grantor Trust.(10)
10.81 Form of Underwriting Agreement between Onyx Acceptance Financial
Corporation, Onyx Acceptance Corporation and Merrill Lynch & Co.
in connection with the 1998-1 Onyx Acceptance Grantor Trust.(10)
10.82 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation, and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1998-A.(11)
10.83 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation, and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1998-B.(11)
10.84 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1998-C.(11)
10.85 Amendment Number One dated December 22, 1998 to Amended and
Restated Onyx Warehouse Facility and Assignment and Assumption
Agreement.(12)
10.86 Amendment No. 2 to the Amended and Restated Onyx Warehouse
Facility effective as of March 30, 1999 by and among Onyx
Acceptance Corporation, Onyx Acceptance Financial Corporation,
Triple-A One Funding Corporation, Capital Markets Assurance
Corporation, CapMAC Financial Services, Inc. and MBIA Insurance
Corporation.(13)
10.87 Sale and Servicing Agreement between Onyx Acceptance Corporation
as Seller and Servicer and Onyx Acceptance Receivables
Corporation, as Purchaser, dated August 9, 1999.(15)
10.88 Security Agreement between Onyx Acceptance Receivables
Corporation and The Chase Manhattan Bank as Funding Agent, dated
August 9, 1999.(15)
10.89 Subordinated Security Agreement between Onyx Acceptance
Receivables Corporation, and Onyx Acceptance Corporation, dated
August 9, 1999.(15)
10.90 Asset Purchase Agreement between Park Avenue Receivables
Corporation and The Chase Manhattan Bank and Onyx Acceptance
Receivables Corporation, dated August 9, 1999.(15)
10.91 Funding Agreement between Onyx Acceptance Receivables Corporation
and Park Avenue Receivables Corporation and The Chase Manhattan
Bank, dated August 9, 1999.(15)
10.92 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-A.(16)
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
10.93 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-B.(17)
10.94 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-C.(18)
10.95 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owners
Trust 1999-D.(19)
10.97 Form of Sale and Servicing Agreement between Onyx Acceptance
Corporation, Onyx Acceptance Financial Corporation and Chase
Manhattan Bank in connection with the Onyx Acceptance Owner Trust
2000-A.(20)
12.1 Computation of ratio of earnings to fixed charges.*
12.2 Computation of ratio of EBITDA to cash interest expenses.*
21.1 Subsidiaries of the Registrant(21)
23.1 Consent of Independent Accountants**
23.2 Consent of Independent Accountants****
23.3 Consent of Independent Accountants*
24.1 Power of Attorney**
25.1 Statement of eligibility of Trustee**
27.1 Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith
** Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement No. 333-92573 on December 10, 1999 and incorporated
herein by reference.
*** Previously filed with the Commission as an exhibit to Amendment No. 1 to
the Registrant's Registration Statement No. 333-92573 on January 19, 2000
and incorporated herein by reference.
**** Previously filed with the Commission as an exhibit to Amendment No. 2 to
the Registrant's Registration Statement No. 333-92573 on February 8, 2000
and incorporated herein by reference.
(1) Incorporated by reference from the Company's Registration Statement
on Form S-1 (Registration No. 333-00680).
(2) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-1 (Registration No.
333-22301).
(3) Incorporated by reference from the Company's Current Report on Form
8-K dated July 8, 1997. (File No. 000-28050).
(4) Incorporated by reference from Onyx Acceptance Financial
Corporation's registration Statement on Form S-1 (Registration No.
333-28893).
(5) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-1 (Registration No.
333-33471).
<PAGE> 119
(6) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-1 (Registration No.
333-40089).
(7) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended March 31, 1998. (File No. 000-28050).
(8) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended June 30, 1998. (File No. 000-28050).
(9) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended September 30, 1998. (File No. 000-28050).
(10) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-3 (Registration No.
333-46359).
(11) Incorporated by reference from Onyx Acceptance Financial
Corporation's Registration Statement on Form S-3 (Registration No.
333-51239).
(12) Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1998. (File No. 000-28050).
(13) Incorporated by reference from the Company's Form 10-Q for quarterly
period ended March 31, 1999. (File No. 000-28050).
(14) Incorporated by reference from the Company's Form 10-Q quarterly
period ended June 30, 1999. (File No. 000-28050).
(15) Incorporated by reference from the Company's Form 10-Q quarterly
period ended September 30, 1999. (File No. 000-28050).
(16) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated March 11, 1999. (File
No. 333-28893).
(17) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated May 28, 1999. (File
No. 333-28893).
(18) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated September 14, 1999.
(File No. 333-28893).
(19) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated November 12, 1999.
(File No. 333-28893).
(20) Incorporated by reference from Onyx Acceptance Financial
Corporation's Current Report on Form 8-K dated March 7, 2000. (File
No. 333-28893).
(21) Incorporated by reference from Onyx Acceptance Corporation's Annual
Report on Form 10-K dated March 30, 2000.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
April ___, 2000
Miller & Schroeder Financial, Inc.
as Representative of the several Underwriters named in Schedule I hereto
150 South Fifth Street, Suite 3000
Minneapolis, MN 55402
Ladies and Gentlemen:
Onyx Acceptance Corporation, a Delaware corporation (the "Company"), hereby
confirms its agreement, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") twelve million dollars ($12,000,000) aggregate principal amount
of its ___% Subordinated Notes due __________, 2006 ("Notes"). Such $12,000,000
principal amount of the Notes are collectively referred to in this Agreement as
the "Firm Notes". The Company also hereby confirms its agreement to issue and
sell to the Underwriters an aggregate of up to one million eight hundred
thousand dollars ($1,800,000) additional principal amount of Notes solely for
the purpose of covering overallotments. Such additional Notes are referred to in
this Agreement as the "Option Notes", and the Firm Notes and the Option Notes
are collectively referred to as the "Notes." The Notes are to be issued under an
Indenture, dated as of April ___, 2000 (the "Indenture") between the Company and
Bankers Trust Company, as trustee (the "Trustee"). The Notes are more fully
described in the Registration Statement and Prospectus as hereafter defined.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Underwriters that:
(a) A registration statement on Form S-1 (Registration No. 333-92573)
with respect to the Notes has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "1933 Act"), and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") thereunder and has been filed with the SEC under
the 1933 Act. If the Company has elected to rely on Rule 462(b) under the 1933
Act to increase the size of the offering registered under the 1933 Act, the
Company will prepare and file with the SEC a registration statement with respect
to such increase pursuant to Rule 462(b). The Company has filed such amendments
to the registration statement and such amended preliminary prospectuses as may
have been required to be filed to the date hereof. If the Company has elected
not to rely upon Rule 430A, the Company has prepared and will promptly file an
amendment to the registration statement and an amended prospectus (provided the
Underwriters have consented to such filing). If the Company has elected to rely
upon Rule 430A, it will prepare and timely file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the prospectus in
reliance upon Rule 430A. Copies of such registration statement, including a
registration statement filed pursuant to Rule 462(b), each pre-effective
amendment thereto, all exhibits thereto and each related preliminary prospectus
have been delivered by the Company to the Underwriters. Such registration
statement, as amended or supplemented, at the time it became effective,
including all prospectuses included as a part thereof, financial schedules,
exhibits, the information (if any) deemed to be part thereof pursuant to Rules
430A and 434 under the 1933 Act
<PAGE> 2
and any registration statement filed pursuant to Rule 462 under the 1933 Act, is
herein referred to as the "Registration Statement." The term "Prospectus" as
used herein shall mean the final prospectus, as amended or supplemented,
included as a part of the Registration Statement on file with the SEC when it
becomes effective; provided, however, that if a prospectus is filed by the
Company pursuant to Rules 424(b) and 430A or a term sheet is filed by the
Company pursuant to Rule 434 under the 1933 Act, the term "Prospectus" as used
herein shall mean the prospectus so filed pursuant to Rules 424(b) and 430A and
the term sheet so filed pursuant to Rule 434. The term "Preliminary Prospectus"
as used herein means any prospectus, as amended or supplemented, used prior to
the Effective Date (as defined in Section 5(a) hereof) and included as a part of
the Registration Statement, including any prospectus filed with the SEC pursuant
to Rule 424(a).
(b) Neither the SEC nor any state securities division has issued any order
preventing or suspending the use of any Preliminary Prospectus or issued a stop
order with respect to the offering of the Notes, or requiring the recirculation
of a Preliminary Prospectus and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened. The Registration
Statement, including any post-effective amendment to the Registration Statement,
when it became or becomes effective and on any Closing Date (as defined in
Section 2 hereof), complied or will comply in all material respects with the
requirements of the 1933 Act and the Rules and Regulations. When the
Registration Statement became or becomes effective and when any post-effective
amendments thereto shall become effective, the Registration Statement did not
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Neither any Preliminary Prospectus, on the date of filing thereof
with the SEC, nor the Prospectus or any amendment or supplement thereto, on the
date of filing thereof with the SEC and on any Closing Date, contained or will
contain any untrue statement of a material fact or omitted or will omit to state
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties in this Subsection 1(b) shall
apply to statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished to
the Company by the Underwriters, as identified in Section 12 herein,
specifically for use in the preparation of the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto. There is no contract or other document of the Company of a character
required by the 1933 Act or the Rules and Regulations to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit to the
Registration Statement, that has not been described or filed as required. The
descriptions of all such contracts and documents or references thereto are
correct and include the information required under the 1933 Act and the Rules
and Regulations. The conditions for use of a Registration Statement on Form S-1
for the distribution of the Notes have been satisfied with respect to the
Company. All descriptions in the Registration Statement or Prospectus of
statutes, regulations, legal or governmental proceedings, the Indenture, the
Notes, or other contracts or other documents are accurate in all material
respects and fairly present the information shown.
(c) PricewaterhouseCoopers LLP, who have examined the consolidated
financial statements reported on by them and filed with the SEC as part of the
Registration Statement and the Prospectus, are independent public accountants as
required by the 1933 Act. The consolidated financial statements of the Company
and its consolidated Subsidiaries, including the related notes, included in the
Registration Statement and in the Prospectus (the "Financial Statements") fairly
present, on the basis stated therein, the financial position, results of
operations, cash flows and changes in shareholders' equity of the Company and
its consolidated subsidiaries on a consolidated basis at the dates and for the
periods to which they relate. The Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied, except as otherwise stated therein, throughout the periods involved and
comply in all material respects with the requirements of the 1933 Act. The
selected
2
<PAGE> 3
financial data and summary financial data set forth in the Prospectus fairly
present the information purported to be shown thereby as of the dates and for
the periods indicated on a basis consistent with the audited consolidated
financial statements of the Company and the selected financial data are in
compliance in all material respects with the requirements of the 1933 Act and
the Rules and Regulations. There are no other financial statements or schedules
required to be included in the Registration Statement or Prospectus that are not
included in the Registration Statement or Prospectus.
(d) Each of the Company, Onyx Acceptance Financial Corporation ("OAFC"),
Onyx Acceptance Funding Corporation ("OFC") and Onyx Acceptance Receivables
Corporation ("OARC"; each of OAFC, OFC and OARC are referred to herein as a
"Subsidiary" and collectively as the "Subsidiaries") are and at the First
Closing Date and the Second Closing Date will be, duly organized and validly
existing and in good standing under the laws of their respective states of
incorporation with full power and authority (corporate and other) to own, lease
and operate their respective properties and conduct their respective businesses
as currently carried on and contemplated and described in the Registration
Statement and Prospectus and no proceeding has been instituted in any such
jurisdiction revoking, limiting, curtailing or seeking to revoke, limit or
curtail such qualification. Each of the Company and the Subsidiaries are duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which the character and location of their respective assets or
their respective business (existing or as contemplated by the Prospectus)
requires such qualification and which the failure to so qualify would have a
material adverse effect upon the condition (financial or otherwise), or the
earnings or business of the Company and the Subsidiaries, taken as a whole,
whether or not occurring in the ordinary course of business (a "Material Adverse
Effect").
(e) The Company and the Subsidiaries are not in violation of their
respective Certificate of Incorporation, Bylaws or other governing instruments.
None of the Company, any of the Subsidiaries is in default (nor with the giving
of notice or the passage of time or both would be in default) in the performance
of any obligation, agreement or condition contained in any material contract or
in any bond, debenture, note, indentured loan agreement or other evidence of
indebtedness or any loan agreement, transfer and servicing agreement, sale and
servicing agreement, pooling and servicing agreement, underwriting agreement,
repurchase agreement, trust agreement, guaranty agreement entered into with MBIA
Insurance Corporation, Capital Markets Assurance Corporation or other insurer or
other credit enhancement, certificate issued in connection with a
securitization, contract or joint venture agreement of the Company or the
Subsidiaries or other instrument to which each is subject or by which any of
their respective property or assets are subject where such default could have a
Material Adverse Effect. The Company and the Subsidiaries are not in violation
of any law, order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or foreign, which
violation is material to the business of the Company and the Subsidiaries, taken
as a whole. With respect to the securitizations (i) there have been no servicer
defaults or insurer defaults in connection therewith (nor any event which, with
the giving of notice or passage of time, would constitute a default) and (ii) no
wind-down event, trigger event, early amortization event or event of default
with respect to a certificate or note issued in connection with the
securitizations has occurred or will occur as a result of the transactions
contemplated by this agreement (nor any event which, with the giving of notice
or passage of time, would constitute an early amortization event). The Company
or the Subsidiaries are not currently liable to repurchase any material amount
of securitized contracts and no representation or warranty with respect to the
collectability of any securitized contract has been made.
(f) The Company and the Subsidiaries possess all franchises, licenses,
certificates, permits, authorizations, approvals and orders (collectively,
"Licenses") of all state, federal and other governmental regulatory officials
and bodies necessary to own their respective properties, conduct their
respective business as described in the Registration Statement and Prospectus,
except where the failure to possess such Licenses, would not, individually or in
the aggregate, have a Material Adverse Effect or have
3
<PAGE> 4
obtained waivers from any such applicable requirements from the appropriate
state, federal or other regulatory authorities. The Company and each of the
Subsidiaries are conducting their business in compliance with all Licenses,
except where the failure to comply would not individually or in the aggregate
have a Material Adverse Effect. All such Licenses are in full force and effect,
and the Company and the Subsidiaries have not received notice of any proceeding
or action relating to the revocation or modification of any such License which
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a Material Adverse Effect.
(g) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, except as is described in the
Registration Statement and Prospectus: (i) the Company and the Subsidiaries have
not incurred, and will not have incurred, any liabilities or obligations, direct
or contingent, or entered into any transactions, in each case, other than in the
ordinary course of business, except where such liabilities would not
individually or in the aggregate, have a Material Adverse Effect; (ii) the
Company and the Subsidiaries have not and will not have paid or declared any
dividends or other distributions on their capital stock; (iii) except in the
ordinary course of business consistent with past practice, there has not been
and will not have been any change in the capital stock or outstanding debt,
including any capitalized lease obligation, of the Company or the Subsidiaries,
or any issuance of options, warrants, convertible securities (other than as may
be issued pursuant to the Company's 1996 Stock Option Plan, as amended, and the
Employee 401(k) Deferred Savings Plan), or other rights to purchase the capital
stock of the Company or the Subsidiaries, except where any such changes would
not, individually or in the aggregate, have a Material Adverse Effect; and (iv)
the Company or the Subsidiaries has not sustained any loss or damage to their
respective properties or interference with their respective business, whether or
not insured, except where any such loss or damages would not, individually or in
the aggregate, have a Material Adverse Effect.
(h) There are no actions, suits, investigations or proceedings pending or,
to the knowledge of the Company, threatened before any court or governmental
agency, authority or body, to which the Company or the Subsidiaries is a party
or of which the business or property of the Company or the Subsidiaries is the
subject which are required to be described in the Registration Statement or
which might reasonably be expected to: (i) result in any Material Adverse
Effect; or (ii) prevent consummation of the transactions contemplated by this
Agreement and the Indenture. All pending legal or governmental proceedings to
which the Company or the Subsidiaries is a party or to which any of their
respective property is subject, which are not described in the Registration
Statement and the Prospectus, including ordinary routine litigation incidental
to the business, are, considered in the aggregate, not material to the Company
and the Subsidiaries taken as a whole.
(i) The Company has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has been duly
and validly authorized, executed and delivered by the Company. The performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default (or with the giving of notice or the passage of time or
both would so constitute a breach or default) or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to (i) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which the
Company or any Subsidiary is a party or by which the property or assets of the
Company or any Subsidiary is bound, (ii) the Company's or the Subsidiaries'
Certificate of Incorporation or Bylaws or other organizational documents or
(iii) any statute or any order, rule or regulation of any court, governmental
agency or body having jurisdiction over the Company or any Subsidiary. No
consent, approval, authorization, order, registration, filing, qualification,
license, or permit of or with any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of the
Subsidiaries or their properties or assets, is required for the execution,
4
<PAGE> 5
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, including the issuance, sale and delivery of
the Notes, except as may be required under the 1933 Act, the Rules and
Regulations, the securities laws ("Blue Sky Laws") of the states (the "States")
where the Notes are to be sold, the rules and regulations of The Nasdaq National
Market and the rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the offer and sale of the Notes by the
Underwriters.
(j) The Company has full power and authority to execute and deliver the
Indenture and to perform its obligations thereunder. The Indenture has been duly
and validly authorized and when executed and delivered by the Company on the
First Closing Date, will constitute a valid, legal and binding agreement of the
Company enforceable in accordance with their terms, except as enforcement may be
limited under bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general principles
of equity. The Company's performance of the Indenture and the consummation of
the transactions therein contemplated by such agreements will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default (or with the giving of notice or the passage of time or both would so
constitute a breach or default) or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or the
Subsidiaries pursuant to (i) any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the property or assets of the Company or any
Subsidiary is bound, (ii) the Company's or any Subsidiary's Articles of
Incorporation or Bylaws or other organizational documents or (iii) any statute
or any order, rule or regulation of any court, governmental agency or body
having jurisdiction over the Company or any Subsidiary, except, in each case,
for such breaches, violations, defaults and liens that would not result in a
Material Adverse Effect. No consent, approval, authorization, order,
registration, filing, qualification, license, or permit of or with any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Company or any Subsidiary or their properties or assets, is required for the
execution, delivery and performance of the Indenture or the consummation of the
transactions contemplated thereby except for qualification of the Indenture
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The Indenture complies with and is qualified under the Trust Indenture Act. The
Indenture is in substantially the form filed as an exhibit to the Registration
Statement.
(k) The Company has full power and authority to execute and deliver the
Notes and to perform its obligations thereunder. The Notes have been duly and
validly authorized and, when authenticated by the Trustee and issued, delivered
and sold in accordance with this Agreement and the Indenture, will have been
duly and validly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of the Company entitled to the
benefits provided by the Indenture and enforceable against the Company in
accordance with their terms, except as enforcement may be limited under
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general principles of equity.
(l) The Company has, as of the dates set forth in the Prospectus, the duly
authorized, issued and outstanding capitalization set forth in the Prospectus
under the caption "Capitalization." The outstanding common stock of the Company
is duly authorized and validly issued, fully paid, and nonassessable. No
preemptive rights or similar rights of any security holders of the Company exist
with respect to the issuance and sale of the Notes by the Company. The Company
has no agreement with any security holder which gives such security holder the
right to require the Company to register under the 1933 Act any securities of
any nature owned or held by such person either in connection with the
transactions contemplated by this Agreement or after a demand for registration
by such holder. The certificates evidencing the Notes comply as to form with all
applicable provisions of federal law and the laws of the State of Delaware.
Except as set forth in any part of the Registration Statement, the Company
5
<PAGE> 6
and the Subsidiaries do not have any outstanding options to purchase or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contract or commitments to issue or sell, any common
stock or other securities of the Company.
(m) The Company and the Subsidiaries have good and marketable title to all
real properties described in the Prospectus as being owned by them and good
title to all other properties described in the Prospectus as being owned by
them, in each case free and clear of all security interests, liens, charges,
encumbrances, restrictions or defects except such as are described in the
Prospectus or as such do not materially affect the value of such property and do
not materially interfere with the use made of such property by the Company or
the Subsidiaries. The Company and the Subsidiaries hold valid and enforceable
leases for the properties (real and personal) described in the Prospectus as
leased by them with such exceptions as are not material and do not interfere
with the use made or proposed to be made of such properties, the Company and the
Subsidiaries are not in default (or with the giving of notice or the passage of
time or both would be in default) in respect to any of such leases, and to the
best knowledge of the Company, no material claim of any sort has been asserted
by anyone adverse to the rights of the Company and the Subsidiaries as lessee
under any such lease or questioning its right to continued use and possession of
any of the leased properties under any such lease.
(n) Except as disclosed in the Prospectus, the Company and the
Subsidiaries own or possess, or can acquire on reasonable terms, all patents,
patent applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses, inventions,
know-how, trade secrets and other similar rights necessary for the conduct of
their respective businesses as currently carried on or intended to be carried on
and as described in the Prospectus. Neither the Company nor the Subsidiaries
have received any notice or claim involving or giving rise to any infringement
of or conflict with licenses or similar registrations, service mark
registrations, copyrights, licenses, inventions, trade secrets or other similar
rights of others with respect to any of the foregoing and which infringement or
conflict (if the subject of an unfavorable decision or ruling), singly or in the
aggregate, would result in a Material Adverse Effect.
(o) The Company and the Subsidiaries have filed all necessary federal,
state, local and foreign income, franchise and other tax returns required to be
filed through the date of this Agreement or have obtained an extension therefor
and have paid all taxes shown as due thereon other than any which the Company or
the Subsidiaries is contesting in good faith.
(p) The Company and the Subsidiaries own no capital stock or other equity
or ownership or proprietary interest in any corporation, partnership, limited
liability company, association, trust or other entity (other than with respect
to the Company, the Subsidiaries' capital stock) and are not affiliated (as that
term is defined under the 1933 Act) with any other company or business entity
except as described in the Prospectus.
(q) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide that: (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) The Company and the Subsidiaries maintain insurance, which is in full
force and effect, of the types and in amounts which are adequate for their
business and as is customary with insurance maintained by similar companies and
businesses.
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(s) No labor disturbance by the employees of the Company and the
Subsidiaries exists or, to the best of the Company's knowledge, is imminent
which could reasonably be expected to have a Material Adverse Effect.
(t) Neither the Company nor any Subsidiary is an "investment company" as
defined in the Investment Company Act of 1940, as amended and will not become an
"investment company" upon the sale of the Notes.
(u) None of the Company, the Subsidiaries or any of their employees or
agents has made any payment of funds of the Company or the Subsidiaries or
received or retained funds in violation of any law, rule or regulation.
(v) Other than as contemplated by this Agreement, the Company has not
engaged any "finder" with respect to the transactions contemplated by this
Agreement and there is no outstanding claim for services in the nature of a
"finder's fee" with respect to such financing.
(w) The Company, after giving effect to the execution, delivery and
performance of this Agreement, the Indenture, and the Notes and the consummation
of the transactions contemplated hereby and thereby will not: (i) be insolvent;
(ii) be left with unreasonably small capital with which to engage in its
business; or (iii) have incurred debts beyond its ability to pay such debts as
they mature.
(x) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in or which has constituted or which
constitute the stabilization or manipulation, as defined in the 1934 Act or
otherwise, of the price of any outstanding securities of the Company to
facilitate the sale or resale of the Notes.
(y) On the First Closing Date and the Second Closing Date, as the case may
be, all transfer or other taxes, if any (other than income taxes), which are
required to be paid in connection with the sale or transfer of the Notes will
have been fully paid or provided for by the Company and all laws imposing such
taxes will have been fully complied with.
(z) Neither the Company, nor any affiliate thereof, does business with the
government of Cuba or with any person or affiliate located in Cuba.
2. PURCHASE, SALE, DELIVERY AND PAYMENT
(a) On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each Underwriter, severally and not jointly, and
each Underwriter agrees to purchase from the Company, the principal amount of
Firm Notes set forth opposite such Underwriter's name on Schedule I hereto at a
purchase price equal to 91.5% of the face value per Note, less any discount
offered to the public (as set forth in the Prospectus at $40 per $1,000 in face
value for each Note). The Underwriters will purchase all of the Firm Notes if
any are purchased.
(b) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company hereby
grants an option to the Underwriters to purchase an aggregate of up to
$1,800,000.00 principal amount of Option Notes at the same purchase price as the
Firm Notes for use solely in covering any overallotments made by the
Underwriters in the sale and distribution of the Firm Notes. The option granted
hereunder may be exercised at any time and from time to time within 45 days
after the Effective Date upon notice (confirmed in writing) by the
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<PAGE> 8
Underwriters to the Company setting forth the aggregate principal amount of
Option Notes as to which the Underwriters are exercising the option and the date
on which certificates for such Option Notes are to be delivered. The option
granted hereby may be cancelled by the Underwriters as to the Option Notes for
which the option is unexercised at any time prior to the expiration of the
45-day period upon notice to the Company. If the option is exercised as to all
or any portion of the Option Notes, each of the Underwriters, severally and not
jointly, will purchase that proportion of the total principal amount of Option
Notes then being purchased that the principal amount of Firm Notes each such
Underwriter has agreed to purchase as set forth in Schedule I opposite the name
of such Underwriter bears to the total principal amount of Firm Notes.
(c) The Company will deliver the Firm Notes to the Underwriters at the
offices of Leonard, Street and Deinard Professional Association, unless some
other place is agreed upon, at 10:00 A.M., Minneapolis time, against payment of
the purchase price on the third full business day after the Effective Date, or
such later time as may be agreed upon between the Underwriters and the Company,
such time and being herein referred to as the "First Closing Date."
(d) The Company will deliver the Option Notes being purchased by the
Underwriters to the Underwriters at the offices of Leonard, Street and Deinard
Professional Association as set forth in Section 2(c) above, unless some other
place is agreed upon, at 10:00 A.M., Minneapolis time, against payment of the
purchase price on the date determined by the Underwriters and of which the
Company has received notice as provided in Section 2(b), which shall not be
earlier than two nor later than three full business days after the exercise of
the option as set forth in Section 2(b), or at such other time not later than
ten full business days thereafter as may be agreed upon by the Underwriters and
the Company, such time and date being herein referred to as the "Second Closing
Date." The First Closing Date and Second Closing Date are referred to herein as
the "Closing Date."
(e) Certificates for the Notes to be delivered will be registered in such
names and issued in such denominations as the Underwriters shall request of the
Company at least three full business days prior to each Closing Date. The
certificates will be made available to the Underwriters in definitive form for
the purpose of inspection and packaging at least 24 hours prior to the Closing
Date.
(f) Payment for the Notes shall be made by wire transfer of immediately
available funds to a designated account of the Company.
(g) The Underwriters will make a public offering of the Notes directly to
the public (which may include selected dealers who are members in good standing
with the NASD or foreign dealers not eligible for membership in the NASD but who
have agreed to abide by the interpretation of the NASD's Board of Governors with
respect to free-riding and withholding) as soon as the Underwriters deem
practicable after the Registration Statement becomes effective at the initial
public offering price set forth on the cover page of the Prospectus, subject to
the terms and conditions of this Agreement and in accordance with the
Prospectus. Such concessions from the public offering price may be allowed
selected dealers of the NASD as the Underwriters determine, and the Underwriters
will furnish the Company with such information about the distribution
arrangements as may be necessary for inclusion in the Registration Statement. It
is understood that the public offering price and concessions may vary after the
initial public offering of the Notes. The Underwriters shall offer and sell the
Notes only in jurisdictions in which the offering of Notes has been duly
registered or qualified, or is exempt from registration or qualification, and
shall take reasonable measures to effect compliance with applicable state and
local securities laws.
3. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the
Underwriters shall default in its obligation to purchase any and pay for, at the
First Closing Date or the
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Second Closing Date, as the case may be, the entire principal amount of the
Notes agreed to be purchased by such Underwriter(s) (the "Defaulted Notes"), the
remaining Underwriter(s) (the "Non-Defaulting Underwriter(s)") shall have the
right, but not the obligation, within 24 hours thereafter, to make arrangements
to purchase all (but not less than all) of the Defaulted Notes upon the terms
herein set forth; if, however, the Non-Defaulting Underwriter(s) shall not have
completed such arrangements within such 24-hour period, then this Agreement will
terminate without liability on the part of the Non-Defaulting Underwriter(s). In
any such case in which this Agreement is not terminated, either the Company or
the Non-Defaulting Underwriter(s) shall have the right to postpone the date of
Closing, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement or Prospectus or in any other
documents may be effected. Any action taken under this Section 3 shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
4. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with
the Underwriters as follows:
(a) If the Registration Statement has not become effective prior to the
date hereof, the Company will use its best efforts to cause the Registration
Statement and any subsequent amendments thereto to become effective as promptly
as possible. The Company will notify the Underwriters promptly, after the
Company shall receive notice thereof, of the time when the Registration
Statement, or any subsequent amendment thereto, has become effective or any
supplement to the Prospectus has been filed. Following the execution and
delivery of this Agreement, the Company will prepare, and timely file or
transmit for filing with the SEC in accordance with Rules 430A, 424(b) and 434,
as applicable, copies of the Prospectus, or, if necessary, a post-effective
amendment to the Registration Statement (including the Prospectus), in which
event, the Company will take all necessary action to have such post-effective
amendment declared effective as soon as possible. The Company will notify the
Underwriters promptly upon the Company's obtaining knowledge of the issuance by
the SEC of any stop order suspending the effectiveness of the Registration
Statement or of the initiation or threat of any proceedings for that purpose and
will use its best efforts to prevent the issuance of any stop order and, if a
stop order is issued, to obtain as soon as possible the withdrawal or lifting
thereof. The Company will promptly prepare and file at its own expense with the
SEC any amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary in connection with the distribution of the
Notes by the Underwriters. During the period when a Prospectus relating to the
Notes is required to be delivered under the 1933 Act, the Company will promptly
file any amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary to correct any untrue statement of a material
fact or any omission to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company will notify the Underwriters promptly of the receipt of
any comments from the SEC regarding the Registration Statement or Prospectus or
request by the SEC for any amendment thereof or supplement thereto or for any
additional information. The Company will not (i) file any amendment of, or
supplement to, the Registration Statement or Prospectus, whether prior to or
after the Effective Date, which shall not previously have been submitted to the
Underwriters and their counsel a reasonable time prior to the proposed filing or
to which the Underwriters shall have reasonably objected or (ii) so long as in
the opinion of counsel to the Underwriters, a Prospectus is required to be
delivered in connection with sales by any Underwriter or dealer, file any
information, documents, or reports pursuant to the 1934 Act, without delivering
a copy of such information, documents or reports to the Underwriters prior to or
concurrently with said filing.
(b) The Company has used and will continue to use its best efforts, in
cooperation with the Underwriters, to register or qualify the Notes for sale
under the securities laws of such jurisdictions as the Underwriters may
designate and the Company will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification and will continue
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<PAGE> 10
such registrations or qualifications in effect for a period of not less than one
year from the Effective Date, provided, however, that in no event shall the
Company be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not now so qualified or subject itself to taxation
in respect of doing business in any jurisdiction where it is not now so subject.
In each jurisdiction where any of the Notes shall have been so qualified, the
Company will file such statements and reports as are or may be reasonably
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the Effective Date. The
Company will notify the Underwriters immediately of, and confirm in writing, the
suspension of qualification of the Notes or the threat of such action in any
jurisdiction.
(c) The Company will furnish to the Underwriters, as soon as available,
copies of the Registration Statement (one of which will be signed and which
shall include all exhibits), the Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the 1933 Act, all in such
quantities as the Underwriters may from time to time reasonably request. The
Company specifically authorizes the Underwriters and all dealers to whom any of
the Notes may be sold by the Underwriters to use and distribute copies of such
Preliminary Prospectuses and Prospectuses in connection with the offer and sale
of the Notes as and to the extent permitted by the federal and applicable state
and local securities laws.
(d) As soon as practicable (but in no event later than 90 days after the
close of the period covered thereby) the Company will make generally available
to its security holders, including Note holders, and furnish to the
Underwriters, an earnings statement of the Company covering the period of 12
months beginning not later than the first day of the next fiscal quarter
following the Effective Date of the Registration Statement which will satisfy
the requirements of Section 11(a) or Rule 158 of the 1933 Act and which need not
be certified or audited by independent public accountants.
(e) For as long as there are any Notes outstanding, the Company will
furnish to the Underwriters, without need of request, concurrently with
furnishing such reports to its stockholders, the following reports: (i) as soon
as they are available, copies of all other reports (financial or otherwise)
mailed to security holders; and (ii) as soon as they are available, copies of
all reports and financial statements furnished to, or filed with, the SEC, the
NASD, any securities exchange or any state securities commission by the Company.
(f) The Company will apply the net proceeds from the sale of the Notes in
the manner set forth under the caption "Use of Proceeds" in the Prospectus.
(g) The Company will provide the Underwriters with copies of reports,
certificates and supporting documentation furnished to the Trustee pursuant to
the Indenture or otherwise concurrently with furnishing such reports to the
Trustee.
(h) Subject to the last sentence of this subparagraph (h), the Company
shall pay all reasonable fees and expenses of the Underwriters' counsel incurred
in connection with the offering. The Company agrees that the necessary legal
work for drafting and preparing the Indenture and for registration,
qualification or perfection of exemptions of the Notes for sale under the Blue
Sky Laws of such States as the Underwriters may designate (the "Blue Sky
States") shall be performed by counsel for the Underwriters and paid for by the
Company. All Blue Sky filing fees and fees and expenses of Underwriters' counsel
incurred in connection with registering, qualifying or perfecting exemptions of
the Notes for sale in the Blue Sky States shall be paid by the Company, and all
of the fees and expenses of Underwriters' counsel incurred in connection with
the offering shall be paid by the Company. Subject to clause (xv) of paragraph
(i), such Blue Sky and counsel fees shall be paid regardless of whether any
closing shall occur and shall be in addition to the Underwriters' fees, expenses
and commission described
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in this Agreement. In no event shall the Company be required to pay more than
$75,000 for all fees of Underwriters' counsel, plus out-of-pocket expenses of
Underwriters' counsel, incurred pursuant to this subparagraph (h) and
subparagraph (i).
(i) The Company will pay, in addition to the Blue Sky and counsel fees
described in paragraph (h) of this Section, all costs and expenses related to
the performance of its obligations under this Agreement including, but not
limited to: (i) all expenses incident to the issuance and delivery of the Notes;
(ii) all expenses incident to the preparation, filing and delivery of the
Registration Statement, each Preliminary Prospectus, the Prospectus, and any
amendments, supplements or submissions related thereto (including exhibits);
(iii) all expenses incident to the filing, delivery and qualification of the
Indenture and any amendments, supplements or submissions related thereto; (iv)
all NASD fees incurred by the Underwriters in connection with the review of the
Underwriters' compensation by the NASD; (v) the cost of preparing and printing
as many amendments to the Registration Statement as may be necessary; (vi) the
cost of all certificates representing the Notes; (vii) the fees and expenses of
the Trustee and paying agent under the Indenture; (viii) the cost of printing
and distributing all documents related to the offering of the Notes; (ix) the
fees and expenses of the Company's independent accountants, including the cost
of "cold comfort" review; (x) the fees and expenses of legal counsel for the
Company; (xi) the cost of furnishing and delivering to the Underwriters and
dealers participating in the distribution of the Notes copies of the
Registration Statement (including exhibits), Preliminary Prospectuses, the
Prospectuses and any amendments of, or supplements to, any of the foregoing;
(xii) travel and lodging expenses of the Underwriters; (xiii) reasonable
expenses associated with the production of materials prepared in connection with
the information meetings to be held in selected cities; (xiv) the travel
expenses to be incurred by the management of the Company in connection with such
meetings and (xv) if the offering of the Notes for any reason is not closed, the
Company shall reimburse the Underwriters for their accountable expenses (after
deducting the $25,000 deposit) as aforesaid, provided that such accountable
expenses, including the fees and expense of the Underwriters' counsel pursuant
to Subparagraphs (h) and (i) do not exceed $100,000. If upon such abandonment,
the Underwriters' actual accountable out-of-pocket expenses do not exceed the
$25,000 deposit, the portion of the deposit not used will be reimbursed by the
Underwriters to the Company.
(j) The Company will not take, and will use its best efforts to cause each
of its officers and directors not to take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result in the
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Notes.
(k) The Company will use its best efforts to maintain the listing of its
common stock on The Nasdaq National Market.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Notes as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, as
of the date hereof and the First Closing Date (as if made on the First Closing
Date) and in the case of the Option Notes, as of the date hereof and the Second
Closing Date (as if made on the Second Closing Date), to the performance by the
Company of its obligations hereunder, and to the satisfaction of the following
additional conditions on or before the First Closing Date in the case of the
Firm Notes and on or before the Second Closing Date in the case of the Option
Notes:
(a) The Registration Statement shall have become effective not later than
5:00 P.M. Minneapolis time, on the first full business day following the date of
this Agreement, or such later date as shall be consented to in writing by the
Underwriters (the "Effective Date"). If the Company has elected to rely upon
Rule 430A, the information concerning the price of the Notes and price-related
information
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previously omitted from the effective Registration Statement pursuant to Rule
430A shall have been transmitted to the SEC for filing pursuant to Rule 424(b)
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriters of such timely
filing (or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the 1933 Act and the
Rules and Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been initiated
or, to the knowledge of the Company or the Underwriters, threatened by the SEC
or any state securities commission or similar regulatory body. Any request of
the SEC for additional information (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Underwriters and their legal counsel. The NASD, upon review
of the terms of the offering of the Notes, shall not have objected to the terms
of the Underwriters' participation in the offering of the Notes.
(b) The Underwriters shall not have been advised that the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto,
contains any untrue statement of a material fact or omits to state a material
fact and which is required to be stated therein or is necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(c) The Underwriters and Underwriters' counsel shall have been furnished
with such documents and information as the Underwriters or their counsel may
have requested.
(d) The Underwriters shall have received the opinion of Andrews & Kurth,
L.L.P., dated as of each Closing Date and satisfactory in form and substance to
the Underwriters and their counsel and substantially in the form set forth in
Exhibit A hereto.
(e) The Underwriters shall have received the opinion of Andrews & Kurth,
LLP to certain tax matters described in the Prospectus, dated as of each Closing
Date and satisfactory in form and substance to the Underwriters and their
counsel and substantially in the form set forth in Exhibit B hereto.
(f) At the time of execution of this Agreement and also at each Closing
Date, the Underwriters shall have received from PricewaterhouseCoopers LLP a
letter or letters, dated the date of delivery thereof, in the form and substance
satisfactory to the Underwriters, stating that they are independent public
accountants with respect to the Company on a consolidated basis within the
meaning of the 1933 Act and that: (i) In their opinion, the Financial Statements
included in the Registration Statement and Prospectus and reported on therein by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and related published rules and regulations; (ii)
On the basis of a limited review (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of the unaudited
financial statements included in the Registration Statement and Prospectus (if
any) and the latest available interim financial statements of the Company
subsequent thereto, a reading of the minutes of the board of directors and
shareholders of the Company subsequent thereto, and inquiries of officials of
the Company and the Subsidiaries responsible for financial and accounting
matters and such other inquiries and procedures as may be specified in such
letter and agreed upon by the Underwriters, nothing has come to their attention
that causes them to believe that: a) The unaudited financial statements included
in the Registration Statement and Prospectus, if any, do not comply as to form
in all material respects with the applicable accounting requirements of the 1933
Act and with the published Rules and Regulations or that such financial
statements are not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that of the audited
financial statements included in the Registration Statement and Prospectus; b)
As of a specified date not more than five days prior to the date of this
Agreement in the case of the first letter and not more than two business days
prior to the date of the First Closing Date and if applicable, the Second
Closing Date, in the case of the second and subsequent letters, there have been
any changes in the capital
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stock, increases in debt, decreases in contracts held for sale (net of
allowance), credit enhancement assets (net of amortization) or any increase in
liabilities or decreases in assets or stockholders' equity of the Company, in
each case, as compared with amounts shown in the most recent balance sheet
included in the Prospectus; and c) for the period from the date of the most
recent balance sheet included therein to such specified date, there was any
decrease, as compared with the corresponding period of the previous year, total
revenues or any decrease in net income before income taxes or net income or in
basic or diluted per share amounts of net income except, in each case, for such
changes which the Registration Statement discloses have occurred or may occur;
(iii) In addition to the examination referred to in their report included in the
Prospectus and the limited procedures, inspection of minute books, inquiries and
other procedures referred to in clause (ii) above, they have carried out certain
specified procedures requested by the Underwriters, not constituting an audit in
accordance with generally accepted auditing standards with respect to certain
amounts, percentages and other financial information which are derived from the
accounting records and other financial and statistical data of the Company and
the Subsidiaries which appear in or incorporated by reference in the Prospectus
including the information set forth on the inside cover pages of the Prospectus
and under the captions "Prospectus Summary," "Summary Financial Data,"
"Capitalization," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business" and which are specified by the Underwriters and have compared certain
of such amounts, percentages and financial information with the accounting
records and other appropriate data of the Company and the Subsidiaries and have
found them to be in agreement.
(g) On each Closing Date since the date hereof or since the dates as of
which information is given in the Registration Statement and Prospectus, the
Company and its Subsidiaries shall have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and there shall
not have been any Material Adverse Change, or any development involving a
prospective Material Adverse Change, and the Underwriters shall have received a
certificate, dated such date, of the president and the chief financial officer
of the Company to the effect that: (i) there has been no such Material Adverse
Change; (ii) the representations and warranties of the Company in Section 1 of
this Agreement are true and correct as if made on and as of such date and the
Company has performed all obligations and satisfied all conditions on its part
to be performed or satisfied at or prior to such date; and (iii) the SEC has not
issued any order preventing or suspending the use of any prospectus or issued a
stop order suspending the effectiveness of the Registration Statement and no
proceedings for that purpose have been instituted or are pending or to their
knowledge threatened under the 1933 Act.
(h) The Underwriters shall have received all necessary written consents
from the Company's and the Subsidiaries' lenders and any other person whose
consent is required in connection with this Agreement and the transactions
contemplated thereby.
(i) The Notes shall have been qualified for sale under the Blue Sky Laws
of the States as shall have been specified by the Underwriters. The Indenture
shall have been qualified under the Trust Indenture Act.
(j) The Underwriters shall have received, dated as of each Closing Date,
from the Secretary of the Company a certificate of incumbency certifying the
names, titles and signatures of the officers authorized to execute this
Agreement according to the resolutions of the Board of Directors of the Company
authorizing and approving the execution, delivery and performance of this
Agreement, a copy of such resolutions to be attached to such certificate,
certifying such resolutions and certifying that the Company's Certificate of
Incorporation, as amended, and the Company's Bylaws have been validly adopted
and have not been amended or modified.
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All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Underwriters and to their counsel. If any of the conditions
specified in this section shall not have been fulfilled when and as required by
this Agreement, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to the Closing Date by the
Underwriters. Any such cancellation shall be without liability of the
Underwriters to the Company and shall be in writing or by telegraph or telephone
and confirmed in writing. The Underwriters may waive in writing the
nonperformance by the Company of any one or more of the foregoing conditions or
extend the time for performance of such conditions. Each such waiver shall be
applicable only to the item to which it relates and the closing to which it
relates and no waiver or series of waivers shall be deemed to have waived any
condition at any time other than the condition at the time explicitly waived.
6. INDEMNIFICATION
(a) The Company hereby agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls an Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against
any losses, claims, damages or liabilities arising out of (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or the omission or alleged
omission to state in the Registration Statement or any amendment thereof a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus if used prior to the
Effective Date of the Registration Statement or in the Prospectus (as amended or
as supplemented, if the Company shall have filed with the SEC any amendment
thereof or supplement thereto), or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by the Underwriters or controlling
person (subject to the limitation set forth in Section 6(c) hereof) in
connection with investigating or defending against any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement, or alleged untrue
statement, omission or alleged omission, made in reliance upon and in conformity
with written information furnished to the Company by, or on behalf of, such
Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such Preliminary
Prospectus or the Prospectus or any such amendment thereof or supplement
thereto, or in any application or other statement executed by the Company or
such Underwriter filed in any jurisdiction in order to qualify the Notes under,
or exempt the Notes or the sale thereof from qualification under, the Blue Sky
Laws of such jurisdiction; and provided further that the Company will not be
liable to an Underwriter with respect to any Preliminary Prospectus to the
extent that any such loss, claim, damage or liability results from the fact that
the Underwriter sold Notes to a person who was not sent or given, at or prior to
written confirmation of such sale, a copy of the Prospectus in any case where
such delivery is required by the 1933 Act and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectuses to the Underwriters in requisite quantity
to permit such delivery or sending. This indemnity agreement is in addition to
any liability which the Company may otherwise have.
(b) Each Underwriter agrees to indemnify and hold harmless the Company,
each of the Company's directors, each of the Company's officers who has signed
the Registration Statement and each person who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20A of the 1934 Act against any
losses, claims, damages or liabilities arising out of (i) any untrue statement
or
14
<PAGE> 15
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, or the omission or alleged omission to state
in the Registration Statement or any amendment thereof, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
or (ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus if used prior to the Effective Date of
the Registration Statement or in the Prospectus (as amended or as supplemented,
if the Company shall have filed with the SEC any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading in each case to the extent, but only
the extent, that such untrue statement, alleged untrue statement, omission or
alleged omission, was made in reliance upon and in conformity with written
information furnished to the Company by, or on behalf of, such Underwriter
through Miller & Schroeder Financial, Inc. specifically for use in the
preparation of the Registration Statement or any such post effective amendment
thereof, any such Preliminary Prospectus or the Prospectus or any such amendment
thereof or supplement thereto, or in any application or other statement executed
by the Company or by such Underwriter and filed in any jurisdiction; and such
Underwriter will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer or controlling person (subject to the
limitation set forth in Section 6(c) hereof in connection with investigating or
defending against any such loss, claim, damage, liability or action. This
indemnity agreement is in addition to any liability which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 6, notify in writing the indemnifying party of the commencement thereof.
The omission so to notify the indemnifying party will not relieve it from any
liability under this Section 6 as to the particular item for which
indemnification is then being sought, unless such omission so to notify
prejudices the indemnifying party's ability to defend such action. In case any
such action is brought against any indemnified party and the indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel who shall be reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that if, in the reasonable judgment
of the indemnified party, it is advisable for such parties and controlling
persons to be represented by separate counsel, any indemnified party shall have
the right to employ separate counsel to represent it and all other parties and
their controlling persons who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the Underwriters against
the Company or by the Company against the Underwriters hereunder, in which event
the fees and expenses of such separate counsel shall be borne by the
indemnifying party and paid as incurred. In no event shall the indemnifying
parties be liable for fees and expense of more than one counsel separate from
their own counsel for all indemnified parties in connection with any one action
or separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances. Any such indemnifying party
shall not be liable to any such indemnified party on account of any settlement
of any claim or action effected without the prior written consent of such
indemnifying party.
7. CONTRIBUTION
If the indemnification provided for in Section 6 is unavailable under
applicable law to, or insufficient to hold harmless, any indemnified party in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
15
<PAGE> 16
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and each
Underwriter from the offering of the Notes or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and each Underwriter in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The Company and the Underwriters agree that contribution
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) would not be equitable. The respective relative
benefits received by the Company on the one hand, and the Underwriters, on the
other hand, shall be deemed to be in the same proportion (A) in the case of the
Company, as the total price paid to the Company for the Notes by the
Underwriters (net of underwriting discount received but before deducting
expenses) bears to the aggregate public offering price of the Notes and (B) in
the case of the Underwriters, as the aggregate underwriting discount and
commissions received by them bears to the aggregate public offering price of the
Notes, in each case as reflected in the Prospectus. The relative fault of the
Company and each Underwriter shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by each Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. Notwithstanding
the provisions of this Section 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Notes
underwritten by it and offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person who controls an
Underwriter within the meaning of the 1933 Act or the 1934 Act shall have the
same rights to contribution as such Underwriter, each person who controls the
Company within the meaning of the 1933 Act or the 1934 Act shall have the same
rights to contribution as the Company and each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company.
8. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS.
The respective indemnity and contribution agreements of the Company and
the Underwriters contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Section 1 hereof and
the covenants of the Company set forth in Section 4(h) and 4(i) hereof shall
remain operative and in full force and effect, regardless of any investigation
made by, or on behalf of, the Underwriters, the Company, any of its officers and
directors, or any controlling person referred to in Sections 6 and 7, and shall
survive the delivery of and payment for the Notes. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement.
9. TERMINATION.
(a) Until the First Closing Date, this Agreement may be terminated by the
Underwriters, at its option, by giving notice to the Company, if (i) there shall
have been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Registration Statement or
16
<PAGE> 17
the Prospectus, any Material Adverse Effect, the effect of which is such as to
make it, in the Underwriters' judgment, so material and adverse as to make it
impracticable or inadvisable to market the Notes or to enforce contracts for the
sale of the Notes; (ii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq SmallCap
Market or the over-the-counter market shall have been suspended or minimum
prices shall have been established on such exchanges by the SEC or by such
exchanges or markets; (iii) a general banking moratorium shall have been
declared by federal, New York, Minnesota or California authorities; (iv) there
shall have been such a material adverse change in general economic, monetary,
political or financial conditions, or the effect of international conditions on
the financial markets in the United States shall be such that, in the reasonable
judgment of the Underwriters, makes it impracticable or inadvisable to market
the Notes or to enforce contracts for the sale of the Notes; (v) there shall be
a material outbreak of hostilities or material escalation and deterioration in
the political and military situation between the United States and any foreign
power, or a formal declaration of war by the United States of America shall have
occurred, the effect of which is such as to make it, in the reasonable judgment
of the Underwriters, impracticable or inadvisable to market the Notes or to
enforce contracts for the sale of the Notes. Any such termination shall be
without liability of any party to any other party, except as provided in
Sections 6, 7, and 8 hereof; provided, however, that the Company shall remain
obligated to pay costs and expenses to the extent provided in Sections 4(h) and
(i) of this Agreement.
(b) If the Underwriters elect to terminate this Agreement as provided in
this Section 9, it shall notify the Company promptly by telegram or telephone,
confirmed by letter sent to the address specified in Section 10 hereof.
10. NOTICES.
All communications hereunder shall be in writing and, if sent to the
Underwriters, shall be mailed by certified or registered mail or hand delivered
or sent by facsimile transmission and confirmed in writing to Miller & Schroeder
Financial, Inc., 150 South Fifth Street, Suite 3000, Minneapolis, Minnesota
55402 with a copy to Mark S. Weitz, Esq., Leonard, Street and Deinard
Professional Association, Suite 2300, 150 South Fifth Street, Minneapolis, MN
55402 and if sent to the Company, shall be mailed by certified or registered
mail or hand delivered or sent by facsimile transmission, and confirmed in
writing to the Company at Onyx Acceptance Corporation, 27051 Towne Centre Drive,
Suite 100, Foothill Ranch, CA 92610, Attention: Chief Financial Officer, with a
copy to Thomas Popplewell, Esq., Andrews & Kurth, L.L.P., Suite 3700, 1717 Main
Street, Dallas, TX 75201.
11. SUCCESSORS.
This Agreement shall inure to the benefit of and be binding upon the
Underwriters, the Company, and their successors, assigns and legal
representatives and the controlling persons and officers and directors referred
to in Section 6 and 7 and their heirs and legal representatives, and nothing in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person. No purchaser of
Notes will be deemed a successor because of such purchase.
12. INFORMATION FURNISHED BY UNDERWRITERS.
The statements under the caption "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitute the only written information
furnished by, or on behalf of, the Underwriters
17
<PAGE> 18
specifically for use in the Prospectus and Preliminary Prospectus with reference
to the Underwriters referred to in Section 1(b) and Section 6 hereof.
13. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with the
substantive laws of the State of New York without regard to its choice of laws
provisions.
14. COUNTERPARTS.
This Agreement may be signed in any number of counterparts and all such
counterparts taken together shall constitute the single Agreement of the
parties.
18
<PAGE> 19
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicate of this Agreement, whereupon
it will become a binding agreement between the Company and the Underwriters in
accordance with its terms.
Very truly yours,
ONYX ACCEPTANCE CORPORATION
By
------------------------------------
Its
--------------------------------
ACCEPTANCE
The foregoing Underwriting Agreement is hereby confirmed and accepted by us as
of the date first written above.
MILLER & SCHROEDER FINANCIAL, INC.
AS REPRESENTATIVE OF THE SEVERAL UNDERWRITERS
NAMED IN SCHEDULE I HERETO.
By
-------------------------------
Its
-------------------------------
19
<PAGE> 20
SCHEDULE I
<TABLE>
<CAPTION>
Principal amount of
Name of Underwriter Firm Notes to Be Purchased
- ------------------- --------------------------
<S> <C>
Miller & Schroeder Financial, Inc. ..........................
Peacock, Hislop, Staley & Given, Inc. .......................
-----------
Total $12,000,000
===========
</TABLE>
20
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
ONYX ACCEPTANCE CORPORATION
As Issuer
AND
BANKERS TRUST COMPANY
As Trustee
--------------------------
INDENTURE
Dated as of [CLOSING DATE], 2000
--------------------------
__% Subordinated Notes due ___________, 2006
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture Section
- ----------- -----------------
<S> <C> <C>
(S) 310 (a) (1)................................................................ 609
(a) (2)................................................................ 609
(a) (3)................................................................ N.A.
(a) (4)................................................................ N.A.
(a) (5)................................................................ 608(d)
(b) ................................................................... 608; 609; 610
(c) .................................................................. N.A.
(S) 311 (a) .................................................................. 613
(b) .................................................................. 613
(c) .................................................................. N.A.
(S) 312 (a) .................................................................. 701
(b) .................................................................. 702
(c) .................................................................. 702
(S) 313 (a) .................................................................. 704
(b) (1) .............................................................. 704
(c) .................................................................. 704
(d) .................................................................. 704
(S) 314 (a) .................................................................. 703; 1014
(b) .................................................................. N.A.
(c) (1) .............................................................. 102
(c) (2) .............................................................. 102
(c) (3) .............................................................. N.A.
(d) .................................................................. N.A.
(e) .................................................................. 102
(f) .................................................................. N.A.
(S) 315 (a) .................................................................. 601
(b) .................................................................. 602
(c) .................................................................. 601
(d) ................................................................. 601
(e) ................................................................. 514
(S) 316 (a) (last sentence) .................................................. 101
(a)(1)(A).............................................................. 512
(a)(1)(B) ............................................................. 513
(a)(2) ............................................................... N.A.
(b) .................................................................. 513
(c) ................................................................... 104
(S) 317 (a)(1) ................................................................ 503
(a)(2) ............................................................... 504
(b) ................................................................... 1003
(S)318 (a) ................................................................... 107
</TABLE>
- ---------------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS.....................................................................................1
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION........................1
SECTION 101. DEFINITIONS.................................................................1
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.......................................13
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.....................................13
SECTION 104. ACTS OF HOLDERS............................................................14
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY......................................16
SECTION 106. NOTICE TO NOTEHOLDERS; WAIVER..............................................16
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT..........................................17
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS...................................17
SECTION 109. SUCCESSORS AND ASSIGNS.....................................................17
SECTION 110. SEPARABILITY CLAUSE........................................................17
SECTION 111. BENEFITS OF INDENTURE......................................................17
SECTION 112. GOVERNING LAW..............................................................17
SECTION 113. LEGAL HOLIDAYS.............................................................17
SECTION 114. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS............17
ARTICLE TWO NOTE FORM.....................................................................19
SECTION 201. FORM GENERALLY.............................................................19
SECTION 202. FORM OF FACE OF NOTES......................................................19
SECTION 203. FORM OF REVERSE SIDE OF NOTE...............................................21
SECTION 204. FORM OF CERTIFICATE OF AUTHENTICATION AND FORM OF ASSIGNMENT...............23
ARTICLE THREE THE NOTES...................................................................24
SECTION 301. TITLE AND TERMS GENERALLY..................................................24
SECTION 302. DENOMINATIONS..............................................................24
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.............................24
SECTION 304. TEMPORARY NOTES............................................................25
SECTION 305. REGISTRATION, TRANSFER, AND EXCHANGE.......................................25
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES................................26
SECTION 307. PAYMENTS OF PRINCIPAL AND INTEREST; RIGHTS PRESERVED.......................27
SECTION 308. PERSONS DEEMED OWNERS......................................................28
SECTION 309. CANCELLATION...............................................................28
SECTION 310. COMPUTATION OF INTEREST....................................................28
SECTION 311. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE..............................28
ARTICLE FOUR SATISFACTION AND DISCHARGE...................................................29
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE....................................29
SECTION 402. LEGAL DEFEASANCE...........................................................29
SECTION 403. COVENANT DEFEASANCE........................................................30
SECTION 404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE............................30
SECTION 405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS...................................................32
SECTION 405. REINSTATEMENT..............................................................32
SECTION 407. MONEYS HELD BY PAYING AGENT................................................32
</TABLE>
iii
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<TABLE>
<S> <C>
SECTION 408. MONEYS HELD BY TRUSTEE.....................................................32
ARTICLE FIVE REMEDIES.....................................................................34
SECTION 501. EVENTS OF DEFAULT..........................................................34
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.........................35
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE............36
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM...........................................37
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.....................37
SECTION 506. APPLICATION OF MONEY COLLECTED.............................................37
SECTION 507. LIMITATION ON SUITS........................................................38
SECTION 508. UNCONDITIONAL RIGHT OF NOTEHOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
INTEREST...................................................................39
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.........................................39
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.............................................39
SECTION 511. DELAY OR OMISSION NOT WAIVER...............................................39
SECTION 512. CONTROL BY NOTEHOLDERS.....................................................39
SECTION 513. WAIVER OF PAST DEFAULTS....................................................39
SECTION 514. UNDERTAKING FOR COSTS......................................................40
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS...........................................40
ARTICLE SIX THE TRUSTEE...................................................................41
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES........................................41
SECTION 602. NOTICE OF DEFAULTS.........................................................42
SECTION 603. CERTAIN RIGHTS OF TRUSTEE..................................................42
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES..........................43
SECTION 605. TRUSTEE MAY HOLD NOTES.....................................................43
SECTION 606. MONEY HELD IN TRUST........................................................43
SECTION 607. COMPENSATION AND REIMBURSEMENT.............................................43
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS....................................44
SECTION 609. TRUSTEE REQUIRED; ELIGIBILITY..............................................44
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR..........................44
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.....................................45
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS...................................................................45
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY..........................46
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT........................................46
ARTICLE SEVEN NOTEHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.......................48
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS..............48
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.................48
SECTION 703. REPORTS BY THE COMPANY.....................................................49
SECTION 704. REPORTS BY TRUSTEE.........................................................50
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE........................52
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.......................52
SECTION 802. SUCCESSOR SUBSTITUTED......................................................53
ARTICLE NINE SUPPLEMENTAL INDENTURES......................................................54
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.....................54
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C>
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS........................54
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.......................................55
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES..........................................55
SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES..............................55
SECTION 906. EFFECT ON SENIOR DEBT......................................................55
SECTION 907. CONFORMITY WITH TRUST INDENTURE ACT........................................55
ARTICLE TEN COVENANTS.....................................................................56
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST..........................................56
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY............................................56
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST................................56
SECTION 1004. MAINTENANCE OF CORPORATE EXISTENCE, LICENSING AND RIGHTS...................57
SECTION 1005. PAYMENT OF TAXES AND ASSESSMENTS...........................................57
SECTION 1006. INTENTIONALLY OMITTED......................................................58
SECTION 1007. MAINTENANCE OF NASDAQ LISTING..............................................58
SECTION 1008. LIMITATION ON ADDITIONAL INDEBTEDNESS......................................58
SECTION 1009. TRANSACTIONS WITH AFFILIATES...............................................59
SECTION 1010. Limitation on Dividends and Other Payment Restrictions Affecting a
Subsidiary.................................................................60
SECTION 1011. RESTRICTIONS ON RESTRICTED PAYMENTS........................................61
SECTION 1012. NET WORTH..................................................................62
SECTION 1013. WAIVER OF CERTAIN COVENANTS................................................62
SECTION 1014. STATEMENT AS TO COMPLIANCE.................................................62
ARTICLE ELEVEN REDEMPTION OF NOTES........................................................63
SECTION 1101. OPTIONAL REDEMPTION........................................................63
SECTION 1102. APPLICABILITY OF ARTICLE...................................................63
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE......................................63
SECTION 1104. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED...............................63
SECTION 1105. NOTICE OF REDEMPTION.......................................................63
SECTION 1106. DEPOSIT OF REDEMPTION PRICE................................................64
SECTION 1107. NOTES PAYABLE ON REDEMPTION DATE...........................................64
ARTICLE TWELVE REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON CHANGE IN CONTROL.....65
SECTION 1201. RIGHT TO REQUIRE REPURCHASE................................................65
SECTION 1202. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC........................65
SECTION 1203. CERTAIN DEFINITIONS........................................................66
ARTICLE THIRTEEN SUBORDINATION OF NOTES...................................................67
SECTION 1301. AGREEMENT TO SUBORDINATE...................................................67
SECTION 1302. DISTRIBUTION OF ASSETS, ETC................................................67
SECTION 1303. NO PAYMENT TO NOTEHOLDERS IF SENIOR DEBT IS IN DEFAULT.....................67
SECTION 1304. SUBROGATION................................................................68
SECTION 1305. OBLIGATION OF COMPANY UNCONDITIONAL........................................68
SECTION 1306. PAYMENTS ON NOTES PERMITTED................................................68
SECTION 1307. EFFECTUATION OF SUBORDINATION BY TRUSTEE...................................69
SECTION 1308. KNOWLEDGE OF TRUSTEE.......................................................69
SECTION 1309. RIGHTS OF HOLDERS OF SENIOR DEBT NOT IMPAIRED..............................69
SECTION 1310. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT...........................69
SECTION 1311. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR DEBT.................................69
SECTION 1312. ARTICLE APPLICABLE TO PAYING AGENTS........................................69
</TABLE>
v
<PAGE> 6
<TABLE>
<S> <C>
SECTION 1313. RIGHTS AND OBLIGATIONS SUBJECT TO POWER OF COURT...........................70
</TABLE>
vi
<PAGE> 7
INDENTURE
THIS INDENTURE, dated as of April __, 2000, between Onyx
Acceptance Corporation, a Delaware corporation (the "Company"), having its
principal office at 27051 Towne Centre Drive, Foothill Ranch, CA 92610 and
Bankers Trust Company, a New York banking corporation (the "Trustee"), currently
located at Four Albany Street, New York, New York 10006.
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized an issue of its ___% Subordinated Notes (the "Notes") in the
aggregate principal amount of up to Thirteen Million Eight Hundred Thousand
Dollars ($13,800,000), to be issued as fully registered Notes without coupons,
to be authenticated by the Certificate of the Trustee, to be payable and to be
redeemable all as hereinafter provided; and
WHEREAS, the Trustee has power to enter into this Indenture and to
accept and execute the trusts herein created; and
WHEREAS, the Company represents that all acts and things necessary to
make the Notes, when executed by the Company and authenticated and delivered by
the Trustee as in this Indenture provided and issued, the valid, binding and
legal obligations of the Company, and to constitute this instrument a valid
indenture and agreement according to its terms, have been done and performed,
and the execution of this Indenture and the issue hereunder of the Notes have in
all respects been duly authorized, and the Company, in the exercise of each and
every right and power in it vested, executes this Indenture and proposes to
make, execute, issue and deliver the Notes.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in order to provide for
the payment of the principal of, premium, if any, and interest on the Notes
issued under this Indenture according to their tenor and effect and the
performance and observance of each and all of the covenants and conditions
herein and therein contained, for and in consideration of the premises and of
the purchase and acceptance of the Notes by the respective purchasers thereof
and for other good and valuable consideration, the receipt whereof is hereby
acknowledged, the Company has executed and delivered this Indenture in trust for
the equal and proportionate benefit, security and protection of all of the
Holders of Notes issued or to be issued under and secured by this Indenture,
without preference, priority or distinction as to lien or otherwise of any of
the Notes over any of the others;
THIS INDENTURE FURTHER WITNESSETH, that the Company has agreed and
covenanted with the respective Noteholders from time to time as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
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(1) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act of 1939, as amended (the "TIA"), either directly or by reference therein,
have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
and
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct 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. Without limiting the generality of the foregoing, at the date of this
Indenture, the "Affiliates" of the Company include any Subsidiary.
Notwithstanding the foregoing, no Person (other than the Company or any
Subsidiary of the Company) in whom a Securitization Entity makes an Investment
in connection with a Qualified Securitization Transaction shall be deemed to be
an Affiliate of the Company or any of its Subsidiaries solely by reason of such
Investment.
"Authenticating Agent" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Notes.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state
or foreign law for the relief of debtors.
"BayView Loan Agreement" means the Term Loan Agreement dated as of
February 24, 1998 between the Company and BayView Capital Corporation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the city in which the
principal office of the Trustee is located are authorized or obligated by law or
executive order to close.
"Capitalized Lease Obligation" means any lease or other agreement for
the use of property which, in accordance with GAAP, should be capitalized on the
lessee's or user's balance sheet.
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"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in equity of such Person (however designated), including any preferred
stock, but excluding any debt securities convertible into such equity.
"Cash Equivalents" means, with respect to any Person at any date of
determination, any of the following held by such Person, (i) any evidence of
Indebtedness with a maturity of 180 days or less issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) certificates of deposit
or acceptances with a maturity of 180 days or less of, or a savings account in,
any financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than $500,000,000
and whose long-term debt is rated "A" or higher according to Moody's Investors
Service, Inc. (or such similar rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act); (iii) commercial paper with a maturity of 180 days or less issued by a
corporation (except any Affiliate of the Company) organized under the laws of
any state of the United States of America or the District of Columbia and rated
at least A-1 by Standard & Poor's Ratings Group or at least P-1 by Moody's
Investors Service, Inc.; (iv) repurchase agreements and reverse repurchase
agreements with a term of not more than 30 days for underlying securities of the
type listed in clause (i) above entered into with a bank meeting the obligations
of clause (ii) above; (v) instruments backed by letters of credit issued by
financial institutions satisfying the conditions of (ii) above; and (vi) mutual
funds or similar securities, not less than 80% of the assets of which are
invested in securities of the type referred to in clauses (i) through (v).
"Change of Control" has the meaning specified in Section 1203.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Commodity Price Protection Agreement" means, in respect of a Person,
any forward contract, commodity swap agreement, commodity option agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Common Stock" means the Company's Common Stock, $.01 par value per
share, authorized at the date this Indenture is executed, whether voting or
non-voting, and shares of any class or classes resulting from any
reclassification or reclassifications thereof which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and also shall
include stock of the Company of any other class, whether now or hereafter
authorized, which ranks, or is entitled to a participation, as to assets or
dividends, substantially on a parity with such Common Stock or other class of
stock into which such Common Stock may have been changed; provided however, that
warrants or other rights to purchase Common Stock will not be deemed to be
Common Stock.
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"Company" means Onyx Acceptance Corporation, a Delaware corporation,
until a successor Person shall have become such pursuant to the applicable
provisions of this Indenture and thereafter "Company" shall mean such successor
Person.
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by its Chairman of the Board,
its Chief Executive Officer, its President or any Vice President, its Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary, and delivered to the
Trustee.
"Company Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors of the Company and to be in full force and effect on the
date of such certification and delivered to the Trustee. In the event the Board
of Directors shall delegate to any director or officer of the Company or any
group consisting of directors of the Company, officers of the Company or
directors and officers of the Company the authority to take any action which
under the terms of this Indenture may be taken by "Company Resolution," then any
action so taken by, and set forth in a resolution adopted by, the director,
officer or group within the scope of such delegation shall be deemed to be a
"Company Resolution" for purposes of this Indenture.
"Consolidated" when used in conjunction with any other defined term
means the aggregate amount of the items included within the defined term of the
Company on a consolidated basis in accordance with GAAP, eliminating
inter-company items.
"Consolidated Debt" shall have the meaning assigned to it in accordance
with GAAP.
"Consolidated Leverage Ratio" as of any date of determination means the
ratio (i) the aggregate amount of all consolidated Indebtedness of the Company
and its Restricted Subsidiaries excluding (A) Permitted Warehouse Indebtedness,
(B) Indebtedness under Currency Exchange Protection Agreements and Interest Rate
Protection Agreements permitted to be incurred pursuant to clause (7) of Section
1008 hereof (C) Indebtedness of a Securitization Entity permitted to be incurred
pursuant to clause (9) of Section 1008 hereof (D) Indebtedness incurred in
connection with a Change in Control permitted to be incurred pursuant to clause
(6) of Section 1008 hereof, and (E) Purchase Money Indebtedness and Capitalized
Lease Obligations permitted to be incurred pursuant to clause (10) of Section
1008 hereof to (ii) the Consolidated Tangible Net Worth of the Company.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries, for
such period, on a Consolidated basis, determined in accordance with GAAP,
provided that extraordinary gains and losses (determined in accordance with
GAAP) shall be excluded.
"Consolidated Tangible Net Worth" means, with respect to any Person at
any date of determination, the Consolidated stockholders' equity represented by
the shares of such Person's capitalized stock (other than Disqualified Stock)
outstanding at such date, as determined on a Consolidated basis in accordance
with GAAP less any portion of such stockholders' equity attributable to
intangible assets as determined in accordance with GAAP and prepaid expenses.
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"Corporate Trust Office," when used with respect to the Trustee means
the principal office of the Trustee in the state of New York, at which at any
particular time its corporate trust business shall be principally administered,
which office is on the date of this Indenture located at Four Albany Street, New
York, New York 10006, or said office of any successor Trustee.
"Currency Exchange Protection Agreement" means, in respect of a Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Defaulted Principal" has the meaning specified in Section 307.
"Disqualified Stock" means, with respect to any Person, any capital
stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable
at the option of the holder thereof, in whole or in part, in each case on or
prior to the Stated Maturity of the Notes; provided, however, that Capital Stock
of the Company or any Restricted Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Capital Stock in the event of a change of control of the Company or Restricted
Subsidiary, which provisions have substantially the same effect as the
provisions of Article Twelve hereof, shall not be deemed to be Disqualified
Stock solely by virtue of such provisions.
"Dividends" means payments in respect of the Company's Common Stock in
either cash or property, but shall not include payments solely in Common Stock
or distributions in the form of rights to acquire Common Stock.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" is defined in Section 104 hereof.
"Financial Statements" means the statement of operations, balance sheet,
and/or statement of cash flows of any Person prepared in accordance with GAAP.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Guaranty" by any Person means any obligations, including letters of
credit, both standby and irrevocable in nature, other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection,
guaranteeing any Indebtedness, dividend, or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including,
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without limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person (i) to purchase such Indebtedness or obligation or any
property or assets constituting security therefor; (ii) to advance or supply
funds for the purchase or payment of such Indebtedness or obligation, or to
maintain working capital or other balance sheet condition, or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation; (iii) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation; or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this definition, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
equal to the principal amount of such Indebtedness which has been guaranteed,
and a Guaranty in respect of any other obligation, liability, or dividend shall
be deemed to be equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Holder" when used with respect to any Note means a Noteholder.
"Indebtedness" means, with respect to any Person at any date, without
duplication, all items of indebtedness in respect of borrowed money which, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liabilities side of a balance sheet or statement of financial
position of such Person at such date, and in addition shall include (i)
Guaranties by such Person, (ii) all Capitalized Lease Obligations of such
Person, and (iii) all indebtedness secured by any mortgage, lien, pledge, charge
or encumbrance upon property owned by such Person, whether or not the
indebtedness so secured has been assumed by such Person, excluding for the
purpose of clause (iii), a security interest in any property or asset granted by
a special purpose financing subsidiary in connection with a securitization in
which no indebtedness is recorded on the Company's consolidated balance sheet
and in which recourse for non-payment or nonperformance is limited to
realization pursuant to such security interest upon such property or asset. For
the purpose of computing the "Indebtedness" of any Person, there shall be
excluded any particular Indebtedness to the extent that, upon or prior to the
maturity thereof, there shall have been deposited with the proper depository in
trust the necessary funds, securities, or evidences of such Indebtedness, if
permitted by the instrument creating such Indebtedness, for the payment,
redemption, or satisfaction of such Indebtedness, and thereafter such funds and
evidences of Indebtedness so deposited shall not be included in any computation
of the assets of such Person.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall also include the terms of the Notes established as contemplated by
Section 301.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Interest Rate Protection Agreement" means, in respect of a Person, any
interest rate swap agreement, interest rate option agreement, interest rate cap
agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
"Issue Date" means the date on which the Notes are originally issued in
accordance with the terms of this Indenture.
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"Investment" in any Person means any direct or indirect advance, loan
(other than acquisition or origination of consumer finance contracts in the
ordinary course of the Company's business) or other extension of credit
(including by way of guarantee or similar arrangement) or capital contribution
to (by means of any transfer of cash or other property to others or any payment
for Capital Stock or any payment for property or services for the account or use
of others), or any purchase or acquisition of Capital Stock, indebtedness or
similar instruments issued by such Person. Investments shall not include (i)
transfer or sale of consumer finance contracts to special purpose financing
subsidiaries of the Company or to related trusts in connection with the
securitization of such assets in the ordinary course of business consistent with
past practice, (ii) cash deposits to fund credit enhancement accounts in
connection with such securitizations or (iii) acquisition of credit enhancement
assets in the ordinary course of business consistent with past practice.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other security
agreement of any kind or nature whatsoever. For purposes of this Indenture, a
Person shall be deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capital Lease Obligation or other title retention
agreement relating to Indebtedness of such Person.
"Maturity" when used with respect to any Note, means the date on which
the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity thereof or by declaration of
acceleration, call for redemption, required repurchase pursuant to Article
Twelve or otherwise.
"Nasdaq" means the automated quotation system of the National
Association of Securities Dealers, Inc. or another comparable quotation system.
"Net Income" means, with respect to any Person for any period, the net
income or loss of such Person determined in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which neither
the Company nor any of the Restricted Subsidiaries (other than the Person
incurring such Indebtedness) (i) provides a Guaranty or other credit enhancement
of any kind (including any undertaking, agreement or instruction that would
constitute Indebtedness or (ii) is directly or indirectly liable (as the primary
obligor or otherwise); (b) no default with respect to which would permit, upon
notice, lapse of time or both, any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (c) as to which the
lenders or holders thereof have been notified in writing that they will not have
any recourse to the Capital Stock or any of its Restricted Subsidiaries (other
than the Person Incurring such Indebtedness).
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Noteholder" means a Person in whose name a Note is registered on the
Note Register, or the beneficial owner of such Notes if record ownership is held
by a nominee.
"Notes" means the ___% Subordinated Notes due _________, 2006 issued
pursuant to this Indenture.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board of Directors, Chief Executive Officer, President, Chief Financial
Officer, Executive Vice President or any Vice President, and by the Treasurer,
an Assistant Treasurer, Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
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"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Original Interest Accrual Date" as to any Note, means the date from
which interest shall begin to accrue in connection with the original issuance of
such Note, which shall be [closing date], or with respect to any Note sold after
any quarterly Interest Payment Date, the most recent Interest Payment Date.
"Outstanding," when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except: (i) Notes theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation; (ii) Notes for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Notes, provided that if such Notes are to be redeemed notice
of such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; (iii) Notes which have been
paid pursuant to Section 307 or in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture; provided,
however, that in determining whether the Noteholders of the requisite principal
amount of the Outstanding Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder as of any date. Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or of such other obligor.
"Parity Debt" means Indebtedness incurred under the Bay View Loan
Agreement and any and all Indebtedness of the Company created, incurred,
assumed, or guaranteed by the Company before, at, or after the date of execution
of the Indenture which (a) matures by its terms, or is renewable at the option
of the Company to a date, more than one year after the date of the original
creation, incurrence, assumption, or guaranty of such Indebtedness by the
Company, (b) contains covenants, conditions and restrictions on the Company
which are not inconsistent with nor violate any of the covenants, conditions and
restrictions in this Indenture, and (c) is neither Senior Debt nor Subordinated
Debt but in no event shall Parity Debt include deferred taxes.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Notes on behalf of the
Company. Unless otherwise specified in a Company Order, the Paying Agent shall
initially be the Trustee.
"Permitted Investment" means an Investment by the Company or any
Subsidiary in (i) the Company or a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Cash Equivalents; (iv) receivables (other than Receivables) owing to the
Company or any Restricted Subsidiary if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; (v) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business; (vi)
loans or advances to employees made in the ordinary course of business of the
Company or such Restricted
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Subsidiary; (vii) Receivables; (viii) Interest Rate Protection Agreements and
Currency Exchange Protection Agreements; (ix) Retained Interest Receivables; (x)
loans to third parties for the origination of Receivables in the ordinary course
of business and any warrants, Capital Stock or other consideration received in
connection therewith; (xi) any Investment by the Company or a Restricted
Subsidiary of the Company in a Securitization Entity or any Investment by a
Securitization Entity in any other Person in connection with a Qualified
Securitization Transaction; and (xii) Investments (other than Investments
permitted pursuant to clauses (i) - (xi) above) by the Company and the
Restricted Subsidiaries in an aggregate amount not to exceed $1,000,000.
"Permitted Warehouse Indebtedness" means Warehouse Indebtedness in
connection with a Warehouse Facility; provided, however, that (i) the assets as
to which such Warehouse Indebtedness relates are or, prior to any funding under
the related Warehouse Facility with respect to such assets, were eligible to be
recorded as held for sale on the consolidated balance sheet of the Company in
accordance with GAAP, (ii) such Warehouse Indebtedness will be deemed to be
Permitted Warehouse Indebtedness (a) in the case of a Purchase Facility, only to
the extent the holder of such Warehouse Indebtedness has no contractual recourse
to the Company or its Restricted Subsidiaries to satisfy claims in respect of
such Permitted Warehouse Indebtedness in excess of the realizable value of the
Receivables financed under such Warehouse Facility, and (b) in the case of any
other Warehouse Facility, only to the extent of the lesser of (x) the amount
advanced by the lender with respect to the Receivables financed under such
Warehouse Facility, and (y) 100% of the principal amount of such Receivables and
(iii) any such Indebtedness has not been outstanding in excess of 364 days.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note. For purposes of this definition, any Note authenticated and
delivered under Section 306 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Note shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Note.
"Principal Payment Date" means the Maturity of the principal on the
Notes.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the Indenture, a calculation in accordance with Article 11
of Regulation S-X promulgated under the Securities Act (to the extent
applicable), as interpreted in good faith by a majority of the Board of
Directors of the Company after consultation with the independent certified
public accountants of the Company, or otherwise a calculation made in good faith
by a majority of the Board of Directors of the Company after consultation with
the independent certified public accountants of the Company.
"Purchase Facility" means any Warehouse Facility in the form of a
purchase and sale facility pursuant to which the Company or a Restricted
Subsidiary of the Company sells Receivables to a financial institution,
commercial paper facility, conduit or Securitization Entity and retains a right
of first refusal upon the subsequent resale of such Receivables by such
financial institution, commercial paper facility, conduit or Securitization
Entity.
"Purchase Money Indebtedness" means any Indebtedness incurred by a
Person to finance or refinance the cost of the construction or purchase of, or
repairs, improvements or additions to, property, the principal amount of which
Indebtedness does not exceed the sum of (iv) 100% of such cost and (v)
reasonable fees and expenses of such Person incurred in connection therewith.
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"Qualified Securitization Transaction" means any transaction or series
of transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any of its Subsidiaries may sell,
convey or otherwise transfer to (a) a Securitization Entity (in the case of a
transfer by the Company or any of its Subsidiaries) and (b) any other Person (in
the case of a transfer by a Securitization Entity), or may grant a security
interest in, any Receivables (whether now existing or arising or acquired in the
future) of the Company or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such Receivables,
all contracts and contract rights and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets (including contract rights) which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving Receivables.
"Receivables" means installment sale contracts, loans evidenced by
promissory notes secured by assets, leases, mortgages or other finance
receivables or instruments purchased or originated in connection with the
operations of a Related Business.
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the first day (whether or not a Business Day) of the calendar month
in which such Interest Payment Date occurs, and "Regular Record Date" for the
principal payable on any Principal Payment Date means the first day (whether or
not a Business Day) of the calendar month in which such Principal Payment Date
occurs.
"Related Business" means any consumer automobile and light truck finance
business, or any financial service business related thereto, including, without
limitation, the business of the Company in existence on the Issue Date, and any
other consumer or commercial finance business that does not produce gross
revenues in excess of 25% of the consolidated gross revenues of the Company and
its Subsidiaries.
"Repurchase Date" is defined in Section 1201 hereof.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any executive vice president, any vice
president, any assistant vice president, the secretary, any assistant secretary,
the treasurer, any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, or any other employee of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of such
person's knowledge of and familiarity with the particular subject.
"Restricted Payment" means: (i) the declaration or payment of any
dividend or any other distribution on the Capital Stock of the Company or any
Subsidiary of the Company or any payment made to the direct or indirect holders
(in their capacities as such) of the capital stock of the Company or any
Subsidiary of the Company (other than (x) dividends or distributions payable
solely in Capital Stock or in options, warrants or other rights to purchase
Capital Stock, and (y) in the case of any Subsidiary of the Company, dividends
or distributions payable to the Company or to a Subsidiary of the Company), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any Subsidiary or (iii) Investments in any
Person (other than a Permitted Investment). If a Restricted Payment is made in
other than cash, the value of any such payment shall be determined in good faith
by the Board of Directors, whose
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determination shall be conclusive and evidenced by a Company Resolution to be
filed with the Trustee. For purposes of this definition, "Restricted Payment"
shall not include (a) payments made in the form of the Company's Common Stock,
(b) mandatory repurchase obligations by the Company with respect to shares
issued by any employee stock ownership plan of the Company, (c) purchases of
common stock of, or Investments in a Wholly-Owned Subsidiary of the Company that
is not a Restricted Subsidiary, (d) repurchases of the Company's Common Stock
on the open market made in compliance with Rule 10b-18 of the Exchange Act so
long as there is no Default or Event of Default which has not been cured and the
Company will be in compliance with Section 1012 after giving pro forma effect to
such repurchases or (e) repurchases of the Company's Common Stock on the open
market made to fund matching contributions under the Company's 401(k) plan or
deferred compensation program.
"Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.
"Retained Interest" means, over the life of a "pool" of Receivables that
have been sold or otherwise transferred by a Person to a trust or other Person
in a securitization or sale, the direct or indirect rights retained by such
Person or its Restricted Subsidiaries at or subsequent to the closing of such
securitization or sale with respect to such "pool", including any rights to
receive cash flows attributable to such pool and retained by such Person,
whether such rights are contractual, by virtue of such Person being a holder of
Capital Stock of such trust or other Person or otherwise.
"Retained Interest Receivables" of a Person means the direct or indirect
right to Retained Interests capitalized on such Person's or any of its
Restricted Subsidiaries' consolidated balance sheet (the amount of which shall
be determined in accordance with GAAP), including, without limitation,
subordinated and interest-only certificates and any such rights as a holder of
Capital Stock of a trust or other Person to which a "pool" of Receivables has
been sold or otherwise transferred in a securitization or sale.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers Receivables and related assets) which engages in no activities other
than in connection with the financing of Receivables and which is designated by
the Board of Directors of the Company (as provided below) as a Securitization
Entity: (a) has no outstanding Indebtedness other than Non-Recourse Indebtedness
(other than Standard Securitization Undertakings), (b) with which neither the
Company nor any Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing receivables of such
entity, and (c) to which neither the Company nor any Subsidiary of the Company
has any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing conditions.
"Senior Debt" means the principal of, premium if any and all interest on
(i) any and all Indebtedness of the Company (other than the Notes, Parity Debt
and Subordinated Debt) and (ii) all renewals, extensions and refundings thereof;
provided that any Indebtedness shall not be Senior Debt if the instrument
creating or evidencing any such Indebtedness or pursuant to which such
Indebtedness is outstanding, provides that such Indebtedness, or such renewal,
extension or refunding thereof, is junior or is not superior in right of payment
to or ranks pari passu with the Notes.
"Special Record Date" for the payment of any Defaulted Interest or
Defaulted Principal means a date fixed by the Trustee pursuant to Section 307.
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"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivables transaction.
"Stated Maturity," when used with respect to any Note or any installment
of interest thereon, means the date specified in such Note as the fixed date on
which such Note is due and payable or such installment of interest on such Note
is due and payable.
"Subordinated Debt" means any and all Indebtedness of the Company (but
not any Subsidiary) created, incurred, assumed or guaranteed by the Company
before, at or after the date of execution of this Indenture which, by the terms
of the instrument (or any supplemental instrument) creating or evidencing such
Indebtedness or pursuant to which such Indebtedness is outstanding it is
provided that such Indebtedness, or any renewal, extension, or refunding
thereof, (a) is expressly subordinate and junior in right of payment to the
Notes (whether or not subordinated to any other Indebtedness of the Company or
is not, by its terms, Senior Debt or Parity Debt. "Subordinated Debt" shall
include any Indebtedness of the Company to Affiliates of the Company and any
Indebtedness incurred by the Company under any agreement to redeem or repurchase
any securities of the Company.
"Subsidiary" means any corporation, more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors or trustees
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Total Liabilities" means, with respect to any Person for any period,
the total liabilities of such Person, as presented on such Person's Consolidated
Balance Sheet, for such period on a Consolidated basis, determined in accordance
with GAAP.
"Trust Estate" means all rights, interest and property which has been
collaterally assigned to the Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of the Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"U.S. Government Obligations" means (a) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a) (2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or a specific payment of
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principal or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors and at all times thereafter remains eligible to be so
designated in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (a) the
Subsidiary to be so designated has total assets of $1,000 or less or (b) if such
Subsidiary has assets greater than $1,000, (i) the Company could incur $1.00 of
additional Indebtedness under Section 1008 (3) hereof and (ii) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced by the Company to the Trustee by promptly filing with the
Trustee a copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions. If, at anytime, the Company is unable to incur at least
$1.00 of additional Indebtedness under Section 1008 hereof, or a Default shall
have occurred and be continuing, any Subsidiary of the Company then designated
an Unrestricted Subsidiary shall immediately become a Restricted Subsidiary.
"Vice President" when used with respect to the Trustee or the Company,
means any vice president, whether or not designated by a word or words added
before or after the title "Vice President."
"Warehouse Facility" means any funding arrangement with a financial
institution to the extent such agreement is to finance the purchase or
origination of Receivables by the Company or a Subsidiary of the Company, or the
making of loan to a Person for the purpose of financing the purchase or
origination by such Person of Receivables for resale or sale to the Company or
any Subsidiary of the Company, and in each case for the purpose of pooling such
Receivables prior to securitization or sale in the ordinary course of business,
including Purchase Facilities pursuant to which the Company or a Subsidiary of
the Company sells Receivables to a financial institution and retains a right of
first refusal upon the subsequent resale of such Receivables by such financial
institution.
"Warehouse Indebtedness" means Indebtedness of the Company or a
Restricted Subsidiary of the Company equal to the greater of (x) the
consideration received by the Company or its Restricted Subsidiaries under a
Warehouse Facility and (y) in the case of a Purchase Facility, the book value of
the Receivables financed under such Warehouse Facility, until such time such
Receivables are (i) securitized, (ii) repurchased by the Company or its
Restricted Subsidiaries or (iii) sold by the counterparty under the Warehouse
Facility to a Person who is not an Affiliate of the Company.
"Wholly Owned" when used in connection with any Subsidiary, means a
Subsidiary of which all of the issued and outstanding shares of voting stock,
except shares required as directors' qualifying shares, are owned by the Company
and/or one or more of its Wholly Owned Subsidiaries. For purposes of this
definition, "voting stock" shall have the same meaning as in the definition of
Subsidiary.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee, if requested by the Trustee, an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such
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application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished. Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows or in the exercise of
reasonable prudence should know that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows or in the exercise of
reasonable prudence should know that the certificate or opinion or
representations with respect to such matters are erroneous.
Any certificate or opinion of an officer of the Company or any Opinion
of Counsel may be based, insofar as it relates to accounting matters, upon a
certificate, statement or opinion of an accountant or firm of accountants,
unless such officer or counsel, as the case may be, knows or in the exercise of
reasonable prudence should know that the certificate, statement or opinion with
respect to the accounting matters upon which such certificate or opinion is
based is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may be consolidated and form one
instrument.
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SECTION 104. ACTS OF HOLDERS.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing. Except as herein or therein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 601) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to such witness, notary public or other
officer the execution thereof. Where such execution is by a signer acting in a
capacity other than such person's individual capacity, such certificate or
affidavit shall also constitute sufficient proof of such person's authority. The
fact and date of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in any other
manner which the Trustee deems sufficient.
(3) The ownership of Notes shall be proved by the Note Register.
(4) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
(5) The Company may set any day as a record date for the purpose of
determining the Holders of Notes entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided or permitted by this Indenture to be given, made or taken by Holders of
Notes, provided that the Company may not set a record date for, and the
provisions of this paragraph shall not apply with respect to the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. Such record date shall be the later of 30 days prior to the first
solicitation of Holders of Notes entitled to give, make or take any request,
demand, authorization, direction, notice, consent, waiver, or other action or
the date of the most recent list of holders furnished to the Trustee pursuant to
Section 701. If any record date is set pursuant to this paragraph, the Holders
of Notes on such record date, and no other Holders shall be entitled to take
relevant action, whether or not such Holders remain Holders after the record
date, and no other Holders shall be entitled to take the relevant action,
whether or not such Holders remain Holders after such record date; provided that
no such action shall be effective hereunder unless taken on or prior to the
applicable Expiration Date by Holders of the requisite principal amount of
outstanding Notes on such record date. Nothing in this paragraph shall be
construed to prevent the Company from setting a new record date for any action
for which a record date has previously been set pursuant to this paragraph
(whereupon the record date previously set shall automatically and with no action
by any Person be canceled and of no effect), and nothing in this paragraph shall
be construed to render ineffective any action taken by Holders of the requisite
principal amount of Notes on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Company, at its expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Trustee in writing and to each
Holder of Notes in the manner set forth in Section 106.
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The Trustee may set any day as a record date for the purpose of
determining the Holders of Notes entitled to join in the giving or making of (i)
any Notice of Default, (ii) any declaration of acceleration referred to in
Section 502, (iii) any request to institute proceedings referred in Section
507(2) or (iv) any direction referred to in Section 512, in each case with
respect to Notes. If any record date is set pursuant to this paragraph, the
Holders of Notes on such record date, and no other Holders, shall be entitled to
join in such notice, declaration, request or direction, whether or not such
Holders remain Holders after such record date; provided that no such action
shall be effective hereunder unless taken on or prior to the applicable
Expiration Day by Holders of the requisite principal amount of Notes on such
record date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action for which a record date has
previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Notes on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by the Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Notes in the manner set forth in Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no Expiration Date shall be later than the 180th day
after the applicable record date; and provided, further, that no such change
shall be effective unless notice of the proposed new Expiration Date is given to
the other party hereto in writing, and to each Holder of Notes in the manner set
forth in Section 106, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section, the party hereto which set such record date shall be deemed to
have initially designated the 180th day after such record date as the Expiration
Date with respect thereto, subject to its right to change the Expiration Date as
provided in this paragraph.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any Note may do so with regard to all or any
part of the principal amount of such Notes or by one or more duly appointed
agents each of which may do so pursuant to such appointment with regard to all
or any part of such principal amount.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Noteholders or other document provided or permitted by this Indenture
to be made upon, given or furnished to or filed with the Trustee by any Holder
or by the Company, or the Company by the Trustee or any Holder, shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and delivered personally, transmitted by facsimile
transmission (provided a confirming copy is sent by mail), delivered by
overnight courier or mailed, first-class postage prepaid.
(1) if to the Trustee by any Holder or by the Company at its Corporate
Trust Office, specified in the first paragraph of this instrument, or
(2) if to the Company by the Trustee or by any Holder to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company.
Any communication contemplated herein shall be deemed to have been made,
given, furnished and filed if personally delivered, on the date of delivery, if
transmitted by facsimile transmission, telex or other
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direct written electronic means, on the date of transmission, and if transmitted
by registered mail, on the date of receipt.
SECTION 106. NOTICE TO NOTEHOLDERS; WAIVER.
Where this Indenture or any Note provides for notice to Noteholders of
any event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder, or if the terms herein provide for notice to less than all
Noteholders, then to such Noteholders as to whom notice may be required to be
sent, at each such Holder's address as it appears on the Note Register, not
later than the latest date, if any, and not earlier than the earliest date, if
any, prescribed for the giving of such notice. In any case where notice to
Noteholders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Noteholders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Noteholders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute notification for every purpose hereunder.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with
another provision hereof which is required or deemed to be included in this
Indenture by, or is otherwise governed by, any of the provisions of the Trust
Indenture Act, such other provision shall control; and if any provision hereof
otherwise conflicts with the Trust Indenture Act, the Trust Indenture Act shall
control.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, expressed or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders of Notes, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
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SECTION 112. GOVERNING LAW.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Principal Payment Date,
Redemption Date or Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of interest or principal (and premium, if any) need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, Principal Payment Date,
Redemption Date, or at the Stated Maturity; provided that no interest shall
accrue for the period from and after any such Interest Payment Date, Principal
Payment Date, Redemption Date or Stated Maturity.
SECTION 114. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS.
No recourse shall be had for the payment of the principal of, or the
premium, if any, or interest on, any Note, or for any claim based thereon or
otherwise in respect thereof or of the indebtedness represented thereby, or upon
any obligation, covenant or agreement of this Indenture, against any
incorporator, stockholder, employee, officer or director, as such, past, present
or future, of the Company, either directly or through the Company, whether by
virtue of any constitutional provision, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise. It is expressly agreed
and understood that this Indenture and the Notes are solely corporate
obligations, and that no personal liability whatsoever shall attach to, or be
incurred by, any incorporator, stockholder, employee, officer or director, as
such, past, present or future, of the Company, either directly or through the
Company, because of the incurring of the indebtedness hereby authorized or under
or by reason of any of the obligations, covenants, promises or agreements
contained in this Indenture or in any of the Notes or to be implied herefrom or
therefrom. All liability, if any, of that character against every such
incorporator, stockholder, employee, officer and director, by the acceptance of
the Notes and as a condition of, and as part of the consideration for the
execution of this Indenture and the issue of the Notes, is expressly waived and
released.
(END OF ARTICLE ONE)
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ARTICLE TWO
NOTE FORM
SECTION 201. FORM GENERALLY.
The Notes and the Trustee's Certificate of Authentication shall be in
substantially the form set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
The definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner, all as determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
SECTION 202. FORM OF FACE OF NOTES.
ONYX ACCEPTANCE CORPORATION
Incorporated Under the Laws of Delaware
___% SUBORDINATED NOTE DUE _____, 2006
Registered No.: Registered
Principal
_______________________ Amount: $______
Original Interest Accrual CUSIP:
Date: ________________
Onyx Acceptance Corporation, a corporation created under the laws of the
State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to ________________________________ or
registered assigns, the principal sum of ______________ Dollars ($_______) on
_____ 1, 2006 (the "Final Maturity Date") and to pay interest hereon from the
Original Interest Accrual Date set forth above, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, beginning on
_____________, 2000 ("Initial Interest Payment Date") and on the 1st day of each
_______, ________, ________, and _______ thereafter until fully paid (each such
date being an "Interest Payment Date"), at the rate of _____ percent (___%) per
annum, until the principal hereof is paid or made available for payment. The
principal hereof is subject to optional redemption, in whole but not in part, as
provided in the Indenture, and if not so redeemed, shall be due and payable in
full on the Final Maturity Date (any date set for principal payment is the
"Principal Payment Date"). The principal and interest so payable
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and punctually paid or duly provided for on any Principal Payment Date or
Interest Payment Date, as provided in the Indenture, will be paid to the Person
in whose name this Note (or one or more Predecessor Notes) is registered (the
"Holder") at the close of business on the Regular Record Date for such principal
or interest, which shall be the first day (whether or not a Business Day) of the
calendar month next preceding such Principal Payment Date or Interest Payment
Date. Any such principal or interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date and
may either be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Principal or Defaulted Interest to be
fixed by the Trustee, notice whereof shall be given to Holders of Notes not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the applicable requirements of any
securities exchange or market on which the Notes may be listed or included, and
upon such notice as may be required by such exchange or market, all as more
fully provided in the Indenture. Payment of the principal of and interest (and
premium, if any) on this Note will be made at the office or agency maintained by
the Company for such purpose in Foothill Ranch, California, or in such other
office or agency as may be selected by the Company in accordance with the
Indenture, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts,
provided, however, that at the option of the Company payment of interest may be
made in United States dollars by check mailed to the address of the Person
entitled thereto as such address shall appear in the Note Register. THE HOLDER
MUST PRESENT THIS NOTE TO COLLECT PRINCIPAL; AND WHEN FULLY PAID, THE NOTE SHALL
BE SURRENDERED AND CANCELLED.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
No recourse shall be had for the payment of the principal or interest of
this Note against any Company incorporator, stockholder, officer, director,
employee or agent by virtue of any statute or by enforcement of any assessment
or otherwise; and any and all liability of incorporators, stockholders,
directors, officers, employees and agents of the Company being released hereby.
IN WITNESS WHEREOF, the Company has caused this ___% Subordinated Note
due _____, 2006 to be signed in its name by the manual or facsimile signature of
its President and attested to by the manual or facsimile signature of its
Secretary.
Dated: ONYX ACCEPTANCE CORPORATION
--------------
By
---------------------------------
Name:
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<PAGE> 27
Title:
Attest:
- ---------------------------------
, Secretary
- ---------------
SECTION 203. FORM OF REVERSE SIDE OF NOTE.
This Note is one of a duly authorized issue of ___% Subordinated Notes
of the Company designated as its ___% Subordinated Notes (the "Notes") in the
maximum aggregate principal amount of up to $13,800,000, issued and to be issued
under an Indenture, dated as of ______________, 2000 (the "Indenture"), between
the Company and Bankers Trust Company, as Trustee (the "Trustee", which term
includes any successor Trustee under the Indenture). Reference is hereby made to
the Indenture and all indentures supplemental thereto for a statement of the
respective rights, limitation of rights, duties and immunities thereunder of the
Company, the Trustee and the Noteholders, and for a statement of the terms upon
which the Notes are, and are to be, authenticated and delivered. Capitalized and
certain other terms used herein and not otherwise defined have the meanings set
forth in the Indenture.
The Notes are general unsecured obligations of the Company. The payment
of the principal of and interest (and premium, if any) on this Note is expressly
subordinated, as provided in the Indenture, to the payment of all Senior Debt,
as defined in the Indenture, and, by the acceptance of this Note, the Holder
hereof agrees, expressly for the benefit of the present and future holders of
Senior Debt, to be bound by the provisions of the Indenture relating to such
subordination and authorizes and appoints as such Holder's attorney-in-fact the
Trustee to take such action on such Holder's behalf as may be necessary or
appropriate to effectuate such subordination.
The Notes are subject to redemption (either at the option of the Company
or upon call by the Trustee) in whole at any time or in part from time to time
as set forth herein. The Company may, at its option, at any time on or after
_____ 15, 2002, redeem the Notes either as a whole or from time to time in part
in a minimum aggregate principal amount of $100,000, chosen by lot, at the
following Redemption Prices (expressed in percentages of the principal amount
thereof), together with interest accrued and unpaid thereon to the Redemption
Date (which shall be an Interest Payment Date), if redeemed during the twelve
month period beginning _____ in each of the following years:
<TABLE>
<S> <C> <C> <C> <C> <C>
Year: 2002 2003 2004 2005 and thereafter
Redemption Price: 105% 103% 101% 100%
</TABLE>
Notice of redemption will be mailed at least 30 days, but not more than
60 days, before the Redemption Date to each Holder at the registered address
thereof.
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<PAGE> 28
If this Note shall be redeemed by call for redemption and payment be
duly provided therefor as specified in the Indenture, interest shall cease to
accrue on this Note.
Interest installments whose Stated Maturity is on or before the
Redemption Date or Repurchase Date will be payable to the Holders of such Notes,
or one or more of Predecessor Notes, of record at the close of business on the
relevant Record Date referred to on the face hereof, all as provided in the
Indenture.
If an Event of Default as defined in the Indenture shall occur and be
continuing, the outstanding principal of all the Notes may be declared due and
payable in the manner and with the effect provided in the Indenture. The Company
shall pay all costs of collection, whether or not judicial proceedings are
instituted, in the manner provided in the Indenture. The Indenture provides that
such declaration and its consequences may, in certain events, be annulled by the
Holders of a majority in principal amount of the Notes Outstanding.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Noteholders under the Indenture at any time by the
Company and the Trustee with the consent of the Noteholders of a majority in
aggregate principal amount of the Notes at the time Outstanding. The Indenture
also contains provisions permitting the Noteholders of specified percentages in
aggregate principal amount of the Notes at the time Outstanding, on behalf of
the Noteholders of all of the Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Noteholders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture or amendment or modification hereof or thereof shall alter or
impair the obligation of the Company to pay the principal of and interest (and
premium, if any) on this Note at the times, place and rate and in the coin or
currency herein prescribed.
In the event of a consolidation or merger of the Company into, or of the
transfer of its assets substantially as an entirety to, a successor corporation
in accordance with the Indenture, such successor corporation shall assume
payment of the Notes and the performance of every covenant of the Indenture on
the part of the Company, and in the event of any such transfer, the predecessor
corporation shall be discharged from all obligations and covenants in respect of
the Notes and the Indenture and may be dissolved and liquidated, all as more
fully set forth in the Indenture.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 or any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same; and,
the transfer of this Note is registerable in the Note Register, upon surrender
of this Note for registration of transfer at the office or agency of the Company
in any place where the principal of and interest on this Note are payable, duly
endorsed by or accompanied by a written instrument of transfer in the
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<PAGE> 29
form printed on this Note or in another form satisfactory to the Company and the
Note Registrar duly executed by the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees. No service charge shall be made for any
such registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
This Note shall be governed by and construed in accordance with the laws
of the State of New York, without giving effect to the conflict of law
provisions thereof.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. FORM OF CERTIFICATE OF AUTHENTICATION AND FORM OF ASSIGNMENT.
[Form of Certificate of Authentication]
Banker Trust Company, as Trustee, certifies that this Note is one of the
___% Subordinated Notes due _____ 15, 2006 issued by Onyx Acceptance
Corporation, a Delaware corporation, referred to in the within-mentioned
Indenture.
Dated: BANKERS TRUST COMPANY, as Trustee
-------
By
---------------------------------
Authorized Signature
[Form of Assignment]
(To be executed by the registered holder if such
holder desires to transfer this Note)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
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<PAGE> 30
this Note, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint __________________, as Attorney, to transfer
the within Note on the books kept for registration thereof, with full power of
substitution.
Dated:
-----------
Signature:
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Note)
Social Security
or Other Identifying
Number of Transferee:
------------------------------
Signature Guaranteed:
(END OF ARTICLE TWO)
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<PAGE> 31
ARTICLE THREE
THE NOTES
SECTION 301. TITLE AND TERMS GENERALLY.
The Notes shall be known and designated as the ___% Subordinated Notes
due _____, 2006 of the Company. The maximum aggregate principal amount of Notes
to be authenticated and delivered under this Indenture is $13,800,000, excluding
accrued interest, except for Notes authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Notes pursuant to
Sections 304, 305, 306 or 905 hereof. The Stated Maturity of the Notes shall be
_____, 2006, and each Note shall bear interest at the rate of ___% per annum on
the outstanding balance, until the principal thereof is paid or made available
for payment.
The Notes shall be dated as provided in Section 303 hereof, shall bear
interest from the Original Interest Accrual Date of such Note, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, payable on each _________ 15, _________ 15, _________
15 and _________ 15, commencing on _____ 15, 2000, until the principal thereof
is paid or made available for payment.
The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency maintained by the Company in New York, New
York (initially the principal corporate trust office of the Trustee), or in any
other city or cities as the Company may maintain additional such offices or
agencies pursuant to Section 1002, maintained for such purpose, provided that,
at the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Note Register.
The Notes shall be redeemable at the option of the Company as provided
in Article Eleven. The Company shall notify the Trustee of such election at
least 60 days prior to the Redemption Date and shall rank pari passu with all
Parity Debt.
The Notes are unsecured obligations of the Company and shall be
subordinated in right of payment to Senior Debt of the Company as provided in
Article Thirteen. The Notes shall be senior in right of payment to all
Subordinated Debt.
The Notes are an obligation of the Company but not of any Affiliate or
any other Person.
SECTION 302. DENOMINATIONS.
The Notes shall be issuable only in registered form without coupons and
in denominations of $1,000 or any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
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<PAGE> 32
The Notes shall be executed on behalf of the Company by its President or
any Vice President and attested by its Secretary or Assistant Secretary. The
signature of any of these officers on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes. The Trustee in accordance with such Company Order
shall authenticate and deliver such Notes as in this Indenture provided and not
otherwise.
Upon the initial issuance, each Note shall be dated __________, 2000,
and thereafter, Notes issued hereunder shall be dated the date of their
authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder and is entitled to the benefits of
the Indenture.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes, in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at any office or agency of the Company
designated pursuant to Section 1002, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. REGISTRATION, TRANSFER, AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office or any other office
or agency pursuant to Section 1002 being
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<PAGE> 33
herein sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Trustee is hereby appointed
"Note Registrar" for the purpose of registering Notes and transfers of Notes as
herein provided.
Upon surrender for registration of transfer of any Note at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of any
authorized denomination, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be valid obligations of the Company, evidencing the same debt and entitled
to the same benefits under this Indenture as the Notes surrendered upon such
registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange shall be duly endorsed for transfer (if so required by the Company or
the Trustee), or shall be accompanied by a written instrument of transfer in
form satisfactory to the Company and the Note Registrar duly executed by the
Holder thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304 or 905 not involving any transfer.
The Company shall not be required to issue or register the transfer of
any Note during a period beginning at the opening of business 15 days before the
day of the mailing of a notice of redemption of Notes selected for redemption
pursuant to Section 1105 and ending at the close of business on the day of such
mailing or to register the transfer of or exchange any Notes so selected for
redemption in whole or in part, except the unredeemed portion of any Notes being
redeemed in part.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If any mutilated Note is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Note of like series, tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Note and (ii)
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Note has been acquired by a bona fide purchaser, the Company shall execute and
upon its
27
<PAGE> 34
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Note, a new Note of like series, tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become or
is about to become due and payable, the Company in its discretion, may instead
of issuing a new Note, may pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an original contractual obligation of the
Company, whether or not the destroyed, lost or stolen Note shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. PAYMENTS OF PRINCIPAL AND INTEREST; RIGHTS PRESERVED.
Any installment of interest or interest and principal under any Note
which is payable, and is punctually paid or duly provided for, on any Interest
Payment Date or Principal Payment Date, as the case may be, shall be paid to the
Person in whose name that Note (or one or more Predecessor Notes) is registered
at the close of business on the Regular Record Date for such installment.
Any installment of interest or principal and interest on any Note which
is payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") or on any Principal Payment
Date (herein called "Defaulted Principal"), as the case may be, shall forthwith
cease to be payable to the Holder on the relevant Regular Record Date by virtue
of having been such Holder, and such Defaulted Interest or Defaulted Principal,
as the case may be, shall be paid by the Company, at its election in each case,
as provided in paragraph (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest or
Defaulted Principal to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest or Defaulted Principal, which
shall be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest or Defaulted Principal proposed to
be paid on each Note and the date of the proposed payment and, at the same time,
the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
Defaulted Principal or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest or Defaulted Principal as in this Clause provided. Thereupon
the Trustee shall fix a Special Record Date for the
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<PAGE> 35
payment of such Defaulted Interest or Defaulted Principal which shall be not
more than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest or Defaulted
Principal and the Special Record Date therefor to be mailed, first- class
postage prepaid, to each Holder of an affected Note at such Holder's address as
it appears in the Note Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest or
Defaulted Principal and the Special Record Date therefor having been so mailed,
such Defaulted Interest or Defaulted Principal shall be paid to the Persons in
whose names the Notes (or their respective Predecessor Notes) are registered at
the close of business on such Special Record Date and shall no longer be payable
pursuant to the following Paragraph (2).
(2) The Company may make payment of any Defaulted Interest or Defaulted
Principal in any other lawful manner not inconsistent with the requirements of
any securities exchange or market on which the Notes may be listed or included
and, upon such notice as may be required by such exchange or market if, after
notice given by the Company to the Trustee of the proposed payment pursuant to
this Clause, such manner of payment shall be deemed practicable by the Trustee
and the Trustee shall have sent written notification to the Company to such
effect.
If any installment of interest whose Stated Maturity is on or prior to
the Redemption Date for any Notes called for redemption pursuant to Section 301
or Article Eleven is not paid or duly provided for on or prior to the Redemption
Date in accordance with the foregoing provisions of this Section, such interest
shall be payable as part of the Redemption Price of such Notes.
Subject to the foregoing provisions of this Section, each Note delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Note shall carry the rights to interest accrued and unpaid and
to accrue which were carried by such other Note.
All payments of interest on the Notes to the person entitled thereto,
whether made by the Company, the Trustee or any Paying Agent, as authorized
pursuant to this Indenture, shall be made (subject to collection) by check
mailed to the address of the person entitled thereto as such address shall
appear on the Note Register, unless the Trustee determines such methods to be
inappropriate in the circumstances.
Holders must present and surrender the Notes to collect the principal of
such Notes.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Note for registration of transfer, the
Company, the Trustee, the Note Registrar and any agent of the Company or the
Trustee may treat the Person in whose name such Note is registered as the owner
of such Note for the purpose of receiving payment (subject to Section 307) of
principal of (and premium, if any) and interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. CANCELLATION.
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<PAGE> 36
All Notes surrendered for payment, redemption, registration of transfer
or exchange if surrendered to any Person other than the Trustee, shall be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Notes held by the Trustee shall be disposed of and a
destruction certificate shall be delivered to the Company.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
SECTION 311. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE.
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Notes up to the aggregate principal amount of
$23,000,000 may be executed by the Company and delivered to the Trustee for
authentication and delivered by the Trustee upon Company Order, without any
further action by the Company.
(END OF ARTICLE THREE)
30
<PAGE> 37
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either:
(a) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306 and (ii) Notes for whose payment
money has theretofore been deposited in trust or segregated and held in trust by
the Company and thereafter paid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for cancellation;
or
(b) all such Notes not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, or (ii) will become due and
payable at their Stated Maturity within one year, or (iii) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company; and the Company, in the case of this subsection (b)
(i), (ii) or (iii) above, has deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and interest to
the date of such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel to the effect that such deposit does not
violate (a) the provisions of Article Thirteen hereof or (b) any provisions of
any Senior Debt or Parity Debt; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 shall survive, and,
if the money shall have been deposited with the Trustee pursuant to subclause
(b) of clause (1) of this Section, the obligations of the Trustee under Section
402 and the last paragraph of Section 1003 shall survive.
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<PAGE> 38
SECTION 402. LEGAL DEFEASANCE.
The Company may at its option, be discharged from its obligations with
respect to the Notes (hereinafter, "Legal Defeasance"). For this purpose, such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Notes and to have
satisfied all of its other obligations under such Notes and this Indenture
insofar as such Notes are concerned (and the Trustee, at the expense of the
Company, shall, subject to Section 406 hereof, execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust funds described in Section
404 hereof and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Articles
Two, Three and Seven and Section 1002 hereof, (c) the rights, powers, trusts,
duties, and immunities of the Trustee hereunder (including claims of, or
payments to, the Trustee under or pursuant to Section 607 hereof) and (d) this
Article Four. Subject to compliance with this Article Four, the Company may
exercise its option under this Section 402 with respect to the Notes
notwithstanding the prior exercise of its option under Section 403 below with
respect to the Notes.
SECTION 403. COVENANT DEFEASANCE.
At the option of the Company, the Company shall be released from its
obligations under Sections 1005 through 1014, and Article Twelve hereof, on and
after the date the conditions set forth in Section 404 hereof are satisfied
(hereinafter, "Covenant Defeasance"). For this purpose, such Covenant Defeasance
means that the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such specified
Section or portion thereof, whether directly or indirectly by reason of any
reference elsewhere herein to any such specified Section or portion thereof or
by reason of any reference in any such specified Section or portion thereof to
any other provision herein or in any other document, but the remainder of this
Indenture and the Notes shall be unaffected thereby.
SECTION 404. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of Section 402 or
Section 403 hereof to the outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 609 hereof who shall agree to comply with the provisions of this Article
Four applicable to it) as funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders, (a) U.S. legal tender in an amount, or (b) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than the due date of any payment, money in an amount, or (c) a combination
thereof, sufficient, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or other qualifying trustee) to pay and discharge, the principal
or, premium, if any, and accrued interest on the outstanding Notes at the
maturity date of
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such principal, premium, if any, or interest, or on dates for payment and
redemption of such principal, premium, if any, and interest selected in
accordance with the terms of this Indenture and of the Notes; provided, however,
that the Trustee (or other qualifying trustee) shall have received an
irrevocable written order from the Company instructing the Trustee (or other
qualifying trustee) to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the Notes;
(2) No Event of Default or Default shall have occurred and no Event of
Default of the type specified in Section 501(7) shall have occurred and be
continuing on the date of such deposit, or shall have occurred and be continuing
at any time during the period ending on the 91st day after the date of such
deposit or, if longer, ending on the day following the expiration of the longest
preference period under any Bankruptcy Law applicable to the Company in respect
of such deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(3) Such Legal Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest for purposes of the Trust Indenture Act
with respect to any securities of the Company;
(4) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute default under any other material agreement
or instrument to which the Company or any of their Subsidiaries are a party or
by which any Issuer or any of its Subsidiaries is bound;
(5) The Company shall have delivered to the Trustee an Opinion of
Counsel stating that, as a result of such Legal Defeasance or Covenant
Defeasance, neither the trust nor the Trustee will be required to register as an
investment company under the Investment Company Act of 1940, as amended;
(6) In the case of an election under Section 402 above, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (a) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling to the effect that or (b) there has been a change in any
applicable Federal income tax law with the effect that, and such opinion shall
confirm that, the Holders of the outstanding Notes or persons in their positions
will not recognize income, gain or loss for Federal income tax purposes solely
as a result of such Legal Defeasance and will be subject to Federal income tax
on the same amounts, in the same manner, including as a result of prepayment,
and at the same times as would have been the case if such Legal Defeasance had
not occurred;
(7) In the case of an election under Section 403 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such Covenant Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;
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(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under Section 402
above or the Covenant Defeasance under Section 403 hereof (as the case may be)
have been complied with;
(9) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Company with the intent of preferring the holders of the Notes over any other
creditors of the Company or with the intent of defeating, hindering, delaying or
defrauding any creditors of the Company or others; and
(10) Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Notes at a future date in
accordance with Section 1101 hereof.
SECTION 405. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 401 or 404 hereof in
respect of the outstanding notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of principal, premium, if any, and accrued interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 401 or 404 hereof or the principal, premium, if
any, and interest received in respect thereof other than any such tax, fee or
other charge which by law is for the account of the Holders of the outstanding
Notes.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon a written
request of the Company in the form of an Officers' Certificate any money or U.S.
Government Obligations held by it as provided in Section 401 or 404 hereof
which, in the opinion of a nationally-recognized firm of independent public
accountants
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expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 405. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 401, 402 or 403 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article Four until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
401 hereof; provided, however, that if the Company has made any payment of
principal of, premium, if any, or accrued interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
SECTION 407. MONEYS HELD BY PAYING AGENT.
In connection with the satisfaction and discharge of this Indenture, all
moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 401 hereof, to the Company and
thereupon such Paying Agent shall be released from all further liability with
respect to such moneys.
SECTION 408. MONEYS HELD BY TRUSTEE.
Any moneys deposited with the Trustee or any Paying Agent or then held
by the Company in trust for the payment of the principal of, or premium, if any,
or interest on any Note that are not applied but remain unclaimed by the Holder
of such Note for two years after the date upon which the principal of, or
premium, if any, or interest on such Note shall have respectively become due and
payable shall be repaid to the Company upon a written request of the Company in
the form of an Officers' Certificate, or if such moneys are then held by the
Company in trust, such moneys shall be released from such trust; and the Holder
of such Note entitled to receive such payment shall thereafter, as an unsecured
general creditor, look only to the Company for the payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
shall thereupon cease.
(END OF ARTICLE FOUR)
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ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any installment of interest upon any Note
when it becomes due and payable and continuance of such default for a period of
15 days (whether or not such payment is prohibited under the provisions of
Article Thirteen); or
(2) default in the payment of the principal of or premium, if any, on
any Note at its Maturity (whether or not such payment is prohibited under the
provisions of Article Thirteen); or
(3) failure to comply with any covenant or agreement on the part of the
Company contained in Article Eight hereof; or
(4) breach of a covenant of the Company contained in Sections 1008 or
1011 hereof and the continuance of such breach for a period of 30 days after the
due date for filing of the report pursuant to section 703(5) which reports such
breach, unless prior to the expiration of the 30 day period referred to above,
the Company shall have filed with the Trustee a certificate, certifying that
such breach has been cured; or
(5) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the Company by
the Trustee or to the Company and the Trustee by the Noteholders of at least 25%
in principal amount of the Outstanding Notes, a written notice (and the Trustee
shall give such written notice to the Company upon the request of the
Noteholders of at least 25% in principal amount of the Outstanding Notes)
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder; or
(6) a default under any bond, debenture, note or other evidence of
Indebtedness of the Company or any Restricted Subsidiary (other than a
Securitization Entity) (including obligations under leases required to be
capitalized on the balance sheet of the lessee under GAAP), or a default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Company or
Restricted Subsidiary (other than a Securitization Entity), (including such
leases), whether such Indebtedness now exists or shall hereafter be created,
which default shall have resulted in such Indebtedness in excess of $5,000,000
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable or such obligations in excess of
$5,000,000 being accelerated, without such acceleration having been rescinded or
annulled or such Indebtedness shall not have been discharged
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within a period of 30 days after such default or acceleration, or if the Company
is replaced as servicer in any transaction which affects more than 25% of the
principal amount of outstanding obligations in connection with the Company's
Qualified Securitization Transactions and Warehouse Facilities, taken as a
whole, and such event is not cured within 30 days; provided, however, that this
Section 501(5) shall not apply to a default under any Purchase Money
Indebtedness of the Company if, and so long as, the Company is in good faith and
in the exercise of its reasonably prudent business judgment, contesting its
obligations thereunder in accordance with a reasonable interpretation of the
documentation of such obligation and has posted a bond sufficient to pay such
obligation in the event it is determined to be due and payable; or
(7) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company or any Restricted Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Restricted Subsidiary, under Federal bankruptcy law, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Restricted
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of sixty (60) consecutive days; or
(8) the commencement by the Company or any Restricted Subsidiary of a
voluntary case under Federal bankruptcy law, as now or hereafter constituted, or
any other applicable Federal or State bankruptcy, insolvency, or other similar
law, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under Federal bankruptcy law or any other
applicable Federal or State law, or the consent by it to the filing of such
petition or to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Restricted Subsidiary or
of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate action
by the Company or any Restricted Subsidiary in furtherance of any such action;
or
(9) the rendering of a final judgment or judgments (not subject to
appeal) for the payment of money against the Company or any Restricted
Subsidiary not fully insured against in an aggregate amount in excess of
$5,000,000 not covered by insurance by a court or courts of competent
jurisdiction, which judgment or judgments remain unsatisfied for a period of 30
days after the right to appeal all such judgments has expired or otherwise
terminated.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Noteholders of not less than 25% in principal amount of
the Outstanding Notes may, and the Trustee upon request of the Noteholders of
not less than 25% in principal amount of the Outstanding Notes shall, declare
the principal of all the Notes to be due and payable immediately, by notice in
writing to the Company (and to the Trustee if given by Noteholders), and upon
any such declaration such entire principal amount and all interest shall become
immediately due and payable. Collection actions or judicial proceedings may be
commenced as set forth in Section 503.
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At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Noteholders of a
majority in principal amount of the Outstanding Notes, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(a) all overdue installments of interest on all Notes,
(b) the principal of (and premium, if any, on) any Notes which
have become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes,
(c) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by the Notes,
and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and the Holders and their agents and counsel if such
Holders have initiated action in accordance with this Section 502; and
(2) all Events of Default, other than the non-payment of the principal
of Notes which have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if:
(1) default is made in the payment of any installment of interest on any
Note when such interest becomes due and payable and such default continues for a
period of 15 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Note at its Maturity, the Company will, subject to the provisions
of Article Thirteen, upon demand of the Trustee or Noteholders of not less than
25% in aggregate principal amount of the Outstanding Notes, pay to the Trustee,
for the benefit of all the Noteholders of such Notes, the whole amount then due
and payable on such Notes for principal, premium, if any, and interest, with
interest upon the overdue principal (and premium, if any) and, to the extent
that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Notes and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel or the Holders
as set forth herein, their agents and counsel, as the case may be, whether or
not judicial proceedings are commenced.
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If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, or the Holders of not
less than 25% in principal amount of the Notes Outstanding, on behalf of all
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in and of the
exercise of any power granted herein, or to enforce any other proper remedy.
Holders of not less than 25% in principal amount of Notes Outstanding, on behalf
of all Holders, may initiate such appropriate judicial proceedings in the same
manner as the Trustee. The Trustee or the Holders initiating action hereunder,
as the case may be, shall be reimbursed for the costs of collection incurred as
provided for above in this Section 503.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Noteholders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Noteholders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
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SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, be for the ratable benefit of the
Noteholders of the Notes in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee or the Holders directly pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal or interest, upon presentation of the Notes and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid.
FIRST: to the payment of all amounts due the Trustee under Section 607
hereof;
SECOND: to the payment of the amounts then due and unpaid for costs of
collection, principal, premium, if any, and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Notes for principal, premium, if any, and interest,
respectively; and
THIRD: to the payment of the remainder, if any, to the Company or any
other person lawfully entitled thereto.
SECTION 507. LIMITATION ON SUITS.
(1) Prior to the declaration of acceleration provided for in Section 502
hereof, no Holder of any Note shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Noteholders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Noteholders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
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(d) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Noteholders of a majority
in principal amount of the Outstanding Notes; it being understood and intended
that no one or more Noteholders shall have any right in any manner whatever by
virtue of, or by availing of, any provision of this Indenture to affect, disturb
or prejudice the rights of any other Noteholders, or to obtain or to seek to
obtain priority or preference over any other Noteholders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all the Noteholders.
(2) After the declaration of acceleration provided for in Section 502
hereof, Holders of 25% or more in principal amount of Outstanding Notes may
institute judicial proceedings in respect to such Event of Default which
triggers the declaration of acceleration in their own name in the manner
provided in Section 503 if the Trustee has not instituted such proceedings
within 60 days after such declaration, it being understood that such Holders
shall not have any right in any manner whatever by virtue of, or by availing of,
any provision of the Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes, or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any rights under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders of Notes.
SECTION 508. UNCONDITIONAL RIGHT OF NOTEHOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right to receive payment (subject to Section 307) of the
principal of (and premium, if any) and interest on such Note on the Stated
Maturity thereof (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Noteholders
shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of the Trustee and the Noteholders shall
continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
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existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 512. CONTROL BY NOTEHOLDERS.
The Holders of a majority in principal amount of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture; and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes may on behalf of the Holders of all the Notes waive any
past default hereunder and its consequences, provided that a default in the
payment of the principal of, premium, if any, or interest on any Note, or in
respect of certain other covenants or provisions hereof cannot be modified or
amended except as set forth in Section 902 hereof.
Upon any such waiver, such default shall cease to exist and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture, but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by such
Holder's acceptance thereof shall be deemed to have agreed, that any court may
in its discretion require in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant. The provisions
of this Section shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Noteholders, holding in the aggregate
more than 10% in principal amount of the Outstanding Notes, or to any suit
instituted by any Holder for the enforcement of the payment
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of the principal of, premium, if any, or interest on any Note on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date).
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
(END OF ARTICLE FIVE)
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ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(1) Except during the continuance of an Event of Default,
(a) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and the Trust Indenture
Act, and no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(2) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Trust Indenture Act, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(3) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(a) this Subsection shall not be construed to limit the effect
of Subsection (1) (a) of this Section;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Notes relating to the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(d) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
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(4) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Noteholders, as their names and addresses
appear in the Note Register, notice of such default hereunder known to a
Responsible Officer of Trustee, unless such default shall have been cured or
waived, provided that (i) except in the case of a default in the payment of the
principal of (or premium, if any) or interest on any Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interests of the Noteholders, and (ii) in the case of any
default of the character specified in Section 501(4), no such notice to
Noteholders shall be given until at least 30 days after the occurrence thereof.
For the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 601:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request and any resolution of the board of
directors of the Company may be sufficiently evidenced by a Company Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel (who may be counsel to the
Company) and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Noteholders pursuant to this Indenture, unless such Noteholders shall
have offered to the Trustee reasonable indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
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(6) prior to the occurrence of an Event of Default hereunder and after
the curing of all Events of Default, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note or other paper or document unless requested to do
so by the Holders of not less than a majority in aggregate principal amount of
the Notes then outstanding, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, provided that if the payment within a reasonable time to the Trustee of the
costs, expenses and liabilities likely to be incurred in the making of such
investigation is not, in the opinion of the Trustee, reasonably assured to the
Trustee by the terms of this Indenture, the Trustee may require reasonable
indemnity against such expense or liability as a condition to so proceeding; and
(7) the Trustee shall have no duty to inquire as to the performance of
the Company's covenants in Article Ten or Section 1101 or 1102 hereof. In
addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default, except (i) any Default or Event of Default occurring pursuant
to Section 501(1) or 501(2), or (ii) any Default or Event of Default of which
the Trustee shall have received written notification or obtained actual
knowledge.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application by
the Company of Notes or the proceeds thereof.
SECTION 605. TRUSTEE MAY HOLD NOTES.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Notes and, subject to Sections 608
and 613, may otherwise deal with the Company with the same rights it would have
it if were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or
such other agent.
SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
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(2) except as otherwise expressly provided for herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Notes upon all property
and funds held or collected by the Trustee as such, except funds held in trust
for the payment of principal of, premium, if any, or interest on Notes.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
In the event that the Trust Indenture Act is applicable hereto, and if
the Trustee has or shall acquire a conflicting interest within the meaning of
Trust Indenture Act Section 310(b) and there exists an Event of Default
hereunder (exclusive of any period of grace or requirement of notice), the
Trustee shall either eliminate such conflict of interest or resign, to the
extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
SECTION 609. TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall (a) be a
corporation or trust company organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers or any other
person permitted by the Trust Indenture Act to act as a trustee under an
indenture qualified under the Trust Indenture Act, and (b) have a combined
capital and surplus of at least $25,000,000 subject to supervision or
examination by Federal or State authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of such
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
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(2) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee. Such court may
thereupon after such notice, if any, as it may deem proper and prescribe, remove
the Trustee and appoint a successor Trustee.
(3) The Trustee may be removed at any time by an Act of the Holders of a
majority in principal amount of the Outstanding Notes, delivered to the Trustee
and to the Company. If an instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of removal, the Trustee may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(4) If at any time:
(a) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Note for at least six months, or
(b) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months, or
(c) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
THEN, in any such case, (i) the Company by a Company Resolution may
remove the Trustee, or (ii) subject to Section 514, any Holder who has been a
bona fide Holder of a Note for at least six months, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Company Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Noteholders of a majority in principal amount of the Outstanding Notes delivered
to the Company and the retiring Trustee, the successor Trustee so appointed,
forthwith upon its acceptance of such appointment, shall become the successor
Trustee and supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or the Noteholders
and accepted appointment in the manner provided in Section 611, any Holder who
has been a bona fide holder of a Note for at least six months, on behalf of
himself and all others similarly situated, may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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(6) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to all Noteholders as
their names and addresses appear in the Note Register. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee, upon payment of its charges, shall
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 607. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such Successor Trustee shall be qualified and eligible under
this Article.
Upon the appointment of any Successor Trustee hereunder, all fees,
charges and expenses of the retiring Trustee shall become immediately due and
payable.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided that
such corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Notes) and the Trust Indenture Act is applicable
hereto, the Trustee shall be subject to the provisions of Trust Indenture Act
Section 311(a) or, if applicable, Trust Indenture Act Section 311(b) regarding
the collection of the claims against the Company (or any such other obligor).
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Notes remain Outstanding, the Trustee may
appoint an Authenticating Agent or Agents which shall be authorized to act on
behalf of the Trustee to
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authenticate Notes issued upon original issuance, exchange, registration of
transfer or partial redemption thereof or pursuant to Section 306, and Notes so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Notes by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $10,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of such
supervising or examining authority, for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Noteholders as
their names and addresses appear in the Note Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent herein. No
successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
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If an appointment is made pursuant to this Section, the Notes may have
endorsed thereon, in lieu of the form of certificate of authentication set forth
in Section 204, a certificate of authentication in the following form:
"This is one of the Notes described in the within mentioned Indenture."
------------------------------------
As Trustee
By
---------------------------------
As Authenticating Agent
By
---------------------------------
Authorized Signature
(END OF ARTICLE SIX)
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ARTICLE SEVEN
NOTEHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF NOTEHOLDERS.
The Company will furnish or cause to be furnished to the Trustee:
(1) quarterly, not later than first day of the month in which an
Interest Payment Date occurs, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Noteholders as of such Regular Record
Date, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than fifteen (15) days prior to the time
such list is furnished; provided, however, that such list need not be furnished
so long as the Trustee is the Note Registrar.
(3) The Trustee shall furnish, and the Company shall cause the Trustee
to furnish, to Miller & Schroeder Financial, Inc. or its successor ("Miller &
Schroeder") at such times as Miller & Schroeder may reasonably request in
writing, within 30 days of the receipt by the Trustee of such request, a list of
the names and addresses of the Noteholders as of a date not more than 15 days
prior to the time such list is furnished; provided however, the Company's
obligations under this Section 701(3) shall cease in the event the Company
consolidates or merges into any other Person pursuant to Article Eight or there
is a change of control of Miller & Schroeder Financial, Inc.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.
(1) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Noteholders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Noteholders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(2) If three or more Noteholders (herein referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable proof
that each such applicant has owned a Note for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Noteholders with respect to their
rights under this Indenture or under the Notes and is accompanied by a copy of
the form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five business days after the receipt of
such application, at its election, either
(a) afford such applicants access to the information preserved
at the time by the Trustee in accordance with Section 702(1), or
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(b) inform such applicants as to the approximate number of
Noteholders whose names and addresses appear in the information preserved at the
time by the Trustee in accordance with Section 702(1) and as to the approximate
cost of mailing to such Noteholders the form of proxy or other communication, if
any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appears in the information preserved
at the time by the Trustee in accordance with Section 702(1) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interest of the
Noteholders or would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If the Commission, after opportunity
for a hearing upon the objections specified in the written statement so filed
and, on notice to the Trustee, shall enter an order refusing to sustain any of
such objections or if, after the entry of an order sustaining one or more of
such objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Noteholders with reasonable promptness after the entry of such order and the
renewal by such applicants of their applications.
(3) Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
Noteholders in accordance with Section 702(2), regardless of the source from
which such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
Section 702(2).
SECTION 703. REPORTS BY THE COMPANY.
The Company shall:
(1) File with the Trustee, within 30 days after the Company is required
to file the same with the Commission or to mail the same to its shareholders,
copies of the quarterly reports, annual reports and the information, documents
and other reports (or copies of such portions of the foregoing as the Commission
may from time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 12 or 13 or Section
15(d) of the Exchange Act, or to mail to its shareholders pursuant to Section
14(a) thereof. The Company agrees to make all filings with the Commission
required by Section 15(d) of the Exchange Act without regard to the number of
holders of record of the Notes.
(2) File with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this
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Indenture as may be required from time to time by such rules and regulations and
the Company shall otherwise comply with the provisions of Section 314(a) of the
Trust Indenture Act.
(3) Transmit by mail to all Noteholders, as their names and addresses
appear in the Note Register, within 30 days after the filing thereof with the
Trustee (unless some other time shall be fixed by the Commission) any annual
report filed with the Trustee pursuant to paragraph (1) of this Section;
(4) File with the Trustee within 45 days after the end of each of the
Company's fiscal quarters a certificate of the Chief Executive Officer or the
Chief Financial Officer of the Company stating that the Company is in compliance
with Article Ten, setting forth the calculations supporting such certification,
where applicable, and attaching the unaudited financial statements of the
Company, and file a supplemental certificate to the same effect attaching the
audited financial statements of the Company promptly after such statements
become available.
(5) File with the Trustee, within 90 days after the end of each fiscal
year of the Company ending after the date hereof, a certificate of the Chief
Executive Officer or Chief Financial Officer of the Company as to such person's
knowledge of the Company's compliance with all conditions and covenants under
this Indenture, such compliance to be determined without regard to any period of
grace or requirement of notice provided under this Indenture.
(6) File with the Trustee evidence of compliance with conditions
precedent, if any, provided for in this Indenture as required by Section 314(c)
of the Trust Indenture Act.
SECTION 704. REPORTS BY TRUSTEE.
(1) Within sixty (60) days of ______ 15 each year commencing with the
year 2000, the Trustee shall transmit by mail to all Noteholders, as hereafter
provided for, a brief report with respect to the following, provided that no
report need be transmitted if no event requiring to be disclosed in the report
has occurred:
(a) any change to its eligibility and its qualifications under
Section 609;
(b) the creation of or any material change to a relationship
specified in subsections (1) through (10) of Section 310(b) of the Trust
Indenture Act;
(c) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made by
the Trustee (as such) which remain unpaid on the date of such report, and for
the reimbursement of which it claims or may claim a lien or charge, prior to
that of the Notes, on the trust estate or any property or funds held or
collected by it as Trustee, except that the Trustee shall not be required (but
may elect) to report such advances if the unpaid aggregate of such advances does
not exceed 1/2 of 1% of the principal amount of the Notes Outstanding on the
date of such report;
(d) any change to the amount, interest rate and maturity date of
all other indebtedness owing by the Company (or by any other obligor on the
Notes) to the Trustee in its corporate capacity, on the date of such report,
with a brief description of any property held as
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collateral security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in paragraphs (2)(3)(4) or (6) of
subsection (b) of Section 311 of the Trust Indenture Act;
(e) any change to the property and funds, if any, physically in
the possession of the Trustee as such on the date of such report;
(f) any release, or release and substitution, of property
subject to the lien of this Indenture (and the consideration therefor, if any)
which has not been previously reported;
(g) any additional issue of Notes which the Trustee has not
previously reported; and
(h) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its opinion
materially affects the Notes or the trust estate, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee in
accordance with Section 602.
(2) The Trustee shall transmit to the Noteholders as hereinafter
provided, within the times hereinafter specified, a brief report with respect
to--
(a) The release, or release and substitution, of property
subject to the lien of this Indenture and the consideration therefor, if any)
unless the fair value of such property, as set forth in the certificate or
opinion required by paragraph (1) of subsection (d) of Section 314 of the Trust
Indenture Act is less than 10 per centum of the principal amount of Notes
outstanding at the time of such release, or such release and substitution, such
report to be so transmitted within 90 days after such time; and
(b) The character and amount of any advances made by it as such
since the date of the last report transmitted pursuant to the provisions of (1)
(or if no such report has yet been so transmitted, since the date of execution
of this Indenture), for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Notes on the trust estate or on property or
funds held or collected by it as Trustee, and which it has not previously
reported pursuant to this paragraph, if such advances remaining unpaid at any
time aggregate more than 10 per centum of the principal amount of the Notes
Outstanding at such time, such report to be so transmitted within 90 days after
such time.
(3) Reports pursuant to this paragraph shall be transmitted by mail--
(a) To all registered holders of Notes, as the names and
addresses of such holders appear upon the Note Register;
(b) To such Noteholders as have, within the two years preceding
such transmission, filed their names and addresses with the Trustee for that
purpose; and
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(c) Except in the case of reports pursuant to paragraph (2) of
this section, to all Noteholders whose names and addresses have been furnished
to or received by the Trustee pursuant to Section 701 hereof.
(4) A copy of each such report shall, at the time of such transmission
to Noteholders, be filed with each stock exchange upon which the Notes are
listed, and also with the Commission.
(END OF ARTICLE SEVEN)
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company or any Subsidiary or convey, transfer or lease its
properties and assets substantially as an entirety to the Company or any
Subsidiary, unless:
(1) in case the Company shall consolidate with or merge into another
corporation, trust or entity, the Person formed by such consolidation or into
which the Company is merged shall be a trust, corporation or other entity
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee and counsel to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Notes and the
performance of every covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately after giving effect to such transaction, and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, with the passage of time or the giving of notice, would become an Event
of Default, shall have occurred and be continuing;
(3) the Company, or the surviving entity, as the case may be,
immediately after giving effect to such transaction or series of transactions
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions) shall have a Consolidated Tangible Net Worth equal to or greater
than the amount required by Section 1012 hereof;
(4) immediately after giving effect to such transaction or series of
transactions, the Company or the surviving entity, as the case may be, could
incur $1.00 of Indebtedness pursuant to paragraph (3) of Section 1008 hereof:
and
(5) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with this
Article and that all conditions precedent herein provided for relating to such
transaction have been complied with.
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SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger of the Company with or into any other
corporation, trust or other entity in accordance with Section 801, the successor
Person formed by such consolidation or into which the Company is merged shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter the predecessor
Person shall be relieved of all obligations and covenants under this Indenture
and the Notes.
(END OF ARTICLE EIGHT)
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
Without the consent of any Noteholders, the Company, when authorized by
a Company Resolution, and the Trustee, at any time and from time to time may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee for any of the following purposes:
(1) to evidence the succession of another trust, corporation or other
entity to the Company and the assumption by any such successor of the covenants
of the Company herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Noteholders, or to surrender any right or power herein conferred upon the
Company; or
(3) to evidence and provide for acceptance of appointment of a successor
trustee; or
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee; or
(5) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, to correct
typographical errors, or to make any other provisions with respect to matters or
questions arising under this Indenture or Trust Indenture Act which shall not be
inconsistent with the provisions of this Indenture, provided that such action
pursuant to this paragraph (5) shall not adversely affect the interests of the
Noteholders.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent of the Holders of not less than a majority of the
aggregate principal amount of the Outstanding Notes, by Act of such Noteholders
delivered to the Company and the Trustee, the Company, when authorized by a
Company Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Noteholders under this Indenture,
provided that without the consent of the Holder of each Outstanding Note
affected thereby, no such supplemental indenture shall,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or any premium payable on the redemption thereof, or
reduce the principal amount thereof or the rate of interest thereon, or change
the place of payment where, or the coin or currency in which, any Note or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentages in principal amount of the Outstanding Notes,
the consent of whose Noteholders is required for any such supplemental
indenture, or the consent of whose
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Noteholders is required for any waiver (of compliance with certain provisions of
this Indenture or certain defaults hereunder and their consequences) provided
for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513, Section
1013 or Article Twelve, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected thereby, or
(4) modify any of the provisions of this Indenture relating to the
subordination of the Notes in a manner adverse to the Noteholders.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not
(except to the extent required in the case of a supplemental indenture entered
into under Section 901(3)) be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, such supplemental
indenture shall form a part of this Indenture for all purposes and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the Board
of Directors of the Company, to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 906. EFFECT ON SENIOR DEBT.
No supplemental indenture shall adversely affect the rights of any
holder of Senior Debt under Article Thirteen without the consent of such holder.
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SECTION 907. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act.
(END OF ARTICLE NINE)
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of, premium, if
any, and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in New York, New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company will give prompt written notice to the Trustee of the
location and any change in the location, of such office or agency. Until
otherwise designated by the Company in a written notice to the Trustee, and if
at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee its agent to receive such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations, provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in New York, New York, for
such purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee set forth in the first paragraph of this instrument as an agency of
the Company.
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Notes, segregate and hold in trust for the benefit of the persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee of
its action.
Whenever the Company shall have one or more Paying Agents, on or prior
to each due date of the principal of (and premium, if any) or interest on any
Notes, it will deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal (and premium, if any)
or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
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The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Notes) in the making of any payment of principal (and premium,
if any) or interest on the Notes; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent. Upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Unless otherwise required by applicable law, any money deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of (and premium, if any) or interest on any Note and
remaining unclaimed for two years after such principal (and premium, if any) or
interest has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company) shall be discharged from such trust.
The Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease, provided that the Trustee or
such Paying Agent, before being required to make any such repayment, at the
expense of the Company, may cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in New York, New York, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
thirty (30) days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
SECTION 1004. MAINTENANCE OF CORPORATE EXISTENCE, LICENSING AND RIGHTS.
Subject to Article Eight hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence of the Company and each Subsidiary, and all material rights,
certificates, authorities, licenses, permits and approvals of any of them, and
shall conduct its business in conformity with the requirements of such rights,
certificates, authorities, licenses, permits and approvals, provided that the
Company shall not be required to preserve any such right, certificate,
authority, license or permit or maintain the corporate existence of any
subsidiary that is not a Subsidiary if the Board of Directors of the Company
shall reasonably and in good faith determine that the preservation thereof is no
longer desirable in the
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conduct of the business of the Company or of its Subsidiaries and that the loss
thereof is not disadvantageous in any material respect to the Noteholders.
SECTION 1005. PAYMENT OF TAXES AND ASSESSMENTS.
The Company will cause to be paid and discharged all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or any
Subsidiary or upon the income or profits of the Company or any Subsidiary or
upon property or any part thereof belonging to the Company or any Subsidiary
before the same shall be in default, as well as all lawful claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon such
property or any part thereof, provided that the Company shall not be required to
cause to be paid or discharged any such tax, assessment, charge, levy or claim
so long as the validity or amount thereof shall be contested in good faith by
appropriate proceedings.
SECTION 1006. INTENTIONALLY OMITTED.
SECTION 1007. MAINTENANCE OF NASDAQ LISTING.
The Company shall, throughout the term of the Notes and this Indenture,
maintain the listing of its shares of Common Stock on the Nasdaq National Market
or another national market or exchange.
SECTION 1008. LIMITATION ON ADDITIONAL INDEBTEDNESS.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create, incur, assume or issue, directly or indirectly, or guarantee or in
any manner become, directly or indirectly, liable for or with respect to the
payment of any Indebtedness, except for:
(1) Indebtedness under this Indenture;
(2) Indebtedness of the Company and any Restricted Subsidiary not
otherwise referred to in this Section 1008 outstanding on the Issue Date;
(3) Indebtedness that, immediately after giving pro forma effect to the
incurrence thereof, does not cause the Consolidated Leverage Ratio to exceed 3.0
to 1.0;
(4) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, or amendments, modifications or supplements to, Indebtedness
incurred under clauses (2), (3), (6), or (8) hereof, whether involving the same
or any other lender or creditor or group of lenders or creditors, provided that
any such deferrals, renewals, extensions, replacements, refinancings,
refundings, amendments, modifications or supplements (i) shall not provide for
any mandatory redemption, amortization or sinking fund requirement in an amount
greater than or at a time prior to the amounts and times specified in the
Indebtedness being deferred, renewed, extended, replaced, refinanced, refunded,
amended, modified or supplemented, (ii) shall not exceed the principal amount
(plus accrued interest and prepayment premium, if any) of the Indebtedness being
renewed, extended, replaced, refinanced or refunded and (iii) shall be
subordinated to the Notes at least to the
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extent and in the manner, if at all, that the Indebtedness being renewed,
extended, replaced, refinanced or refunded is subordinated to the Notes;
(5) Indebtedness of the Company owing to and held by any Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary owing to and held by
the Company or any Restricted Subsidiary provided, that any subsequent issuance
or transfer of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (except to the Company or a Restricted Subsidiary) shall be deemed,
in each case, to constitute the incurrence of such Indebtedness by the issuer
thereof;
(6) Indebtedness incurred in connection with a purchase of Notes as
required in connection with a Change of Control; provided that the aggregate
principal amount of such Indebtedness does not exceed 101% of the aggregate
principal amount of the Notes purchased in connection with a Change of Control
and provided further that such Indebtedness does not mature prior to the Stated
Maturity of the Notes;
(7) Indebtedness (A) under Currency Exchange Protection Agreements and
Interest Rate Protection Agreements, in each case entered into in the ordinary
course of the financial management of the Company and not for speculative
purposes; provided, however, that, in the case of Currency Exchange Protection
Agreements and Interest Rate Protection Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result of
fluctuations in the exchange rates or interest rates or by reason of customary
fees, indemnities and compensation payable thereunder, and (B) under Commodity
Price Protection Agreements entered into in the ordinary course of the financial
management of the Company and not for speculative purposes; provided that the
notional amount of each such Commodity Price Protection Agreement does not
exceed the underlying obligation or amount to which such Commodity Price
Protection Agreement relates;
(8) Permitted Warehouse Indebtedness by the Company or any Restricted
Subsidiary; provided, however, that to the extent any such Indebtedness of the
Company or a Restricted Subsidiary ceases to constitute Permitted Warehouse
Indebtedness, such Indebtedness shall be deemed to be incurred by the Company or
such Restricted Subsidiary, as the case may be, at the time such Indebtedness
ceases to constitute Permitted Warehouse Indebtedness;
(9) Non-Recourse Indebtedness (except for Standard Securitization
Undertakings) of any Securitization Entity; provided, that if, but only to the
extent, any such Indebtedness ceases to constitute Non-Recourse Indebtedness
(except for Standard Securitization Undertakings) or if the Subsidiary that
Incurred such Indebtedness ceases to be a Securitization Entity, such event
shall be deemed to constitute an Incurrence of Indebtedness by a Restricted
Subsidiary of the Company; and
(10) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to finance or refinance the construction, purchase or lease of, or
repairs, improvements or additions to, property which Indebtedness does not in
the aggregate exceed $8 million in aggregate principal amount at any one time
outstanding.
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For purposes of determining compliance with the foregoing covenant, (a)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in good faith, will
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of the above clauses and (b) an item of
Indebtedness may be divided and classified in more than one of the types of
Indebtedness described above.
SECTION 1009. TRANSACTIONS WITH AFFILIATES.
The Company will not itself, and will not permit any Restricted
Subsidiary to, engage in any transaction (an "Affiliate Transaction") of any
kind or nature with any Affiliate of the Company, other than a Restricted
Subsidiary, unless (i) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series or related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Company or such Restricted Subsidiary of such Affiliate Transaction from
a financial point of view issued by a person experienced in transactions of the
nature of the subject transaction, other than an Affiliate of the Company.
The provisions of the foregoing paragraph shall not apply to (a)
transactions between or among the Company and any Restricted Subsidiary or
between or among Restricted Subsidiaries, (b) any Restricted Payment permitted
to be made under Section 1010 hereof or any Permitted Investment, (c) loans or
advances to employees in the ordinary course of business, (d) customary
directors fees and indemnities, (e) ordinary course commercial agreements or
renewals thereof on such terms as are in effect as of the Issue Date and which
terms are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (f) any Indebtedness
permitted by paragraph (5) of Section 1008, (g) any issuance of securities, or
other payments, compensation, benefits, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, stock options
and stock ownership plans approved by the Board of Directors, (h) the grant of
stock options or similar rights to employees and directors of the Company or any
Restricted Subsidiary pursuant to plans approved by the Board of Directors, (i)
transactions effected as part of a Qualified Securitization Transaction, and (j)
transactions effected as part of the incurrence of Permitted Warehouse
Indebtedness.
SECTION 1010. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
A SUBSIDIARY.
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company, to create or otherwise cause or permit to exist or become effective
or enter into any agreement with any Person that would cause or create any
consensual encumbrance or restriction of any kind on the
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ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on its capital stock or any
other interest or participation in, or measured by, its profits owned by the
Company or a Restricted Subsidiary of the Company, (b) make any loans or
advances to, or pay any Indebtedness owed to, the Company or any Restricted
Subsidiary of the Company or (c) transfer any of its properties or assets to the
Company or to any Restricted Subsidiary of the Company, except, in each case,
for such encumbrances or restrictions existing under or contemplated by or by
reason of (i) the Notes or this Indenture, (ii) any restrictions existing under
agreements in effect on the Issue Date (iii) any restrictions existing under any
agreement that refinances or replaces an agreement containing a restriction
permitted by clause (i) or (ii) above, provided that the terms and conditions of
such restrictions are not materially less favorable in the aggregate to the
Noteholders than those under or pursuant to the agreement being replaced; (iv)
any encumbrances or restriction with respect to a Restricted Subsidiary pursuant
to an agreement applicable to such Restricted Subsidiary on or prior to the date
on which such Restricted Subsidiary was acquired by the Company or was
designated a Restricted Subsidiary (other than (x) an agreement entered into in
connection with, or in anticipation of, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company and (y) any encumbrance or restriction
with respect to a Restricted Subsidiary formerly designated an Unrestricted
Subsidiary) and outstanding on such date; (v) any applicable law, rule,
regulation or order; (vi) any such encumbrance or restriction consisting of
customary nonassignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease or the property
leased thereunder, (vii) in the case of clause (c) above, restrictions contained
in security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements or mortgages; (viii) dividends, Indebtedness
or other transactions of a Securitization Entity, the Company or a Subsidiary in
connection with a Qualified Securitization Transaction; (ix) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement entered
into for sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition; and (x) encumbrances or restrictions pursuant to Permitted
Warehouse Indebtedness.
SECTION 1011. RESTRICTIONS ON RESTRICTED PAYMENTS
(1) The Company shall not make and shall not permit any Restricted
Subsidiary to make, directly or indirectly, any Restricted Payment:
(a) if at the time of such action an Event of Default shall have
occurred and be continuing or with the lapse of time will occur, after giving
effect to such Restricted Payment; or
(b) if at the time, upon giving effect to such Restricted
Payment, the Company could not incur at least $1.00 of Indebtedness pursuant to
paragraph (3) of Section 1008 hereof; or
(c) if, immediately after giving effect to such Restricted
Payment, the aggregate of all Restricted Payments declared or made from January
1, 2000, through and including the date of such Restricted Payment (the "Base
Period") exceeds the sum of (i) 50% of the Consolidated Net Income (or in the
event Consolidated Net Income is a deficit, minus 100% of such deficit) during
the Base Period, (ii) 100% of the aggregate net proceeds received by the Company
from the issue or sale during the Base Period of Capital Stock of the Company;
(iii) the amount by which
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Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date, of any Indebtedness of the Company convertible or exchangeable
for Capital Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property, distributed by the
Company upon such conversion or exchange); and (iv) an amount equal to the sum
of (A) the net reduction in Investments in any Person resulting from dividends
or repayments of loans or advances, in each case to the Company or any
Restricted Subsidiary from such Person or from the sale for cash or other
liquidation or repayment in cash, in each case the proceeds of which are
received by the Company or any Restricted Subsidiary, and (B) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary becomes a Restricted Subsidiary; provided, however, that
the foregoing sum in this clause (iv) shall not exceed, in the case of any
Person, the amount of Investments made since the Issue Date by the Company or
any Restricted Subsidiary in such Person and treated as a Restricted Payment.
(2) The provisions of the foregoing paragraph shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Debt of the Company
made by, exchanged for, or out of the proceeds of the substantially concurrent
sale of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan of the Company or any of its Subsidiaries for the benefit
of their employees except to the extent that the funds used by such plan are
attributable to employee contributions); provided, however, that (A) such
purchase or redemption shall be excluded from the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from the calculation of amounts under clause (c)(ii) of paragraph (1)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Debt made by exchange for,
or out of the proceeds of the substantially concurrent sale of, Indebtedness of
the Company which is permitted to be incurred pursuant to Section 1008 hereof;
provided, however, that such purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value shall be excluded from the calculation
of the amount of Restricted Payments; (iii) dividends paid within 60 days after
the date of declaration thereof if at such date of declaration such dividend
would have complied with the covenant described hereunder; provided, however,
that at the time of payment of such dividend, no other Default or Event of
Default shall have occurred and be continuing (or result therefrom); provided,
further, however, that such dividend shall be included in the calculation of the
amount of Restricted Payments; (iv) any purchase of Capital Stock of the Company
made from time to time to meet the Company's obligations under its employee
stock ownership and option plans; provided, however, that such purchases shall
be excluded from the calculation of the amount of Restricted Payments; and
(v) dividends, Indebtedness or other transactions of a Securitization Entity,
the Company or a Subsidiary in connection with a Qualified Securitization
Transaction.
(3) In the Event any Unrestricted Subsidiary becomes a Restricted
Subsidiary, the Company shall be deemed to have made an Investment in such
Subsidiary equal to the amount of the "Investments" made in such Subsidiary
since the Issue Date as if such Subsidiary been a Restricted Subsidiary or a
non-Wholly Owned subsidiary since the Issue Date.
SECTION 1012. NET WORTH.
The Company will at the end of each fiscal quarter during the term of
the Notes keep and maintain Consolidated Tangible Net Worth at an amount not
less than the sum of Thirty-Five
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Million ($35,000,000) plus (1) on a cumulative basis, 50% of positive
Consolidated Net Income from January 1, 1999, minus (but never below
$35,000,000); (2) on a cumulative basis from January 1, 1999 up to $3,000,000 in
respect of "FASB 125 Net Worth Adjustments." As used herein, the term "FASB 125
Net Worth Adjustments" shall mean downward adjustments in Net Worth required by
Financial Accounting Standard No. 125 issued by the Financial Accounting
Standards Board. The minimum Consolidated Tangible Net Worth of the Company
required by this Section shall not decrease, regardless of whether the Company
shall have negative Net Income during any fiscal quarter, other than up to
$3,000,000 in respect of FASB 125 Net Worth Adjustments and in no event decrease
below $35,000,000.
SECTION 1013. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with the
covenants set forth in Sections 1004 through 1011 and Section 1013, inclusive,
if before the time for such compliance the Noteholders of at least a majority in
aggregate principal amount of the Outstanding Notes shall, by Act of such
Noteholders, either waive such compliance in such instance or generally waive
compliance with such covenants, but no such waiver shall extend to or affect
such covenant except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of such covenant shall remain in full force and effect.
SECTION 1014. STATEMENT AS TO COMPLIANCE.
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year, a written statement signed by the Chairman of the Board,
President or a Vice President and by the Chief Financial Officer, an Assistant
Treasurer, the Controller or an Assistant Controller of the Company, stating, as
to each signer thereof, that:
(a) an analysis of the activities of the Company during such
year and of performance under this Indenture has been made under such person's
supervision, and
(b) to the best of such person's knowledge, based on such
analysis, the Company has fulfilled all of its obligations under this Indenture
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such person and the
nature and status thereof, and if continuing the actions being taken by the
company to cure the same.
(END OF ARTICLE TEN)
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<PAGE> 76
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. OPTIONAL REDEMPTION.
The Company may, at its option, at any time on or after _____ 15, 2002,
redeem the Notes either as a whole or from time to time in part in a minimum
aggregate principal amount of $100,000, at the following Redemption Prices
(expressed in percentages of the principal amount thereof), together with
interest accrued and unpaid thereon to the Redemption Date (which shall be an
Interest Payment Date), if redeemed during the twelve month period beginning on
_____ 15, in each of the following years:
<TABLE>
<S> <C> <C> <C> <C>
Year: 2002 2003 2004 2005 and thereafter
Redemption Price: 105% 103% 101% 100%
</TABLE>
The particular Notes to be redeemed on a Redemption Date pursuant shall
be selected as provided in Section 1104.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, or any supplement
hereto shall be made in accordance with such provisions and this Article,
provided that no redemption shall be made under this Article during any period
in which an Event of Default, or an event which, with notice or lapse of time or
both, would constitute an Event of Default, has occurred and is continuing.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to Section 1101
shall be evidenced by a Company Resolution. In case of any redemption at the
election of the Company of less than all the Notes, at least 60 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), the Company shall notify the Trustee of such
Redemption Date and of the aggregate principal amount of Notes to be redeemed
and shall deliver to the Trustee such documentation and records as shall enable
the Trustee to select the Notes to be redeemed pursuant to Section 1104.
SECTION 1104. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior the Redemption Date by
the Trustee, from the Outstanding Notes not previously called for redemption, by
lot or in any manner deemed by the Trustee to be proper. The Trustee shall
promptly notify the Company in writing of the distinctive numbers of the Notes
which have been selected for redemption.
SECTION 1105. NOTICE OF REDEMPTION.
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Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at the address appearing in the
Note Register.
All notices of redemption shall state:
(1) the Redemption Date (which shall be an Interest Payment Date),
(2) the Redemption Price,
(3) if less than all the Outstanding Notes are to be redeemed, the
identification of the particular Notes to be redeemed,
(4) that on the Redemption Date, the Redemption Price will become due
and payable upon each such Note to be redeemed and that interest thereon will
cease to accrue on and after said date, and
(5) the place or places where such Notes are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Notes to be redeemed shall be given by the
Company or, upon Company Request, by the Trustee in the name and at the expense
of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, the Company will segregate and hold in trust as provided in Section 1003)
in immediately available funds an amount of money sufficient to pay the
Redemption Price of all the Notes which are to be redeemed on that date.
SECTION 1107. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall become, on the Redemption Date, due and payable at the Redemption
Price therein specified, and on and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with such notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest to the Redemption Date,
exclusive of installments of interest whose Stated Maturity is on or prior to
the Redemption Date, which shall be payable to the Holders of such Notes, or one
or more Predecessor Notes, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Note.
(END OF ARTICLE ELEVEN)
71
<PAGE> 78
ARTICLE TWELVE
REPURCHASE OF NOTES AT THE OPTION
OF THE HOLDER UPON CHANGE IN CONTROL
SECTION 1201. RIGHT TO REQUIRE REPURCHASE.
In the event that, there shall occur a Change of Control (as hereinafter
defined) of the Company, then each Holder shall have the right, at the Holder's
option, to require the Company to repurchase, and upon the exercise of such
right the Company shall repurchase, all of such Holder's Notes, or any portion
of the principal amount thereof that is an integral multiple of $1,000, on the
date (the "Repurchase Date") that is 45 days after the date of the Company
Notice (as defined in Section 1202(a)) at a purchase price, payable in cash,
equal to 101% of the principal amount of Notes to be repurchased (a "Repurchase
Price"), together with accrued interest to the Repurchase Date. Such right to
require the repurchase of the Notes shall not continue after a discharge of the
Company from its obligations with respect to the securities in accordance with
Article Four, unless a Change of Control shall have occurred prior to such
discharge. The Repurchase Price shall be paid in cash.
SECTION 1202. NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT, ETC.
(a) Unless the Company shall have theretofore called for redemption all
the Outstanding Notes pursuant to Article Eleven, on or before the 30th day
after the occurrence of a Change of Control, the Company or, at the request of
the Company, the Trustee, shall mail to all Holders in the manner provided in
Section 1105 a notice (the "Company Notice") of the occurrence of the Change of
Control and of the repurchase right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a repurchase
right to the Trustee and cause a copy of such notice of a repurchase right to be
published in a newspaper of general circulation in Minneapolis and St. Paul,
Minnesota and Los Angeles, California.
Each notice of a repurchase right shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be
exercised,
(3) the Repurchase Price, and
(4) a description of the procedure which a Holder must
follow to exercise a repurchase right.
No failure of the Company to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of Notes.
(b) To exercise a repurchase right, a Holder shall deliver to the
Trustee on or before the 30th day after the date of the Company Notice (i)
written notice of the Holder's exercise of such right, which notice shall set
forth the name of the Holder, the principal amount of the Notes to be
repurchased, a statement that an election to exercise the repurchase right is
being made thereby,
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<PAGE> 79
and (ii) the Notes with respect to which the repurchase right is being
exercised, duly endorsed for transfer to the Company. Such written notice shall
be irrevocable.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid the Repurchase
Price in cash, as provided above, to the Holder on the Repurchase Date, together
with accrued and unpaid interest to the Repurchase Date payable with respect to
the Notes as to which the repurchase right has been exercised.
(d) If any Note surrendered for repurchase shall not be so paid on the
Repurchase Date, the principal shall, until paid, bear interest to the interest
to the extent permitted by applicable law from the Repurchase Date at the rate
borne by the Note.
(e) Any Note which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Note so surrendered.
SECTION 1203. CERTAIN DEFINITIONS.
For purposes of this Article:
(1) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Commission pursuant to the Exchange Act, as
amended, and for the purpose of this Article 12, "Person" shall include any
syndicate or group which would be deemed to be a "person" under Section 13(d)(3)
of such Exchange Act as in effect on the date of the original execution of this
Indenture; and
(2) a "Change of Control" of the Company shall be deemed to have
occurred: at such time as any Person becomes the beneficial owner, directly or
indirectly, through a sale, lease or other transfer of all or substantially all
of the Company's assets, purchase, redemption, merger, consolidation or other
acquisition transaction or series of transactions, of shares of capital stock of
the Company entitling such Person to exercise 50% or more of the total voting
power of all shares of capital stock of the Company (or Surviving Person, in the
case of a Consolidation, merger or sale, lease or other transfer of all or
substantially all of the Company's assets) entitled to vote in elections of
directors.
(END OF ARTICLE TWELVE)
73
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ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each Holder of Notes by such
Holder's acceptance thereof (whether upon original issue or upon transfer or
assignment) likewise covenants and agrees, that the Indebtedness represented by
the Notes and the payment of the principal of (and premium, if any) and interest
on each and all of the Notes is hereby expressly subordinated, and junior to the
extent and in the manner hereinafter set forth, in right of payment to the prior
payment in full of all Senior Debt.
SECTION 1302. DISTRIBUTION OF ASSETS, ETC.
Upon any distribution of assets of the Company upon any dissolution,
winding-up, liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of the assets and liabilities
of the Company or upon any acceleration or maturity of the Notes or otherwise:
(1) the holders of all Senior Debt shall first be entitled to receive
payment in full of the principal thereof (and premium, if any) and interest due
thereon, or adequate provisions shall be made for such payment, before the
Noteholders of the Notes are entitled to receive any payment on account of the
principal of (and premium, if any) or interest on the Indebtedness evidenced by
the Notes; and
(2) any payment by, or distribution of assets of, the Company of any
kind or character, whether in cash, property or securities, to which the
Noteholders of the Notes or the Trustee would be entitled except for the
provisions of this Article Thirteen shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or otherwise, directly to the holders of Senior Debt
which may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Debt held or represented by each, to the extent
necessary to make payment in full of all Senior Debt remaining unpaid after
giving effect to any concurrent payment or distribution (or provision therefor)
to the holders of such Senior Debt.
SECTION 1303. NO PAYMENT TO NOTEHOLDERS IF SENIOR DEBT IS IN DEFAULT.
(1) Upon the maturity of any Senior Debt by lapse of time, acceleration
or otherwise, all principal thereof (and premium, if any) and interest due
thereon shall first be paid in full, or such payment duly provided for in cash
or in a manner satisfactory to the holder or holders of such Senior Debt before
any payment is made on account of the principal of (and premium, if any) or
interest on the Notes or to acquire any of the Notes.
(2) Upon the happening of an event of default with respect to any Senior
Debt, as such event of default is defined therein or in the instrument under
which it is outstanding, permitting the holders to accelerate the maturity
thereof, and, if the default is other than default in payment of the principal
of (or premium, if any) or interest on such Senior Debt, upon written notice
thereof given to the Company and the Trustee by the holder or holders of such
Senior Debt or their representative or representatives, then, unless and until
such event of default shall have been cured or waived or shall have ceased to
exist, no payment shall be made by the Company with respect to the principal (or
premium, if any) or interest on the Notes or to acquire any of the Notes.
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<PAGE> 81
SECTION 1304. SUBROGATION.
Subject to the payment in full of all Senior Debt, the Holders of the
Notes shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Debt until all amounts owing on the Notes shall be paid
in full, and, as between the Company, its creditors other than holders of Senior
Debt, and the Noteholders of the Notes, no such payment or distribution made to
the holders of Senior Debt by virtue of this Article Thirteen which otherwise
would have been made to the Holders of the Notes shall be deemed to be a payment
by the Company on account of the Senior Debt, it being understood that the
provisions of this Article Thirteen are and are intended solely for the purpose
of defining the relative rights of the Holders of the Notes, on the one hand,
and the holders of Senior Debt, on the other hand.
SECTION 1305. OBLIGATION OF COMPANY UNCONDITIONAL.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Debt, and the Holders of
the Notes, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Notes the principal of (and premium, if any) and
interest on the Notes as and when the same shall become due and payable in
accordance with their terms, or affect the relative rights of the Holders of the
Notes and creditors of the Company other than the holders of Senior Debt, nor
shall anything herein or exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Thirteen of the holders of Senior Debt in respect of cash,
property or securities of the Company received upon the exercises of any such
remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article Thirteen, the Trustee and the Noteholders of the Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which any such dissolution, winding-up, liquidation or
reorganization proceeding affecting the affairs of the Company is pending or
upon a certificate of the liquidating trustee or agent or other person making
any payment or distribution to the Trustee or to the Noteholders of the Notes
for the purpose of ascertaining the persons entitled to participate in such
payment or distribution, the holders of the Senior Debt and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount paid or
distributed thereon and all other facts pertinent thereto or to this Article
Thirteen.
SECTION 1306. PAYMENTS ON NOTES PERMITTED.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture, or in any of the Notes, shall (a) affect the obligation of the
Company to make, or prevent the Company from making, at any time except during
the continuance of any event of default specified in Section 1303 (not cured or
waived), payments at the Stated Maturity of principal of (and premium, if any)
and interest on the Notes, or (b) prevent the application by the Trustee or any
Paying Agent of any moneys held by the Trustee or such Paying Agent, in trust
for the benefit of the Noteholders of Notes as to which notice of redemption
shall have been mailed or published at least once prior to the happening of an
event of default specified in Section 1303, to the payment of or on account of
the principal of (and premium, if any) and interest on such Notes, or (c)
prevent the application by the Trustee or any Paying Agent of any moneys
deposited prior to the happening of any event of default specified in Section
1303 with the Trustee or such Paying Agent in trust for the purpose of paying a
specified installment or installments of interest on the Notes, to the payment
of such installments of interest on the Notes.
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<PAGE> 82
SECTION 1307. EFFECTUATION OF SUBORDINATION BY TRUSTEE.
Each Holder of Notes, by such Holder's acceptance thereof, authorizes
and directs the Trustee in such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Thirteen and appoints the Trustee such Holder's attorney-in-fact for any
and all such purposes.
SECTION 1308. KNOWLEDGE OF TRUSTEE.
Notwithstanding the provisions of this Article Thirteen or any other
provisions of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
moneys to or by the Trustee, or the taking of any other action by the Trustee,
unless and until the Trustee shall have received written notice thereof, at
least one business day prior to the relevant payment date, from the Company, any
Holder, any Paying Agent or the holder or representative or any class of Senior
Debt.
SECTION 1309. RIGHTS OF HOLDERS OF SENIOR DEBT NOT IMPAIRED.
No right of any present or future holder of any Senior Debt to enforce
the subordination herein shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of the Company with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
SECTION 1310. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Debt and shall not be liable to any such holders if it shall in good
faith pay over or distribute to the Noteholders of the Notes, to the Company or
to any other Person cash, property or securities to which any holders of Senior
Debt shall be entitled by virtue of this Article or otherwise.
SECTION 1311. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR DEBT.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be held by it, to the same extent as any other holder of Senior Debt,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
SECTION 1312. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying Agent were named
in this Article in addition to or in place of the Trustee.
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<PAGE> 83
SECTION 1313. RIGHTS AND OBLIGATIONS SUBJECT TO POWER OF COURT.
The rights of the holders of Senior Debt and the obligations of the
Trustee and the Noteholders set forth in this Article Thirteen are subject to
the power of a court of competent jurisdiction to make other equitable provision
reflecting the rights conferred in this Indenture upon the Senior Debt and the
holders thereof with respect to the Notes and the Noteholders thereof by a plan
or reorganization under applicable bankruptcy law.
(END OF ARTICLE THIRTEEN)
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This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective seals to be hereunto affixed and attested,
all as of the day and year first above written.
ONYX ACCEPTANCE CORPORATION
By
---------------------------------
John W. Hall, President
Attest:
- ---------------------------------
, Secretary
- ---------------
BANKERS TRUST COMPANY, as Trustee
By
---------------------------------
Its
---------------------------------
Attest:
- ---------------------------------
Trust Officer
78
<PAGE> 1
EXHIBIT 5.1
April 7, 2000
Onyx Acceptance Corporation
27051 Towne Centre Drive
Foothill Ranch, California 92610
Re: Registration Statement on Form S-1
Subordinated Notes due 2006
Gentlemen:
We are acting as counsel for Onyx Acceptance Corporation (the
"Company") in connection with an underwritten public offering of up to
$13,800,000 aggregate principal amount of its Subordinated Notes due 2006 (the
"Notes"), to be issued under an indenture (the "Indenture") to be entered into
between the Company and Bankers Trust Company (the "Trustee").
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Securities Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement of the Company on Form S-1 relating to the Notes, filed with the
Securities and Exchange Commission (the "Commission") on December 10, 1999 under
the Securities Act, as amended by Amendment No. 1 to the Registration Statement,
filed with the Commission on January 19, 2000, as further amended by Amendment
No. 2 to the Registration Statement, filed with the Commission on February 8,
2000, and as further amended by Amendment No. 3 to the Registration Statement,
filed with Commission on April 7, 2000 (such Registration Statement, as amended,
being hereafter referred to as the "Registration Statement"); (ii) the form of
the Underwriting Agreement (the "Underwriting Agreement") proposed to be entered
into between the Company, as issuer, and Miller & Schroeder Financial, Inc. and
Peacock, Hislop, Staley & Given, Inc. (the "Underwriters"); (iii) the form of
the Indenture relating to the Notes to be entered into by the Company and the
Trustee, as filed as an exhibit to the Registration Statement; (iv) the Form T-1
of the Trustee, as filed as an exhibit to the Registration Statement; (v) the
Certificate of Incorporation of the Company, as presently in effect,
incorporated by reference to the Registration Statement; (vi) certain
resolutions adopted by the Board of Directors of the Company relating to the
Notes (the "Resolutions"); and (vii) the form of the Notes. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
<PAGE> 2
ANDREWS & KURTH L.L.P.
Onyx Acceptance Corporation
April 7, 2000
Page 2
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinion expressed herein
which we have not independently established or verified, we have relied upon
statements and representations of officers and other representatives of the
Company and others.
Members of our firm are admitted to the Bar in the State of New York
and we do not express any opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective and the Indenture has been
qualified under the Trust Indenture Act of 1939, as amended; (ii) the Indenture
and the Underwriting Agreement have been duly executed and delivered; and (iii)
the Notes shall have been duly executed and authenticated in accordance with the
terms of the Indenture and delivered to and paid for by the Underwriters as
contemplated by the Underwriting Agreement, the issuance and sale of the Notes
will have been duly authorized, and the Notes will be valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except to the extent that (a) enforcement thereof may be limited by
(1) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect, relating to creditors= rights
generally, and (2) general principles of equity (regardless of whether
enforceability is considered a proceeding at law or in equity) and (b) the
waiver contained in Section 515 of the Indenture may be deemed unenforceable.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
<PAGE> 1
EXHIBIT 8.1
April 7, 2000
Onyx Acceptance Corporation
27051 Towne Centre Drive
Foothill Ranch, California 92610
Re: Registration Statement on Form S-1
Subordinated Notes due 2006
Ladies and Gentlemen:
We are acting as counsel for Onyx Acceptance Corporation (the "Company")
in connection with an underwritten public offering of up to $13,800,000
aggregate principal amount of its Subordinated Notes due 2006 (the "Notes"), to
be issued under an indenture (the "Indenture") to be entered into between the
Company and Bankers Trust Company (the "Trustee").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement of the Company on Form S-1 relating to the Notes, filed with the
Securities and Exchange Commission (the "Commission") on December 10, 1999 under
the Securities Act, as amended through Amendment No. 3 thereto to be filed with
the Commission on or about April 7, 2000 (such Registration Statement being
hereafter referred to as the "Registration Statement"); (ii) the form of the
Indenture relating to the Notes to be entered into by the Company and the
Trustee, as filed as an exhibit to the Registration Statement; (iii) the
Certificate of Incorporation of the Company, as presently in effect,
incorporated by reference to the Registration Statement; and (iv) the form of
the Notes. We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and such
agreements, certificates of public officials, certificates of officers or other
representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action,
<PAGE> 2
Onyx Acceptance Financial Corporation
April 7, 2000
Page 2
corporate or other, and execution and delivery by such parties of such documents
and the validity and binding effect thereof. As to any facts material to the
opinion expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company and others.
On the basis of the foregoing and subject to the limitations and
qualifications set forth below, we are of the opinion that the description of
federal income tax consequences appearing under the heading "Material Federal
Income Tax Consequences" in the prospectus contained in the Registration
Statement accurately describes the material federal income tax consequences to
holders of the Notes under existing law and subject to the qualifications and
assumptions stated therein.
The opinion herein is based upon our interpretations of current law,
including court authority and existing Final and Temporary Regulations, which
are subject to change both prospectively and retroactively, and upon the facts
and assumptions discussed herein. This opinion letter is limited to the matters
set forth herein, and no opinions are intended to be implied or may be inferred
beyond those expressly stated herein. Our opinion is rendered as of the date
hereof and we assume no obligation to update or supplement this opinion or any
matter related to this opinion to reflect any change of fact, circumstances, or
law after the date hereof. In addition, our opinion is based on the assumption
that the matter will be properly presented to the applicable court. Furthermore,
our opinion is not binding on the Internal Revenue Service or a court. In
addition, we must note that our opinion represents merely our best legal
judgment on the matters presented and that others may disagree with our
conclusion. There can be no assurance that the Internal Revenue Service will not
take a contrary position or that a court would agree with our opinion if
litigated.
We consent to the use and filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained therein. In giving such consent we do not
imply or admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Andrew & Kurth L.L.P.
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Income before taxes $(3,187,046) $ 6,966,948 $ 2,286,288 $10,385,954 $16,737,959
Fixed charges $ 6,138,267 $ 5,760,728 $ 7,754,428 $15,244,297 $19,386,251
----------- ----------- ----------- ----------- -----------
Earnings $ 2,951,221 $12,727,676 $10,040,716 $25,357,251 $36,124,210
=========== =========== =========== =========== ===========
Fixed charges
Gross interest $ 6,005,376 $ 5,539,850 $ 7,261,645 $14,636,534 $18,287,107
Rent expenses $ 398,673 $ 662,634 $ 1,478,349 $ 1,823,290 $ 3,297,431
One-third of rent expense $ 132,891 $ 220,878 $ 492,783 $ 607,763 $ 1,099,144
Total $ 6,138,267 $ 5,760,728 $ 7,754,428 $15,244,297 $19,386,251
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges 0.48 2.21 1.29 1.69 1.86
</TABLE>
<PAGE> 1
EXHIBIT 12.2
RATIO OF EBITDA TO CASH INTEREST EXPENSES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION (EBITDA):
Net Income $(3,187,046) $ 6,115,588 $ 1,302,271 $ 6,075,784 $ 9,791,911
Interest Expense $ 6,005,376 $ 5,539,850 $ 7,261,645 $14,636,534 $18,287,107
Taxes $ 0 $ 851,360 $ 984,017 $ 4,310,170 $ 6,946,048
Depreciation $ 688,876 $ 821,354 $ 1,194,186 $ 2,105,743 $ 3,482,202
Amortization $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- -----------
Total $ 3,507,206 $13,328,152 $10,742,119 $27,128,231 $38,507,268
=========== =========== =========== =========== ===========
Cash interest expenses $ 4,755,923 $ 6,784,204 $ 7,032,567 $14,148,717 $17,609,667
Ratio of EBITDA to cash interest 0.74 1.96 1.53 1.92 2.19
</TABLE>
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 26, 2000, relating to the financial statements of Onyx
Acceptance Corporation, which appears in such Registration Statement. We also
consent to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
April 6, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,190,271
<SECURITIES> 0
<RECEIVABLES> 229,991,667
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 393,835,110
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 61,778
<OTHER-SE> 53,046,246
<TOTAL-LIABILITY-AND-EQUITY> 393,835,110
<SALES> 0
<TOTAL-REVENUES> 88,942,935
<CGS> 0
<TOTAL-COSTS> 72,204,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,246,074
<INTEREST-EXPENSE> 18,287,107
<INCOME-PRETAX> 16,737,959
<INCOME-TAX> 6,946,048
<INCOME-CONTINUING> 9,791,911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,791,911
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.50
</TABLE>
