<PAGE> 1
As filed with the Securities and Exchange Commission on January 19, 2000.
Registration No. 333-92573
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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>
J. KEVIN BOARDMAN MICHAEL A. KRAHELSKI MARK A. LINDGREN
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.
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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 TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subordinated Notes due 2006..... $23,000,000 $1,000 $23,000,000 $6,072
===================================================================================================================
</TABLE>
(1) Includes $3,000,000 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) Previously paid to the Commission on December 10, 1999 in connection with
the filing of the Registration Statement.
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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 JANUARY 19, 2000
PROSPECTUS
LOGO
$20,000,000
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
$3,000,000 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 $3.4
billion in auto receivables. Onyx services its retail customers from its
Foothill Ranch complex in California.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
----------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------- -------- -------- -------- ---------- -------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.................. $ 2,095 $ 5,618 $ 22,627 $ 33,811 $ 60,392 $ 65,868
Net income (loss)............... (3,505) (3,187) 6,116 1,302 6,075 7,162
Net income (loss) per diluted
share......................... $ (1.89) $ (1.68) $ 1.09 $ 0.21 $ 0.95 $ 1.10
Diluted shares outstanding...... 2,158 2,234 5,586 6,294 6,425 6,528
Total assets.......... $57,095 $136,077 $ 54,083 $141,836 $ 275,422 $ 342,294
Stockholders' equity
(deficit)..................... (4,122) (7,896) 36,358 37,717 43,824 50,708
Servicing portfolio at period
end........................... 74,581 218,207 400,665 757,277 1,345,961 1,924,881
Contracts purchased............. 85,723 199,397 319,840 605,905 1,038,535 1,130,634
</TABLE>
[Bar Chart] [Bar Chart]
[Bar chart showing dollar amount of [Bar chart showing the number of
revenues for the years ended December contracts purchased for the years
31, 1994, 1995, 1996, 1997 and 1998 ended December 31, 1994, 1995, 1996,
and for the nine months ended 1997 and 1998 and for the nine months
September 30, 1999] ended September 30, 1999]
[Bar Chart] [Bar Chart]
[Bar chart showing dollar amount of [Bar chart showing the number of
servicing portfolio for the years dealer relationships for each quarter
ended December 31, 1994, 1995, 1996, from the fourth quarter of 1997
1997 and 1998 and for the nine months through the third quarter of 1999]
ended September 30, 1999]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<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 ............... 16
USE OF PROCEEDS .................................................... 18
CAPITALIZATION ..................................................... 18
SELECTED FINANCIAL DATA ............................................ 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................. 21
Overview .................................................. 21
Results of Operations ..................................... 24
Financial Condition ....................................... 27
Liquidity and Capital Resources ........................... 32
Securitizations ........................................... 34
Interest Rate Exposure and Hedging ........................ 35
Dividend Policy ........................................... 35
New Accounting Pronouncements ............................. 36
Year 2000 Compliance ...................................... 36
BUSINESS ........................................................... 37
General ................................................... 37
Background ................................................ 37
Market and Competition .................................... 37
Business Strategy ......................................... 37
Operations ................................................ 39
Underwriting and Purchasing of Contracts .................. 40
Servicing Procedures ...................................... 44
Collection Procedures ..................................... 44
Modifications and Extensions .............................. 45
Insurance ................................................. 46
Financing and Sale of Contracts ........................... 46
Government Regulation ..................................... 46
Litigation ................................................ 48
Employees ................................................. 48
Properties ................................................ 49
MANAGEMENT ......................................................... 50
Directors and Executive Officers .......................... 50
Executive Compensation .................................... 51
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Page
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<S> <C>
Directors' Compensation ................................... 54
Employment Agreements ..................................... 55
Stock Option Grants ....................................... 55
Compensation Committee Interlocks and Insider Participation 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 55
Certain Business Relationships ............................ 55
Indebtedness of Management ................................ 55
PRINCIPAL STOCKHOLDERS ............................................. 56
DESCRIPTION OF THE NOTES ........................................... 58
General ................................................... 58
Interest .................................................. 58
Optional Redemption By Us ................................. 59
Repurchase at Option of Holder ............................ 59
Subordination ............................................. 60
Events of Default And Remedies ............................ 61
Restrictive Covenants ..................................... 62
Modifications of the Indenture ............................ 65
Satisfaction and Discharge ................................ 66
Legal Defeasance and Covenant Defeasance .................. 66
Governing Law ............................................. 67
Concerning the Trustee .................................... 67
UNDERWRITING ....................................................... 67
LEGAL MATTERS ...................................................... 69
EXPERTS ............................................................ 69
WHERE YOU CAN FIND MORE INFORMATION ................................ 69
GLOSSARY ........................................................... 71
INDEX TO FINANCIAL STATEMENTS ...................................... 73
</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 71.
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 $3.4 billion in motor vehicle contracts from approximately
7,100 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:
o 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.
o 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.
o 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 expect to establish additional dealer relationships
as we continue our expansion plans in the future.
-1-
<PAGE> 8
o 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.
o 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.
o Liquidity Through Warehousing and Securitizations. Our strategy is to
complete securitizations on a regular basis and to use warehousing
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>
<C> <S>
Issuer.......................... Onyx Acceptance Corporation
Trustee......................... Bankers Trust Company.
Securities Offered.............. Up to $23,000,000 principal amount of ___% subordinated notes,
which includes $3,000,000 principal amount of subordinated notes
that the underwriters have the option to purchase to cover
over-allotments, if any.
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:
o are unsecured;
o rank junior to our current and future senior debt, including
debt we may incur under our existing and future credit
facilities;
o rank equally with our existing and future subordinated debt;
and
o rank senior to any subordinated debt held by any of our
affiliates or subsidiaries.
</TABLE>
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<PAGE> 10
<TABLE>
<C> <S>
Assuming we had issued the notes and applied the proceeds as of
September 30, 1999, we would have had outstanding $226 million of
senior debt and $30 million of subordinated debt, including the
notes.
Restrictive Covenants........... The indenture governing the notes, among other things, will:
o require us to maintain a minimum tangible net worth of $35
million, subject to adjustments;
o restrict us from paying dividends on our capital stock or
making certain investments;
o require us to maintain certain financial ratios;
o restrict us from entering into certain transactions with
affiliates; and
o require us to maintain a NASDAQ listing for our common stock.
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 $17.9 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:
o the liquidity of any market that may develop for the notes;
o your ability to sell your notes; or
o the prices at which you will be able to sell your notes.
</TABLE>
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<PAGE> 11
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.
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.
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<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 1996, 1997 and the first nine months 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 NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------------------
1996 1997 1998 1998 1999
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income .......................... $ 4,140 $ 5,036 $ 7,312 $ 6,052 $ 5,589
Servicing fee income ......................... 3,236 9,189 16,663 10,016 19,758
Gain on sale of contracts .................... 15,251 19,586 36,417 25,911 40,521
-------- -------- ---------- ---------- ----------
Total revenues ............................... 22,627 33,811 60,392 41,979 65,868
-------- -------- ---------- ---------- ----------
Provision for credit losses .................. 266 785 1,580 1,230 953
Operating expenses ........................... 15,394 30,740 48,427 34,612 52,672
-------- -------- ---------- ---------- ----------
Total expenses ............................... 15,660 31,525 50,007 35,842 53,625
-------- -------- ---------- ---------- ----------
Income before income taxes ................... 6,967 2,286 10,385 6,137 12,243
Income taxes ................................. 851 984 4,310 2,547 5,081
-------- -------- ---------- ---------- ----------
Net income ................................... $ 6,116 $ 1,302 $ 6,075 $ 3,590 $ 7,162
======== ======== ========== ========== ==========
OPERATING DATA:
Contracts purchased during the period ........ $319,840 $605,905 $1,038,535 $ 734,334 $1,130,634
Number of contracts purchased during the
period ..................................... 26,244 50,214 86,150 61,301 92,776
Contracts securitized and sold during the
period ..................................... $405,514 $527,276 $ 926,760 $ 646,760 $1,060,000
Number of active dealerships (at end of
period) .................................... 1,471 2,846 5,401 4,691 7,156
Operating expenses as a percentage of the
average servicing portfolio during
the period(1) .............................. 4.9% 5.5% 4.7% 4.9% 4.3%
SELECTED PORTFOLIO DATA:
Servicing portfolio (at end of period) ....... $400,665 $757,277 $1,345,961 $1,176,153 $1,924,881
Average servicing portfolio during the
period(1) .................................. $311,340 $563,343 $1,023,237 $ 945,077 $1,629,779
Number of contracts in servicing portfolio
(at end of period) ......................... 38,275 73,502 131,862 115,151 189,062
Weighted average annual percentage rate
(at end of period)(2) ...................... 14.72% 14.66% 14.72% 14.71% 14.73%
Delinquencies as a percentage of the dollar
amount of servicing portfolio (at end of
period)(3) ................................. 2.03% 2.51% 2.83% 2.02% 2.68%
Net charge-offs as a percentage of the
average servicing portfolio during the
period(1)................................... 1.63% 2.03% 1.72% 1.77% 1.75%
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............. $ 603 $ 991 $ 1,929 $ 5,772 $ 4,788
Contracts held for sale(4) ............ 12,238 63,380 151,952 124,582 195,255
Credit enhancement assets ............. 37,144 71,736 112,953 101,031 130,900
Total assets .......................... 54,083 141,836 275,422 238,624 342,294
Warehouse borrowings .................. 10,108 60,506 150,044 119,006 187,529
Revolving credit and residual lines ... 2,500 30,000 49,556 45,972 56,695
Subordinated debt ..................... 0 0 10,000 10,000 10,000
Stockholders' equity .................. 36,358 37,717 43,824 41,340 50,708
OTHER DATA:
Ratio of earnings to fixed charges (5) 2.21x 1.29x 1.68x 1.55x 1.82x
EBITDA (6) ............................ $13,328 $ 10,742 $ 27,128 $ 20,643 $ 33,887
Ratio of EBITDA to cash interest
expenses(6) ......................... 1.96x 1.53x 1.92x 1.97x 2.46x
</TABLE>
- ----------
(1) Averages are based on daily balances
(2) The weighted averages are based on contracts outstanding at the end of
the period.
(3) Amounts for the nine months ended September 30, 1998 and 1999 are
annualized.
(4) Contracts held for sale excludes dealer participation and allowance
for credit losses.
(5) 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.
(6) 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.
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<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:
o make it more difficult for us to perform our obligations with
respect to the notes;
o increase our vulnerability to general adverse economic and
industry conditions;
o 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;
o limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
o place us at a competitive disadvantage compared to our
competitors that have less debt; and
o 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:
o the current economic and competitive conditions in the
asset-backed securities market;
o the credit quality of our motor vehicle contracts;
o any operating difficulties or pricing pressures we may
experience;
-8-
<PAGE> 15
o our ability to obtain credit enhancement;
o the passage of laws or regulations that affect us adversely;
and
o 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 September 30, 1999, after giving
effect to the sale of the notes, we would have had approximately $226 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:
o incurring or guaranteeing additional indebtedness;
o paying dividends or other distributions to our stockholders or
redeeming, repurchasing or retiring our capital stock or
subordinated obligations;
o making investments;
o making capital expenditures;
o creating liens on our assets;
o issuing or selling capital stock of our subsidiaries;
o transferring or selling assets currently held by us;
o engaging in transactions with affiliates; and
o engaging in mergers or consolidations.
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<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:
o acquire motor vehicle contracts;
o pay dealer participation;
o pay securitization costs and fund spread accounts;
o settle hedge transactions;
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<PAGE> 17
o satisfy working capital requirements and pay operating
expenses; and
o 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:
o we will have access to the capital markets in the future for
equity or debt issuances or for securitizations; or
o 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 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
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<PAGE> 18
is determined in large part by how well our securitized motor vehicle contracts
perform. If our portfolio 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:
o conditions in the securities markets generally;
o conditions in the asset-backed securities market specifically;
o the credit quality of our portfolio of motor vehicle
contracts; and
o 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:
o we will be able to continue to obtain credit enhancement in
any form from MBIA;
o we will be able to obtain credit enhancement from any other
provider of credit enhancement on acceptable terms; or
o 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.
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<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 use to solicit
borrowers 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
London Interbank Offered Rate, or LIBOR, and the prime rate. The applicable
interest rate under our lines of credit based on LIBOR reset on a monthly basis,
while the applicable interest rate under our lines of credit based on the prime
rate reset simultaneously with any change in the prime rate. 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
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<PAGE> 20
would be declining. In time, 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.
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, 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:
o 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;
o 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;
o 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
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<PAGE> 21
o 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.
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:
o our failure generally to observe and perform covenants and
agreements applicable to us;
o certain bankruptcy events involving us; or
o 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
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<PAGE> 22
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 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:
o require us to obtain and maintain certain licenses and
qualifications;
o limit the interest rates, fees and other charges we are
allowed to charge;
o limit or prescribe certain other terms of our motor vehicle
contracts;
o require specific disclosures; and
o 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:
o applicable laws and regulations;
o changes in existing laws or regulations;
o changes in the interpretation of existing laws or regulations;
or
o 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 two such class action lawsuits. 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
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
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<PAGE> 23
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.
We developed a comprehensive plan designed to address the "Year 2000"
issue , which we have completed for our in-house and third party technology
applications. In 1999, we completed a detailed risk assessment of our various
in-house and third party computer systems, business applications and other
affected systems, formulated a plan for specific remediation efforts and
executed such remediation efforts. We assembled survey data from third party
vendors and certain other parties with which we communicate electronically to
determine the compliance efforts being undertaken by these parties and to assess
our potential exposure to any non-compliant systems operated by these parties.
We completed our remediation efforts and testing of our in-house and third
party systems and applications in 1999, and, as of this date, have experienced
no problems related to the Year 2000 problem.
We currently estimate that our costs related to Year 2000 compliance
remediation for our own information technology systems and applications were
approximately $450,000 in 1999. This amount represented approximately 9% of our
information technology budget.
There can be no assurance that all potential Year 2000 problems for our
in-house and third party technology applications have been resolved. If we
experience an unanticipated Year 2000 problem, we may be unable to perform our
key operating activities, such as the purchase of loans and the invoicing,
collecting and application of obligor repayments. We could be subject to
litigation for computer systems failure, such as improper application of
repayments 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 $17.9 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 lines of credit
with Merrill Lynch Mortgage Capital Inc. and Salomon Smith Barney Realty Inc.
These lines bore interest at a weighted average rate of 7.91% as of September
30, 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.
CAPITALIZATION
The following table sets forth our capitalization, as of September 30,
1999, and as adjusted to give effect to the sale of $20 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 SEPTEMBER 30, 1999
------------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
DEBT:
Warehouse Borrowings ...................................... $ 187,529,471 $ 187,529,471
Residual Facilities ....................................... 56,695,229 38,795,229
Subordinated Loan ......................................... 10,000,000 10,000,000
Other Debt ................................................ 846,683 846,683
___% Subordinated Notes due 2006 .......................... -- 20,000,000
------------- -------------
Total debt: ...................................... 255,071,383 257,171,383
------------- -------------
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, 9,800,000
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 ......................................... 13,084,689 13,084,689
Accumulated other comprehensive loss ...................... (330,395) (330,395)
------------- -------------
Total stockholders' equity: ...................... 50,708,143 50,708,143
------------- -------------
Total capitalization: ............................ $ 305,779,526 $ 307,879,526
============= =============
</TABLE>
SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial
information as of and for the nine months ended September 30, 1999 and 1998 and
each of the years in the five-year period ended December 31, 1998. The
information as of and for the years ended December 31, 1996, 1997 and 1998 is
derived from our audited consolidated financial statements and the related notes
thereto included in this prospectus. The financial data for the nine months
ended September 30, 1999 and 1998 is unaudited and reflects all adjustments
(consisting only of normal recurring adjustments) which are, in our opinion,
necessary for a fair presentation of our financial position and operating
results for such interim periods. The results of operations for the nine month
period ended September 30, 1999 are not necessarily indicative of results for
the full year. You should read the following
-18-
<PAGE> 25
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."
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 1996, 1997 and the first nine months 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 NINE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
-------- --------- -------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income ................ $ 1,311 $ 2,225 $ 4,140 $ 5,036 $ 7,312 $ 6,052 $ 5,589
Servicing fee income ............... 269 1,381 3,236 9,189 16,663 10,016 19,758
Gain on sale of contracts .......... 515 2,012 15,251 19,586 36,417 25,911 40,521
-------- --------- -------- -------- ---------- ---------- ----------
Total revenues ..................... 2,095 5,618 22,627 33,811 60,392 41,979 65,868
-------- --------- -------- -------- ---------- ---------- ----------
Provision for credit losses ........ 208 465 266 785 1,580 1,230 953
Operating expenses ................. 5,392 8,340 15,394 30,740 48,427 34,612 52,672
-------- --------- -------- -------- ---------- ---------- ----------
Total expenses ..................... 5,600 8,805 15,660 31,525 50,007 35,842 53,625
-------- --------- -------- -------- ---------- ---------- ----------
Income (loss) before income taxes .. (3,505) (3,187) 6,967 2,286 10,385 6,137 12,243
Income taxes ....................... 0 0 851 984 4,310 2,547 5,081
-------- --------- -------- -------- ---------- ---------- ----------
Net income (loss) .................. $ (3,505) $ (3,187) $ 6,116 $ 1,302 $ 6,075 $ 3,590 $ 7,162
======== ========= ======== ======== ========== ========== ==========
Net income (loss) available to
common shareholders ............... $ (4,081) $ (3,763) $ 6,116 $ 1,302 $ 6,075 $ 3,590 $ 7,162
OPERATING DATA:
Contracts purchased during the
period ............................ $ 85,723 $ 199,397 $319,840 $605,905 $1,038,535 $ 734,334 $1,130,634
Number of contracts purchased
during the period ................. 7,619 16,571 26,244 50,214 86,150 61,301 92,776
Contracts securitized and sold
during the period ................. $ 38,601 $ 105,000 $405,514 $527,276 $ 926,760 $ 646,760 $1,060,000
Number of active dealerships (at end
of period) ......................... 380 769 1,471 2,846 5,401 4,691 7,156
Operating expenses as a percentage
of the average servicing portfolio
during the period(1) ............... 19.1% 5.9% 4.9% 5.5% 4.7% 4.9% 4.3%
SELECTED PORTFOLIO DATA:
Servicing portfolio (at end of
period) ........................... $ 74,581 $ 218,207 $400,665 $757,277 $1,345,961 $1,176,153 $1,924,881
Average servicing portfolio during
the period(1) ..................... $ 28,291 $ 141,029 $311,340 $563,343 $1,023,237 $ 945,077 $1,629,779
Number of contracts in servicing
portfolio (at end of period) ...... 6,893 20,156 38,275 73,502 131,862 115,151 189,062
Weighted average annual percentage
rate (at end of period)(2) ........ 14.01% 15.00% 14.72% 14.66% 14.72% 14.71% 14.73%
Delinquencies as a percentage of the 0.07% 1.20% 2.03% 2.51% 2.83% 2.02% 2.68%
dollar amount of servicing
portfolio (at end of period)(3)
Net charge-offs as a percentage of
the average servicing portfolio
during the period(1) .............. 0.00% 0.37% 1.63% 2.03% 1.72% 1.77% 1.75%
</TABLE>
-19-
<PAGE> 26
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- --------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............ $ 10,252 $ 1,623 $ 603 $ 991 $ 1,929 $ 5,772 $ 4,788
Contracts held for sale(4) ........... 40,313 116,893 12,238 63,380 151,952 124,582 195,255
Credit enhancement assets ............ 3,085 12,390 37,144 71,736 112,953 101,031 130,900
Total assets ......................... 57,095 136,077 54,083 141,836 275,422 238,624 342,294
Warehouse borrowings ................. 40,850 112,380 10,108 60,506 150,044 119,006 187,529
Revolving credit and residual lines .. 0 9,569 2,500 30,000 49,556 45,972 56,695
Subordinated debt .................... 10,000 10,000 0 0 10,000 10,000 10,000
Stockholders' equity (deficit) ....... (4,122) (7,896) 36,358 37,717 43,824 41,340 50,708
Redeemable Series A Preferred Stock .. 8,803 9,379 -- -- -- -- --
OTHER DATA:
Ratio of earnings to fixed charges(5) (0.83)x 0.48x 2.21x 1.29x 1.68x 1.55x 1.82x
EBITDA(6) ............................ $ (1,135) $ 3,507 $13,328 $ 10,742 $ 27,128 $ 20,643 $ 33,887
Ratio of EBITDA to cash interest
expenses(6) ......................... (0.65)x 0.74x 1.96x 1.53x 1.92x 1.97x 2.46x
</TABLE>
- ----------
(1) Averages are based on daily balances
(2) The weighted averages are based on Contracts outstanding at the end of
the period.
(3) Amounts for the quarters ended September 30, 1998 and 1999 are
annualized.
(4) Contracts held for sale excludes dealer participation and allowance
for credit losses.
(5) 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.
(6) 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.
-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 $3.4 billion in motor
vehicle contracts from approximately 7,100 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:
o recognize a gain on sale of the motor vehicle contracts;
o receive future servicing cash flows; and
o earn fees from servicing the securitized motor vehicle
contracts.
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 1996, 1997 and the first three 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.
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 and the nine month
periods ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- -----------------------
1996 1997 1998 1998 1999
-------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts purchased during the period.............. $319,840 $605,905 $1,038,535 $734,334 $1,130,634
Average monthly purchases during the period........ 26,653 50,492 86,544 81,592 125,626
Gain on sale of contracts.......................... 15,251 19,586 36,417 25,911 40,521
Total revenues(1).................................. 22,627 33,811 60,392 41,979 65,868
Contracts securitized and sold during the period... 405,514 527,276 926,760 646,760 1,060,000
Servicing portfolio at period end.................. 400,665 757,277 1,345,961 1,176,153 1,924,881
</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,
1998 was $1.0 billion compared to $605.9 million in 1997 and $319.8 million in
1996, representing an increase of 89.0% from 1996 to 1997 and an increase of
65.0% from 1997 to 1998. Our acquisition volume for the nine months ended
September 30, 1999 was $1.1 billion compared to $734.3 million for the same
period in 1998. This growth in acquisition volume is attributable primarily to:
o the opening of four additional auto finance centers during
1998 and three additional auto finance centers during the
first nine months of 1999; and
o 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, 1998 was $1.3 billion, compared to $757.3 million at December 31, 1997 and
$400.7 million at December 31, 1996, an increase of 89.0% from 1996 to 1997 and
72.0% from 1997 to 1998. Our servicing portfolio at September 30, 1999 was $1.9
billion, compared to $1.2 billion at September 30, 1998.
Net Interest Income
Net interest income consists primarily of the difference between the
revenues earned on motor vehicle contracts held on our balance sheet during the
warehousing period and the interest costs associated with our borrowings to
finance the warehousing of those motor vehicle contracts. The following table
illustrates the interest rate earned on our motor vehicle contracts, the
interest rate paid on our borrowings and the corresponding net interest rate
spread for the periods shown.
NET INTEREST RATE SPREAD
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Yield on contracts (1) . 13.66% 13.85% 13.96% 13.71% 13.47%
Cost of borrowings ..... 7.14 7.03 7.45 7.14 7.72
Net interest rate spread 6.52 6.82 6.51 6.57 5.75
</TABLE>
- ----------
(1) The yield on contracts is net of dealer participation amortized
expenses.
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:
o 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
-22-
<PAGE> 29
example, in a pool of motor vehicle contracts originally
containing 10,000 contracts, a 1.75% ABS rate means that 175
motor vehicle contracts prepay or default each month;
o 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
o We currently utilize a lifetime loss of 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
--------------------------------------------------------------------------
REMAINING WEIGHTED WEIGHTED
BALANCE AT AVERAGE AVERAGE
ORIGINAL SEPTEMBER 30, 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 $ 7,185 15.07 5.40 9.67 3.83
1996-2 Grantor Trust 85,013 10,161 14.84 6.40 8.44 3.61
1996-3 Grantor Trust 120,000 19,580 14.54 6.45 8.09 3.14
1996-4 Grantor Trust 100,000 21,021 14.80 6.20 8.60 3.28
1997-1 Grantor Trust 90,000 22,992 13.86 6.55 7.31 2.78
1997-2 Grantor Trust 121,676 36,754 14.85 6.35 8.50 3.11
1997-3 Grantor Trust 149,600 55,323 14.77 6.35 8.42 3.30
1997-4 Grantor Trust 166,000 70,169 14.69 6.30 8.39 3.27
1998-1 Grantor Trust 173,000 83,248 14.91 5.95 8.96 3.40
1998-A Owner Trust . 208,759 114,814 14.73 5.87 8.86 3.34
1998-B Owner Trust . 250,000 158,992 14.73 5.78 8.95 3.18
1998-C Owner Trust . 280,000 198,053 14.89 5.72 9.17 3.51
1999-A Owner Trust . 310,000 239,258 14.33 5.73 8.60 3.44
1999-B Owner Trust . 350,000 304,851 14.65 5.86 8.79 3.54
1999-C Owner Trust . 400,000 379,526 14.82 6.62 8.20 2.86
---------- ----------
TOTAL ........ $3,048,149 $1,721,927
========== ==========
</TABLE>
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<PAGE> 30
- ----------
(1) As of issue 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.
In October 1999, we completed a securitization in the amount of $390
million with a weighted average contract rate of 15.01%, a weighted average
investor rate of 6.90%, a gross spread of 8.11% and a net spread of 2.87%.
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 $6.1 million for the year ended December 31, 1998,
compared to net income of $1.3 million for the year ended December 31, 1997 and
$6.1 million for the year ended December 31, 1996. The increase in net income
from 1997 to 1998 was due to several factors, including:
o a 73% increase in the dollar volume of motor vehicle contracts
which we securitized, resulting in an 86% increase in gains on
sale;
o 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
o improvements in our cost structure which resulted in a decline
in operating expenses as a percentage of our average servicing
portfolio to 4.73% from 5.46% in 1997.
The reduction in net income from 1996 to 1997 was due to several factors, most
notably our commitment to build reserves in the face of increasing delinquency
and credit losses related to purchases of motor vehicle contracts in the second
half of 1995 and the first half of 1996 by one of our auto finance centers.
Additionally, the losses that we incurred during our start-up phase (calendar
years 1994 and 1995) generated net operating loss carryforwards which we used in
1996 to offset income taxes. The unavailability of these carryforwards in 1997
accounted for most of the difference in net income between 1997 and 1996. We had
net income of $7.2 million for the nine months ended September 30, 1999,
compared to net income of $3.6 million for the nine months ended September 30,
1998. The increase in net income from 1998 to 1999 was due principally to a 56%
increase in gains on sale resulting from a 64% increase in the dollar volume of
motor vehicle contracts which we securitized.
-24-
<PAGE> 31
Net Interest Income
Net interest income increased to $7.3 million for the year ended
December 31, 1998 from $5.0 million for the year ended December 31, 1997, and
from $4.1 million for the year ended December 31, 1996. The increase was due to
an increase in the average amount of motor vehicle contracts held for sale
during 1998 as compared to 1997 and 1996. This more than offset the effect of a
decline in net interest margin in 1998 compared to 1997. Net interest margin
declined to 6.51% in 1998 compared to 6.82% in 1997 and 6.52% in 1996, while the
average amount of motor vehicle contracts held for sale increased to $148.7
million in 1998 compared to $85.7 million in 1997 and $80.6 million in 1996. The
yield on motor vehicle contracts held for sale increased by 0.11% to 13.96% for
the year ended December 31, 1998, compared to 13.85% for the year ended December
31, 1997, and 13.66% for the year ended December 31, 1996. In addition, our cost
of borrowings increased to 7.45% at December 31, 1998 compared to 7.03% at
December 31, 1997, and 7.14% at December 31, 1996. In addition to the interest
paid on warehouse borrowings, we include the interest we pay on our residual
line borrowings, subordinated debt, and capitalized lease obligations as
components of our cost of funds. The increase in funding costs in 1998 was due
principally to a shift in our relative level of borrowing under each of these
lines rather than to an increase in borrowing interest rates.
Net interest income totaled $5.6 million for the nine months ended
September 30, 1999, compared to $6.1 million for the same period in 1998. This
decrease is primarily due to the lower average amount of motor vehicle contracts
held for sale during the warehouse period. The lower average warehouse balance
was the result of changes in the timing of the securitizations. In each of the
1999 securitizations, we elected to execute the securitization during the second
month of the quarter, rather than the third month of the quarter as we did in
each of the transactions in 1998.
Servicing Fee Income
Servicing fee income increased to $16.7 million for the year ended
December 31, 1998, from $9.2 million for the year ended December 31, 1997, and
from $3.2 million for the year ended December 31, 1996. The increase was
attributable to a significant increase in the size of our average servicing
portfolio in addition to the improved performance of securitized motor vehicle
contracts. For the year ended December 31, 1998, the size of our average
servicing portfolio increased to $1.02 billion from $563.3 million in 1997 and
from $311.3 million in 1996.
Servicing fee income increased to $19.8 million for the nine month
period ending September 30, 1999, compared to $10.0 million for the same period
in 1998. This increase is due primarily to higher amounts of contractual service
fees, late fees, and document fees as a result of the growth in our servicing
portfolio.
Gain on Sale of Motor Vehicle Contracts
We completed 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 of $36.4 million, compared to four
securitizations totaling $527.3 million during the year ended December 31, 1997,
resulting in gains on sale of motor vehicle contracts totaling $19.6 million.
For the year ended December 31, 1996, we completed four securitizations totaling
$405.5 million resulting in gains on sale of motor vehicle contracts of $15.2
million. The weighted average net spread on our securitizations in 1998 was
3.36%, compared to 3.16% in 1997 and 3.44% in 1996.
We recorded gains on sale of motor vehicle contracts of $40.5 million
for the nine months ended September 30, 1999, compared to $25.9 million for the
same period in 1998. The increase in the gains on sale was primarily the result
of an increase in the amount of motor vehicle contracts sold. Contracts
securitized during the nine months ended September 30, 1999 totaled $1.1
billion, compared to a combined sale and securitization of $646.8 million for
the nine months ended September 30, 1998. The net interest rate spread,
inclusive of all costs,
-25-
<PAGE> 32
declined to 2.86% for the third quarter 1999 securitization compared to 3.18%
for the securitization completed in the third quarter of 1998. The weighted
average net spread on our securitizations during the nine month period ended
September 30, 1999 was 3.25%, compared to 3.29% for the nine month period ended
September 30, 1998. 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 increase in our provision for credit losses for the
year ended December 31, 1998 as compared to December 31, 1997 and 1996 is a
result of the increase in motor vehicle contracts held for sale at the end of
each year.
The provision for credit losses totaled $1.6 million during the year
ended December 31, 1998, compared to $785,446 for the same period in 1997. Net
credit losses incurred during 1998 were $844,556 and $529,735 during 1997.
Provisions for future credit losses during 1998 were $735,275 compared to
$255,711 for 1997. The increase from 1997 to 1998 was primarily due to the
larger balance of motor vehicle contracts held for sale at the end of 1998. As
of December 31, 1998, our motor vehicle contracts held for sale totaled $152.0
million, compared to $63.4 million for the same period in 1997.
The provision for credit losses totaled $952,560 for the nine month
period ending September 30, 1999, compared to $1.2 million for the same period
in 1998. Provision for credit losses consists of net credit losses incurred
during the warehousing period plus future provision for losses reserved against
the net changes in motor vehicle contracts held for sale during the period. Net
credit losses accounted for $728,616 during the nine month period ending
September 30, 1999, compared to $631,345 for the same period in 1998. Provisions
for future credit losses totaled $223,944 for the nine month period ending
September 30, 1999, compared to $598,419 for the same period in 1998. The
decrease in our provisions of credit losses for the nine month period ending
September 30, 1999, compared to the same period in 1998 is a result of the
decrease in motor vehicle contracts held for sale at the end of such period.
Salaries and Benefits Expense
We incurred salary and benefit expenses of $26.8 million during the
year ended December 31, 1998, compared to $17.4 million during the year ended
December 31, 1997, and $8.5 million for the year ended December 31, 1996. In
order to support the growth of our operations and our servicing portfolio, our
number of employees increased from 221 at December 31, 1996 to 319 at December
31, 1997 and to 526 at December 31, 1998.
Salary and benefit expenses for the nine month period ended September
30, 1999 were $29.6 million compared to $19.5 million for the nine month period
ended September 30, 1998. This increase is attributable to the
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<PAGE> 33
incremental staffing requirements related to the expansion of operations and the
growth of our servicing portfolio. Our employees increased in number from 499 at
September 30, 1998 to 683 at September 30, 1999.
Other Operating Expenses
Other operating expenses, which include depreciation, occupancy and
general and administrative expenses, increased to $21.7 million at December 31,
1998, from $13.3 million at December 31, 1997, and from $6.8 million for the
year ended December 31, 1996. The majority of increases were due to the growth
of the average servicing portfolio from $311.3 million at December 31, 1996 to
$563.3 million at December 31, 1997 and to $1.02 billion at December 31, 1998.
Additionally, we opened additional auto finance centers during the years ended
December 31, 1998, December 31, 1997, and December 31, 1996. Total other
operating expenses for the nine month period ending September 30, 1999 were
$23.1 million compared to $15.1 million for the same period in 1998.
Depreciation expense increased to $2.5 million for the nine months
ended September 30, 1999 compared to $1.3 million for the same period of 1998,
as we continued to invest in technology and infrastructure. Continued expansion
into new markets resulted in an increase in occupancy costs to $2.5 million for
the nine months ended September 30, 1999 from $1.3 million for the nine month
period ended September 30, 1998. General and administrative expenses increased
to $18.1 million for the nine month period ended September 30, 1999, compared to
$12.5 million for the nine month period ended September 30, 1998. Higher
expenses are primarily due to an increase in the dollar amount of the servicing
portfolio.
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 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. Our effective tax
rate in 1996 was 12.2% as we had net operating loss carry-forwards that were
utilized to reduce income tax expense.
FINANCIAL CONDITION
Contracts Held for Sale
Motor vehicle contracts held for sale, net of dealer participation and
allowance, totaled $152.8 million at December 31, 1998, compared to $64.3
million at December 31, 1997. 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 1997 to year end 1998 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, 1998 was
approximately $1.0 million and as of September 30, 1999 was approximately $1.3
million. See Note 2 to our unaudited financial statements and Note 5 to our
consolidated financial statements for a more detailed discussion of motor
vehicle contracts held for sale and allowance for credit losses.
Motor vehicle contracts held for sale, net of dealer participation and
allowance, totaled $195.5 million at September 30, 1999, compared to $152.8
million at December 31, 1998. The balance in our held-for-sale portfolio is
largely dependent upon the timing of the origination and securitization of our
motor vehicle contracts. We completed a securitization transaction of $400.0
million during the third quarter of 1999 compared to a securitization of $250.0
million during the third quarter of 1998. We plan to continue to securitize
motor vehicle contracts on a regular basis.
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<PAGE> 34
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>
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1999 1999 1999
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contracts purchased or originated during
the period .............................. $ 286,470 $ 304,200 $ 357,757 $ 374,075 $ 398,802
Average monthly purchases during the period 95,490 101,400 119,252 124,691 132,934
Gain on sale of contracts ................. 9,677 10,506 12,328 14,470 13,723
Total revenues ............................ 16,472 18,414 19,568 22,673 23,626
Contracts securitized during the period ... 250,000 280,000 310,000 350,000 400,000
Servicing portfolio (at end of period) .... $1,176,153 $1,345,961 $1,542,612 $1,729,338 $1,924,881
</TABLE>
Credit Enhancement Assets
Our credit enhancement assets consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------- ---------------------
1997 1998 1998 1999
------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Trust receivable ....................... $ 7,378 $ 3,713 $ 7,237 $ 5,713
Retained interest in securitized assets 64,358 109,241 93,794 125,188
------- -------- -------- --------
TOTAL .............................. $71,736 $112,954 $101,031 $130,901
======= ======== ======== ========
</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 $32.7 million and $23.5 million at December 31, 1998 and 1997
respectively and $31.3 million of restricted cash at September 30, 1999.
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.
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<PAGE> 35
RETAINED INTEREST IN SECURITIZED ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
----------------------- -----------------------
1997 1998 1998 1999
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance ..................... $ 33,530 $ 64,358 $ 64,358 $ 109,241
Additions ............................. 41,603 80,633 55,746 73,012
Amortization .......................... (10,775) (35,750) (26,310) (56,504)
Change in unrealized loss on securities
available for sale .................. 0 0 0 (560)
-------- --------- -------- ---------
Ending balance ........................ $ 64,358 $ 109,241 $ 93,794 $ 125,189
======== ========= ======== =========
</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, 1998, delinquencies of
thirty days or more represented 2.83% of the amount of motor vehicle contracts
in our servicing portfolio, compared to 2.51% at December 31, 1997 and 2.03% at
December 31, 1996. At September 30, 1999, delinquencies represented 2.68% of the
amount of the motor vehicle contracts in our servicing portfolio. Our net
charge-offs, as a percentage of our average servicing portfolio, were 1.75% for
the nine months ended September 30, 1999 compared to 1.77% for the same period
in 1998. Net charge-offs were 1.72% for the year ended December 31, 1998,
compared to 2.03% and 1.63% for the years ended December 31, 1997 and 1996,
respectively. 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
which began in December of 1998. We attribute the increase in delinquencies from
1996 to 1997 in part to an increase on a national basis in the level of
bankruptcies and consumer defaults generally, and to the tendency of
delinquencies and losses with respect to a pool of automobile contracts to
increase after a period of seasoning. Loan losses, however, have decreased from
1997 to 1998, and we believe that this is a result of the elimination of a
significant portion of the portfolio of high delinquency and high loss motor
vehicle contracts which were purchased through the third quarter of 1996 by our
North Hollywood auto finance center. Our North Hollywood auto finance center had
a higher concentration of used car dealerships than our other auto finance
centers, and this concentration of used car dealerships was principally
responsible for the poor performance of that portion of our portfolio. The
runoff of these contracts impacted losses through December 1997.
We have increased our off balance sheet reserves as a percentage of our
period end portfolio sold. Our reserves have increased from 2.73% at December
31, 1996 to 3.68% at December 31, 1997 to 4.31% at December 31, 1998 and to
4.45% at September 30, 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.
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<PAGE> 36
The following table sets forth the delinquency experience of the
servicing portfolio.
DELINQUENCY EXPERIENCE OF THE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------------- --------------------------
1996 1997 1998 1998 1999
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Servicing portfolio ............ $400,665 $757,277 $1,345,961 $1,176,153 $1,924,881
Delinquencies(1)(2)
31-59 days ............... $ 5,022 $ 11,902 $ 26,410 $ 15,565 $ 29,324
60-89 days ............... 1,816 3,370 6,876 4,114 11,219
90+ days ................. 1,279 3,743 4,790 4,103 10,992
-------- -------- ---------- ---------- ----------
Total .......................... $ 8,117 $ 19,015 $ 38,076 $ 23,782 $ 51,535
======== ======== ========== ========== ==========
Total delinquencies as a percent
of servicing portfolio ... 2.03% 2.51% 2.83% 2.02% 2.68%
</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 FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- --------------------------
1996 1997 1998 1998 1999
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Number of contracts ........... 38,275 73,502 131,862 115,151 189,062
Period end servicing portfolio $400,665 $757,277 $1,345,961 $1,176,153 $1,924,881
Average servicing portfolio(1) $311,340 $563,343 $1,023,237 $ 945,077 $1,629,779
Number of gross charge-offs ... 987 2,161 3,761 2,740 4,508
Gross charge-offs ............. $ 5,789 $ 13,076 $ 20,640 $ 14,827 $ 24,528
Net charge-offs(2) ............ $ 5,066 $ 11,434 $ 17,618 $ 12,576 $ 21,373
Net charge-offs as a percent of
average servicing portfolio(3) 1.63% 2.03% 1.72% 1.77% 1.75%
Off balance sheet reserves as
a percent of period end
serviced portfolio sold ...... 2.73% 3.68% 4.31% 4.12% 4.45%
</TABLE>
- ----------
(1) Average is based on daily balances.
(2) Net charge-offs are gross charge-offs minus recoveries on contracts
previously charged off.
(3) The net charge-off percentages for the nine months ended September 30,
1998 and 1999 are annualized.
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<PAGE> 37
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 September 30, 1999.
<TABLE>
<CAPTION>
MONTH 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
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <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%
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%
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%
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%
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%
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%
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%
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%
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%
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%
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%
12 1.47% 1.94% 1.60% 1.63% 1.02% 1.42% 0.94% 0.95% 1.20% 1.01% 1.20%
13 1.65% 2.08% 1.77% 1.73% 1.13% 1.58% 1.10% 1.08% 1.33% 1.17% 1.36%
14 1.79% 2.34% 1.94% 1.87% 1.23% 1.68% 1.23% 1.19% 1.46% 1.37%
15 2.02% 2.52% 2.09% 2.07% 1.40% 1.80% 1.38% 1.36% 1.61% 1.48%
16 2.25% 2.76% 2.27% 2.23% 1.56% 1.97% 1.58% 1.42% 1.71% 1.59%
17 2.43% 2.89% 2.42% 2.33% 1.68% 2.10% 1.68% 1.52% 1.88%
18 2.59% 3.10% 2.57% 2.49% 1.75% 2.23% 1.77% 1.64% 2.01%
19 2.77% 3.14% 2.70% 2.62% 1.85% 2.35% 1.91% 1.75% 2.17%
20 2.93% 3.30% 2.83% 2.73% 1.92% 2.48% 2.04% 1.85%
21 3.06% 3.47% 2.94% 2.84% 1.98% 2.59% 2.11% 1.97%
22 3.15% 3.60% 3.00% 2.93% 2.09% 2.72% 2.20% 2.08%
23 3.21% 3.70% 3.08% 3.02% 2.17% 2.81% 2.31%
24 3.28% 3.81% 3.17% 3.10% 2.22% 2.85% 2.41%
25 3.40% 3.93% 3.28% 3.22% 2.31% 2.93% 2.51%
26 3.43% 4.06% 3.38% 3.29% 2.38% 2.96%
27 3.55% 4.13% 3.43% 3.39% 2.44% 3.09%
28 3.60% 4.22% 3.54% 3.46% 2.50% 3.17%
29 3.73% 4.23% 3.59% 3.58% 2.55%
30 3.75% 4.29% 3.69% 3.61% 2.63%
31 3.79% 4.31% 3.77% 3.64% 2.67%
32 3.85% 4.33% 3.75% 3.72%
33 3.88% 4.37% 3.77% 3.74%
34 3.90% 4.39% 3.79% 3.77%
35 3.94% 4.39% 3.81%
36 3.94% 4.42% 3.83%
37 3.94% 4.42% 3.84%
38 3.97% 4.43%
39 3.99% 4.45%
40 3.99% 4.46%
41 3.96% 4.45%
42 3.95%
43 3.96%
44 3.94%
45 3.97%
</TABLE>
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<PAGE> 38
In October 1999, we completed a securitization in the amount of $390 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:
o acquisition of motor vehicle contracts;
o payment of dealer participation;
o securitization costs, including cash held in spread accounts;
o settlements of hedging transactions;
o maintenance of working capital requirements and payment of
operating expenses; and
o interest expense.
The capital resources available to us include:
o net interest income during the warehousing period;
o contractual servicing fees;
o excess servicing cash flows released from spread accounts;
o settlements of hedging transactions;
o sales of motor vehicle contracts in securitizations; and
o borrowings under our warehouse and credit facilities.
These sources can provide capital to fund expansion of our motor
vehicle contract purchasing and servicing capabilities.
The principal determinant of our cash usage in a particular year is the
difference between the dollar amount of motor vehicle contracts we purchase and
the proceeds realized from the motor vehicle contracts we sell. Our purchases of
motor vehicle contracts exceeded our proceeds from the sale of motor vehicle
contracts by $112 million in 1998 and by $79 million in 1997, resulting in net
cash used in operating activities in each of those years. In 1996, our proceeds
from the sale of motor vehicle contracts exceeded our purchases by $85 million,
resulting in net cash provided by operating activities. Our purchases of motor
vehicle contracts exceeded our proceeds from the sale of motor vehicle contracts
by $71.0 million for the nine months ended September 30, 1999 compared to $88.0
million for the nine months ended September 30, 1998, resulting in net cash used
in operating activities in each of these periods.
Cash used in investing activities increased to $3.8 million in the year
ended December 31, 1998, from $1.8 million in the year ended December 31, 1997
and $804,587 in the year ended December 31, 1996. The increases resulted from
higher capital expenditures by us, principally in the purchase of furniture and
equipment, in connection with our continued expansion. Cash used in investing
activities was $5.0 million for the nine months ended September 30, 1999,
compared to $2.4 million for the nine months ended September 30, 1998. 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 $45.2 million for the nine
months ended September 30, 1999, compared to $83.8 million for the nine months
ended September 30, 1998. Higher cash flows from securitizations combined with a
lower warehousing interest expense in 1999 compared to 1998 reduced the
requirements for financing sources. Cash provided by financing activities was
$118.4 million for the year ended December 31, 1998, compared to $77.2 million
provided for the year ended December 31, 1997 and $90.5 million used in the year
ended December 31, 1996. This increase over 1997 was primarily due to the
issuance in February 1998 of $10,000,000 of
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<PAGE> 39
subordinated debt to BayView Capital Corporation, and additional borrowing under
our revolving credit facilities. In 1996, we used excess proceeds from the sale
of motor vehicle contracts to pay down our warehouse lines, resulting in net
cash used in financing activities.
Triple-A One Warehouse Facility
We are a party to a $375 million auto warehouse program with Triple-A
One Funding Corporation 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 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
September 30, 1999 was $164.0 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 matures in
September 2001, subject to the requirement that the liquidity facility provided
by certain banks to Triple-A be extended annually. After maturity in September
2001, the Triple-A One facility is subject to annual renewals.
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 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 has a one year
term. The outstanding principal amount under this facility as of September 30,
1999 was $23.5 million.
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 is currently scheduled to mature in
February 2000. There is no principal amount outstanding under this facility.
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<PAGE> 40
Excess Servicing Facility
We have a collateralized revolving line of credit with a lending group,
comprised of State Street Bank and Trust Company, BankBoston and The Travelers
Insurance Company, for working capital and other expenditures for which funding
under the Triple-A One facility, the Parco Facility and the Merrill Lynch line
of credit is not available. Under this excess servicing facility, which
converted to a term loan in June 1999, we could borrow and repay up to $45
million during a two-year revolving period. The excess servicing facility is now
in the amortization period and all cash flows released from the spread accounts
in the underlying securitizations, which are collateral under this facility, are
being used to repay the outstanding principal balance. The outstanding principal
amount under this facility as of September 30, 1999 was $30.0 million.
We intend to obtain the written consent of State Street Bank and Trust
Company, BankBoston and The Travelers Insurance Company for this offering of
notes, and to amend the restrictive covenant limiting our ability to incur
additional subordinated debt.
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 has been renewed and currently matures in February 2000. 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 September 30, 1999 were $10.0
million and $16.7 million, respectively.
BayView Term Loan
We have subordinated debt outstanding of $10 million. The subordinated
debt matures on February 24, 2000, with an option to extend the term by three
years during which the loan would fully amortize. The BayView subordinated debt
bears interest at a fixed rate of 92%. 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 October 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 amount
of $1.5 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.
Since 1994, we have securitized $3.4 billion of motor vehicle contracts in 18
separate transactions. In each of these
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<PAGE> 41
securitizations, we sold motor vehicle contracts to a newly formed grantor or
owner trust which issued pass-through 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
ultimate payment of principal and the timely payment of 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 from the securitized motor vehicle
contracts. 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 in 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.
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
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<PAGE> 42
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 COMPLIANCE
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.
We developed a comprehensive plan designed to address the "Year 2000"
issue, which we have completed for our in-house and third party technology
applications. In 1999, we completed a detailed risk assessment of our various
in-house and third party computer systems, business applications and other
affected systems, formulated a plan for specific remediation efforts and
executed such remediation efforts. We assembled survey data from third party
vendors and certain other parties with which we communicate electronically to
determine the compliance efforts being undertaken by these parties and to assess
our potential exposure to any non-compliant systems operated by these parties.
We completed our remediation efforts and testing of our in-house and third
party systems and applications in 1999, and, as of this date, have experienced
no problems related to the Year 2000 problem.
We currently estimate that our costs related to Year 2000 compliance
remediation for our own information technology systems and applications were
approximately $450,000 in 1999. This amount represented approximately 9% of our
information technology budget.
There can be no assurance that all potential Year 2000 problems for our
in-house and third party technology applications have been resolved. If we
experience an unanticipated Year 2000 problem, we may be unable to perform our
key operating activities, such as the purchase of loans and the invoicing,
collecting and application of obligor repayments. We could be subject to
litigation for computer systems failure, such as improper application of
repayments 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> 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 $3.4 billion in motor vehicle contracts from approximately
7,100 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. Several 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 attain and increase
profitability through the implementation of the following strategies:
o 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
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<PAGE> 44
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.
o 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.
o 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 expect to establish additional dealer
relationships as we continue our expansion plans in the
future.
o 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 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
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
manager and account manager team.
o 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
corresponding increase in labor costs.
o Liquidity Through Warehousing and Securitizations. Our
strategy is to complete securitizations on a regular basis and
to use warehousing 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.
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<PAGE> 45
OPERATIONS
Dealership Marketing and Service
We have auto finance centers located throughout the United States and,
as of September 30, 1999, had approximately 7,100 active dealerships in our
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
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 FOR THE NINE MONTHS ENDED
------------------------------------------------------------- ------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Number of auto finance centers 5 9 10 14 13 17
Number of contracts purchased 16,571 26,244 50,214 86,150 61,301 92,776
Dollar volume of contracts
collateralized by new
vehicles .................... $ 39,706 $ 68,654 $129,178 $ 186,654 $ 130,810 $ 175,404
Dollar volume of contracts
collateralized by used
vehicles .................... $159,691 $251,186 $476,727 $ 851,881 $ 603,524 $ 955,230
Dollar volume of contracts ... $199,397 $319,840 $605,905 $1,038,535 $ 734,334 $1,130,634
Average dollar volume of
contracts per auto finance
center ...................... $ 39,879 $ 35,538 $ 60,591 $ 74,181 $ 56,487 $ 66,507
Number of active dealerships . 769 1,471 2,846 5,401 4,691 7,156
Servicing portfolio (at period
end) ........................ $218,207 $400,665 $757,277 $1,345,961 $1,176,153 $1,924,881
</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
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<PAGE> 46
"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 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, 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 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 adopted 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:
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<PAGE> 47
<TABLE>
<CAPTION>
IMPLIED STATIC POOL(1) BANKRUPTCY LENGTH OF CLEAN
CREDIT CATEGORY CREDIT GRADE LOSSES (%) DISCOUNTS (%) TOLERANCE 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 telecopied by a
dealership or, in the case of motor vehicle contracts directly originated or
purchased, when the application is received from the obligor via the internet,
mail or telephone, 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 at our authorized processor's office in the case of motor vehicle contracts
directly originated or purchased, 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:
o the stability of the applicant with specific regard to his or
her occupation, length of employment and length of residency;
o 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;
o a debt service-to-gross monthly income ratio test, which
generally is not to exceed 45%;
o a payment-to-income test, generally not to exceed 15%;
o 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.
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<PAGE> 48
The funds we advance to purchase a motor vehicle contract generally do
not exceed:
o 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
o 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:
o the length of the motor vehicle contract term;
o the make, model and year of the financed vehicle; and
o 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 or originated in 1998 and which we have 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, or in the
case of motor vehicle contracts directly originated or purchased by phone or
otherwise, to the consumer or our authorized loan processor, 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:
o a signed credit application;
o the only original and a copy of the executed motor vehicle
contract;
o an agreement by the obligor to provide insurance;
o a report of sale or guarantee of title;
o an application for registration;
o a co-signer notification, if applicable;
o a copy of any supplemental warranty purchased with respect to
the financed vehicle;
o acceptable vehicle valuation documentation; and
o any other required documentation.
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<PAGE> 49
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 dealer participation, if any. We compute the dealer
participation 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 at purchase or at month-end, 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 the majority 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 we purchase
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.
The following table sets forth information about our motor vehicle
contracts as of the dates indicated:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
--------- -------- -------- ---------- -------- ----------
(DOLLARS IN THOUSAND)
<S> <C> <C> <C> <C> <C> <C>
Contracts purchased during the period .. $ 199,397 $319,840 $605,905 $1,038,535 $734,334 $1,130,634
Average contract amount ................ $ 12,033 $ 12,187 $ 12,066 $ 12,055 $ 11,980 $ 12,187
Weighted average initial term (months) 55.5 56.2 57.0 57.5 57.4 57.0
Weighted average annual percentage rate 15.00% 14.72% 14.66% 14.72% 14.71% 14.73%
Percentage of dollar amount of contracts
collateralized by new motor vehicles
purchased during the period ........... 19.91% 21.47% 21.32% 17.97% 17.81% 15.51%
</TABLE>
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<PAGE> 50
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
--------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Percentage of dollar amount of contracts
collateralized by used motor vehicles
purchased during the period ........... 80.09% 78.53% 78.68% 82.03% 82.19% 84.49%
</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 February 2000 with a service bureau to provide
certain loan accounting, reporting and servicing functions. 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 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 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, Online Computer Systems, Inc., 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
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<PAGE> 51
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
and can arise in several 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. Our current policy is to recognize losses at the time a
motor vehicle contract is deemed uncollectible or during the month a scheduled
payment under a motor vehicle contract becomes 120 days or more 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.
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:
o we believe that the obligor's financial difficulty has been
resolved or will no longer impair the obligor's ability to
make future payments;
o the extension will result in the obligor's payments being
brought current;
o 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
o 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 deferments was less than 3% of the
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<PAGE> 52
number of motor vehicle contracts in our servicing portfolio for the years
ending December 31, 1997 and December 31, 1998 and for the nine months ending
September 30, 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 Interstate Indemnity
Company. 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 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 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
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<PAGE> 53
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 and purchasers of motor vehicle contracts from 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,
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
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<PAGE> 54
cases it, as lienholder, will have the opportunity to re-perfect its security
interest in the state of relocation. In statesthat 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
We are a party to various legal proceedings, similar to actions brought
against other companies in the motor vehicle finance industry. Companies in the
motor vehicle finance market have been named as defendants in an increasing
number of class action lawsuits brought by customers claiming violations of
various federal and state consumer credit and similar laws and regulations. We
are defendants in two such class action lawsuits. While we intend to vigorously
defend ourselves against such proceedings, there is a chance that our results of
operations and cash flows could be materially adversely affected by unfavorable
outcomes.
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 September 30,
1999, we had 683 full-time employees, none of whom were covered by collective
bargaining agreements. We believe we have good relationships with our employees.
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<PAGE> 55
PROPERTIES
Our headquarters are located in Foothill Ranch, California. We lease
approximately 82,000 square feet pursuant to a lease expiring in January 2009.
We also lease office space for our auto finance centers located throughout the
United States. We believe our facilities are both suitable and adequate for the
current business activities conducted at our corporate headquarters and at our
existing auto finance centers.
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<PAGE> 56
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 50 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
Frank Marraccino 43 Executive Vice President
Eugene J. Warner, Jr. 56 Executive Vice President
Bruce R. Hallet 43 Director
G. Bradford Jones 44 Director
C. Thomas Meyers 61 Director
</TABLE>
- ------------------
Officers are elected by, and serve at the discretion of, our board of
directors. A brief biography of each director and executive officer follows:
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 and founder
of University Ventures Network, a company providing business and capital
interface between major universities. Mr. Stickel is also the chairman and
founder of American Partners Capital Group, a corporation specializing in
pension fund investment, design and development. As chairman of American
Partners Capital Group, Mr. Stickel is responsible for overseeing its core
operations as well as the activities of its board of directors. In 1992, Mr.
Stickel founded American Partners, Inc., a corporation specializing in Latin
American business development, and served as its Chairman until 1994. From 1983
to 1992, Mr. Stickel served as the chairman and chief executive officer of TCS
Enterprises, Inc., a financial services holding company. Mr. Stickel served on
the board of directors of Catellus Development Corporation from 1993 to 1996.
Mr. Stickel also serves as a director of San Diego Gas and Electric Company and
several privately held companies.
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 its 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 assistant director of data
processing in Southern California.
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.
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
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<PAGE> 57
Bank and served in various capacities, including dealer center manager and
collection manager. In 1992 and 1993, Mr. Marraccino was responsible for
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 has helped to
design and implement a number of collection and operations systems. 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 62
years as a senior vice president of collections for Consumer Portfolio Services,
32 years with Far Western Bank where he served as vice president of collection
administration, 14 years in the thrift and loan industry serving as regional
vice president and 5 years in consumer finance with Household Finance.
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
since 1995. From January 1989 until February 1993, Mr. Hallett was a partner in
the law firm of Morrison & Foerster LLP.
G. BRADFORD JONES has been a director since November 1993. Mr. Jones is
currently a general partner in the venture capital firm of Brentwood Associates,
which he joined in 1981 and where he is responsible for making capital
investments into emerging companies and, thereafter, conducting oversight of
such investments through consulting and service on boards of directors. Mr.
Jones also currently serves as director of Interpore International, a
manufacturer of synthetic bone graft materials for orthopedic use, Plasma &
Materials Technologies, Inc., a manufacturer of advanced etching and deposition
equipment for the semiconductor industry, and ISOCOR, a vendor of electronic
information exchange software. Mr. Jones is also a director of several privately
held companies.
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") 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.
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, 1998, December 31, 1997 and December 31, 1996, whose compensation
was in excess of $100,000.
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<PAGE> 58
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual compensation
-------------------- Securities underlying
Name and Principal Position Year Salary($) Bonus($) options/SARs(#)(1)
--------------------------- ---- --------- -------- ---------------------
<S> <C> <C> <C> <C>
John W. Hall 1998 $318,000 $165,100 262,313
President, Chief 1997 $318,000 -- 75,000
Executive Officer and 1996 $318,000 -- 51,021
Director
Don P. Duffy 1998 $194,565 $101,120 119,374
Chief Financial Officer, 1997 $178,600 -- 25,000
Executive Vice President 1996 $161,083 -- 4,373
and Director
Frank Marraccino 1998 $169,500 $ 78,750 139,374
Executive Vice president 1997 $179,301 $ 15,000 20,000
1996 $152,000 $ 29,775 29,373
Eugene J. Warner, Jr.(2) 1998 $144,200 $ 57,680 60,000
Executive Vice President 1997 $140,000 --
1996 $ 11,667 -- 50,000
Regan E. Kelly 1998 $137,197 $ 31,299 25,000
Former Executive Vice 1997 $133,550 -- 5,000
President and General 1996 $127,762 $ 5,788 --
Counsel
</TABLE>
- -----------------
(1) Stock options for shares of Onyx common stock were awarded in the year
indicated. Figures for 1998 include options granted in 1998 at a new
exercise price in cancellation of preexisting options originally granted
from 1995 to 1998 but with a higher exercise price as follows:
John W. Hall......................... 197,313
Don P. Duffy......................... 74,374
Frank L. Marraccino.................. 94,374
Eugene J. Warner, Jr................. 60,000
Regan E. Kelly....................... 15,000
(2) Mr. Warner joined us in December, 1996.
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, 1998. No stock appreciation rights were granted to these
individuals during such year.
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<PAGE> 59
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
Individual Grant Potential Realization
----------------------------------------------------------- Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Per Share for Option Term(11)
Options Employees in Exercise Expiration --------------------------
Name Granted(1) Fiscal Year(8) Price(9) Date(10) 5% 10%
---- ---------- -------------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. Hall.......... 6,291(2) 0.5% $5.75 05/11/05 $ 58,922 $ 93,824
51,021(3) 3.9% $5.75 03/17/06 $477,870 $ 760,928
75,001(4) 5.8% $5.75 01/01/07 $702,470 $1,118,566
65,000(5) 5.0% $5.75 01/01/08 $608,799 $ 969,411
Don P. Duffy.......... 4,373(3) 0.3% $5.75 03/17/06 $ 40,958 $ 65,219
25,000(4) 1.9% $5.75 01/01/07 $234,153 $ 372,850
45,001(5) 3.5% $5.75 01/01/08 $421,485 $ 671,145
Frank L. Marraccino.. 4,373(3) 0.3% $5.75 03/17/06 $ 40,958 $ 65,219
25,000(6) 1.9% $5.75 07/28/06 $234,153 $ 372,851
20,000(4) 1.5% $5.75 01/01/07 $187,323 $ 298,280
45,001(5) 3.5% $5.75 01/01/08 $421,486 $ 671,146
Eugene J. Warner, Jr. 50,000(7) 3.9% $5.75 10/31/06 $468,307 $ 745,701
10,000(5) 0.8% $5.75 01/01/08 $ 93,662 $ 149,140
Regan E. Kelly....... 5,000(4) 0.4% $5.75 01/01/07 $ 46,831 $ 74,570
10,000(5) 0.8% $5.75 01/01/08 $ 93,661 $ 149,490
</TABLE>
- ----------
(1) All options listed in the column were regranted on October 27, 1998 in
cancellation of higher-priced options, as discussed in "Option
Repricing" below. A one-year "blackout" period for the regranted
options was established, according to which none of the options could
be exercised unless the optionee remained in our service on October 27,
1999. If the optionee remained in our service through October 27, 1999,
his options became exercisable at that time for the number of shares
for which the option would have been exercisable on October 27, 1999
absent the regrant, and any options not then exercisable became
exercisable in installments at the same rate the option would have
become exercisable absent the regrant. The footnotes for each option
indicate the option's original exercise schedule. Mr. Kelly's options,
however, remain exercisable at the regrant price, notwithstanding the
fact that Mr. Kelly resigned from his position with Onyx prior to
October 27, 1999.
(2) Option granted on May 12, 1995 and was immediately exercisable in full.
(3) Option granted on March 18, 1996, of which 25% was immediately
exercisable, with the remainder becoming exercisable thereafter in 48
equal monthly installments from the grant date upon the optionee's
completion of each month of service, subject to the "blackout" period
described in footnote 1.
(4) Option granted January 2, 1997, of which 25% became exercisable one
year from the grant date and the balance exercisable thereafter in 36
equal monthly installments upon the optionee's completion of each month
of service, subject to the "blackout" period described in footnote 1.
(5) Option granted January 2, 1998, of which 25% became exercisable one
year from the grant date and the balance exercisable thereafter in 36
equal monthly installments upon the optionee's completion of each month
of service, subject to the "blackout" period described in footnote 1.
(6) Option granted July 29, 1996 which became exercisable in 48 equal
monthly installments beginning one year from the grant date upon the
optionee's completion of each month of service, subject to the
"blackout" period described in footnote 1.
(7) Option granted November 1, 1996, of which 50% was immediately
exercisable and the balance exercisable thereafter in 24 equal monthly
installments upon the optionee's completion of each month of service,
subject to the "blackout" period described in footnote 1.
(8) Based on options granted for a total of 1,296,878 shares, including
regrants of approximately 914,318 shares granted to employees during
1998.
(9) The exercise price of these options initially ranged from $7.25 to
$11.49 per share. As a result of repricing options on October 27, 1998,
the option exercise price was reduced to $5.75. The exercise price may
be paid in cash, in shares of common stock valued at fair market value
on the date of exercise or pursuant to a cashless exercise procedure
involving a same-day sale of the purchased shares.
(10) Options were granted from 1995 through 1998 and expired ten years from
their grant date. The options were canceled and reissued pursuant to
repricing on October 27, 1998, but the expiration date remained the
same as when the options were originally granted.
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<PAGE> 60
(11) 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.
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, 1998. 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 1998 FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at 1998 In-The-Money Options at 1998
Fiscal Year End Fiscal Year End(1)
--------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Hall 137,719 116,023 $295,693 N/A
Don P. Duffy 32,215 59,048 $ 88,503 N/A
Frank L. Marraccino 21,782 72,591 N/A N/A
Eugene J. Warner, Jr. 38,542 21,458 N/A N/A
Regan E. Kelly 8,518 12,605 $ 32,084 N/A
</TABLE>
- ----------
(1) Based on the fair market value of the option shares at fiscal year-end
($5.75 per share) less the average exercise price ($0.51 per share)
payable for such in the money shares.
DIRECTORS' COMPENSATION
Our directors, with the exception of our Chairman of the Board, who
receives $2,500 per month, do not receive compensation for services 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. 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
plan's automatic option grant program.
Under our automatic option grant program, 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 or joined our board prior to
the offering.
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 under our automatic option grant program will vest in a
series of twenty-four (24) successive equal monthly installments upon the
optionee's completion of each month of board service over this twenty-four (24)
month period measured from the grant date. The annual automatic option grants
will vest in a series of twelve (12) equal monthly installments upon the
optionee's completion of each month of board service over this twelve (12) month
period measured from the grant date. However, each outstanding option will
immediately vest upon (i) certain changes in our ownership or control or (ii)
the death or disability of the optionee while serving as a board member.
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<PAGE> 61
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 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. In 1996, we
adopted our 1996 stock option stock issuance plan that made 600,000 shares of
our common stock available for such purposes. 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 1998 to some executives as shown in
the Summary Compensation Table above.
Our 1996 stock option stock issuance plan is the successor to our 1994
stock option plan and 1994 special performance option grant plan. Our 1996 stock
option stock issuance plan became effective upon its adoption by our board of
directors on February 28, 1996 and was approved by our stockholders on February
28, 1996. Our board of directors adopted certain amendments to the 1996 Plan on
January 2, 1998, and our stockholders approved such amendments at the annual
shareholders meeting on May 20, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors as
of December 31, 1998 were Messrs. Hoff and Jones. Neither of these individuals
was at any time during the year ended December 31, 1998, or at any other time an
officer or employee of the Company.
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.
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 November 30, 1999, members of
Brobeck beneficially owned 31,899 shares of our common stock. Brobeck has served
as our counsel since our inception.
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, 1999 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.
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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:
o all persons known to Onyx to be the beneficial owner of 5% or
more thereof;
o each director and nominee for director;
o each executive officer; and
o all officers and directors as a group.
All persons listed have sole voting and investment power with respect
to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
Name and address of Amount and nature of
beneficial owner(1) beneficial ownership Percent of Class(2)
- ------------------- -------------------- -------------------
<S> <C> <C>
The Bass Group(3) 668,275 10.8%
G. Bradford Jones(4) 663,902 10.7%
Wellington Management
Company, LLP(5) 609,700 9.9%
John W. Hall(6) 426,656 6.9%
Regan E. Kelly(7) 119,579 1.9%
Don P. Duffy(8) 68,531 1.1%
Thomas C. Stickel(9) 55,349 *
Eugene J. Warner(11) 50,415 *
Frank Marraccino(10) 42,084 *
Bruce R. Hallett(12) 24,456 *
C. Thomas Meyers(13) 8,999 *
All executive officers and *
directors as a group
(10 persons)(14) 1,459,971 23.6%
</TABLE>
- -----------------
* Less than one percent.
(1) 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.
(2) Percentage of ownership is based on 6,177,804 shares of common stock
outstanding as of September 30, 1999.
(3) The Bass Group as used herein consists of The Bass Management Trust
(163,855 shares; 2.7%), Sid R. Bass Management Trust (252,210 shares;
4.1%), Lee M. Bass (252,210; 4.1%). 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.
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(4) Includes, as of September 30, 1999, 17,333 shares of common stock
issuable upon the exercise of immediately exercisable shares by Mr.
Jones. 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.
(5) Wellington Management Company, LLP ("WMC"), 75 State Street, Boston,
Massachusetts 02109 in its capacity as investment advisor, may be
deemed to beneficially own 609,700 shares of Onyx which are held of
record by clients at WMC.
(6) Includes, as of September 30, 1999, 175,206 shares of common stock
issuable upon the exercise of immediately exercisable options. Mr. Hall
is our president and chief executive officer, 27051 Towne Centre Drive,
Foothill Ranch, California 92610.
(7) Includes, as of September 30, 1999, (i) 13,622 shares of common stock
issuable upon the exercise of immediately exercisable options. Mr.
Kelly is our former executive vice president and general counsel, 27051
Towne Centre Drive, Foothill Ranch, California 92610.
(8) Includes, as of September 30, 1999, (i) 56,265 shares of common stock
issuable upon the exercise of immediately exercisable options. Mr.
Duffy is our chief financial officer, 27051 Towne Centre Drive,
Foothill Ranch, California 92610.
(9) Includes, as of September 30, 1999, 55,349 shares of common stock
issuable upon the exercise of immediately exercisable options. Mr.
Stickel is our executive vice president, 27051 Towne Centre Drive,
Foothill Ranch, California 92610.
(10) Includes, as of September 30, 1999, 42,084 shares of common stock
issuable upon the exercise of immediately exercisable options. Mr.
Marraccino is our executive vice president, 27051 Towne Centre Drive,
Foothill Ranch, California 92610.
(11) Includes, as of September 30, 1999, 50,415 shares of common stock,
issuable upon the exercise of immediately exercisable options. Mr.
Warner is our executive vice president, 27051 Towne Centre Drive,
Foothill Ranch, California 92610.
(12) Includes, as of September 30, 1999, 24,456 shares of common stock
issuable upon the exercise of immediately exercisable options. Mr.
Hallett is one of our directors, 27051 Towne Centre Drive, Foothill
Ranch, California 92610.
(13) Includes, as of September 30, 1999, 8,999 shares of common stock
issuable upon the exercise of immediately exercisable options. 81
Fulling Mill Cir., Fairfiled, Connecticut 06430.
(14) Includes, as of September 30, 1999: (i) 663,902 shares of common stock
held by Brentwood Associates VI, l.P., and (ii) an aggregate of 796,069
shares issuable to our executive officers and directors upon the
exercise of immediately exercisable options some of which may be
subject to repurchase by us under certain circumstances, and (iii) does
not include shares owned by the Bass Group or Wellington Management
Company.
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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 $23,000,000.
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.
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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
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:
o 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
o 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
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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.
"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 September 30, 1999, we had approximately $226
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:
o our failure to pay interest on the notes when due if the
failure continues for 15 days;
o our failure to pay the principal of, or premium, if any, on
any of the notes when due;
o 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;
o 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;
o 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;
o 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;
o certain events involving our bankruptcy, insolvency or
reorganization; and
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o 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.
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:
o that such officer has analyzed our activities during such year
and supervised the performance under the Indenture; and
o 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:
o the notes;
o indebtedness outstanding on the date the notes are issued by
us;
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o indebtedness which does not cause our Consolidated Leverage
Ratio described below to exceed 3:1;
o deferrals, renewals, extensions, replacements, refinancing or
refundings of indebtedness listed above;
o indebtedness between us and any of our Restricted
Subsidiaries;
o 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;
o indebtedness under certain currency and interest rate swap
agreements;
o 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;
o non-recourse indebtedness; and
o 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
o 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
o 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.
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The foregoing limitation is subject to certain exceptions, including
o loans or advances to our employees in the ordinary course of
business
o customary directors' fees and indemnities
o 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
o 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
o the grant of stock options or similar rights to our employees
and directors or the employees or directors of a Restricted
Subsidiary
o transactions effected as part of a Qualified Securitization
Transaction and warehouse financings.
Restricted Payments
Neither we nor any of our Restricted Subsidiaries are permitted to make
any Restricted Payment:
o if an event of default under the indenture shall have occurred
and is continuing at such time;
o if at such time our Consolidated Leveraged Ratio exceeds 3:1;
or
o 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:
o 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
o dividends or distributions payable solely in capital
stock or in options, warrants or other rights to
purchase capital stock; and
o in the case of any subsidiary of ours, dividends or
distributions payable to us or to any of our
subsidiaries;
o 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
o investments in any person, other than certain permitted
investments.
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For purposes of this definition, "Restricted Payment" does not include:
o payments made in the form of our common stock;
o mandatory repurchase obligations by us with respect to shares
issued by any employee stock ownership plan of ours;
o purchases of common stock of, or investments in, a
wholly-owned subsidiary of ours that is not a "Restricted
Subsidiary"; or
o 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.
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, 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."
o "FASB Net Worth Adjustments" means adjustments in net worth
required by Financial Accounting Standard No. 125 or 133
issued by the Financial Accounting Standards Board.
o "Consolidated Tangible Net Worth" means our consolidated
tangible stockholders equity, as determined in accordance with
generally accepted accounting principles.
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:
o a change of the maturity of any note or any interest or
premium payment;
o a reduction in the rate or an extension of the time or payment
of interest on any note;
o a reduction in the principal amount of any note;
o a reduction in any amount payable upon redemption or
repurchase of any note;
o any modification to our obligation to repurchase any note upon
a Change of Control if adverse to any holder of notes;
o any modification that impairs or adversely affects the right
of any holder to institute suit for the payment of any note;
o any change in currency in which any note is payable; and
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o 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:
o all notes are within one year of their scheduled maturity or
the date on which they are scheduled for redemption; and
o 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
o 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 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
o 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,
o we have delivered to the trustee an opinion of counsel as
specified in the indenture
o 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,
and
o 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;
o 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;
o 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
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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;
o 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;
o 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;
o 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.
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.
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, less the underwriting
discounts and commissions shown on the cover page of this prospectus.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER PRINCIPAL AMOUNT OF NOTES
- ------------------- -------------------------
<S> <C>
Miller & Schroeder Financial, Inc. .................. $
Peacock, Hislop, Staley & Given, Inc. ...............
-----------
Total ...................................... $20,000,000
===========
</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 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
-67-
<PAGE> 74
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 $3,000,000 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 $20,000,000 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 its own 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 their 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.
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
underwriting discounts and commissions, will be approximately $400,000. The
following table itemizes all of the expenses we expect to incur in connection
-68-
<PAGE> 75
with this offering other than underwriting discounts, fees and commissions which
are set forth in the table 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 ........................ 55,000
Blue Sky fees and expenses .......................... 1,000
Legal fees and expenses ............................. 125,000
Printing expenses ................................... 25,000
Trustee's fees and expenses ......................... 15,000
Underwriters' counsel fees and expenses ............. 81,000
Miscellaneous ....................................... 89,128
--------
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 1997 and for each
of the three years in the period ended December 31, 1998 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.
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
-69-
<PAGE> 76
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.
-70-
<PAGE> 77
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 B -- 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.
-71-
<PAGE> 78
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.
-72-
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Financial Condition
at September 30, 1999 and December 31, 1998...................................F-1
Condensed Consolidated Statements of Income for the nine
months ended September 30, 1999 and September 30, 1998.......................F-2
Consolidated Statements of Stockholders' Equity
at September 30, 1999, December 31, 1998 and December 31, 1997................F-3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and September 30, 1998...............................F-4
Notes to Unaudited Condensed Consolidated Financial Statements.........................F-5
Audited Financial Statements
Report of Independent Accountants......................................................F-8
Consolidated Statements of Financial Condition as of
December 31, 1998 and 1997...................................................F-9
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.............................................F-10
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.............................................F-11
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.............................................F-12
Notes to Consolidated Financial Statements............................................F-13
</TABLE>
-73-
<PAGE> 80
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................... $ 4,787,831 $ 1,928,991
Credit enhancement assets ......................................... 130,900,443 112,953,193
Contracts held for sale (net of allowance) ........................ 195,535,962 152,760,781
Other assets ...................................................... 11,070,086 7,778,759
------------- -------------
Total assets ............................................. $ 342,294,322 $ 275,421,724
============= =============
LIABILITIES
Accounts payable .................................................. $ 16,911,952 $ 10,959,913
Debt .............................................................. 255,071,383 209,600,061
Other liabilities ................................................. 19,602,844 11,038,029
------------- -------------
Total liabilities ........................................ 291,586,179 231,598,003
EQUITY
Common stock
Par value $.01 per share; authorized 15,000,000 shares;
issued and outstanding 6,177,804 as of September 30, 1999
and 6,171,034 as of December 31, 1998 ....................... 61,778 61,710
Paid in capital ................................................... 37,892,071 37,839,151
Retained earnings ................................................. 13,084,689 5,922,860
Accumulated other comprehensive loss, net of tax .................. (330,395) --
Total equity ............................................. 50,708,143 43,823,721
------------- -------------
Total liabilities and equity ............................. $ 342,294,322 $ 275,421,724
============= =============
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
F-1
<PAGE> 81
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Interest income ........................... $19,642,344 $16,703,145
Interest expense .......................... 14,053,421 10,651,700
----------- -----------
Net interest income ....................... 5,588,923 6,051,445
Gain on sale of contracts ................. 40,520,626 25,911,096
Service fee income ........................ 19,757,636 10,015,975
Total Revenues ............................ 65,867,185 41,978,516
EXPENSES:
Provision for credit losses ........... 952,560 1,229,764
Salaries and benefits ................. 29,567,166 19,492,705
Depreciation .......................... 2,510,463 1,307,918
Occupancy ............................. 2,484,771 1,315,224
General and administrative expenses.... 18,109,783 12,496,254
----------- -----------
Total Expenses ............................ 53,624,743 35,841,865
----------- -----------
Net Income before Taxes ................... 12,242,442 6,136,651
Income Taxes .......................... 5,080,613 2,546,709
----------- -----------
Net Income after Taxes .................... $ 7,161,829 $ 3,589,942
=========== ===========
Net Income per share B Basic .............. $ 1.16 $ 0.59
Net Income per share B Diluted ............ $ 1.10 $ 0.56
Basic Shares Outstanding .................. 6,172,628 6,093,198
Diluted Shares Outstanding ................ 6,527,643 6,445,412
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
F-2
<PAGE> 82
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL COMPREHENSIVE RETAINED
--------------------- PAID-IN LOSS NET EARNINGS
SHARES AMOUNT CAPITAL OF TAX (DEFICIT) TOTAL
--------- ------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, 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, 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 securitized $(330,395) (330,395)
assets, net of tax of $229,597
Net Income 7,161,829 7,161,829
--------- ------- ----------- --------- ----------- -----------
Total comprehensive income (330,395) 7,161,829 6,831,434
--------- ------- ----------- --------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 6,177,804 $61,778 $37,892,071 $(330,395) $13,084,689 $50,708,143
========= ======= =========== ========= =========== ===========
</TABLE>
See accompanying notes to the condensed financial statements.
F-3
<PAGE> 83
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1999 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities .................. $ (37,386,541) $ (76,587,801)
INVESTING ACTIVITIES:
Purchases of property and equipment ................ (5,002,155) (2,411,692)
--------------- ---------------
(5,002,155) (2,411,692)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds from exercise of options/warrants ......... 52,989 32,981
Payments on capital lease obligations .............. (276,775) (473,577)
Payments on excess servicing line of credit ........ (27,117,539) (10,027,900)
Proceeds from drawdown on excess servicing
line of credit ................................... 34,257,170 26,000,000
Paydown of warehouse lines related to
securitization and sale (1,026,000,000) (624,456,000)
Proceeds from warehouse lines ...................... 1,063,485,007 682,956,181
Proceeds from subordinated debt .................... 0 10,000,000
Proceeds from other loans ..........................
Proceeds from (Payments on) other loans ............ 846,684 (251,321)
--------------- ---------------
Net cash provided by financing activities .............. 45,247,536 83,780,364
--------------- ---------------
Increase in cash and cash equivalent .......... 2,858,840 4,780,871
Cash and cash equivalents at beginning of period ....... 1,928,991 991,010
--------------- ---------------
Cash and cash equivalents at end of period ............. $ 4,787,831 $ 5,771,881
=============== ===============
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
F-4
<PAGE> 84
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements included herein are
unaudited and have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial reporting and Securities
and Exchange Commission regulations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the regulations. In the opinion of management, the financial
statements reflect all adjustments (of a normal and recurring nature) which are
necessary to present fairly the financial position, results of operations and
cash flows for the interim periods. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. The condensed consolidated
financial statements should be read in conjunction with the audited financial
statements and footnotes thereto for the year ended December 31, 1998 included
in the Company's 1998 Annual Report on Form 10-K as amended on Form 10K/A, and
Forms 10-Q for the quarters ended March 31, 1999 and June 30, 1999.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, management
utilizes assumptions and estimates that affect the reported value of credit
enhancement assets and the gain on sale of Contracts. Such assumptions include,
but are not limited to, estimates of loan prepayments, defaults, recovery rates
and present value discount rates. The Company uses a combination of its own
historical experience, industry statistics and expectation of future performance
to determine such estimates. Actual results may differ from the Company's
estimates due to numerous factors both within and beyond the control of the
Company management. Changes in these factors could require the Company to revise
its assumptions concerning the amount of voluntary prepayments, the frequency
and/or severity of defaults and the recovery rates associated with the
disposition of repossessed vehicles.
NOTE 2 -- CONTRACTS HELD FOR SALE
Contracts held for sale consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
Contracts held for sale ....... $ 202,240,294 $ 160,386,439
Less unearned interest ........ (6,985,060) (8,434,206)
------------- -------------
195,255,234 151,952,233
Allowance for credit losses.... (1,276,276) (1,052,178)
Dealer participation .......... 1,557,004 1,860,726
------------- -------------
Total ......................... $ 195,535,962 $ 152,760,781
============= =============
F-5
<PAGE> 85
NOTE 3 -- 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:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
Trust receivable....... $ 5,712,501 $ 3,712,501
RISA .................. 125,187,942 109,240,692
------------ ------------
Total ........ $130,900,443 $112,953,193
============ ============
Trust receivable represents servicer advances and initial deposits to
the spread accounts.
Retained interest in securitized assets ("RISA") is capitalized upon
securitization of contracts and represents 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 certificate
rate paid to the investors less contractually specified servicing and financial
guarantee insurance premiums fees and projected credit losses, after giving
effect to estimated prepayments. During 1999 and 1998, the Company utilized
prepayment rates of 1.5% ABS in computing RISA. Original cumulative net credit
loss assumptions utilized for 1999 and 1998 securitization transactions ranged
from 3.5% to 4.0%. The Company used a discount rate during 1999 and 1998 of 350
to 450 points over the certificate rates paid to investors at the time of
securitization in discounting future earnings.
RISA is classified in a manner similar to available for sale securities
and as such is marked to market each quarter. The Company is not aware of an
active market for the purchase or sale of RISA, and accordingly, the Company
determines the estimated fair value of the RISA by discounting the expected cash
flows released from the trust (the "Cash-Out Method") using a discount rate
which the Company believes is commensurate with the risks involved. Any changes
in the market value of RISA is reported as a separate component of shareholders'
equity as an unrealized gain or loss, net of deferred taxes.
The following table presents the balances and activity of RISA for the
nine and twelve month period ended September 1999 and December 1998
respectively:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Beginning Balance .......................... $ 109,240,692 $ 64,357,850
Additions .................................. 73,011,652 80,632,733
Amortization ............................... (56,504,410) (35,749,891)
Change in unrealized gain/loss on
securities available for sale............. (559,992) --
------------- -------------
Ending Balance ............................. $ 125,187,942 $ 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 rates paid to the investors, less the
contractually specified servicing fee of 1.0% and financial guarantee insurance
premiums, after giving effect to estimated prepayments and assuming no
F-6
<PAGE> 86
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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
Estimated net undiscounted RISA earnings.......... $ 224,025,166 $ 176,600,869
Off balance sheet allowance for losses............ (76,601,346) (51,009,542)
Discount to present value......................... (22,235,878) (16,350,635)
-------------- --------------
Retained interest in securitized assets........... $ 125,187,942 $ 109,240,692
============== ==============
Outstanding balance of contracts sold
through securitizations......................... $1,721,926,813 $1,183,157,096
============== ==============
</TABLE>
NOTE 4 -- NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share ("EPS"):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income..................................... $7,161,829 $3,589,942
Weighted average shares outstanding............ 6,172,628 6,093,198
Net effect of dilutive stock options/warrants.. 355,015 352,214
Diluted weighted average shares outstanding.... 6,527,643 6,445,412
Net income per share:
Basic EPS...................................... 1.16 0.59
Diluted EPS.................................... 1.10 0.56
</TABLE>
NOTE 5 -- NEW 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 6 -- CONTINGENCIES
The Company is party to various legal proceedings similar to actions
brought against other companies in the motor vehicle finance industry, which are
or may or may not be covered under insurance policies it holds. The Company
vigorously defends such proceedings; however, there is no assurance as to the
results. Based upon information presently available, the Company believes that
the final outcome of all such proceedings should not have a material adverse
effect upon the Company's results of operations, cash flows or financial
condition.
F-7
<PAGE> 87
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, redeemable
preferred stock and stockholders' equity and cash flows present fairly, in all
material respects, the consolidated financial position of Onyx Acceptance
Corporation and its subsidiaries (the "Company") as of December 31, 1998 and
1997, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these consolidated
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2, the 1997 and 1996 consolidated financial
statements have been restated to reflect a change in the method of measuring and
accounting for credit enhancement assets.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Newport Beach, California
January 22, 1999
F-8
<PAGE> 88
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997
------------- -------------
(Restated)
<S> <C> <C>
Cash and cash equivalents .................................. $ 1,928,991 $ 991,010
Contracts held for sale (net of allowance) ................. 152,760,781 64,342,309
Credit enhancement assets (net of amortization) ............ 112,953,193 71,735,651
Furniture and equipment (net of accumulated depreciation)... 4,734,857 2,842,520
Other assets ............................................... 3,043,902 1,924,970
------------- -------------
Total Assets ...................................... $ 275,421,724 $ 141,836,460
============= =============
LIABILITIES
Accounts payable ........................................... $ 10,959,913 $ 6,564,446
Warehouse borrowings ....................................... 150,044,464 60,505,902
Revolving credit and residual lines ........................ 49,555,597 30,000,000
Subordinated debt .......................................... 10,000,000 0
Capital lease obligations .................................. 696,995 1,002,307
Accrued interest payable ................................... 790,055 302,238
Other liabilities .......................................... 9,550,979 5,744,157
------------- -------------
Total Liabilities ................................. 231,598,003 104,119,050
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock
Par value $0.01 per share; authorized 15,000,000
shares; issued and outstanding 6,171,034
as of December 31, 1998 and issued and
outstanding 6,017,635 shares as of December 31,
1997 .............................................. 61,710 60,176
Additional paid in capital ........................... 37,839,151 37,810,158
Retained earnings (deficit) .......................... 5,922,860 (152,924)
------------- -------------
Total Equity ...................................... 43,823,721 37,717,410
------------- -------------
Total Liabilities and Stockholders' Equity $ 275,421,724 $ 141,836,460
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 89
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
REVENUES:
Finance income .................... $20,753,734 $11,866,957 $ 9,354,271
Investment income ................. 1,194,477 431,373 325,885
----------- ----------- -----------
Interest Income - Total ................. 21,948,211 12,298,330 9,680,156
Interest expense .................. 14,636,534 7,261,645 5,539,850
----------- ----------- -----------
Net Interest Income ..................... 7,311,677 5,036,685 4,140,306
Servicing fee income .............. 16,663,450 9,189,108 3,235,512
Gain on sale of contracts ......... 36,417,216 19,586,291 15,251,117
----------- ----------- -----------
Total Revenues .......................... 60,392,343 33,812,084 22,626,935
----------- ----------- -----------
EXPENSES:
Provision for credit losses ....... 1,579,831 785,445 265,802
Salaries and benefits ............. 26,754,000 17,424,729 8,547,815
Occupancy ......................... 1,823,290 1,478,349 662,634
Depreciation ...................... 2,105,743 1,194,186 821,354
General and administrative expenses 17,743,525 10,643,087 5,362,382
----------- ----------- -----------
Total Expenses .......................... 50,006,389 31,525,796 15,659,987
----------- ----------- -----------
Net Income Before Income Taxes .......... 10,385,954 2,286,288 6,966,948
Income taxes ...................... 4,310,170 984,017 851,360
----------- ----------- -----------
Net Income .............................. $ 6,075,784 $ 1,302,271 $ 6,115,588
=========== =========== ===========
Net Income per Share of Common Stock
Basic ............................. $ 0.99 $ 0.22 $ 1.19
Diluted ........................... $ 0.95 $ 0.21 $ 1.09
----------- ----------- -----------
Basic shares outstanding ................ 6,112,370 6,000,431 5,159,182
=========== =========== ===========
Diluted shares outstanding .............. 6,424,959 6,294,071 5,585,647
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 90
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE SERIES A SERIES B PREFERRED
PREFERRED STOCK COMMON STOCK STOCK ADDITIONAL
------------------------ ------------------- ------------------ PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ----------- --------- ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................. 8,227,349 $ 9,379 177 2,241,454 $22,415 136,365 $1,364 $ 803,109
Issuance of Common Stock..................... 2,908,135 29,081 32,307,821
Conversion of Preferred Stock Series......... (8,227,349) (9,379,177) 715,422 7,154 8,220,195
Conversion of Preferred Stock Series B....... 39,757 398 (136,365 (1,364) 966
Issuance costs............................... (3,578,366)
Net income...................................
---------- ----------- --------- ------- -------- ------- ------------
BALANCE AT DECEMBER 31, 1996 (RESTATED)...... 0 0 5,904,768 59,048 0 0 37,753,725
Issuance of Common Stock..................... 112,867 1,128 56,433
Net income...................................
---------- ----------- --------- ------- -------- ------- ------------
BALANCE AT DECEMBER 31, 1997 (RESTATED)...... 0 0 6,017,635 60,176 0 0 37,810,158
Issuance of Common Stock..................... 153,399 1,534 28,993
Net Income...................................
---------- ----------- --------- ------- -------- ------- ------------
BALANCE AT DECEMBER 31, 1998................. 0 $ 0 6,171,034 $61,710 0 $ 0 $ 37,839,151
========== =========== ========= ======= ======== ======= ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
(DEFICIT) (DEFICIT)
----------- -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995................. $(8,722,613) $ (7,895,725)
Issuance of Common Stock..................... 32,336,902
Conversion of Preferred Stock Series......... 1,151,830 9,379,179
Conversion of Preferred Stock Series B.......
Issuance costs............................... (3,578,366)
Net income................................... 6,115,588 6,115,588
----------- ------------
BALANCE AT DECEMBER 31, 1996 (RESTATED)...... (1,455,195) 36,357,578
Issuance of Common Stock..................... 57,561
Net income................................... 1,302,271 1,302,271
----------- ------------
BALANCE AT DECEMBER 31, 1997 (RESTATED)...... (152,924) 37,717,410
Issuance of Common Stock..................... 30,527
Net Income................................... 6,075,784 6,075,784
----------- ------------
BALANCE AT DECEMBER 31, 1998................. $ 5,922,860 $ 43,823,721
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 91
ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income ............................................... $ 6,075,784 $ 1,302,271 $ 6,115,588
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of retained interest in
securitized assets .............................. 35,749,891 10,775,171 7,110,583
Write-off unamortized participation on sold loans . 27,467,086 15,523,390 12,582,515
Provision for credit losses ....................... 1,579,831 785,446 265,802
Depreciation and amortization ..................... 2,105,743 1,194,186 821,354
Decrease (increase) in trust receivable ........... 3,665,300 (3,763,661) 2,594,477
Increase in retained interest in securitized assets (80,632,733) (41,603,001) (34,459,085)
(Increase) decrease in other assets ............... (1,118,928) 521,949 (1,471,078)
Increase in accounts payable ...................... 4,395,467 4,896,659 1,380,268
Increase (decrease) in accrued interest payable ... 487,817 229,077 (1,244,356)
Increase in other liabilities ..................... 4,057,894 3,245,629 1,766,591
Proceeds from the sale of contracts held for sale . 926,759,606 527,276,091 405,513,000
Purchase of contracts held for sale ............... (1,038,534,757) (605,905,410) (319,840,214)
Exercise of trust purchase option ................. (12,387,783) 0 0
Principal payments received on contracts held
for sale ........................................ 39,182,459 26,957,179 21,582,236
Payments of participation to dealers (net of
chargeback collections and amortized expense) ... (32,484,915) (16,416,931) (12,449,984)
--------------- --------------- ---------------
Cash provided by (used in) operating activities .......... (113,632,238) (74,981,955) 90,267,697
--------------- --------------- ---------------
INVESTING ACTIVITIES
Purchase of furniture and equipment .................. (3,835,335) (1,824,853) (804,587)
--------------- --------------- ---------------
Cash used in investing activities ........................ (3,835,335) (1,824,853) (804,587)
--------------- --------------- ---------------
FINANCING ACTIVITIES
Payments on capital leases ........................... (468,060) (425,189) (486,369)
Proceeds from warehouse line ......................... 985,997,562 538,897,511 273,228,073
Payments on warehouse line ........................... (896,459,000) (488,500,000) (375,500,000)
Proceeds from drawdown on revolving credit borrowings 32,000,000 27,500,000 16,348,568
Payments to paydown revolving credit borrowings ...... (12,444,403) 0 (23,417,776)
Proceeds (payments) of subordinated debt ............. 10,000,000 0 (10,000,000)
Payments of stock issuance costs ..................... 0 0 (1,595,837)
Proceeds from exercise of options/warrants ........... 30,527 57,561 17,250
Proceeds from sale of preferred and common stock ..... 0 0 30,337,128
(Payments) receipts in other loans ................... (251,072) (335,093) 586,168
--------------- --------------- ---------------
Cash provided by (used in) financing activities .......... 118,405,554 77,194,790 (90,482,795)
--------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents ......... 937,981 387,982 (1,019,685)
Cash and cash equivalents at beginning of period ......... 991,010 603,028 1,622,713
--------------- --------------- ---------------
Cash and cash equivalents at end of period ............... $ 1,928,991 $ 991,010 $ 603,028
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash activities:
Additions to capital leases ....................... $ 162,744 $ 884,654 $ 471,256
Conversion of preferred stock ..................... 0 0 9,379,177
Cash paid:
Interest .......................................... 14,148,717 7,032,567 6,784,204
Income taxes ...................................... 1,377,644 602,913 570,676
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 92
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") and Onyx Acceptance Funding Corporation ("OFC") (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 -- RESTATEMENT
As required by the Financial Accounting Standards Board's ("FASB")
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 ("SEC")
on December 8, 1998, the Company's 1997 and 1996 consolidated financial
statements have been restated to reflect a change in the method of measuring and
accounting for credit enhancement assets on its securitization transactions to
the cash-out method from the cash-in method.
Initial deposits to restricted cash accounts, if any, and subsequent
cash flows received by securitization trusts sponsored by the Company accumulate
as credit enhancement assets until certain targeted levels are achieved, after
which cash is distributed to the Company on an unrestricted basis. Under the
cash-in method previously used by the Company, (i) the assumed discount period
for measuring the present value of credit enhancement assets ended when cash
flows were received by the securitization trusts and (ii) initial deposits to
restricted cash accounts were recorded at face value. Under the cash-out method
now required by the FASB and SEC, the assumed discount period for measuring the
present value of credit enhancement assets ends when cash, including return of
the initial deposits, if any, is distributed to the Company on an unrestricted
basis.
The change to the cash-out method results only in a difference in the
timing of revenue recognition from a securitization and has no effect on the
total cash flow of such transactions. While the total amount of revenue
recognized over the term of a securitization transaction is the same under
either method, the cash-out method results in (i) lower initial gain on the sale
of receivables due to the longer discount period and (ii) higher subsequent
servicing fee income from accretion of the additional cash-out discount.
Accordingly, the reductions in previously reported earnings resulting from
retroactive application of the change will generally be recognized in subsequent
period earnings and servicing fee income.
F-13
<PAGE> 93
The restatement resulted in the following changes to prior period
financial statements:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1997 1996
------- -------
(IN THOUSANDS, EXCEPT
FOR PER SHARE DATA)
<S> <C> <C>
Total Revenue:
Previous................................. $35,950 $25,221
As restated.............................. $33,812 $22,627
Net Income:
Previous................................. $ 2,584 $ 7,672
As restated.............................. $ 1,302 $ 6,116
Net Income per Share:
Basic:
Previous................................. $ 0.43 $ 1.49
As restated.............................. $ 0.22 $ 1.19
Diluted:
Previous................................. $ 0.40 $ 1.35
As restated.............................. $ 0.21 $ 1.09
Credit Enhancement Assets:
Previous................................. $76,467 $39,738
As restated.............................. $71,736 $37,144
Stockholders' Equity:
Previous................................. $40,555 $37,914
As restated.............................. $37,717 $36,358
</TABLE>
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of Onyx, OAFC and OFC. 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 market. Market is determined based on the
estimated value of the Contracts if securitized and sold..
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 Loans. At the time of sale
any remaining amounts are included as part of the computation of the gain on
sale of Contracts.
The Company continues to accrue interest on Contracts until the
Contract is charged off, which occurs at the earlier of the end of the month in
which (i) the underlying vehicle is repossessed and sold or (ii) the Contract
becomes past due 120 days. At the time that the Contract is charged off, all
accrued interest is also charged off.
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 Loan 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 Loan 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.
F-14
<PAGE> 94
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, 1998 the Company is servicing all the
Contracts sold to the Trusts.
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. 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 is 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 generally correspond to the 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.
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. 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: Accounting for Stock-Based Compensation
("SFAS 123"), was issued by the Financial Accounting Standards Board in October
1995 and is effective for fiscal years beginning after December 15, 1995. SFAS
123 encourages, but does not require companies to recognize compensation
expenses 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.
Reclassification: Certain amounts in the prior year consolidated
financial statements have been reclassified to conform to 1998 presentation.
F-15
<PAGE> 95
NOTE 4 -- 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 5 -- CONTRACTS HELD FOR SALE
Contracts held for sale consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Contracts held for sale................ $160,386,439 $71,216,278
Less unearned interest................. 8,434,206 7,835,794
------------ -----------
151,952,233 63,380,484
Allowance for credit losses............ (1,052,178) (316,902)
------------ -----------
150,900,055 63,063,582
Dealer participation................... 1,860,726 1,278,727
------------ -----------
Total............................. $152,760,781 $64,342,309
============ ===========
</TABLE>
At December 31, 1998, contractual maturities of Contracts held for sale
were as follows:
1999..................................... $ 3,065,436
2000..................................... 8,772,016
2001..................................... 8,024,190
2002..................................... 18,462,195
2003 and thereafter...................... 113,628,396
------------
$151,952,233
============
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period.......... $ 316,902 $ 61,190 $ 591,765
Provision for credit losses............. 1,579,831 785,446 265,802
Charged-off loans....................... (1,100,158) (620,781) (953,582)
Recoveries.............................. 255,603 91,047 157,205
----------- --------- ---------
Balance at end of period................ $ 1,052,178 $ 316,902 $ 61,190
=========== ========= =========
</TABLE>
The fair value of Contracts held for sale was $163.5 million and $64.3
million at December 31, 1998 and 1997, respectively.
At December 31, 1998, the Company had entered into four year amortizing
forward swap agreements with a national face amount outstanding of $150.0
million with maturities matching the average life of the Contracts being hedged.
At December 31, 1998, these contracts had a fair value of $93,000. In addition,
at December 31, 1998, the Company had offsetting swap agreements of $81.0
million in notional face amount outstanding with a fair value of $(1.0) million.
At December 31, 1997, the Company had similar agreements with a notional face
amount outstanding of $105.9 million with deferred losses of $232,000.
F-16
<PAGE> 96
Included in the Gain on Sale of Contracts for the years ended December
31,, 1998, 1997 and 1996 are losses of $4.8 million, $1.3 million, and $2.3
million respectively, arising from hedging activities.
Contracts serviced by the Company for the benefit of others totaled
approximately $1.2 million at December 31, 1998 and $693.9 million at December
31, 1997. These amounts are not reflected in the accompanying consolidated
financial statements.
NOTE 6 -- 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,
----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Trust Receivable........................ $ 3,712,501 $ 7,377,801
RISA.................................... 109,240,692 64,357,850
------------ -----------
Total.............................. $112,953,193 $71,735,651
============ ===========
</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 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 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,
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,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Beginning Balance.................... $ 64,357,850 $ 33,530,020
Additions............................ 80,632,733 41,603,001
Amortization......................... (35,749,891) (10,775,171)
------------ ------------
Ending Balance.................. $109,240,692 $ 64,357,850
============ ============
</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
F-17
<PAGE> 97
securitizations. Estimated future undiscounted RISA earnings are calculated by
taking the difference between the coupon rate of the contracts sold and the
certificate rate paid to the investors, less the contractually specified
servicing fee of 1.0% and guarantor 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,
-------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Estimated net undiscounted RISA earnings...... $ 176,600,869 $ 99,613,524
Off balance sheet allowance for losses........ 51,009,542 25,546,412
Discount to present value..................... 16,350,635 9,709,262
-------------- ------------
Retained interest in securitized assets....... $ 109,240,692 $ 64,357,850
============== ============
Outstanding balance of contracts sold through
securitizations.......................... $1,183,157,096 $693,896,100
</TABLE>
NOTE 7 -- FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
Owned:
Office furniture......................... $ 2,031,561 $1,469,004
Computer equipment....................... 5,869,612 2,397,728
Leasehold improvements................... 748,292 713,382
----------- ----------
Total................................ 8,649,465 4,580,114
----------- ----------
Capitalized Leases:
Office furniture......................... 40,750
Computer equipment....................... 1,441,073 1,471,594
----------- ----------
Total................................ 1,441,073 1,512,344
----------- ----------
Total furniture and equipment................. 10,090,538 6,092,458
Less: accumulated depreciation and amortization 5,355,681 3,249,938
----------- ----------
Furniture and equipment, net.................. $ 4,734,857 $2,842,520
=========== ==========
</TABLE>
NOTE 8 -- WAREHOUSE BORROWING
The Company has a commercial paper facility (the "CP Facility") with a
financial institution with borrowings outstanding at December 31, 1998 of
$150,044,464 and at December 31, 1997 of $60,505,902. Under terms of the
agreements the Company is able to borrower 98% of the principal amount of loans
purchased. Borrowings under this commercial paper arrangement become due as the
principal payments are received or the related automobile loans are sold. The
amount of credit available to the Company for the purchase of automobile loans
under the facility is $375 million. The amount of commercial paper outstanding
at any time is collateralized by the Contracts held for sale. These credit
arrangements mature on September 3, 2001 and are subject to annual renewal on
each anniversary date. The Company is in compliance with certain ratios and
other borrowing covenants under the commercial paper arrangements. The fair
value of commercial paper was $150.0 million and $60.5 million at December 31,
1998 and 1997 respectively. The commercial paper facility had an average
interest rate of 6.47% for the year ended December 31, 1998, and 6.63% for the
year ended December 31, 1997.
Additionally, during 1998 the Company entered into 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, 1998,
there was no debt outstanding under this line. This facility matures on February
4, 2000.
F-18
<PAGE> 98
NOTE 9 -- REVOLVING CREDIT AND RESIDUAL LINES
The Company has three credit lines collateralized by credit enhancement
assets. Total borrowings outstanding under all three lines at December 31, 1998
was $49.6 million and $30.0 million at December 31, 1997.
The Company is party to a collateralized revolving line of credit with
a lending group for up to $45 million ("the Revolving Facility"). The Revolving
Facility is used for working capital and other expenditures for which the
Company's warehouse lines are otherwise unavailable. The Company may borrow and
repay the loan during the two year revolving period with the loan amount
determined by a borrowing base formula. The formula is a percentage of the
Company's credit enhancement asset balance. The Revolving Facility converts from
revolving loan to a fully amortizing two year term loans on June 30, 1999.
Advances bear interest at 0.25% over the lender's Prime Rate. The Revolving
Facility had an average interest rate of 8.76% for the year ended December 31,
1998 and 8.91% for 1997. The fair value of the Revolving Facility was $38.5
million at December 31, 1998 and $30.0 million at December 31, 1997. The Company
is in compliance with certain ratios and other borrowing covenants under the
Revolving Facility.
Additionally, in the first quarter of 1998, the Company negotiated two
new credit lines with investment banks (the "Residual Lines") to expand and
diversify its lending relationships. The Residual Lines consist of two separate
$50 million funding facilities collateralized by credit enhancement assets, with
one facility provided by Merrill Lynch Mortgage Capital ("MLMCI") and the second
facility provided by Salomon Brothers Realty Company ("SBRC"). The lines utilize
a collateral based formula that equates borrowing availability to a percentage
of the value of the excess cash flow to be received from securitizations
lead-managed by the respective investment bank. The facility provided by MLMCI
matures in February 2000; the facility provided by SBRC matures in September
1999. Interest paid under each line is tied to the 30 day Libor Rate. The
average interest rates for year ending 1998 were 8.19% for the MLMCI facility
and 8.06% for the SBRC facility. The Residual Lines had a combined fair value of
$11.1 million at December 31, 1998, with debt outstanding under the MLMCI line
of $5.1 million and debt outstanding under the SBRC line of $6.0 million.
NOTE 10 -- SUBORDINATED DEBT
The Company has $10.0 million of subordinated debt outstanding. The
term of the subordinated debt is for two years ending February 24, 2000 with an
option by the Company to extend the term by three years during which the loan
would fully amortize, and bears a fixed interest rate of 9 2%. 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 11 -- COMMITMENTS AND CONTINGENCIES
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, 1998:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1999........................................... $ 417,480 $ 2,218,267
2000........................................... 210,447 2,617,143
2001........................................... 120,703 2,474,213
2002........................................... 102,739 2,265,161
2003 and thereafter............................ 15,608 12,100,769
---------
Total..................................... 866,977 21,675,553
Less amounts representing interest............. (169,982)
---------
Present value of net minimum lease payments.... $ 696,995
=========
</TABLE>
Rental expenses for premises and equipment amounted to approximately
$1.7 million, $1.4 million and $651,898 for the
F-19
<PAGE> 99
year ended December 31, 1998, 1997, and 1996 respectively.
NOTE 12 -- STOCK OPTIONS
The Company has reserved 1,545,303 shares for future issuance to
certain employees under its incentive stock option plan. The options may be
exercised at prices ranging from $0.51 per share of $11.50 per share at any
time, in whole or part, within ten years after the date of grant. Reserved,
unoptioned shares totaled 240,566 at December 31, 1998, 185,176 at December 31,
1997, and 502,764 at December 31, 1996.
A summary of the status of the Company's stock option plan as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ --------------------- ----------------------
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... 802,200 $7.51 597,480 $6.10 373,811 $ 2.30
Granted............................ 1,296,878 6.32 402,700 7.89 394,593 11.14
Exercised.......................... (38,118) 0.80 (112,867) 0.51 (33,056) 0.51
Forfeited.......................... (940,263) 8.39 (85,113) 8.66 (137,868) 11.56
--------- ----- -------- ----- --------- ------
Outstanding at end of year......... 1,120,697 $5.59 802,200 $7.51 597,480 $ 6.10
========= ===== ======== ===== ========= ======
Options exercisable at year end.... 502,624 321,564 342,866
========= ======== =========
Weighted-average fair value of
options granted during the year.. $6.32 $7.89 $11.14
===== ===== ======
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ---------------------------------
Number Weighted Average Number
Outstanding Remaining Weighted Average Exercisable at Weighted Average
Range of Exercise Prices at 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price
- ------------------------ ----------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.51 114,399 5.26 years $ .51 114,399 $ .51
$ 5.75 - 6.86 933,748 7.17 5.77 336,297 5.80
$ 7.25 - 8.50 2,550 7.97 8.25 680 8.37
$11.25 - 11.50 70,000 8.40 11.36 51,248 11.41
$ 0.51 - 11.50 1,120,697 7.06 $ 5.59 502,624 $ 5.17
</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
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:
F-20
<PAGE> 100
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Risk free interest rate........... 5.1% 5.5% 6.0%
Expected stock price volatility... 63.9% 52.0% 80.0%
Expected life of options four years four years four years
Expected dividends none none none
</TABLE>
The following table presents the pro forma disclosures required for
SFAS 123 for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
Pro forma net income (dollars in
thousands)............................ $5,322 $ 895 $5,337
Pro forma net income per share-basic.. $ 0.87 $0.15 $ 1.03
Pro forma net income per share-diluted $ 0.83 $0.14 $ 0.96
</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 contributions. Employee contributions up to the lesser of
$10,000 or 5% 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 expenses
related to the 401(k) Plan totaled $87,000 in 1998.
NOTE 14 -- REDEEMABLE PREFERRED STOCK
The Company has reserved 10 million shares of preferred stock and had
designated 9 million shares as Series A Preferred Stock. The shares were subject
to a $.06 per share dividend, payable quarterly when and if declared by the
Board of Directors. The dividends were not cumulative. The Series A Preferred
Stock was subject to holder redemption to be paid out of future earnings in
three annual installments beginning January 1, 1999 and each subsequent January
until January 1, 2001. The shares were subject to a 7% per year increase from
the issue date. The increase accrued at December 31 of each year. The Series A
Preferred Stock was converted to Common Stock at the time of the initial public
offering.
NOTE 15 -- STOCKHOLDERS' EQUITY
The Company had designated 136,000 shares of preferred stock as Series
B Preferred Stock. The shares were subject to a $0.05 per share dividend payable
annually when, as and if declared by the Board of Directors. The dividends were
not cumulative. The Series B Preferred Stock was converted into Common Stock
upon the initial public offering.
The Company's ability to pay or declare dividends is restricted by the
terms of the credit facilities.
F-21
<PAGE> 101
NOTE 16 -- INCOME TAXES
The following table presents the current and deferred provision
(benefit) for federal and state income taxes for the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal ..................... $ 698,132 $ 252,897 $ 591,278
State ....................... 17,744 69,332 (20,602)
---------- ---------- ----------
Total .................. 715,876 322,229 570,676
---------- ---------- ----------
Deferred:
Federal ..................... 3,070,600 460,648 (538,218)
State ....................... 523,694 201,140 818,902
---------- ---------- ----------
Total .................. 3,594,294 661,788 280,68
---------- ---------- ----------
Combined Total.......... $4,310,170 $ 984,017 $ 851,360
========== ========== ==========
</TABLE>
The provision (benefit) for income taxes differs from the amount that
would result from applying the federal statutory rate as follows for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory regular federal income tax rate 34% 34% 34%
(benefit).................................
State taxes (net of federal benefit)........ 7% 8% 8%
Other....................................... 0% 1% 8%
Change in valuation allowance............... 0% 0% (38)%
-- -- ---
41% 43% 12%
== == ===
</TABLE>
The components of the deferred income tax asset or (liability) as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Property and equipment........... $ 855,656 $ 696,006
Accrued liabilities.............. 408,438 380,900
Capitalized costs................ (675,204) (559,986)
Allowance for credit losses...... 441,880 143,557
Gain on sale of Contracts........ (20,164,719) (13,550,790)
Net operating losses............. 14,055,868 11,584,583
Credit carryover................. 18,211 18,211
State taxes...................... 525,415 347,358
------------ ------------
$ (4,534,455) $ (940,161)
============ ============
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards
for federal and state purposes of $35.2 million and $26.3 million, respectively.
The net operating loss carryforwards begin to expire after 2009 and 1999,
respectively.
F-22
<PAGE> 102
NOTE 17 -- WARRANTS
At December 31, 1998, 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 1996 WARRANTS 1997 WARRANTS 1998
-------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Warrants....... $ 0.03 116,922 0 116,922 115,286 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 0 0 180,529
------ ------- -- ------- ------- -------
Total.......... 221,356 0 221,356 115,286 286,599
======= == ======= ======= =======
</TABLE>
At December 31, 1998, all the Company's warrants outstanding to
purchase shares of common stock were exercisable.
During the year ended December 31, 1998 warrants of 115,286 were
exercised at a price of $0.03. No warrants were exercised during 1997.
NOTE 18 -- 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,
---------------------------------
1998 1997 1996
------ ------ ------
(In Thousands, Except
Net Income per Share)
<S> <C> <C> <C>
Net income........................................ $6,076 $1,302 $6,116
Weighted average shares outstanding............... 6,112 6,000 5,159
Net effect of dilutive stock options/warrants..... 231 294 426
------ ------ ------
Fully diluted weighted average shares outstanding. 6,425 6,294 5,585
====== ===== =====
Net income Per Share.............................. $ 0.99 $0.22 $1.19
====== ===== =====
Net income Per Share Assuming Full Dilution....... $ 0.95 $0.21 $1.09
====== ===== =====
</TABLE>
NOTE 19 -- 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 judgment 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.
F-23
<PAGE> 103
Warehouse borrowings and revolving credit 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.
The estimated fair values of the Company's financial instruments are as
follows at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- -------- -------- -------
(In Millions)
<S> <C> <C> <C> <C>
Cash and cash equivalents ........... $ 1.9 $ 1.9 $ 0.9 $ 0.9
Contracts held for sale ............. $ 152.8 $ 163.5 $ 64.3 $ 68.4
Credit enhancement assets ........... $ 112.9 $ 112.9 $ 71.7 $ 71.7
Warehouse borrowings ................ $ (150.0) $ (150.0) $ (60.5) $ (60.5)
Revolving credit and residual lines . $ (49.6) $ (49.6) $ (30.0) $ (30.0)
Hedging
Forward agreements .................. $ (1.2) $ (0.9) N/A $ (1.1)
</TABLE>
NOTE 20 -- 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, 1999.
F-24
<PAGE> 104
NOTE 21 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31, (1) JUNE 30, (1) SEPT. 30, (1) DEC. 31,
------------- ------------ ------------- --------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
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
1997 (1)
Interest income................................. $1,882 $3,266 $3,660 $3,491
Interest expense................................ 1,055 1,830 2,096 2,280
Net interest income............................. 827 1,435 1,564 1,211
Provision for credit losses..................... 293 211 100 181
Income (Loss) before income taxes............... 348 1,510 899 (470)
Income taxes.................................... 150 650 387 (202)
Net income (Loss)............................... 198 860 512 (268)
Net income (Loss) per common share (Basic)...... $0.03 $0.14 $0.09 $(0.04)
Net income (Loss) per common share (Diluted).... $0.03 $0.13 $0.08 $(0.04)
</TABLE>
- --------------------
(1) As discussed in Note 2, all quarters in 1997 and the first three quarters
in 1998 have been restated to reflect the change in method of measuring in
accounting for credit enhancement assets. The amounts of net income and
diluted net income per common share previously reported are discussed
within the Company's Form 10-Q/As for the three months ending March 31,
1998, June 30, 1998 and September 30, 1998.
NOTE 22 -- SUBSEQUENT EVENTS (UNAUDITED)
In the first quarter of 1999, the Company securitized contracts
totaling $310.0 million.
F-25
<PAGE> 105
[MAP OF THE UNITED STATES SHOWING THE LOCATION OF ONYX'S AUTO FINANCE CENTERS.]
<PAGE> 106
================================================================================
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.
-------------------------
$20,000,000
[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> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are expenses (other than underwriting discounts and
commissions) 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............................... 55,000
Blue Sky fees and expenses................................. 1,000
Legal fees and expenses.................................... 125,000
Printing expenses.......................................... 25,000
Trustee's fees and expenses................................ 15,000
Underwriters' counsel fees and expenses.................... 81,000
Miscellaneous.............................................. 89,128
--------
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.
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<PAGE> 108
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
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
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 Exhibit 4.2).
5.1 Opinion of Andrews & Kurth L.L.P.**
10.1 Form of Indemnification Agreement of the Company. (1)
10.2 Second Amended and Restated 1994 Stock Option Plan. (1)
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<PAGE> 109
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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)
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<PAGE> 110
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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)
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
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
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)
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<PAGE> 112
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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 6 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)
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<PAGE> 113
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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 Consent and Amendment Agreement between and among Onyx Acceptance
Corporation and State Street Bank and Trust Company, BankBoston and
the Travelers Insurance Company. #
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<PAGE> 114
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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 (15)
23.1 Consent of Independent Accountants**
24.1 Power of Attorney**
25.1 Statement of eligibility of Trustee**
27.1 Financial Data Schedule**
---------------
* 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.
# To be filed by amendment.
(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).
(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).
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<PAGE> 115
(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).
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.
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<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 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 January 19,
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. 1 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>
John W. Hall* President, Chief Executive Officer and January 19, 2000
- ---------------------- Director (Principal Executive Officer)
John W. Hall
/s/ Don P. Duffy Executive Vice President, Chief Financial January 19, 2000
- ---------------------- Officer and Director (Principal Financial
Don P. Duffy and Accounting Officer)
Thomas C. Stickel* Chairman of the Board January 19, 2000
- ----------------------
Thomas C. Stickel
Bruce R. Hallett* Director January 19, 2000
- ----------------------
Bruce R. Hallett
G. Bradford Jones* Director January 19, 2000
- -----------------------
G. Bradford Jones
C. Thomas Meyers* Director January 19, 2000
- -----------------------
C. Thomas Meyers
*By: /s/ DON P. DUFFY
- -----------------------
Don P. Duffy
Attorney-in-Fact
</TABLE>
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<PAGE> 117
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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
attached as Exhibit 4.2).
5.1 Opinion of Andrews & Kurth L.L.P.**
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)
<PAGE> 118
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
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)
<PAGE> 119
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
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)
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
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)
<PAGE> 120
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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)
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 6 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)
<PAGE> 121
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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)
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)
<PAGE> 122
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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 Consent and Amendment Agreement between and among Onyx Acceptance
Corporation and State Street Bank and Trust Company, BankBoston and
the Travelers Insurance Company. #
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 (15)
23.1 Consent of Independent Accountants**
24.1 Power of Attorney**
25.1 Statement of eligibility of Trustee**
27.1 Financial Data Schedule**
<PAGE> 123
---------------
* 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.
# To be filed by amendment.
(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).
(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).
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
January __, 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") twenty million dollars ($20,000,000) aggregate principal amount
of its ___% Subordinated Notes due __________, 2006 ("Notes"). Such $20,000,000
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 three million dollars
($3,000,000) 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 January ___, 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-________) 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) (i) 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 (or any event 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 (or any event 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 material,
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 material liabilities or
obligations, direct or contingent, or entered into any transactions, in each
case, other than in the ordinary course of business; (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 material 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 or any Material Adverse Effect; and
(iv) the Company or the Subsidiaries has not sustained any material loss or
damage to their respective properties or interference with their respective
business, whether or not insured.
(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, 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
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<PAGE> 5
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 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.
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<PAGE> 6
(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.
(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
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<PAGE> 7
adverse effect on the conduct of the business, operations, financial condition,
or income of the Company and the Subsidiaries taken as a whole.
(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 be: (i) insolvent;
(ii) left with unreasonably small capital with which to engage in its business;
or (iii) incurring 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 _____% of the per Note price offered to the public (as
set forth in the Prospectus at $1,000 per 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
$3,000,000.00 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 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
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<PAGE> 8
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 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
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<PAGE> 9
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 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
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<PAGE> 10
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 you,
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 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).
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(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 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 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
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<PAGE> 12
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, shall not have objected to the terms
of the Underwriters' participation in the Offering.
(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 the 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) 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 you, 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 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
12
<PAGE> 13
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 you, 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 you 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.
(f) 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 you 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.
(g) 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.
(h) 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.
(i) 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.
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
13
<PAGE> 14
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 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,
14
<PAGE> 15
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.
15
<PAGE> 16
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
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 not 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.
16
<PAGE> 17
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 the Prospectus, any Material Adverse Effect, the effect of which is such as
to make it, in your 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 A. Lindgren, 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 J. Kevin Boardman, 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.
17
<PAGE> 18
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 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 Firm
Name of Underwriter Notes to Be Purchased
- ------------------- ------------------------
<S> <C>
Miller & Schroeder Financial, Inc..................
Peacock, Hislop, Staley & Given, Inc...............
-----------
Total $20,000,000
===========
</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
<PAGE> 4
<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>
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<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>
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<TABLE>
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SECTION 1313. RIGHTS AND OBLIGATIONS SUBJECT TO POWER OF COURT...........................70
</TABLE>
vi
<PAGE> 7
INDENTURE
THIS INDENTURE, dated as of ______________, 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 Twenty Three Million Dollars ($23,000,000),
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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<PAGE> 8
(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.
2
<PAGE> 9
"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.
3
<PAGE> 10
"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.
4
<PAGE> 11
"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,
5
<PAGE> 12
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.
6
<PAGE> 13
"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.
7
<PAGE> 14
"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
8
<PAGE> 15
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, or (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.
"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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<PAGE> 24
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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<PAGE> 25
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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<PAGE> 26
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 $23,000,000, 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 $23,000,000, 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
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<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)
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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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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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<PAGE> 74
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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<PAGE> 75
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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<PAGE> 77
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)
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<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)
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<PAGE> 80
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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<PAGE> 84
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
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<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Income before taxes $(3,505,391) $(3,187,046) $ 6,966,948 $ 2,286,288 $10,385,954
Fixed charges $ 1,919,571 $ 6,138,267 $ 5,760,728 $ 7,754,428 $15,244,297
----------- ----------- ----------- ----------- -----------
Earnings $(1,585,820) $ 2,951,221 $12,727,676 $10,040,716 $25,630,251
=========== =========== =========== =========== ===========
Fixed charges
Gross interest $ 1,820,151 $ 6,005,376 $ 5,539,850 $ 7,261,645 $14,636,534
Rent expenses $ 298,260 $ 398,673 $ 662,634 $ 1,478,349 $ 1,823,290
One-third of rent expense $ 99,420 $ 132,891 $ 220,878 $ 492,783 $ 607,763
Total $ 1,919,571 $ 6,138,267 $ 5,760,728 $ 7,754,428 $15,244,297
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges (0.83) 0.48 2.21 1.29 1.68
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998 1999
----------- -----------
<S> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Income before taxes $ 6,136,651 $12,242,442
Fixed charges $11,090,108 $14,881,678
----------- -----------
Earnings $17,226,759 $27,124,120
=========== ===========
Fixed charges
Gross interest $10,651,700 $14,053,421
Rent expenses $ 1,315,224 $ 2,484,771
One-third of rent expense $ 438,408 $ 828,257
Total $11,090,108 $14,881,678
=========== ===========
Ratio of earnings to fixed charges 1.55 1.82
</TABLE>
<PAGE> 1
EXHIBIT 12.2
COMPUTATION OF RATIO OF EBITDA TO CASH INTEREST EXPENSES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION (EBITDA):
Net Income $(3,505,391) $(3,187,046) $ 6,115,588 $ 1,302,271 $ 6,075,784
Interest Expense $ 1,820,151 $ 6,005,376 $ 5,539,850 $ 7,261,645 $14,636,534
Taxes $ 0 $ 0 $ 851,360 $ 984,017 $ 4,310,170
Depreciation $ 550,451 $ 688,878 $ 821,354 $ 1,194,186 $ 2,105,743
Amortization $ 0 $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- ----------- -----------
Total $(1,134,789) $ 3,507,206 $13,328,152 $10,742,119 $27,128,231
=========== =========== =========== =========== ===========
Cash interest expenses $ 1,752,089 $ 4,755,923 $ 6,784,204 $ 7,032,567 $14,148,717
Ratio of EBITDA to cash interest
expenses (0.65) 0.74 1.96 1.53 1.92
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998 1999
----------- -----------
<S> <C> <C>
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION (EBITDA):
Net Income $ 6,136,561 $12,242,442
Interest Expense $10,651,700 $14,053,421
Taxes $ 2,546,709 $ 5,080,613
Depreciation $ 1,307,918 $ 2,510,463
Amortization $ 0 $ 0
----------- -----------
Total $20,642,978 $33,886,939
=========== ===========
Cash interest expenses $10,453,649 $13,798,615
Ratio of EBITDA to cash interest
expenses 1.97 2.46
</TABLE>
