<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996
REGISTRATION NO. 333-05359
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AUTOBOND ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
TEXAS 6141 75-2487218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 435-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ADRIAN KATZ, VICE CHAIRMAN
AUTOBOND ACCEPTANCE CORPORATION
301 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 435-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GLENN S. ARDEN, ESQ. PHILLIP M. RENFRO, ESQ.
DEWEY BALLANTINE FULBRIGHT & JAWORSKI L.L.P.
1301 AVENUE OF THE AMERICAS 300 CONVENT STREET, SUITE 2200
NEW YORK, NEW YORK 10019 SAN ANTONIO, TEXAS 78205
(212) 259-8000 (210) 224-5575
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting
6. Dilution............................................. Dilution; Risk Factors
7. Selling Security Holders............................. Principal and Selling Shareholders
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities To Be Registered........... Prospectus Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Capitalization;
Selected Consolidated Financial and Operating Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Description of
Capital Stock; Shares Eligible for Future Sale;
Change in Accountants; Consolidated Financial
Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... *
</TABLE>
- ------------
* Not applicable.
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1996
PROSPECTUS
1,500,000 SHARES
[LOGO]
COMMON STOCK
Of the shares of common stock, no par value (the 'Common Stock'), offered
hereby, 1,275,000 shares are being sold by AutoBond Acceptance Corporation (the
'Company'), and 225,000 shares are being sold by certain shareholders (the
'Selling Shareholders'). See 'Principal and Selling Shareholders.' The Company
will not receive any of the proceeds from the sale of shares by the Selling
Shareholders.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that any active trading market will
develop. It is currently anticipated that the initial public offering price will
be between $11.00 and $13.00 per share. See 'Underwriting' for information
relating to the factors to be considered in determining the public offering
price.
Application will be made to list the Common Stock for quotation on The
Nasdaq Stock Market's National Market System ('Nasdaq') under the symbol 'ABND.'
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS' ON PAGES 7-14.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share................................. $ $ $ $
Total(3).................................. $ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses of the offering estimated at $ payable
by the Company, including a non-accountable expense allowance payable to the
Underwriters. See 'Underwriting'.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 225,000 additional shares of
Common Stock at the Price to Public per share, less the Underwriting
Discount, solely for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See 'Underwriting.'
The shares of Common Stock are offered by the Underwriters, when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares will be made
against payment on or about , 1996 at the office of Principal
Financial Securities, Inc., in Dallas, Texas.
------------------------
<TABLE>
<S> <C>
PRINCIPAL FINANCIAL SECURITIES, INC. CRUTTENDEN ROTH
INCORPORATED
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
<PAGE>
HEADQUARTERS AND STATES OF OPERATIONS
[MAP]
HEADQUARTERS * AUSTIN, TX
Pictured above is a line drawn map of the 48 contiguous states of the
United States of America, with dark shading of those states where the Company
has recently conducted notable finance contract acquisition activity, light
shading of those states where the Company is expanding its activity, and a
five-pointed star indicating the location of the Company's headquarters in
Austin, Texas.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless indicated
otherwise, all information contained in this Prospectus (i) reflects the
767.8125-for-1 stock split effected by the Company on June 4, 1996 and (ii)
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
AutoBond Acceptance Corporation (the 'Company') is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ('finance contracts') originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ('subprime consumers'). Subprime consumers generally are borrowers unable
to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit,
employment or residence histories or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts directly from franchised automobile
dealers, makes credit decisions using its own underwriting guidelines and credit
personnel and performs the collection function for finance contracts using its
own collections department. The Company securitizes portfolios of these retail
automobile installment contracts to efficiently utilize limited capital to
allow continued growth and to achieve sufficient finance contract volume to
allow profitability. The Company markets a single finance contract acquisition
program to automobile dealers which adheres to consistent underwriting
guidelines involving the purchase of primarily late-model used vehicles. This
enables the Company to securitize those contracts into investment grade
securities with similar terms from one issue to another providing
consistency to investors. Through June 30, 1996, the finance contracts acquired
by the Company had, upon acquisition, an average initial principal balance of
$11,941, a weighted average annual percentage rate ('APR') of 19.5%, a weighted
average finance contract acquisition discount of 8.6% and a weighted average
maturity of 53.0 months.
The Company was formed to capitalize on senior management's experience in
the consumer auto finance industry, including in the securitization of subprime
automobile finance contracts. From 1989 to 1994, the Company's chairman
structured 20 investment-grade securitizations of subprime consumer automobile
finance contract portfolios, aggregating approximately $190 million in
principal amount, which were originated and underwritten by third party
intermediaries. The Company has developed the necessary experience and
relationships to underwrite, acquire, securitize and service finance contracts
by assembling a team of experienced professionals. The Company's senior
operating management averages 24 years of experience in the consumer finance
industry, including in the operation of automobile dealerships, underwriting and
acquiring consumer finance contracts, collections, and investment banking
and securitizations. The Company's credit underwriters average 13 years of
experience in the auto finance industry, and its sales representatives and
collections professionals average ten and seven years of industry experience,
respectively. While securitization is a relatively new financing technique, the
Company's executives in that area average ten years of
securitization experience.
The Company commenced operations in August 1994 and through June 30, 1996
had acquired 5,714 finance contracts (91.0% with obligors who resided in Texas)
with an aggregate initial principal balance of $68.2 million, of which $60.7
million have been securitized in three investment-grade transactions. In the six
month period ended June 30, 1996, the Company underwrote and acquired 2,856
finance contracts with an aggregate initial principal balance of $33.9 million.
At June 30, 1996, the Company had 492 dealer relationships in 16 states,
substantially all of which were franchised dealers of major automobile
manufacturers. The Company earned net income of $873,487 for the fiscal year
ended December 31, 1995, compared to a loss of $544,605 for the period from
inception through December 31, 1994. The Company earned net income of $1.9
million for the six months ended June 30, 1996, compared to a loss of $931,372
for the six months ended June 30, 1995. As of June 30, 1996, the Company
conducted notable business in 7 states (defined as those states that each
represent at least 1.0% of the total number of finance contracts acquired during
the first half of 1996).
3
<PAGE>
<PAGE>
The Company's growth strategy anticipates the acquisition of an increasing
number of finance contracts. The key elements of this strategy include: (i)
increasing the number of finance contracts acquired per automobile dealer; (ii)
expanding the Company's presence within existing markets; (iii) penetrating new
markets that meet the Company's economic, demographic and business criteria, and
(iv) securitizing portfolios of acquired finance contracts.
To foster its growth and increase profitability, the Company will continue
to pursue a business strategy based on the following principles:
TARGETED MARKET AND PRODUCT FOCUS -- The Company targets the subprime auto
finance market because it believes that subprime finance presents greater
opportunities than does prime lending. This greater opportunity stems from
a number of factors, including the relative newness of sub-prime auto
finance, the range of finance contracts that various subprime auto finance
companies provide, the relative lack of competition compared to traditional
automotive financing and the potential returns sustainable from large
interest rate spreads. The Company focuses on late-model used rather than
new vehicles, as management believes the risk of loss is lower on used
vehicles due to lower depreciation rates, while interest rates are
typically higher than on new vehicles. For the period from inception
through June 30, 1996, new vehicles and used vehicles represented 10.7% and
89.3%, respectively, of the finance contract portfolio measured by dollar
value of amounts financed and 8.0% and 92.0%, respectively, as a percentage
of units acquired. In addition, the Company concentrates on acquiring
finance contracts from dealerships franchised by major automobile
manufacturers because they typically offer higher quality vehicles, are
better capitalized than used car dealers, and have good service facilities.
EFFICIENT FUNDING STRATEGIES -- Through an investment-grade warehouse
facility and a quarterly securitization program, the Company increases its
liquidity, redeploys its capital and reduces its exposure to interest rate
fluctuations. The Company has also developed the ability to borrow funds on
a non-recourse basis, collateralized by excess spread cash flows from its
securitization trusts. The net effect of the Company's funding and
securitization program is to provide more capital than the Company consumes
in funding loans, resulting in positive cash flow, lower overall costs of
funding, and permitting loan volume to increase without requiring
additional equity capital.
UNIFORM UNDERWRITING CRITERIA -- To manage the risk of delinquency or
defaults associated with subprime consumers, the Company has utilized since
inception a single set of underwriting criteria which are consistently
applied in evaluating credit applications. This evaluation process is
conducted on a centralized basis utilizing experienced personnel. These
uniform underwriting criteria create consistency in the securitized
portfolios of finance contracts that make them more easily analyzed by the
rating agencies and more marketable and permit static pool analysis of loan
defaults to optimally structure securitizations. See 'Management's
Discussion and Analysis -- Repossession Experience -- Static Pool
Analysis.'
CENTRALIZED OPERATING STRUCTURE -- While the Company establishes and
maintains relationships with dealers through sales representatives located
in the geographic markets served by the Company, all of the Company's
day-to-day operations are centralized at the Company's offices in Austin,
Texas. This centralized structure allows the Company to closely monitor its
marketing, funding, underwriting and collections operations and eliminates
the expenses associated with full-service branch or regional offices.
EXPERIENCED MANAGEMENT TEAM -- The Company actively recruits and retains
experienced personnel at the executive, supervisory and managerial levels.
The senior operating management of the Company consists of seasoned
automobile finance professionals with an average of 24 years' experience in
underwriting, collecting and financing automobile finance contracts.
INTENSIVE COLLECTION MANAGEMENT -- The Company believes that intensive
collection efforts are essential to ensure the performance of subprime
finance contracts and to mitigate losses. The Company's collections
managers contact delinquent accounts frequently, working cooperatively
4
<PAGE>
<PAGE>
with customers to get full or partial payments, but will initiate
repossession of financed vehicles no later than the 90th day of
delinquency. As of June 30, 1996, a total of 85, or 1.5%, of the Company's
finance contracts outstanding were between 60 and 90 days past due. Since
inception through June 30, 1996, the Company repossessed approximately 5.1%
of its financed vehicles.
LIMITED LOSS EXPOSURE -- To reduce its potential losses on defaulted
finance contracts, the Company insures each finance contract it funds
against damage and fraud to the financed vehicle through a vender's
comprehensive single interest physical damage insurance policy (the 'VSI
Policy'). In addition, the Company purchases credit default insurance
through a deficiency balance endorsement (the 'Credit Endorsement') to the
VSI Policy. Moreover, the Company limits loan-to-value ratios and applies a
purchase price discount to the finance contracts it acquires. The Company's
combination of underwriting criteria, intensive collection efforts and the
VSI Policy and Credit Endorsement has resulted in net charge-offs (after
receipt of liquidation and insurance proceeds) of 7.6% of the principal
balance outstanding on disposed repossessed vehicles as of June 30, 1996.
See 'Management's Discussion and Analysis & Financial Condition and Results
of Operations -- Net Loss per Repossession.'
The Company is a Texas corporation. The Company's principal executive
office and mailing address is 301 Congress Avenue, 9th Floor, Austin, Texas
78701, and its telephone number is (512) 435-7000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company............................ 1,275,000 shares
Common Stock offered by the Selling
Shareholders....................... 225,000 shares
Total Common Stock offered(1)... 1,500,000 shares
Common Stock to be outstanding after
the Offering(1)(2)................. 6,981,311 shares
Use of proceeds...................... The Company intends to use the net proceeds received by it to: acquire new
finance contracts; repay subordinated indebtedness of $300,000; repay
certain outstanding indebtedness under revolving warehouse credit
facilities; and for general corporate purposes.
The Selling Shareholders have agreed to use the net proceeds received by
them to repay in full the outstanding balance under a working capital
facility guaranteed by the Company and certain indebtedness to the
Company. See 'Use of Proceeds' and 'Certain Transactions.'
Proposed Nasdaq symbol............... ABND
</TABLE>
- ------------
(1) Excludes 225,000 additional shares which may be issued pursuant to exercise
of the Underwriters' over-allotment option. See 'Underwriting.'
(2) Includes 18,811 shares of Common Stock reserved for issuance pursuant to the
exercise of outstanding warrants. See 'Description of Capital
Stock -- Warrants.' Excludes 300,000 shares of Common Stock reserved for
issuance pursuant to the exercise of options to be outstanding at the time
of the Offering. See 'Management -- Option Plan.'
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------------------
1994(1) 1995 1995 1996
---------- ---------- ---------------- ----------------
(DOLLARS IN THOUSANDS EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income.......................... $ 19 $ 781 $ 417 $ 333
Servicing fee income......................... 0 0 9 277
Gain on sale of finance contracts............ 0 4,086 134 5,744
Net income (loss) before taxes and
extraordinary loss......................... (545) 1,072 (931) 2,996
Net income (loss)............................ (545) 873 (931) 1,876
Net income (loss) per share.................. (0.11) 0.17 (0.18) 0.33
Weighted average shares outstanding.......... 5,118,753 5,190,159 5,118,753 5,698,367
Pro forma net income(2)...................... $ -- $ 934 $ -- $ 1,892
Pro forma net income per share(2)............ -- 0.17 -- 0.32
PORTFOLIO DATA:
Number of finance contracts acquired......... 202 2,659 1,042 2,856
Principal balance of finance contracts
acquired................................... $ 2,454 $ 31,200 $ 12,207 $ 33,358
Principal balance of finance contracts
securitized................................ 0 26,261 0 34,396
Average initial finance contract principal
balance.................................... $ 12.2 $ 12.0 $ 12.0 $ 11.9
Weighted average initial contractual term
(months)................................... 54.3 53.3 53.0 52.7
Weighted average APR of finance contracts.... 19.1% 19.3% 19.2% 19.7%
Weighted average finance contract acquisition
discount................................... 8.6% 8.8% 8.7% 8.6%
Number of finance contracts outstanding (end
of period)................................. 197 2,774 1,219 5,485
Principal balance of finance contracts
outstanding (end of period)................ $ 2,450 $ 31,311 $ 14,125 $ 59,392
OPERATING DATA:
Number of enrolled dealers (end of period)... 50 280 169 492
Number of active states (end of period)...... 2 7 5 12
Total expenses as a percentage of total
principal balance of finance contracts
acquired in period......................... 23.0% 12.2% 12.2% 10.1%
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a
percentage of principal balance of finance
contracts (end of period).................. 0.30% 2.30% 1.39% 2.48%
Net charge-offs as a percentage of average
finance contract balances(3)(4)(5)......... 0.00% 0.66% 0.39% 1.45%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Finance contracts held for sale, net......... $ 546 $ 546
Excess servicing receivable.................. 1,575 1,575
Total assets................................. 16,292 28,984
Short term debt.............................. 537 0
Long term debt............................... 6,248 6,248
Shareholders' equity......................... 4,645 17,784
</TABLE>
- ------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Pro forma net income and pro forma net income per share are based on the
number of shares of common stock assumed to be outstanding after the
issuance in this offering of 191,746 and 137,075 shares at December 31, 1995
and June 30, 1996, respectively (based on the number of shares to be sold at
the initial public offering price necessary to raise net proceeds to pay the
offering expenses and to repay certain indebtedness of the Company, as
described in 'Use of Proceeds'), and the application of such proceeds to
repay such indebtedness in the amount outstanding at the end of the
respective periods.
(3) Averages are based on daily balances.
(4) Six month figures are annualized.
(5) With respect to repossessions where full disposition proceeds have not been
received, calculations assume immediate recovery of disposition proceeds
(including insurance proceeds) and realization of loss at average historic
loss rates.
(6) As adjusted to give effect to (i) estimated net proceeds of the Offering of
$13.2 million (at an assumed initial public offering price of $12.00 per
share) and (ii) the application of such net proceeds. See 'Use of Proceeds.'
6
<PAGE>
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the information contained elsewhere in this
Prospectus, prospective purchasers should carefully consider the following risk
factors concerning the Company and its business in evaluating an investment in
the Common Stock offered hereby.
LIMITED OPERATING HISTORY
The Company was incorporated in June 1993 and commenced operations in
August 1994 and, accordingly, has only a limited operating history. Although the
Company has experienced substantial growth in dealer relationships, finance
contract acquisitions and revenues, there can be no assurance that this growth
is sustainable or that historical results are indicative of future results. In
addition, the Company's results of operations, financial condition and liquidity
depend, to a material extent, on the performance of its finance contracts.
Because of the Company's limited operating history, its finance contract
portfolio is relatively unseasoned. Thus, the Company's portfolio performance,
including historical delinquency and loss experience, is not necessarily
indicative of future results. Furthermore, the Company's ability to achieve and
maintain profitability on both a quarterly and an annual basis will depend, in
part, upon its ability to implement its business strategy and to securitize
quarterly on a profitable basis. See 'Selected Consolidated Financial and
Operating Data.'
ABILITY OF THE COMPANY TO IMPLEMENT ITS BUSINESS STRATEGY
The Company's business strategy is principally dependent upon its ability
to increase the number of finance contracts it acquires while maintaining
favorable interest rate spreads and effective underwriting and collection
efforts. Implementation of this strategy will depend in large part on the
Company's ability to: (i) expand the number of dealerships involved in its
financing program and maintain favorable relationships with these dealerships;
(ii) increase the volume of finance contracts purchased from its dealer network;
(iii) obtain adequate financing on favorable terms to fund its acquisition of
finance contracts; (iv) profitably securitize its finance contracts on a regular
basis; (v) maintain appropriate procedures, policies and systems to ensure that
the Company acquires finance contracts with an acceptable level of credit risk
and loss; (vi) hire, train and retain skilled employees; and (vii) continue to
expand in the face of increasing competition from other automobile finance
companies. The Company's failure to obtain or maintain any or all of these
factors could impair its ability to implement its business strategy
successfully, which could have a material adverse effect on the Company's
results of operations and financial condition. See 'Business -- Growth and
Business Strategy.'
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. The Company requires access to significant sources and amounts
of cash to fund its operations and to acquire and securitize finance contracts.
As a result of the initial period required to accumulate finance contracts prior
to securitizing such contracts, until the first quarter of 1996, the Company's
cash requirements exceeded cash generated from operations. The Company's primary
operating cash requirements include the funding of (i) the acquisition of
finance contracts prior to securitization, (ii) the initial cash deposits to
reserve accounts in connection with the warehousing and securitization of
contracts in order to obtain lower financing rates, (iii) fees and expenses
incurred in connection with the warehousing and securitization of contracts and
(iv) ongoing administrative and other operating expenses. The Company has
traditionally obtained these funds in three ways: (a) loans and warehouse
financing arrangements, pursuant to which acquisitions of finance contracts are
funded on a temporary basis; (b) securitizations or sales of finance contracts,
pursuant to which finance contracts are funded on a permanent basis; and (c)
general working capital, which if not obtained from operations, may be obtained
through the issuance of debt or equity. Failure to procure funding from all or
any one of these sources could have a material adverse effect on the Company.
See 'Use of Proceeds' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
7
<PAGE>
<PAGE>
Cash Flows Associated With Financings. Under the financial structures the
Company has used to date in its warehousing and securitizations, certain excess
cash flows generated by the finance contracts are retained in a cash reserve or
'spread' account to provide liquidity and credit enhancement. While the specific
terms and mechanics of the cash reserve account can vary depending on each
transaction, the relevant agreement generally provides that the Company is not
entitled to receive certain excess cash flows unless certain reserve account
balances have been attained and the delinquency or losses related to the
contracts in the pool are below certain predetermined levels. In the event
delinquencies and losses on the contracts exceed such levels, the terms of the
warehouse facility or securitization may require increased cash reserve account
balances to be accumulated for the particular pool or, in certain circumstances,
may require the transfer of the Company's collection function to another
servicer. The imposition of any of the above-referenced conditions could
materially adversely affect the Company's liquidity and financial condition.
Dependence on Warehouse Credit Facilities. The Company's two primary
sources of financing for the acquisition of finance contracts are its (i) $20.0
million warehouse revolving line of credit with Peoples Security Life Insurance
Company (an affiliate of Providian Capital Management) and (ii) $10.0 million
warehouse revolving line of credit with Sentry Financial Corporation (together,
the 'Revolving Credit Facilities') which expire in December 1996 and July 1998,
respectively. To the extent that the Company is unable to maintain the Revolving
Credit Facilities or is unable to arrange new warehouse lines of credit, the
Company may have to curtail its finance contract acquisition activities, which
would have a material adverse effect on its operations and cash position. These
warehouse lines are typically repaid with the proceeds received by the Company
when its finance contracts are securitized. The Company's ability to continue to
borrow under the Revolving Credit Facilities is dependent upon its compliance
with the terms thereof, including the maintenance by the Company of certain
minimum capital levels and of the VSI Policy, or the establishment of an
acceptable self-insurance program. There can be no assurance that such
facilities will be extended or that substitute facilities will be available on
terms acceptable to the Company. The Company's ability to obtain a successor
facility or similar financing will depend on, among other things, the
willingness of financial organizations to participate in funding subprime
finance contracts and the Company's financial condition and results of
operations. The Company's growth is dependent upon its ability to obtain
sufficient financing under its Revolving Credit Facilities, and any additional
or successor facilities, at rates and upon terms acceptable to the Company. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and
'Business -- Funding/Securitization of Finance Contracts.'
Dependence on Securitization Transactions. The Company relies significantly
on a strategy of periodically selling finance contracts through asset-backed
securitizations. Proceeds from securitizations are typically used to repay
borrowings under the warehouse credit facilities, thereby making such facilities
available to acquire additional finance contracts. The Company's ability to
access the asset-backed securities market is affected by a number of factors,
some of which are beyond the Company's control and any of which could cause
substantial delays in securitization, including, among other things, conditions
in the securities markets in general, conditions in the asset-backed securities
market and investor demand for subprime auto paper. Additionally, gain on sale
of finance contracts represents a significant portion of the Company's total
revenues and, accordingly, net income. If the Company were unable to securitize
finance contracts or account for any securitization as a sale transaction in a
financial reporting period, the Company would likely incur a significant decline
in total revenues and net income or report a loss for such period. Moreover, the
Company's ability to borrow funds on a non-recourse basis, collateralized by
excess spread cash flows, is an important factor in providing the Company with
substantial liquidity. If the Company were unable to securitize its finance
contracts and did not have sufficient credit available, either under warehouse
credit facilities or from other sources, the Company would have to sell portions
of its portfolio directly to whole loan buyers or curtail its finance contract
acquisition activities. See 'Business -- Funding/Securitization of Finance
Contracts.'
Dependence on the VSI Policy. In order to limit potential losses on finance
contracts, the Company has purchased, and expects to continue to purchase,
insurance under the VSI Policy (including the Credit Endorsement) for each
contract at the time of its acquisition. The VSI Policy currently in effect
includes physical damage and loss coverage with respect to the financed vehicles
as well as loss coverage pursuant to the Credit Endorsement with respect to
unpaid amounts under the related finance contract,
8
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subject in each case to certain conditions and limitations. The protections
afforded by the VSI Policy (including the Credit Endorsement) are not complete
and depend on the Company's compliance with the terms and conditions of the
policy. Coverage under the VSI Policy (and the Credit Endorsement) is currently
required under the Company's Revolving Credit Facilities and its securitizations
to date. There can be no assurance that such insurance will be available in the
future at reasonable rates. The VSI Policy (including the Credit Endorsement)
may be cancelled prospectively, without cause, upon 30 days' prior written
notice to the Company and, for cause, upon ten days' prior written notice. The
unavailability of such insurance, coupled with the absence of alternative forms
of credit enhancement, could adversely affect the Company's ability to
profitably acquire and securitize finance contracts. See
'Business -- Insurance.'
Need for Additional Capital. The Company's ability to implement its
business strategy will depend upon its ability to continue to effect
securitizations or to establish alternative long-term financing arrangements and
to obtain sufficient financing under warehousing facilities on acceptable terms.
There can be no assurance that such financing will be available to the Company
on favorable terms. If such financing were not available or the Company's
capital requirements exceeded anticipated levels, then the Company would be
required to obtain additional equity financing, which would dilute the interests
of shareholders who invest in this offering. Although the Company has no
specific plans for additional equity financings due to the liquidity provided by
securitizations and financings of excess spread cash flows, the Company cannot
estimate the amount and timing of additional equity financing requirements
because such requirements are tied to, among other things, the growth of the
Company's finance contract acquisitions, which cannot be definitively forecast
for future periods. If the Company were unable to raise such additional capital,
its results of operations and financial condition could be adversely affected.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and 'Business -- Financing
Program.'
DETERMINATION OF GAIN FROM SECURITIZATION TRANSACTIONS
The gain from securitization transactions recognized by the Company in each
securitization and the value of the future excess spread cash flows in each
transaction reflect management's estimate of future credit losses and
prepayments for the finance contracts included in that securitization. If actual
rates of credit loss or prepayments, or both, on such finance contracts exceeded
those estimated, the value of the excess servicing receivables would be
impaired. The Company periodically reviews its credit loss and prepayment
assumptions relative to the performance of the securitized contracts and to
market conditions. If necessary, the Company would adjust the carrying value of
the future excess spread cash flows by writing down the asset and recording a
charge to servicing fee income. The Company's results of operations and
liquidity could be adversely affected if credit loss or prepayment levels on
securitized finance contracts substantially exceeded anticipated levels. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Revenues/Credit Loss Experience' and Note 1 to Notes to
Consolidated Financial Statements.
ECONOMIC CONSIDERATIONS
The Company's business is directly related to sales of new and used
automobiles, which are affected by employment rates, prevailing interest rates
and other domestic economic conditions. Delinquencies, foreclosures and losses
generally increase during economic slowdowns or recessions. Because of the
Company's focus on subprime borrowers, the actual rates of delinquencies,
repossessions and losses on such contracts under adverse conditions could be
higher than those currently experienced. Any sustained period of economic
slowdown or recession could adversely affect the Company's ability to sell or
securitize pools of finance contracts. The timing of any economic changes is
uncertain. Decreased sales of automobiles and weakness in the economy could have
an adverse effect on the Company's business and that of the dealers from which
it purchases finance contracts.
9
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DEFAULTS ON CONTRACTS; PREPAYMENTS
The Company is engaged in acquiring automobile finance contracts entered
into by dealers with subprime borrowers who have limited access to traditional
sources of consumer credit. The inability of a borrower to finance an automobile
purchase by means of traditional credit sources generally is due to various
factors, including the borrower's past credit experience and the absence or
limited extent of the borrower's credit history. Consequently, the contracts
acquired by the Company generally bear a higher rate of interest than finance
contracts of borrowers with favorable credit profiles, but also involve a higher
probability of default, may involve higher delinquency rates and involve greater
servicing costs. The majority of the Company's borrowers are classified as
subprime consumers due to negative credit history, including history of
charge-offs, bankruptcies, repossessions or unpaid judgments. Generally,
subprime consumers are those that do not qualify for financing from traditional
lending sources. The Company's continued profitability depends upon, among other
things, its ability to evaluate the creditworthiness of customers, to prevent
defaults through proactive collection efforts and to minimize losses following
defaults with proceeds from the sale of repossessed collateral and with
insurance proceeds. Because of the Company's limited operating history, its
finance contract portfolio is somewhat unseasoned. Accordingly, delinquency and
loss rates in the portfolio may not fully reflect the rates that may apply when
the average holding period for finance contracts in the portfolio is longer.
Increases in delinquency and net charge-off rates in the portfolio could have a
material adverse effect on the Company's operations and profitability, and its
ability to obtain credit or securitize its finance contracts. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business -- Borrower Characteristics,' ' -- Contract Acquisition Process,'
' -- Funding/Securitization of Finance Contracts' and ' -- Contract Servicing
and Collection.'
The Company's servicing income also can be adversely affected by
prepayments or defaults on contracts in the servicing portfolio. The Company's
servicing revenue is based on the number of outstanding contracts. If contracts
are prepaid or charged-off, the Company's servicing revenue will decline to the
extent of such prepaid or charged-off contracts. There can be no assurance as to
what level of prepayment, if any, will occur on the finance contracts.
Prepayments may be influenced by a variety of economic, geographic, social and
other factors. Factors affecting prepayment of motor vehicle finance contracts
include borrowers' job transfers, unemployment, casualty, trade-ins, changes in
available interest rates, net equity in the motor vehicles and servicing
decisions.
LOSS OF SERVICING RIGHTS AND SUSPENSION OF FUTURE RETAINED CASH FLOWS
The Company is entitled to receive servicing fee income only while it acts
as collection agent for securitized contracts. Any loss of these collection fees
could have an adverse effect on the Company's results of operations and
financial condition. The Company's right to act as collection agent under the
servicing agreements and as administrator under the trust agreements, and
accordingly to receive collection fees, can be terminated by the trustee upon
the occurrence of certain events of administrator termination (as defined in the
servicing agreements and the trust agreements). See 'Business --
Funding/Securitization of Finance Contracts.'
Under the terms of each of the trust agreements, upon the occurrence of
certain amortization events, the Company's rights to receive payments of its
collection fees and payments in respect of its retained interest in the
securitization excess spread cash flows would be suspended unless and until all
payments of principal and interest due on the investor certificates are made.
Such amortization events include (i) the occurrence of any event of
administrator termination referred to in the immediately preceding paragraph or
(ii) the institution of certain bankruptcy or liquidation proceedings against
any of the securitization subsidiaries of the Company.
Upon the occurrence of certain trigger events under the trust agreements,
the amount required to be retained in the cash reserve accounts is increased
such that future residual cash flows would be retained in such accounts rather
than paid to the Company. Such cash reserve trigger events include: (i)
increases in the net loss ratio and delinquency ratios above certain levels for
each pool of securitized finance contracts; or (ii) the occurrence of an event
of administrator termination resulting from a bankruptcy event of the Company.
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<PAGE>
In addition to the foregoing, the trust agreement provides that, upon the
occurrence of any amortization event, a greater portion of the excess spread
cash flows available for funding the cash reserve account be directed to such
account than would be required in the absence of an amortization event, and that
payment to the Company of its retained interest in such excess spread cash flows
be withheld until payments of principal and interest then due the holders of the
investor certificates are paid in full. See 'Business -- Funding/Securitization
of Finance Contracts.'
The Company's loss of rights to collection fees under the trust agreements
or the occurrence of a trigger event that limited release of future residual
cash flows from the pooled contracts and cash reserve accounts could have an
adverse effect on the Company's results of operations and financial condition.
VARIABLE QUARTERLY EARNINGS
The Company's revenues and income have fluctuated in the past and may
fluctuate in the future. Several factors affecting the Company's business can
cause significant variations in its quarterly results of operations. In
particular, variations in the volume of the Company's contract acquisitions, the
interest rate spreads between the Company's cost of funds and the average
interest rate of purchased contracts, the certificate rate for securitizations,
and the timing and size of securitizations can result in significant increases
or decreases in the Company's revenues from quarter to quarter. Any significant
decrease in the Company's quarterly revenues could have a material adverse
effect on the Company's results of operations and its financial condition. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
In addition, income in any quarterly period may be affected by the
revaluation of excess servicing receivables, which are valued at the present
value of the expected future excess spread cash flows using the same discount
rate as was appropriate at the time of securitization. If actual prepayment or
default rates on securitized finance contracts exceed those assumed in the
Company's calculation of the gain from securitization transactions, the Company
could be required to record a charge to earnings. As a result of these factors,
the Company's operating results may vary from quarter to quarter, and the
results of operations for any particular quarter are not necessarily indicative
of results that may be expected for any subsequent quarter or related fiscal
year. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and Note 1 to Notes to Consolidated Financial Statements.
COMPETITION
The market in which the Company operates is highly competitive and
fragmented, consisting of many national, regional and local competitors, and is
characterized by relative ease of entry and the recent arrival of a number of
new competitors. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these competitors are substantially
larger and better capitalized than the Company and may have other competitive
advantages over the Company. Competition by existing and future competitors
would result in competitive pressures, including reductions in the Company's
finance contract acquisitions or reduced interest spreads, that would materially
adversely affect the Company's profitability. Further, as the Company seeks to
increase its market penetration, its success will depend, in part, on its
ability to gain market share from established competitors. See
'Business -- Competition.'
RELATIONSHIPS WITH DEALERS
The Company's business depends in large part upon its ability to maintain
and service its relationships with automobile dealers. There can be no assurance
the Company will be successful in maintaining such relationships or increasing
the number of dealers with which it does business or that its existing dealer
base will continue to generate a volume of finance contracts comparable to the
volume historically generated by such dealers. For the period from inception
through June 30, 1996, a group of six dealerships with substantial common
ownership (including Charlie Thomas Ford, Inc. of Houston, Texas)
11
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<PAGE>
accounted for 14.8% (17.5% for the first six months of 1996) of the finance
contracts acquired by the Company during the period, and Charlie Thomas Ford
accounted for 11.2% (14.0% for the first six months of 1996) of the finance
contracts acquired by the Company. See 'Business -- Dealer Network.'
INTEREST RATE RISK
The Company's profitability is dependent upon the difference, or 'spread,'
between the effective rate of interest received by the Company on the finance
contracts it acquires and the interest rates payable either under its warehouse
credit facilities or on securities issued in securitizations. Several factors
affect the Company's ability to manage interest rate risk. First, finance
contracts are purchased at fixed rates, while amounts borrowed under certain of
the Company's credit facilities bear interest at variable rates that are subject
to frequent adjustment to reflect prevailing rates for short-term borrowings.
Second, the interest rate demanded by investors in securitizations is a function
of prevailing market rates for comparable transactions and of the general
interest rate environment. Because the finance contracts purchased by the
Company have fixed rates, the Company bears the risk of spreads narrowing
because of interest rate increases during the period from the date the finance
contracts are purchased until the closing of its securitization of such finance
contracts. Narrowing spreads would adversely affect the net interest income
earned by the Company while finance contracts are held for sale. In addition,
increases in interest rates prior to the securitization or sale of finance
contracts may reduce the gain realized by the Company. The Company does not
currently hedge its interest rate exposure. While the Company may consider
hedging strategies to attempt to limit such exposure in the future, there can be
no assurance that any such strategy, if adopted, will be successful. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
GEOGRAPHIC CONCENTRATION AND EXPANSION
For the period from inception in August 1994 through June 30, 1996,
approximately 91.0% of the Company's finance contracts, as a percentage of the
aggregate nominal principal balance of such finance contracts, had been
originated in the State of Texas. Such geographic concentration could have an
adverse effect on the Company should negative economic and other factors occur
in Texas that would cause the finance contracts to experience delinquencies and
losses in excess of those experienced historically. It is the Company's current
intention to expand the number and proportion of finance contracts acquired from
dealers in states other than Texas. Such geographic expansion may entail greater
risks as the Company does business in areas and with dealers with which it is
less familiar than in Texas. Such expansion also entails risks associated with
the adequate retention and training of sufficient personnel and the need for
sufficient financing sources. See 'Business -- Growth and Business Strategy.'
REGULATION
The Company's business is subject to numerous federal and state consumer
laws and regulations, which, among other things: (i) require the Company to
obtain and maintain certain licenses and qualifications; (ii) limit the interest
rates, fees and other charges the Company is allowed to charge; (iii) limit or
prescribe certain other terms of the Company's contracts; (iv) require the
Company to provide specified disclosure; and (v) define the Company's rights to
collect on finance contracts and to repossess and sell collateral. A change in
existing laws or regulations, or in the creation or enforcement thereof, or the
promulgation of any additional laws or regulations could have a material adverse
effect on the Company's business. See 'Business -- Regulation.'
DEPENDENCE ON KEY EXECUTIVES
The success of the Company's operations is dependent upon the experience
and ability of William O. Winsauer, the Chairman of the Board and Chief
Executive Officer, and Adrian Katz, the Vice Chairman of the Board and Chief
Operating Officer. The loss of the services of Messrs. Winsauer or Katz could
have an adverse effect on the Company's business. In addition, if the loss of
either Mr. Winsauer or Mr. Katz constituted a 'change in control,' it could
result in an amortization event under
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the trust agreements relating to the Company's securitizations, reducing future
cash flows from securitizations or an event of funding termination under its
Providian Facility (as defined herein). The Company does not maintain key man
life insurance on any of its officers, directors or employees at the present
time. See 'Business -- Funding/Securitization of Finance Contracts' and
'Management -- Employment Agreements.'
CONTROL BY CERTAIN SHAREHOLDERS
Upon completion of the Offering, William O. Winsauer will beneficially own
an aggregate of approximately 52.69% of the outstanding shares of Common Stock
(51.0% if the Underwriters' over-allotment option is exercised in full).
Accordingly, Mr. Winsauer persons would have majority control of the Company,
with the potential ability to elect the Board of Directors and to approve or
prevent certain fundamental corporate transactions (including mergers,
consolidations and sales of all or substantially all of the Company's assets).
See 'Certain Transactions,' 'Principal and Selling Shareholders' and
'Description of Capital Stock.'
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on its Common Stock to date and
currently does not intend to pay dividends in the future. The payment of
dividends, if any, will be contingent upon the Company's financial condition,
results of operations, capital requirements, contractual restrictions and other
factors deemed relevant by the Board of Directors. See 'Dividend Policy.'
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that a regular trading market for
the Common Stock will develop after this Offering or that, if developed, it will
be sustained. The Company has applied for quotation of the Common Stock on
Nasdaq, subject to official notice of issuance. The initial public offering
price of the Common Stock will be determined by negotiations among the Company
and the Representatives (as defined herein) of the Underwriters and may not be
indicative of the price at which the Common Stock will trade after completion of
the Offering. In addition, market prices for securities of many emerging
companies have experienced wide fluctuations not necessarily related to the
operating performance of such companies. See 'Underwriting.'
PREFERRED STOCK
The Board of Directors, without further vote or action by the Company's
shareholders, is authorized to issue shares of Preferred Stock in one or more
series and to fix the terms and provisions of each series, including dividend
rights and preferences over dividends on the Common Stock, conversion rights,
voting rights (in addition to those provided by law) which may be senior to the
voting rights of the Common Stock, redemption rights and the terms of any
sinking fund therefor, and rights upon liquidation, including preferences over
the Common Stock. Under certain circumstances, the issuance of a series of
Preferred Stock could have the effect of delaying, deferring or preventing a
change of control of the Company and could adversely affect the rights of the
holders of the Common Stock. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
See 'Description of Capital Stock.'
DILUTION
Purchasers of Common Stock pursuant to the Offering will experience
immediate and substantial dilution. The purchase price of the Common Stock
offered hereby substantially exceeds the net tangible book value per share of
Common Stock at June 30, 1996 (as adjusted to give effect to the Offering) of
$0.80 per share, assuming an initial offering price of $12/share, resulting in
immediate dilution to new investors in the amount of $9.44 per share. See
'Dilution.'
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 6,981,311 shares
of Common Stock outstanding (7,206,311 shares if the Underwriters'
over-allotment option is exercised in full). Of such shares, the shares sold in
the Offering (other than shares which may be purchased by 'affiliates' of the
Company) will be freely tradeable without restriction or further registration
under the Securities Act. The 5,481,311 remaining shares of Common Stock are
'restricted securities,' as that term is defined under Rule 144 promulgated
under the Securities Act, and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144 and 144A
thereunder. Approximately 69,800 shares of Common Stock will be eligible for
sale pursuant to Rule 144 immediately after the Offering, subject to compliance
with such Rule and the contractual provisions described below. The Company and
all holders of Common Stock prior to the Offering have agreed with the
Underwriters not to, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of any securities of the Company or any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Common Stock prior to the expiration of 180 days from the date of this
Prospectus without the prior written consent of Principal Financial Securities,
Inc. No predictions can be made as to the effect, if any, that market sales of
shares of existing shareholders or the availability of such shares for future
sale will have on the market price of shares of Common Stock prevailing from
time to time. The prevailing market price of the Common Stock after the Offering
could be adversely affected by future sales of substantial amounts of Common
Stock by existing shareholders or the perception that such sales could occur.
See 'Certain Transactions,' 'Principal and Selling Shareholders,' 'Shares
Eligible for Future Sale' and 'Underwriting.'
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USE OF PROCEEDS
The aggregate net proceeds from the sale of the Common Stock being offered
by the Company in the Offering (at an assumed initial public offering price of
$12.00 per share and after deducting underwriting discount and estimated
offering expenses) will be approximately $13.2 million (approximately $15.7
million if the Underwriters' over-allotment option is exercised in full).
The Company intends to apply the net proceeds from the sale of the Common
Stock offered hereby primarily toward the acquisition of finance contracts. In
addition, net proceeds will be used (i) to prepay subordinated indebtedness of
$300,000, which bears interest at the rate of 10.0% per annum and matures in
March 1997, (ii) to repay advances outstanding under the Revolving Credit
Facilities, which currently bear interest at a blended rate of 8.1% per annum
and mature within 120 days of incurrence, (iii) to invest in short-term
investment grade securities and (iv) for general corporate and working capital
purposes.
The Selling Shareholders have agreed to use the net proceeds of
approximately $2.4 million to be received by them from the Offering for the
repayment in full of the outstanding balance, and accrued interest of the
Working Capital Facility, which amounts to $1,910,000 and is currently
guaranteed by the Company, and for the repayment of certain other indebtedness
to the Company. Such other indebtedness totalled $436,034 as of June 30, 1996.
The Selling Shareholders have submitted undertaking letters to the Company
obligating them to pay such amounts. See 'Certain Transactions' and Note 12 to
Notes to Consolidated Financial Statements.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future. The
Company's current policy is to retain earnings to provide funds for the
operation and expansion of its business and for the repayment of indebtedness.
Any determination in the future to pay dividends will depend on the Company's
financial condition, capital requirements, results of operations, contractual
limitations and other factors deemed relevant by the Board of Directors.
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DILUTION
At June 30, 1996, the Company had an aggregate of 5,687,500 shares of
Common Stock outstanding with a net tangible book value of $4,584,100 or $0.80
per share. Net tangible book value per share represents the amount of total
tangible assets less total liabilities of the Company divided by the number of
shares of Common Stock outstanding. Without taking into account any changes in
such net tangible book value after June 30, 1996, other than to give effect to
the Offering (at an assumed initial public offering price of $12.00 per share
and after deducting underwriting discount and estimated offering expenses) and
the receipt by the Company of the net proceeds to it, the net tangible book
value at June 30, 1996 would have been $17,813,100 or $2.56 per share. This
represents an immediate increase in net tangible book value of $1.76 per share
to existing shareholders and an immediate dilution in net tangible book value of
$9.44 per share to new investors purchasing shares in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................................... $12.00
Net tangible book value per share before the Offering(1)............................ $0.80
Increase per share attributable to new investors.................................... 1.76
-----
Net tangible book value per share after the Offering..................................... 2.56
------
Dilution per share to new investors...................................................... $ 9.44
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the difference between the existing shareholders and new investors in the
Offering with respect to: (i) the number of shares of Common Stock purchased
from the Company; (ii) the total consideration paid to the Company; and (iii)
the average price per share paid by existing shareholders and by the new
investors purchasing shares in the Offering (at an assumed initial public
offering price of $12.00 per share and before deducting underwriting discount
and estimated offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2)......................... 5,687,500 81.69% $ 2,913,603 16.00% $ 0.51
New investors.................................... 1,275,000 18.31 15,300,000 84.00 12.00
--------- ------- ----------- -------
Total....................................... 6,962,500 100.0% $18,213,603 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ------------
(1) Net tangible book value gives effect to the exercise of all dilutive common
stock equivalents, calculated under the treasury stock method.
(2) The information with respect to net tangible book value per share in the
table set forth above does not include 300,000 shares issuable upon the
exercise of stock options to be outstanding as of the Offering exercisable
at the assumed initial public offering price of $12.00 or 18,811 shares
issuable upon the exercise of an outstanding warrant with an exercise price
of $0.53 per share. As of June 30, 1996, 557,000 shares of Common Stock were
reserved for issuance under the Company's Option Plan (as defined herein).
See 'Management -- Option Plan' and 'Description of Capital Stock --
Warrants.' To the extent such options and warrants are exercised, there will
be further dilution to the new investors.
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CAPITALIZATION
The following table sets forth information regarding the short-term debt
and capitalization of the Company as of June 30, 1996 (i) on an actual basis and
(ii) on an as adjusted basis to give effect to the sale of 1,275,000 shares of
Common Stock offered by the Company (at an assumed initial public offering price
of $12.00 per share and after deducting the underwriting discount and estimated
offering expenses) and the application of the estimated net proceeds therefrom.
See 'Use of Proceeds.'
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term Debt:
Revolving credit agreements......................................................... $ 237 $ 0
Subordinated debt................................................................... 300 0
------- -----------
Total short-term debt............................................................... $ 537 $ 0
------- -----------
------- -----------
Long-term Debt -- Notes payable.......................................................... $ 6,248 $ 6,248
------- -----------
Shareholders' Equity:
Common Stock, no par value, 25,000,000 shares authorized; 5,687,500 shares issued
and outstanding, actual; and 6,962,500 shares issued and outstanding, as
adjusted(1)........................................................................ $ 1 $ 1
Additional paid-in capital.......................................................... 2,912 16,141
Retained earnings................................................................... 2,205 2,205
Deferred compensation............................................................... (37) (37)
Loans to shareholders............................................................... (436) 0
------- -----------
Total shareholders' equity..................................................... 4,645 18,310
------- -----------
Total short-term debt and capitalization....................................... $11,430 $24,558
------- -----------
------- -----------
</TABLE>
- ------------
(1) Excludes (i) 557,000 shares of Common Stock reserved for issuance under the
Option Plan and (ii) 18,811 shares of Common Stock issuable upon the
exercise of a warrant granted in connection with the issuance of
subordinated debt. See 'Description of Capital Stock -- Warrants,' and
'Management -- Option Plan.'
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries for the periods and at the dates indicated. The
selected income statement and balance sheet data for or at the end of each of
the full fiscal years presented below were derived from the financial statements
of the Company which were audited by Coopers & Lybrand L.L.P. independent
auditors, as indicated in their report thereon appearing elsewhere in this
Prospectus, and are qualified by reference to such consolidated financial
statements. The financial data as of and for the six months ended June 30, 1995
and June 30, 1996 have been derived from the Company's unaudited interim
financial statements, prepared in conformity with generally accepted accounting
principles, and include all adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. The operating data and selected portfolio data are derived from the
Company's accounting records. Results of operations for the six months ended
June 30, 1996 are not necessarily indicative of results to be expected for the
fiscal year ended December 31, 1996. The data presented below should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ----------------------------------------
1994(1) 1995 1995 1996
------ ------- ------------------ ------------------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income......................................... $ 19 $ 781 $ 417 $ 333
Servicing fee income........................................ 0 0 9 277
Gain on sale of finance contracts........................... 0 4,086 134 5,744
------ ------- ---------- ----------
Total revenues......................................... 19 4,867 560 6,354
------ ------- ---------- ----------
Provision for credit losses................................. 45 49 205 64
Salaries and benefits....................................... 225 1,320 380 1,846
General and administrative.................................. 245 1,463 582 884
Other operating expenses.................................... 48 963 324 564
------ ------- ---------- ----------
Total expenses......................................... 564 3,795 1,491 3,358
------ ------- ---------- ----------
Net income (loss) before taxes and extraordinary loss....... (545) 1,072 (931) 2,996
Provision for income taxes.................................. 0 199 0 1,020
------ ------- ---------- ----------
Net income (loss)........................................... (545) 873 (931) 1,876
------ ------- ---------- ----------
------ ------- ---------- ----------
Net income (loss) per share................................. $(0.11) $ 0.17 $ (0.18) $ 0.33
Weighted average shares outstanding........................ 5,118,753 5,190,159 5,118,753 5,698,367
Pro forma net income(2)..................................... $ -- $ 934 $-- $ 1,892
Pro forma net income per share(2)........................... -- 0.17 -- 0.32
PORTFOLIO DATA:
Number of finance contracts acquired........................ 202 2,659 1,042 2,856
Principal balance of finance contracts acquired............. $2,454 $31,200 $ 12,207 $ 33,358
Principal balance of finance contracts securitized.......... 0 26,261 0 34,396
Average initial finance contract principal balance.......... $ 12.2 $ 12.0 $ 12.0 $ 11.9
Weighted average initial contractual term (months).......... 54.3 53.3 53.0 52.7
Weighted average APR of finance contracts(3)................ 19.1% 19.3% 19.2% 19.7%
Weighted average finance contract acquisition discount(3)... 8.6% 8.8% 8.7% 8.6%
Number of finance contracts outstanding (end of
period)(3)................................................ 197 2,774 1,219 5,485
Principal balance of finance contracts (end of period)(3)... $2,450 $31,311 $ 14,125 $ 59,392
</TABLE>
(table continued on next page)
18
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ----------------------------------------
1994(1) 1995 1995 1996
------ ------- ------------------ ------------------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Number of enrolled dealers (end of period).................. 50 280 169 492
Number of active states (end of period)..................... 2 7 5 12
Total expenses as a percentage of total principal balance of
finance contracts acquired in period...................... 23.0% 12.2% 12.2% 10.1%
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a percentage of principal
balance of finance contract portfolio (end of
period)(3)................................................ 0.30% 2.30% 1.39% 2.48%
Net charge-offs as a percentage of average finance contract
balances(3)(4)(5)(6)...................................... 0.00% 0.66% 0.39% 1.45%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- JUNE 30,
1994 1995 1996
------------------ ------------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 0 $ 93 $ 1,823
Cash held in escrow................ 0 1,323 1,667
Finance contracts held for sale,
net.............................. 2,361 3,355 546
Excess servicing receivable........ 0 847 1,575
Total assets....................... 2,500 11,065 16,292
Notes payable...................... 0 2,675 6,248
Repurchase agreement............... 0 1,061 0
Revolving credit agreement......... 2,055 1,150 237
Subordinated debt.................. 0 0 300
------- ---------- ---------
Total debt.................... 2,055 4,886 6,785
Shareholders' equity............... (109) 3,026 4,645
</TABLE>
- ------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Pro forma net income and pro forma net income per share are based on the
number of shares of common stock assumed to be outstanding after the
issuance in this offering of 191,746 and 137,075 shares at December 31, 1995
and June 30, 1996, respectively (based on the number of shares to be sold at
the initial public offering price necessary to raise net proceeds to pay the
offering expenses and to repay certain indebtedness of the Company, as
described in 'Use of Proceeds'), and the application of such proceeds to
repay such indebtedness in the amount outstanding at the end of the
respective periods.
(3) Includes the Company's entire finance contract portfolio of contracts held
and contracts securitized.
(4) Averages are based on daily balances.
(5) Six-Month figures are annualized.
(6) With respect to repossessions where full disposition proceeds have not been
received, calculations assume immediate recovery of disposition proceeds
(including insurance proceeds) and realization of loss at average historic
loss rates.
19
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the preceding 'Selected
Consolidated Financial and Operating Data' and the Company's Consolidated
Financial Statements and Notes thereto and the other financial data included
herein. The financial information set forth below has been rounded in order to
simplify its presentation. However, the ratios and percentages set forth below
are calculated using the detailed financial information contained in the
Financial Statements and the Notes thereto, and the financial data included
elsewhere in this Prospectus. The unaudited results for the six months ended
June 30, 1996 are not necessarily indicative of results to be expected for the
entire fiscal year ended December 31, 1996.
The Company is a specialty consumer finance company engaged in acquiring,
securitizing and servicing finance contracts originated by automobile dealers in
connection with the sale of used and new vehicles to subprime consumers. The
Company has experienced significant growth in its finance contract portfolio
since it commenced operations in August 1994.
REVENUES
The Company's primary sources of revenues consist of three components: net
interest income, gain on sale of finance contracts and servicing and collection
fees.
Net Interest Income. Net interest income consists of the sum of two
components: (i) the difference between interest income earned on finance
contracts held for sale and interest expense incurred by the Company pursuant to
borrowings under its warehouse and other credit facilities; and (ii) the
accretion of finance contract acquisition discounts. Other factors influencing
net interest income during a given fiscal period include (a) the annual
percentage rate of the finance contracts acquired, (b) the aggregate principal
balance of finance contracts acquired and funded through the Company's warehouse
and other credit facilities prior to securitization, (c) the length of time such
contracts are funded by the warehouse and other credit facilities prior to
securitization and (d) the average cost of funds under the warehouse and other
credit facilities. Finance contract acquisition growth has had a significant
impact on the amount of net interest income earned by the Company.
Gain on Sale of Finance Contracts. Upon completion of a securitization, the
Company recognizes a gain on sale of finance contracts equal to the present
value of future excess spread cash flows from the securitization trust, and the
difference between the net proceeds from the securitization and the net carrying
cost (including the cost of VSI Policy premiums) to the Company of the finance
contracts sold. The Class B Certificates and the excess servicing receivable are
determined based on the estimated present value of excess spread cash flows from
a securitization trust. Excess spread cash flows represent the difference
between the weighted average contract rate earned and the rate paid on Class A
Certificates issued to third party investors in the securitization, less
servicing fees and other costs, over the life of the securitization. Excess
spread cash flows are computed by taking into account certain assumptions
regarding prepayments, defaults, proceeds from disposal of repossessed assets,
and servicing and other costs. The Class B Certificates and excess servicing
receivable are determined by discounting the excess spread cash flows at a rate
based on assumptions that market participants would use for similar financial
instruments subject to prepayment, default, collateral value and interest rate
risks. The Class B Certificates are then formed by carving out 80% of the
discounted excess spread cash flows. The remaining 20% of the discounted excess
spread cash flows represent excess servicing receivable. All excess spread cash
flows are paid by the securitization Trustee to the Class B Certificateholders
until such time as all accrued interest at 15% together with principal have been
paid in full. Subsequently, all remaining excess spread cash flows are paid to
the Company and are referred to as the 'Transferor's Interest.' The discounted
Transferor's Interest is reported in the balance sheets as excess servicing
receivable. In each securitization, all of the Class B Certificates and
Transferor's Interest are retained by the Company. The Class B Certificates are
used by the Company as collateral on its non-recourse term loans entered into
with investors. Each quarter, the Company performs an impairment review of the
excess servicing receivable by calculating the net present value of the expected
future excess spread cash flows to the Company from the securitization trust
utilizing the same
20
<PAGE>
<PAGE>
discount rate used to record the initial excess servicing receivable. To the
extent that market and economic changes occur which adversely impact the
assumptions utilized in determining the excess servicing receivable, the Company
would record a charge against servicing fee income and write down the asset
accordingly. Impairment is determined on a disaggregated basis consistent with
the risk characteristics of the underlying finance contracts, consisting
principally of origination date and originating dealership, as well as the
performance of the pool to date. There were no adjustments required as a result
of impairment reviews during any of the periods presented in the financial
statements. Should the Company be unable to securitize finance contracts in the
form of a sale in a financial reporting period, the Company would likely incur a
significant decline in total revenues and net income or report a loss for such
period. To date, the Company's securitizations have been characterized as debt
for tax purposes. Since the Company records a provision for income taxes on
securitizations, alternatively characterizing securitizations as sales for tax
purposes would have no effect on net income, although the timing of tax payments
by the Company would be accelerated.
Gain on sale of finance contracts was $3,951,706, $2,749,612 and $2,972,804
for each of the securitizations occurring in December 1995, March 1996 and June
1996 respectively. This represents approximately 15.05%, 16.60% and 16.67% of
the outstanding balances of the finance contracts at each of the respective
securitization dates. Gain on sale can be broken into three major components:
the amount by which the proceeds from the sale of Class A Certificates exceeds
the Company's cost basis in the contracts, costs of sale (primarily placement,
rating agent, and legal and accounting fees), and discounted excess spread cash
flows (the Class B Certificates and Transferor's Interests).
The Company's cost basis in finance contracts sold has varied from
approximately 97.5% to 98.0% of the value of the Class A Certificates. This
portion of recognized gain on sale will vary based on the Company's cost of
insurance covering the finance contracts and discount obtained upon acquisition
of the finance contracts.
Additionally, costs of sale reduce the total gain recognized. As the
Company's securitization program matures, placement fees and other costs
associated with the sale should shrink as a percentage of the size of the
securitization. For example, costs of sale for the March transaction were
$280,000 (or 1.7%), while costs for the June transaction were about $230,000 (or
1.3%).
Further, the excess spread component of recognized gain is affected by
various factors, including most significantly, the coupon on the Class A
Certificates and the age of the finance contracts in the pool, as the excess
spread cashflow from a pool of aged, as opposed to new, finance contracts is
less. The aging (capture of excess spread prior to securitization) necessarily
results in less available excess spread cash flow from the securitization. The
Company believes that margins in the range of those previously recognized are
sustainable subject to adverse interest rate movements, availability of VSI
insurance at current rates and the Company's ability to continue purchasing
finance contracts at approximately an 8.5% discount.
The gain on sale of finance contracts is affected by the aggregate
principal balance of contracts securitized and the gross interest spread on
those contracts. The following table illustrates the gross interest spread for
each of the Company's securitizations:
<TABLE>
<CAPTION>
REMAINING WEIGHTED
BALANCE AT AVERAGE
ORIGINAL JUNE 30, CONTRACT CERTIFICATE GROSS
SECURITIZATION BALANCE(1) 1996 RATE RATE RATINGS(2) SPREAD(3)
- ----------------------------------------- ---------- ----------- -------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AutoBond Receivables
Trust 1995-A........................... $ 26,261 $26,261(4) 18.9% 7.23% A/A3 11.7%
AutoBond Receivables
Trust 1996-A........................... 16,563 16,563(4) 19.7 7.15 A/A3 12.5
AutoBond Receivables Trust 1996-B........ 17,833 17,833(4) 19.7 7.73 A/A3 12.0
---------- -----------
Total............................... $ 60,657 $60,657
---------- -----------
---------- -----------
</TABLE>
(footnotes on next page)
21
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Refers only to balances on Class A investor certificates.
(2) Indicates ratings by Fitch Investors Service, L.P. and Moody's Investors
Service, Inc., respectively.
(3) Difference between weighted average contract rate and senior Class A
Certificate rate.
(4) Before expiration of the revolving period for each trust.
Servicing Fee Income. The Company earns substantially all of its servicing
fee income on the contracts it services on behalf of securitization trusts.
Servicing fee income consists of: (i) contractual servicing fees received
through securitizations, equal to $7.00 per month per contract included in each
trust (excluding amounts paid to third-party servicers by the trust); (ii)
Transferor's Interest, reduced by the amortization of the excess servicing
receivable; and (iii) fee income earned as servicer for such items as late
charges and documentation fees, which are earned whether or not a securitization
has occurred.
Servicing fee income, excess spread cash flows and the value of the excess
servicing receivable may be affected by changes in the levels of prepayments,
defaults, delinquencies, recoveries and interest rates from those assumed by the
Company at the time of securitization. To the extent the assumptions used
materially differ from actual results, the amount of cash received by the
Company over the remaining life of the securitization could be significantly
affected, and the Company would be required to take a charge against earnings,
which could have a material adverse effect on the Company's financial condition
and operating results. To date, no such charge has been required. See 'Risk
Factors -- Defaults on Contracts; Prepayments' and ' -- Loss of Servicing Rights
and Suspension of Future Retained Cash Flows.'
EXPENSE ALLOCATIONS
The Company has shared certain general and administrative expenses with
ABI. Historically, each entity's expenses have been allocated based on the
estimated utilization of resources, including employees, office space, equipment
rentals and other miscellaneous expenses. The office, equipment and furniture
leases at the Company's headquarters are in ABI's name, and accordingly,
approximately 75% of ABI's lease expense for the year ended December 31, 1995
was allocated to the Company. As of July 1996, such leases were assigned to the
Company. As of January 1, 1996, the Company has been and will be compensated for
services rendered and reimbursed for expenses incurred on behalf of ABI,
pursuant to a management agreement. See 'Certain Transactions' and Note 12 to
Notes to Consolidated Financial Statements. ABI has no material current
operations other than to manage its investment in, and its shareholder's
investments in, securitizations unrelated to the Company. It is anticipated that
ABI will wind down as the outstanding principal of such investments is retired.
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition activity.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD FROM JUNE 30,
INCEPTION THROUGH YEAR ENDED -------------------
DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
----------------- ----------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of finance contracts acquired................ 202 2,659 1,042 2,856
Principal balance of finance contracts.............. $ 2,464 $31,915 $12,468 $33,902
Number of active dealerships(1)..................... 50 222 119 252
Number of enrolled dealerships...................... 50 280 169 492
</TABLE>
- ------------
(1) Dealers who have sold at least one finance contract to the Company during
the period.
22
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
Period-to-period comparisons of operating results may not be meaningful,
and results of operations from prior periods may not be indicative of future
results. Because results of operations for 1994 are based on a five-month period
from the inception of the Company's operations through December 31, 1994, a
comparison of those results to results of operations for fiscal 1995 may not be
meaningful. Additionally, comparisons of the six-month periods ended June 30,
1995 and 1996 may not be meaningful as there were no securitization
transactions, and only a small whole-loan sale transaction during the first half
of 1995. The following discussion and analysis should be read in conjunction
with 'Selected Consolidated Financial and Operating Data' and the Company's
Consolidated Financial Statements and the Notes thereto.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total Revenues
Total revenues increased $5.8 million to $6.4 million for the six months
ended June 30, 1996 from $560,000 for the comparable period ended June 30, 1995.
Net Interest Income. Net interest income decreased $84,597 to $332,831 for
the six months ended June 30, 1996 from $417,428 for the six months ended June
30, 1995. The decrease in net interest income was primarily due to an increase
in overall net borrowing costs and fees associated with Revolving Credit
Facilities. The average balance of finance contracts held for sale increased
$1.2 million to $8.7 million for the six months ended June 30, 1996, from $7.5
million for the six month period ended June 30, 1995. The average APR of
outstanding finance contracts was 19.7% at June 30, 1996, compared with 19.2% at
June 30, 1995.
Gain on Sale of Finance Contracts. For the six months ended June 30, 1996,
gain on sale of finance contracts amounted to $5.7 million. For the six months
ended June 30, 1996, the Company completed two securitizations aggregating
approximately $34.4 million in principal amount of finance contracts and the
gain on sale of finance contracts accounted for 90.4% of total revenues. For the
six months ended June 30, 1995, there were no securitization transactions and
only a small whole-loan sale.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are transferred to a securitization trust. In
the six months ended June 30, 1996, servicing fee income was $277,208, of which
$166,020 was collection agent fees and $111,188 arose from excess spread cash
flows net of amortization of the excess servicing receivable. The Company had
completed no securitizations and only a small whole-loan sale as of June 30,
1995 and reported no servicing fee income for such period.
Total Expenses
Total expenses of the Company increased $1.9 million to $3.4 million for
the six months ended June 30, 1996 from $1.5 million for the six months ended
June 30, 1995. Although operating expenses increased during the six months ended
June 30, 1996, the Company's finance contract portfolio grew at a faster rate
than the rate of increase in operating expenses. As a result, total expenses as
a percentage of total principal balance of finance contracts acquired in period
decreased to 10.1% in the six months ended June 30, 1996 from 12.2% in the six
months ended June 30, 1995.
Salaries and Benefits. Salaries and benefits increased $1.5 million to $1.8
million for the six months ended June 30, 1996 from $380,000 for the six months
ended June 30, 1995. This increase was due primarily to an increase in the
number of the Company's employees. Salaries and benefits are expected to
increase due to compensation of the Company's Chief Executive Officer, which the
Company began paying in May 1996. See Note 13 to Notes to Consolidated Financial
Statements.
General and Administrative Expenses. General and administrative expenses
increased $302,459 to $884,348 for the six months ended June 30, 1996 from
$581,889 for the six months ended June 30, 1995. This increase was due primarily
to growth in the Company's operations. General and administrative expenses
consist principally of office, furniture and equipment leases, professional
fees, communications and office supplies, and are expected to increase, upon
completion of the Offering, due to the costs of operating as a public company.
Other Operating Expenses. Other operating expenses (consisting principally
of servicing fees, credit bureau reports and insurance) increased $240,162 to
$564,237 for the six months ended June 30, 1996
23
<PAGE>
<PAGE>
from $324,075 for the six months ended June 30, 1995. This increase was due to
increased finance contract acquisition volume.
Net Income
In the six months ended June 30, 1996, net income increased to $1.9 million
from a loss of $931,372 for the six months ended June 30, 1995. The increase was
primarily attributable to the two securitization transactions completed in the
first quarter of 1996, while there was no securitization transaction and only
one small whole-loan sale during the first half of 1995, as well as growth in
finance contract acquisitions.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO PERIOD FROM AUGUST 1, 1994
(INCEPTION) THROUGH DECEMBER 31, 1994
Total Revenues
Total revenues increased to $4.9 million for the fiscal year ended December
31, 1995 from $19,001 for the period from inception through December 31, 1994.
Although the Company was incorporated in June 1993, it did not commence
operations until August 1994; thus the period from inception through December
31, 1994 reflects only five months of start-up operations.
Net Interest Income. Net interest income increased $762,093 to $781,094 for
the fiscal year ended December 31, 1995 from $19,001 for the period from
inception through December 31, 1994. The increase in net interest income was
primarily due to an increase in average balance of finance contracts held for
sale. The average daily balance of outstanding finance contracts increased $13.8
million to $14.7 million for the fiscal year ended December 31, 1995 from
$855,640 for the period from inception through December 31, 1994. The average
APR of finance contracts outstanding was 19.3% at December 31, 1995 as compared
to 19.1% at December 31, 1994.
Gain on Sale of Finance Contracts. In the fiscal year ended December 31,
1995, the gain on sale of finance contracts was $4.1 million, or 83.9% of total
revenues, from the securitization of approximately $26.2 million in finance
contracts and the sale of finance contracts to a third party. For the period
from inception through December 31, 1994, there were no securitizations.
Servicing Fee Income. The Company completed its first securitization
transaction on December 29, 1995; therefore prior to 1996 there was no servicing
fee income collected by the Company.
Total Expenses
Total expenses of the Company increased $3.2 million to $3.8 million for
the fiscal year ended December 31, 1995 from $563,606 for the five-month period
ended December 31, 1994. Although operating expenses increased during the year
ended December 31, 1995, the Company's finance contract portfolio grew at a
faster rate than the rate of increase in operating expenses. As a result, total
expenses as a percentage of total principal balance of finance contracts
acquired in period decreased to 12.2% in the year ended December 31, 1995 from
23.0% in the five months ended December 31, 1994.
Provision for Credit Losses. Provision for credit losses increased $3,702
to $48,702 for the fiscal year ended December 31, 1995, from $45,000 for the
period from inception through December 31, 1994. This increase was due primarily
to increased acquisition volume and does not reflect any change in expected
defaults as a percentage of finance contracts purchased.
Salaries and Benefits. Salaries and benefits increased $1.1 million to $1.3
million for the fiscal year ended December 31, 1995 from $225,351 for the
five-month period ended December 31, 1994. This increase was due primarily to an
increase in the number of the Company's employees.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million to $1.5 million for the fiscal year ended December 31,
1995 from $244,974 for the five-month period ended December 31, 1994. This
increase was due primarily to growth in the Company's operations.
24
<PAGE>
<PAGE>
Other Operating Expenses. Other operating expenses increased $914,736 to
$963,017 for the fiscal year ended December 31, 1995, from $48,281 for the
five-month period ended December 31, 1994, due to the increase in finance
contracts acquired.
Net Income
Net income increased to $873,487 for the fiscal year ended December 31,
1995 from a net loss of $544,605 for the period from inception through December
31, 1994. This increase was primarily attributable to the Company's initial
securitization transaction having been completed in December 1995, as well as
growth in finance contract acquisitions.
FINANCIAL CONDITION
Finance Contracts Held for Sale, Net. Finance contracts held for sale, net
of allowance for credit losses, decreased $11.8 million to $545,681 at June 30,
1996, from $12.3 million at June 30, 1995; and increased $1.0 million to $3.4
million at December 31, 1995, from $2.4 million at December 31, 1994. The number
and principal balance of contracts held for sale are largely dependent upon the
timing and size of the Company's securitizations. The Company plans to
securitize finance contracts on a regular quarterly basis. See Note 1 to the
Notes to Consolidated Financial Statements for a discussion of finance contracts
held for sale and allowance for credit losses.
Trust Receivable. At the time a securitization closes, the Company's
securitization subsidiary is required to fund a cash reserve account within the
trust to provide additional credit support for the senior trust certificates.
Additionally, depending on the structure of the securitization, a portion of the
future excess spread cash flows from the trust is required to be deposited in
the cash reserve account to increase the initial deposit to a specified level.
Amounts on deposit in cash reserve accounts are also reflected as advances to
the relevant trust under the item 'Cash flows from investing activities' in the
Company's consolidated statements of cash flows. The initial cash reserve
deposits for the December 1995, March 1996 and June 1996 securitizations were
$525,220, $331,267 and $356,658, respectively, equivalent to 2% of the initial
principal amount of the senior trust certificates. A portion of excess spread
cash flows will increase such reserves until they reach 6%.
Excess Servicing Receivable. The following table provides historical data
regarding the excess servicing receivable:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION YEAR ENDED JUNE 30,
THROUGH DECEMBER 31, DECEMBER 31, ------------------------------------------
1994 1995 1995 1996
-------------------- ------------ ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance...................... $0 $ 0 $ 0 $ 847
Additions.............................. 0 895 0 1,262
Amortization........................... 0 (48) 0 (534)
------ --- -------
Ending balance......................... $0 $847 $ 0 $ 1,575
-- ------ -- -------
-- ------ -- -------
</TABLE>
DELINQUENCY EXPERIENCE
The following table reflects the delinquency experience of the Company's
finance contract portfolio at December 31, 1994 and 1995 and at June 30, 1995
and 1996:
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------------------
1994 1995 1995 1996
-------------- ---------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal balance of finance contracts
outstanding........................... $2,450 $31,311 $14,125 $59,392
Delinquent finance contracts(1):
31-59 days past due................ 60 2.46% 1,440 4.60% 597 4.23% 3,075 5.18%
60-89 days past due................ 7 0.30 474 1.51 129 0.91 933 1.57
90 days past due and over.......... 0 0.00 246 0.79 68 0.48 532 0.89
------ ---- ------- ----- ------- ---- ------- ----
Total......................... $ 67 2.76% $ 2,160 6.90% $ 794 5.62% $ 4,540 7.64%
------ ---- ------- ----- ------- ---- ------- ----
------ ---- ------- ----- ------- ---- ------- ----
</TABLE>
- ------------
(1) Percentage based on outstanding balance. Excludes finance contracts where
the underlying vehicle is repossessed, the borrower is in bankruptcy, or
there are insurance claims filed.
CREDIT LOSS EXPERIENCE
An allowance for credit losses is maintained for all contracts held for
sale. See Notes 1 and 3 to Notes to Consolidated Financial Statements. The
Company reports a provision for credit losses on finance contracts held for
sale. Management evaluates the reasonableness of the assumptions employed by
reviewing credit loss experience, delinquencies, repossession trends, the size
of the finance contract portfolio and general economic conditions and trends. If
necessary, assumptions will be changed in the future to reflect historical
experience to the extent it deviates materially from that which was assumed.
Since inception, the Company's assumptions have been consistent and are adequate
based upon actual experience. Accordingly, no additional charges to earnings to
date have been necessary to accommodate more adverse experience than
anticipated.
If a delinquency exists and a default is deemed inevitable or the
collateral is in jeopardy, and in no event later than the 90th day of
delinquency (as required by the VSI Policy), the Company's Collections
Department will initiate the repossession of the financed vehicle. Bonded,
insured outside repossession agencies are used to secure involuntary
repossessions. In most jurisdictions, notice to the borrower of the Company's
intention to sell the repossessed vehicle is required, whereupon the borrower
may exercise certain rights to cure his or her default or redeem the automobile.
Following the expiration of the legally required notice period, the repossessed
vehicle is sold at a wholesale auto auction (or in limited circumstances,
through dealers), usually within 60 days of the repossession. The Company
closely monitors the condition of vehicles set for auction, and procures an
appraisal under the VSI Policy prior to sale. Liquidation proceeds are applied
to the borrower's outstanding obligation under the finance contract and loss
deficiency claims under the VSI Policy and Credit Endorsement are then filed.
The physical damage and loss provisions of the VSI Policy insures each financed
vehicle against losses relating to (i) physical damage to repossessed vehicles,
(ii) failure to file or record necessary instruments or documents, and (iii)
loss or confiscation of the vehicle. Generally the amount of coverage will not
exceed (i) the vehicle's replacement value, (ii) its cash value less salvage
value, (iii) the unpaid Finance Contract balance, (iv) $40,000 per vehicle
($25,000 per occurrence for repossessed vehicles), or (v) the lesser of the
amounts under clauses (i)-(iv) above less other insurance coverage on the
vehicle. The Company also has obtained credit deficiency balance coverage
through the Credit Endorsement of the VSI Policy. See 'Business -- Insurance.'
Because of the Company's limited operating history, its finance contract
portfolio is somewhat unseasoned. Accordingly, delinquency and charge-off rates
in the portfolio may not fully reflect the rates that may apply when the average
holding period for finance contracts in the portfolio is longer. Increases in
the delinquency and/or charge-off rates in the portfolio would adversely affect
the Company's ability to obtain credit or securitize its receivables.
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The following table summarizes the Company's credit loss experience from
inception through June 30, 1996.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 1, 1994 (INCEPTION)
THROUGH JUNE 30, 1996
--------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cumulative initial finance contract principal balances acquired........................ $ 68,218
Gross charge-offs...................................................................... 3,299
Recoveries(1).......................................................................... (2,980)
----------
Net charge-offs(1)..................................................................... $ 319
----------
----------
Gross charge-offs as a percentage of cumulative initial finance contract principal
balances acquired.................................................................... 4.84%
Recoveries as a percentage of gross charge-offs(1)..................................... 90.3%
Net charge-offs as a percentage of cumulative initial finance contract principal
balances acquired(1)................................................................. 0.47%
</TABLE>
- ------------
(1) With respect to repossessions where full disposition proceeds have not been
received, calculations assume immediate recovery of disposition proceeds
(including insurance proceeds) and realization of loss at average historic
rates. See ' -- Net Loss Per Repossession.' This table is presented for
industry comparison purposes and does not reflect the Company's method of
accounting for charge-offs and recoveries for financial reporting purposes.
REPOSSESSION EXPERIENCE -- STATIC POOL ANALYSIS
Because the Company's finance contract portfolio is continuing to grow
rapidly, management does not manage delinquency or losses on the basis of a
percentage of the Company's finance contract portfolio, because percentages can
be favorably affected by large balances of recently acquired finance contracts.
Management monitors actual dollar levels of delinquencies and charge-offs and
analyzes the data on a 'static pool' basis.
The following table provides static pool repossession frequency analysis of
the Company's portfolio performance from inception through June 30, 1996. In
this table, all finance contracts have been segregated by quarter of
acquisition. All repossessions have been segregated by the quarter in which the
repossessed contract was originally acquired by the Company. Cumulative
repossessions equals the ratio of repossessions as a percentage of finance
contracts acquired for each segregated quarter. Annualized repossessions equals
an annual equivalent of the cumulative repossession ratio for each segregated
quarter. This table provides information regarding the Company's repossession
experience over time. For example, recently acquired finance contracts
demonstrate very few repossessions because properly underwritten finance
contracts to subprime consumers generally do not default during the initial term
of the contract. After approximately one year of seasoning, frequency of
repossessions on an annualized basis appear to reach a plateau. Based on
industry statistics and the performance experience of the Company's finance
contract portfolio, the Company believes that finance contracts seasoned in
excess of approximately 18 months will start to demonstrate declining
repossession frequency.
<TABLE>
<CAPTION>
REPOSSESSION FREQUENCY
YEAR AND QUARTER OF REPOSSESSIONS BY ------------------------------
ACQUISITION QUARTER ACQUIRED CUMULATIVE(1) ANNUALIZED(2) CONTRACTS ACQUIRED
- -------------------------------------------- ---------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1994
Q3..................................... 1 11.11% 5.56% 9
Q4..................................... 24 12.44 7.11 193
1995
Q1..................................... 69 13.22% 8.81% 522
Q2..................................... 61 11.71 9.37 521
Q3..................................... 49 7.99 7.99 613
Q4..................................... 62 6.18 8.24 1,003
1996
Q1..................................... 20 1.53% 3.06% 1,310
Q2..................................... 3 0.19 0.76 1,550
</TABLE>
(footnotes on next page)
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(footnotes from previous page)
(1) For each quarter, cumulative repossession frequency equals the number of
repossessions divided by contracts acquired.
(2) Annualized repossession frequency converts cumulative repossession frequency
into an annual equivalent (e.g., for Q4 1994, 24 repossessions divided by
193 contracts acquired, divided by 7 quarters outstanding times four equals
an annualized repossession frequency of 7.11%).
NET LOSS PER REPOSSESSION
Upon initiation of the repossession process, it is the Company's intent to
complete the liquidation process as quickly as possible. The majority of
repossessed vehicles are sold at wholesale auction. The Company is responsible
for the costs of repossession, transportation and storage. The Company's net
charge-off per repossession equals the unpaid balance less the auction proceeds
(net of associated costs) and less proceeds from insurance claims. The following
table demonstrates the net charge-off per repossessed automobile since
inception.
<TABLE>
<CAPTION>
FROM
AUGUST 1, 1994
(INCEPTION) TO
JUNE 30, 1996
--------------
<S> <C>
Number of finance contracts acquired.............................................................. 5,714
Number of finance vehicles repossessed............................................................ 289
Repossessed units disposed of................................................................ 144
Repossessed units in inventory awaiting disposition.......................................... 145
Cumulative gross charge-offs(1)................................................................... $1,643,679
Costs of repossession(1).......................................................................... 33,861
Proceeds from auction, physical damage insurance and refunds(1)................................... (1,178,170)
--------------
Net loss..................................................................................... 499,370
Deficiency insurance settlement received(1).................................................. 340,247
--------------
Net charge-offs(1)................................................................................ $ 159,123
--------------
--------------
Net charge-off per unit disposed.................................................................. $1,105
Recoveries as a percentage of cumulative gross charge-offs........................................ 92.4%
</TABLE>
- ------------
(1) Amounts are based on actual liquidation and repossession proceeds (including
insurance proceeds) received on units for which the repossession process had
been completed as of June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has primarily funded its operations and the
growth of its finance contract portfolio through six principal sources of
capital: (i) cash flows from operating activities; (ii) funds provided from
borrowers' payments received under finance contracts held for sale; (iii)
borrowings under various warehouse and working capital facilities; (iv) proceeds
from securitization transactions; (v) cash flows from servicing fees; and (vi)
proceeds from the issuances of subordinated debt and capital contributions of
principal shareholders.
Cash Flows. Significant cash flows related to the Company's operating
activities include the use of cash for purchases of finance contracts, and cash
provided by payments on finance contracts and sales of finance contracts. For
the year ended December 31, 1995 and the six months ended June 30, 1996, $31.2
million and $33.4 million, respectively, was used by the Company to purchase
finance contracts, $2.7 million and $324,957, respectively, was received as
payments on finance contracts, and $27.4 million and $35.8 million,
respectively, was received from sales of finance contracts, primarily through
securitizations. The Company used $525,220 and $687,925 to fund cash reserve
accounts for the securitizations completed in the year ended December 31, 1995
and the six months ended June 30, 1996, respectively.
Significant activities comprising cash flows from financing activities
include net repayments under revolving warehouse credit facilities ($904,355 for
the year ended December 31, 1995 and $913,129 for the six months ended June 30,
1996) and net proceeds from borrowings against excess spread cash flows
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($2.7 million for the year ended December 31, 1995 and $4.1 million for the six
months ended June 30, 1996).
Warehouse Credit Facilities. The Company obtains a substantial portion of
its working capital for the acquisition of finance contracts through warehouse
credit facilities. Under a warehouse facility, the lender generally advances
amounts requested by the borrower on a periodic basis, up to an aggregate
maximum credit limit for the facility, for the acquisition and servicing of
finance contracts or other similar assets. Until proceeds from a securitization
transaction are used to pay down outstanding advances, as principal payments are
received on the finance contracts, the principal amount of the advances may be
paid down incrementally or reinvested in additional finance contracts on a
revolving basis.
At June 30, 1996, the Company had approximately $237,000 outstanding on a
$10.0 million revolving credit facility (the 'Sentry Facility') with Sentry
Financial Corporation ('Sentry'), which expires on July 31, 1998. The proceeds
from borrowings under the Sentry Facility are used to acquire finance contracts,
to pay credit default insurance premiums and to make deposits to a reserve
account with Sentry. The Company pays a utilization fee of up to 0.21% per month
on the average outstanding balance under the Sentry Facility. The Sentry
Facility also requires the Company to pay up to 0.62% per quarter on the average
unused balance. Interest is payable monthly and accrues at a per annum rate of
prime plus 1.75% (which was approximately 10.25% at June 30, 1996).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve accounts. Under the Sentry Facility, the
Company paid interest of $412,000 for the year ended December 31, 1995. In April
1996, the Company agreed to pay a one-time commitment fee of $700,000 to Sentry.
The Sentry Facility is cross-collateralized to the Company's guarantee of the
Sentry Working Capital Line. See 'Certain Transactions.'
On May 22, 1996, the Company, through its wholly-owned subsidiary AutoBond
Funding Corporation II, entered into a $20.0 million warehouse facility (the
'Providian Facility') with Peoples Security Life Insurance Company (an affiliate
of Providian Capital Management), which expires December 15, 1996. The proceeds
from the borrowings under the Providian Facility are to be used to acquire
finance contracts, to pay credit default insurance premiums and to make deposits
to a reserve account. Interest is payable monthly at a per annum rate of LIBOR
plus 2.60% with a maximum rate of 11.0% and a minimum rate of 7.60%. The
Providian Facility also requires the Company to pay a monthly fee on the average
unused balance at a per annum rate of 0.25%. Borrowings under the Providian
Facility are rated investment-grade by a nationally recognized statistical
rating organization. The Providian Facility contains certain covenants and
representations similar to those in the agreements governing the Company's
existing securitizations.
The Company's wholly-owned subsidiary, AutoBond Funding Corporation I
('AutoBond Funding'), entered into a warehouse credit facility (the 'Nomura
Facility') with Nomura Asset Capital Corporation, pursuant to a credit agreement
dated as of June 16, 1995, with a final maturity date of June 16, 2005. This
facility was terminated at the lender's option, and no new advances were made
after February 6, 1996. The Nomura Facility provided advances to AutoBond
Funding up to a maximum aggregate principal amount of $25.0 million for the
acquisition of finance contracts. On March 29, 1996, the remaining total
outstanding balance of advances of $9.0 million, and interest of $89,000, were
paid by AutoBond Funding. As of June 30, 1996 no advances were outstanding with
respect to the Nomura Facility.
Securitization Program. In its securitization transactions, the Company
sells pools of finance contracts to a special purpose subsidiary, which then
sells the finance contracts to a trust in exchange for cash and certain retained
beneficial interests in future excess spread cash flows. The trust issues two
classes of fixed income investor certificates: 'Class A Certificates,' which are
sold to investors, generally at par with a fixed coupon, and subordinated excess
spread certificates ('Class B Certificates'), representing a senior interest in
excess spread cash flows from the finance contracts, which are typically
retained by the Company's securitization subsidiary and which collateralize
borrowings on a non-recourse basis. The Company also funds a cash reserve
account that provides credit support to the Class A Certificates. The Company's
securitization subsidiaries also retain a 'Transferor's Interest' in the
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contracts that is subordinate to the interest of the investor
certificateholders. The retained interests entitle the Company to receive the
future cash flows from the trust after payment to investors, absorption of
losses, if any, that arise from defaults on the transferred finance contracts
and payment of the other expenses and obligations of the trust.
Securitization transactions impact the Company's liquidity primarily in two
ways. First, the application of proceeds toward payment of the outstanding
advances under warehouse credit facilities makes additional borrowing available,
to the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. In December 1995, March 1996 and June 1996 the
Company securitized approximately $26.2 million, $16.6 million and $17.8
million, respectively, in nominal principal amount of finance contracts and used
the net proceeds to pay down borrowings under its warehouse credit facilities.
Second, additional working capital is obtained through the Company's practice of
borrowing funds, on a non-recourse basis, collateralized by its interest in
future excess spread cash flows from its securitization trusts. At June 30,
1996, the Company held excess servicing receivables and Class B Certificates
totalling $7.7 million, substantially all of which had been pledged to secure
notes payable of $6.2 million.
Subordinated Debt. The Company issued subordinated debt in the principal
amount of $300,000 to an individual investor pursuant to a subordinated note
dated as of March 12, 1996. The subordinated note has a final maturity date of
March 12, 1997 and provides for payment of interest at a per annum rate of 10.0%
and includes a warrant to purchase 18,811 shares of Common Stock at a price of
$0.53 per share.
Continued availability of funding from the Company's securitization program
cannot be guaranteed. However, borrowings under the Company's warehouse facility
are rated investment grade by a nationally recognized statistical rating
organization. Although the Company currently has only one long-term warehouse
facility, management believes that the investment grade rating should allow the
Company successfully to obtain additional warehouse financing.
The warehouse facility provides the short-term cash needed to accumulate
loan pools for securitizations. Under the Company's practice of borrowing funds,
on a non-recourse basis, collateralized by its interest in future excess spread
cash flows, working capital is thereby provided for the cashflow needs of the
Company. The structure of the excess spread cashflow and related note payable
provides for self-amortization of such debt. The Company's excess spread
cashflow projections indicate that the excess spread cashflows will be
sufficient to retire the related debt within approximately 30 months of its
incurrence. Cash from the excess spread retained by the Company is received
monthly, commencing immediately upon completion of the securitization
transaction. Interest and principal payments are made first to the Class A
Certificateholders, then Trust operating expenses are paid. Excess cashflow,
comprised of interest and fees from the loans reduced by interest on Class A
Certificates and trust operating expenses, is then distributed in two manners.
If the cash reserve account is less than the required amount, 35% of the excess
cashflow is retained in the trust to build the cash reserves until required
levels are met. The remaining 65% of excess spread cashflow is utilized to first
pay down any non-recourse borrowing in full, and then distributed to the Company
for operating purposes. The final cash flows for each transaction should be
released at the expected maturity of 72 months.
The Company has entered into a commitment with a private investment
management company for financing collateralized by the senior excess spread
interests to be created in the Company's next five proposed securitization
transactions. Timing and amount of payments of interest and principal on the
loans will correspond to distributions from the securitization trusts on the
Class B Certificates. The interest rate on such loans will be 15% per annum,
payable monthly. The commitment also provides that the Class B Certificates
evidencing the interests in such senior excess spread cash flows be rated 'BB'
by Fitch.
The Company expects that the proceeds of this Offering, proceeds from
finance contracts, securitization proceeds and borrowings under its warehouse
facilities will be sufficient to fund expansion of the Company's business
through the end of 1997. The Company has no specific plans or arrangements for
additional equity financings, due to the liquidity provided by securitizations
and financings of excess spread cash flows. The Company believes it will be able
to obtain additional funding through an
30
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increase in the maximum amount available for borrowings under its warehouse
facilities and through securitizations. There can be no assurance, however, that
the Company will be able to obtain such additional funding. See 'Risk
Factors -- Liquidity and Capital Resources.'
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company does not believe that inflation directly has a
material adverse effect on its financial condition or results of operations,
increases in the inflation rate generally are associated with increased interest
rates. Because the Company borrows funds on a floating rate basis during the
period leading up to a securitization, and in many cases purchases finance
contracts bearing a fixed rate nearly equal but less than the maximum interest
rate permitted by law, increased costs of borrowed funds could have a material
adverse impact on the Company's profitability. Inflation also can adversely
affect the Company's operating expenses.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 114, 'Accounting by
Creditors for Impairment of a Loan' ('SFAS 114'), does not apply to the Company
because the Company's finance contract portfolio is comprised of
smaller-balance, homogeneous contracts that are collectively evaluated for
impairment.
Statement of Financial Accounting Standards No. 122, 'Accounting for
Mortgage Servicing Rights' ('SFAS 122') requires that upon sale or
securitization of servicing-retained finance contracts, the Company capitalize
the cost associated with the right to service the finance contracts based on
their relative fair values. Fair value is determined by the Company based on the
present value of estimated net future cash flows related to servicing income.
The cost allocated to the servicing right is amortized in proportion to and over
the period of estimated net future servicing fee income. SFAS No. 122 had no
impact on the Company's financial statements for the six-month period ended June
30, 1996 and would have had no material impact on any of the prior periods
presented as servicing fees approximate cost.
Statement of Financial Accounting Standards No. 123, 'Accounting for
Stock-Based Compensation' ('SFAS 123'), was issued by the Financial Accounting
Standards Board in October 1995. 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. SFAS 123 is effective for fiscal years beginning after December 15, 1995.
As allowed under SFAS 123, the Company has elected to adopt SFAS 123's
disclosure-only alternative and will continue to account for stock-based
compensation as prescribed by Accounting Principles Board Opinion No. 25,
'Accounting for Stock Issued to Employees.'
31
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BUSINESS
GENERAL
AutoBond Acceptance Corporation (the 'Company') is a specialty consumer
finance company engaged in underwriting, acquiring, servicing and securitizing
retail installment contracts ('finance contracts') originated by franchised
automobile dealers in connection with the sale of used and, to a lesser extent,
new vehicles to selected consumers with limited access to traditional sources of
credit ('subprime consumers'). Subprime consumers generally are borrowers unable
to qualify for traditional financing due to one or more of the following
reasons: negative credit history (which may include late payments, charge-offs,
bankruptcies, repossessions or unpaid judgments); insufficient credit,
employment or residence histories or high debt-to-income or payment-to-income
ratios (which may indicate payment or economic risk).
The Company acquires finance contracts directly from franchised automobile
dealers, makes credit decisions using its own underwriting guidelines and credit
personnel and performs the collection function for finance contracts using its
own collections department. The Company securitizes portfolios of these retail
automobile installment contracts to efficiently utilize limited capital to allow
continued growth and to achieve sufficient finance contract volume to allow
profitability. The Company markets a single finance contract acquisition
program to automobile dealers which adheres to consistent underwriting
guidelines involving the purchase of primarily late-model used vehicles.
This enables the Company to securitize those contracts into investment grade
securities with similar terms from one issue to another providing
consistency to investors. Through June 30, 1996, the finance contracts acquired
by the Company had, upon acquisition, an average initial principal balance of
$11,941, a weighted average annual percentage rate ('APR') of 19.5%, a weighted
average finance contract acquisition discount of 8.6% and a weighted average
maturity of 53.0 months.
The Company was formed to capitalize on senior management's experience in
the consumer auto finance industry, including in the securitization of subprime
automobile finance contracts and to fulfill the founders' desire to create an
ongoing business that controlled the dealer origination, underwriting and
collection functions. From 1989 to 1994, the Company's chairman, William
O. Winsauer, structured 20 investment-grade securitizations of subprime
consumer automobile finance contract portfolios, aggregating approximately
$190 million in principal amount, which were originated, underwritten and
serviced by third party intermediaries. The Company has developed the necessary
experience and relationships to underwrite, acquire, securitize and service
finance contracts by assembling a team of experienced professionals. The
Company's senior operating management averages 24 years of experience in the
consumer finance industry, including in the operation of automobile
dealerships, underwriting and acquiring consumer finance contracts,
collections, and investment banking and securitizations. The Company's credit
underwriters average 13 years of experience in the auto finance industry, and
its sales representatives and collections professionals average ten and seven
years of industry experience, respectively. While securitization is a relatively
new financing technique, the Company's executives in that area average ten years
of securitization experience.
The Company commenced operations in August 1994 and through June 30, 1996
had acquired 5,714 finance contracts (91.0% with obligors who resided in Texas)
with an aggregate initial principal balance of $68.2 million, of which $60.7
million have been securitized in three investment-grade transactions. In the six
month period ended June 30, 1996, the Company underwrote and acquired 2,856
finance contracts with an aggregate initial principal balance of $33.9 million.
At June 30, 1996, the Company had 492 dealer relationships in 16 states,
substantially all of which were franchised dealers of major automobile
manufacturers. The Company earned net income of $873,487 for the fiscal year
ended December 31, 1995, compared to a loss of $544,605 for the period from
inception through December 31, 1994. The Company earned net income of $1.9
million for the six months ended June 30, 1996, compared to a loss of $931,372
for the six months ended June 30, 1995. As of June 30, 1996, the Company
conducted notable business in 7 states (defined as those states that each
represent at least 1.0% of the total number of finance contracts acquired during
the first half of 1996). The Company generally finances vehicles ranging in age
from zero to seven years. The average age of financed vehicles at the time the
related finance contracts were acquired has been approximately two years.
Vehicles
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older than seven years with below-average mileage or superior service histories
are occasionally approved by the Company for financing.
GROWTH AND BUSINESS STRATEGY
The Company's growth strategy anticipates the acquisition of an increasing
number of finance contracts. The key elements of this strategy include: (i)
increasing the number of finance contracts acquired per automobile dealer; (ii)
expanding the Company's presence within existing markets; (iii) penetrating new
markets that meet the Company's economic, demographic and business criteria, and
(iv) securitizing portfolios of acquired finance contracts.
To foster its growth and increase profitability, the Company will continue
to pursue a business strategy based on the following principles:
TARGETED MARKET AND PRODUCT FOCUS -- The Company targets the subprime auto
finance market because it believes that subprime finance presents greater
opportunities than does prime lending. This greater opportunity stems from
a number of factors, including the relative newness of sub-prime auto
finance, the range of finance contracts that various subprime auto finance
companies provide, the relative lack of competition compared to traditional
automotive financing and the potential returns sustainable from large
interest rate spreads. The Company focuses on late-model used rather than
new vehicles, as management believes the risk of loss is lower on used
vehicles due to lower depreciation rates, while interest rates are
typically higher than on new vehicles. For the period from inception
through June 30, 1996, new vehicles and used vehicles represented 10.7% and
89.3%, respectively, of the finance contract portfolio measured by dollar
value of amounts financed and 8.0% and 92.0%, respectively, as a percentage
of units acquired. In addition, the Company concentrates on acquiring
finance contracts from dealerships franchised by major automobile
manufacturers because they typically offer higher quality vehicles, are
better capitalized than used car dealers, and have good service facilities.
EFFICIENT FUNDING STRATEGIES -- Through an investment-grade warehouse
facility and a quarterly securitization program, the Company increases its
liquidity, redeploys its capital and reduces its exposure to interest rate
fluctuations. The Company has also developed the ability to borrow funds on
a non-recourse basis, collateralized by excess spread cash flows from its
securitization trusts. The net effect of the Company's funding and
securitization program is to provide more capital than the Company consumes
in funding loans, resulting in positive cash flow, lower overall costs of
funding, and permitting loan volume to increase without requiring
additional equity capital.
UNIFORM UNDERWRITING CRITERIA -- To manage the risk of delinquency or
defaults associated with subprime consumers, the Company has utilized since
inception a single set of underwriting criteria which are consistently
applied in evaluating credit applications. This evaluation process is
conducted on a centralized basis utilizing experienced personnel. These
uniform underwriting criteria create consistency in the securitized
portfolios of finance contracts that make them more easily analyzed by the
rating agencies and more marketable and permit static pool analysis of loan
defaults to optimally structure securitizations. See 'Management's
Discussion and Analysis -- Repossession Experience -- Static Pool
Analysis.'
CENTRALIZED OPERATING STRUCTURE -- While the Company establishes and
maintains relationships with dealers through sales representatives located
in the geographic markets served by the Company, all of the Company's
day-to-day operations are centralized at the Company's offices in Austin,
Texas. This centralized structure allows the Company to closely monitor its
marketing, funding, underwriting and collections operations and eliminates
the expenses associated with full-service branch or regional offices.
EXPERIENCED MANAGEMENT TEAM -- The Company actively recruits and retains
experienced personnel at the executive, supervisory and managerial levels.
The senior operating management of the Company consists of seasoned
automobile finance professionals with an average of 24 years' experience in
underwriting, collecting and financing automobile finance contracts.
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INTENSIVE COLLECTION MANAGEMENT -- The Company believes that intensive
collection efforts are essential to ensure the performance of subprime
finance contracts and to mitigate losses. The Company's collections
managers contact delinquent accounts frequently, working cooperatively with
customers to get full or partial payments, but will initiate repossession
of financed vehicles no later than the 90th day of delinquency. As of June
30, 1996, a total of 85, or 1.5%, of the Company's finance contracts
outstanding were between 60 and 90 days past due. Since inception through
June 30, 1996, the Company repossessed approximately 5.1% of its financed
vehicles.
LIMITED LOSS EXPOSURE -- To reduce its potential losses on defaulted
finance contracts, the Company insures each finance contract it funds
against damage and fraud to the financed vehicle through a vender's
comprehensive single interest physical damage insurance policy (the 'VSI
Policy'). In addition, the Company purchases credit default insurance
through a deficiency balance endorsement (the 'Credit Endorsement') to the
VSI Policy. The Credit Endorsement reimburses the Company for the
difference between the unpaid finance contract balance and the net proceeds
received in connection with the sale of the repossessed vehicle. Moreover,
the Company limits loan-to-value ratios and applies a purchase price
discount to the finance contracts it acquires. The Company's combination of
underwriting criteria, intensive collection efforts and the VSI Policy and
Credit Endorsement has resulted in net charge-offs (after receipt of
liquidation and insurance proceeds) of 7.6% of the principal balance
outstanding on disposed repossessed vehicles as of June 30, 1996. See
'Management's Discussion and Analysis & Financial Condition and Results of
Operations -- Net Loss per Repossession.'
BORROWER CHARACTERISTICS
Borrowers under finance contracts in the Company's finance contract
portfolio are generally sub-prime consumers. Subprime consumers are purchasers
of financed vehicles with limited access to traditional sources of credit and
are generally individuals with weak or no credit histories. Based on a
randomly-selected representative sample of 107 finance contracts in the finance
contract portfolio, the Company has determined the following characteristics
with respect to its finance contract borrowers. The average borrower's monthly
income is $2,605, with an average payment-to-income ratio of 13.9% and an
average debt-to-income ratio of 35.8%. The Company's guidelines permit a maximum
payment-to-income ratio and debt-to-income ratio of 22% and 50%, respectively.
The average borrower's time spent at current residence is 42 months, while the
average time of service at current employer is 47 months. The average down
payment is 18.5% of the amount financed. The age of the average borrower is 34
years.
CONTRACT PROFILE
From inception to June 30, 1996, the Company acquired 5,714 finance
contracts with an aggregate initial principal balance of $68.2 million. Of the
finance contracts acquired, approximately 8.0% have related to the sale of new
automobiles and approximately 92.0% have related to the sale of used
automobiles. The average age of used financed vehicles was approximately two
years at the time of sale. The finance contracts had, upon acquisition, an
average initial principal balance of $11,941; a weighted average APR of 19.5%; a
weighted average finance contract acquisition discount of 8.6%; and a weighted
average contractual maturity of 53.0 months. As of June 30, 1996, the finance
contracts in the finance contract portfolio had a weighted average remaining
maturity of 47.8 months. Since inception, the Company's cumulative net
charge-offs have been $319,345 or 0.47% of the portfolio's aggregate initial
principal balance. With respect to repossessions where full disposition proceeds
have not been received, these cumulative net charge-off calculations assume
immediate recovery of disposition proceeds (including insurance proceeds) and
realization of loss at average historic loss rates.
DEALER NETWORK
General. The Company acquires finance contracts originated by automobile
dealers in connection with the sale of late-model used and, to a lesser extent,
new cars to subprime borrowers. Accordingly, the Company's business development
strategy depends on enrolling and promoting active participation by automobile
dealers in the Company's financing program. Dealers are selected on the basis of
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geographic location, financial strength, experience and integrity of management,
stability of ownership, quality of used car inventory, participation in subprime
financing programs, and the anticipated quality and quantity of finance
contracts which they originate. The Company principally targets dealers
operating under franchises from major automobile manufacturers, rather than
independent used car dealers. The Company believes that franchised dealers are
generally more stable and offer higher quality vehicles than independent
dealers. This is due, in part, to careful initial screening and ongoing
monitoring by the automobile manufacturers and to the level of financial
commitment necessary to secure and maintain a franchise. As of June 30, 1996,
the Company was licensed or qualified to do business in 26 states. Over the near
term, the Company intends to focus its proposed geographical expansion on states
in the midwest and mid-Atlantic regions.
The following table sets forth information about the Company's acquisitions
from its dealer network.
<TABLE>
<CAPTION>
ACQUISITION OF FINANCE CONTRACTS
----------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------------
1994 1995 1995 1996
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Number of active dealers during
period(1)............................. 50 222 119 252
Total number of dealers subject to
dealer agreements(2).................. 50 280 169 492
Number of active states(3).............. 2 7 5 12
Number of finance contracts acquired
during period......................... 202 2,659 1,042 2,856
Aggregate principal balance of finance
contracts acquired during period
(dollars in thousands)................ $2,454 $31,200 $12,207 $33,358
</TABLE>
- ------------
(1) Based upon those dealers from which the Company acquired finance contracts
during the related period.
(2) Aggregate number of dealers based upon signed agreements with dealers from
whom the Company will accept applications for finance contracts.
(3) Based upon those states in which the Company has acquired more than one
finance contract during the related period.
Location of Dealers. Approximately 52.8% of the Company's dealer network
consists of dealers located in Texas, where the Company has operated since 1994.
During the six months ended June 30, 1996, the Company acquired finance
contracts from dealers in fifteen states.
The following table summarizes, with respect to each state in which the
Company operates, the date operations commenced, the number of dealers with whom
the Company had dealer agreements in such state as of June 30, 1996 and the
number of finance (and percentage of total finance) contracts acquired by the
Company from dealers in such state during the last fiscal year and for the six
months ended June 30, 1996:
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<TABLE>
<CAPTION>
FINANCE CONTRACTS ACQUIRED
----------------------------------
NUMBER OF YEAR ENDED SIX MONTHS
DEALERS AT DECEMBER 31, ENDED
JUNE 30, 1996 1995 JUNE 30, 1996
DATE BUSINESS --------------- --------------- ---------------
STATES COMMENCED NUMBER % NUMBER % NUMBER %
- ----------------------------------- -------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Texas.............................. September 1994 260 52.8% 2,425 91.2% 2,523 88.34%
Oklahoma........................... November 1994 50 10.2 94 3.5 8 0.28
Connecticut........................ January 1995 12 2.4 63 2.4 0 0.00
New Mexico......................... May 1995 17 3.5 44 1.7 57 2.00
Utah............................... June 1995 15 3.0 18 0.7 1 0.04
Georgia............................ October 1995 47 9.6 10 0.4 44 1.54
Arizona............................ November 1995 10 2.0 5 0.2 15 0.53
Missouri........................... January 1996 2 0.4 0 0.0 1 0.04
Colorado........................... January 1996 9 1.8 0 0.0 58 2.03
Maryland........................... February 1996 12 2.4 0 0.0 37 1.30
Ohio............................... March 1996 19 3.9 0 0.0 20 0.70
Florida............................ April 1996 14 2.8 0 0.0 53 1.86
Virginia........................... April 1996 3 0.6 0 0.0 6 0.21
Pennsylvania....................... May 1996 19 3.9 0 0.0 27 0.95
North Carolina..................... June 1996 1 0.2 0 0.0 1 0.04
South Carolina..................... June 1996 2 0.4 0 0.0 5 0.18
------ ----- ------ ----- ------ -----
Total......................... 492 100.0% 2,659 100.0% 2,856 100.0%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
</TABLE>
A group of six dealerships (including Charlie Thomas Ford) under
substantial common ownership accounted for 14.8% (12.3% and 17.5% for the fiscal
year ended 1995 and the first half of 1996 respectively) of finance contracts
acquired during the same period. One dealership, Charlie Thomas Ford, Inc. of
Houston, Texas, accounted for 11.2% of the finance contracts acquired by the
Company for the period from inception through June 30, 1996 (8.8% and 14.0% for
the fiscal year ended 1995 and the first half of 1996 respectively).
DEALER SOLICITATION
Marketing Representatives. As of June 30, 1996, the Company utilized
thirteen marketing representatives, eight of which were individuals employed by
the Company and five of which were marketing organizations serving as
independent representatives. These representatives have an average of ten years
experience in the automobile financing industry. Each marketing representative
reports to, and is supervised by, the Company's Vice President -- Marketing. The
Company is currently evaluating candidates for additional marketing
representative positions. The marketing representatives reside in the region for
which they are responsible. Marketing representatives are compensated on the
basis of a salary plus commissions based on the number of finance contracts
purchased by the Company in their respective areas. The Company maintains an
exclusive relationship with the independent marketing representatives and
compensates such representatives on a commission basis. All marketing
representatives undergo training and orientation at the Company's Austin
headquarters.
The Company's marketing representatives establish financing relationships
with new dealerships, and maintain existing dealer relationships. Each marketing
representative endeavors to meet with the managers of the finance and insurance
('F&I') departments at each targeted dealership in his or her territory to
introduce and enroll dealers in the Company's financing program, educating the
F&I managers about the Company's underwriting philosophy, its practice of using
experienced underwriters (rather than computerized credit scoring) to review
applications, and the Company's commitment to a single lending program that is
easy for dealers to master and administer. The marketing representatives offer
training to dealership personnel regarding the Company's program guidelines,
procedures and philosophy.
After each dealer relationship is established, a marketing representative
continues to actively monitor the relationship with the objective of maximizing
the volume of applications received from the dealer that meet the Company's
underwriting standards. Due to the non-exclusive nature of the
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Company's relationships with dealers, the dealers retain discretion to determine
whether to seek financing from the Company or another financing source. Each
representative submits a weekly call report describing contacts with prospective
and existing dealers during the preceding week and a monthly competitive survey
relating to the competitive situation and possible opportunities in the region.
The Company provides each representative a weekly report detailing applications
received and finance contracts purchased from all dealers in the region. The
marketing representatives regularly telephone and visit F&I managers to remind
them of the Company's objectives and to answer questions. To increase the
effectiveness of these contacts, the marketing representatives can obtain
real-time information from the Company's newly installed management information
systems, listing by dealership the number of applications submitted, the
Company's response to such applications and the reasons why a particular
application was rejected. The Company believes that the personal relationships
its marketing representatives establish with the F&I managers are an important
factor in creating and maintaining productive relationships with its dealership
customer base.
The role of the marketing representatives is generally limited to marketing
the Company's financing program and maintaining relationships with the Company's
dealer network. The marketing representatives do not negotiate, enter into or
modify dealer agreements on behalf of the Company, do not participate in credit
evaluation or loan funding decisions and do not handle funds belonging to the
Company or its dealers. Over the last several months, the Company has added
marketing representatives in additional states, including Colorado, Maryland,
Virginia, Florida, Ohio, South Carolina, North Carolina and Pennsylvania. The
Company intends to develop notable finance contract volume in each state in
which it initiates coverage. The Company has elected not to establish full
service branch offices, believing that the expenses and administrative burden of
such offices are generally unjustified. The Company has concluded that the
ability to closely monitor the critical functions of finance contract approval
and contract administration and collection are best performed and controlled on
a centralized basis from its Austin facility.
Dealer Agreements. Each dealer with which the Company establishes a
financing relationship enters into a non-exclusive written dealer agreement (a
'Dealer Agreement') with the Company, governing the Company's acquisition of
finance contracts from the dealer. A Dealer Agreement generally provides that
the dealer shall indemnify the Company against any damages or liabilities,
including reasonable attorney's fees, arising out of (i) any breach of a
representation or warranty of the dealer set forth in the Dealer Agreement or
(ii) any claim or defense that a borrower may have against a dealer relating to
a financing contract. Representations and warranties in a Dealer Agreement
generally relate to such matters as whether (a) the financed automobile is free
of all liens, claims and encumbrances except the Company's lien, (b) the down
payment specified in the finance contract has been paid in full and whether any
part of the down payment was loaned to the borrower by the dealer and (c) the
dealer has complied with applicable law. If the dealer violates the terms of the
Dealer Agreement with respect to any finance contract, the dealer must
repurchase such contract on demand for an amount equal to the unpaid balance and
all other indebtedness due to the Company from the borrower.
FINANCING PROGRAM
Unlike certain competitors who offer numerous marketing programs that the
Company believes serve to confuse dealers and borrowers, the Company markets a
single financing contract acquisition program to its dealers. The Company
believes that by focusing on a single program, it realizes consistency in
achieving its contract acquisition criteria, which aids the funding and
securitization process. The finance contracts purchased by the Company must meet
several criteria, including that each contract: (i) meets the Company's
underwriting guidelines; (ii) is secured by a new or late-model used vehicle of
a type on the Company's approved list; (iii) was originated in a jurisdiction in
the United States in which the Company was licensed or qualified to do business,
as appropriate; (iv) provides for level monthly payments (collectively, the
'Scheduled Payments') that fully amortize the amount financed over the finance
contract's original contractual term; (v) has an original contractual term from
24 to 60 months; (vi) provides for finance charges at an APR between 14% and
30%; (vii) provides for a verifiable down payment of 10% or more of the cash
selling price; and (viii) is not past due or does not finance a vehicle which is
in repossession at the time the finance contract is presented to the Company for
acquisition. Although the Company has in the past acquired a substantial number
of
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finance contracts for which principal and interest are calculated according to
the Rule of 78s, the Company's present policy is to acquire primarily finance
contracts calculated using the simple interest method.
The amount financed with respect to a finance contract will generally equal
the aggregate amount advanced toward the purchase price of the financed vehicle,
which equals the net selling price of the vehicle (cash selling price less down
payment and trade-in), plus the cost of permitted automotive accessories (e.g.,
air conditioning, standard transmission, etc.), taxes, title and license fees,
credit life, accident and health insurance policies, service and warranty
contracts and other items customarily included in retail automobile installment
contracts and related costs. Thus, the amount financed may be greater than the
Manufacturers Suggested Retail Price ('MSRP') for new vehicles or the market
value quoted for used vehicles. Down payments must be in cash or real value of
traded-in vehicles. Dealer-assisted or deferred down payments are not permitted.
The Company's VSI Policy limits the net selling price of a vehicle to be
financed to a maximum of 95% of the vehicle's retail book value. In addition,
the Company's current purchase criteria limit acceptable finance contracts to a
maximum (a) net selling price of the lesser of (i) 112% of wholesale book value
(or dealer invoice for new vehicles) or (ii) 95% of retail book value (or MSRP
for new vehicles) and (b) amount financed of 120% of retail book value in the
case of a used vehicle, or 120% of MSRP in the case of a new vehicle. In
assessing the value of a trade-in for purposes of determining the vehicle's net
selling price, the Company uses the published wholesale book value without
regard to the value assigned by the dealer.
The following table sets forth the characteristics of a typical finance
contract originated by a dealer and the application of the Company's acquisition
guidelines to such contract.
SAMPLE CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
ITEM DOLLAR VALUE COMMENTS
- --------------------------------- ------------ ----------------------------------------------------------------
<S> <C> <C>
Cash selling price............... $ 12,000
Down payment..................... (1,800) 15% down, using real trade equity and/or cash
Net selling price................ 10,200 Also defined as 'Base Advance'
Allowed add-ons:
Tax, title and license...... 700
Credit life insurance....... 500 Rates established by state insurance departments
Disability insurance........ 700 Rates established by state insurance departments
Service contract............ 1,200
------------
Amount financed.................. 13,300
------------
Acquisition discount............. (1,130) Typical 8.5% discount
------------
------------
Acquisition price................ $ 12,170 Advance to dealer
------------
Wholesale book (or dealer invoice
for new vehicles): $10,000 (for example shown)
Retail book (or MSRP for new
vehicles): $12,000 (for example shown)
</TABLE>
<TABLE>
<CAPTION>
COMPANY ACQUISITION GUIDELINES EXAMPLE SHOWN
- -------------------------------------------------------------------------- ----------------------------------
<S> <C> <C>
Minimum down payment: 10% of cash selling price: $ 1,200 $1,800/$12,000=15%
Maximum base advance: lesser of: (1) 112% of wholesale book: $11,200 $10,200/$10,000=102.0%
or (2) 95% of retail book: $11,400
Maximum amount financed: 120% of retail book (used vehicle): $14,400 $13,300/$12,000=110.8%
</TABLE>
The credit characteristics of an application approved by the Company for
acquisition generally consist of the following: (i) stability of applicant's
employment, (ii) stability of applicant's residence history, (iii) sufficient
borrower income, (iv) credit history, and (v) payment of down payment.
The Company applies a loan-to-value ratio in selecting finance contracts
for acquisition calculated as equaling the quotient of: (a) The cash selling
price less the down payment on the vehicle, divided by
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(b) the wholesale value of the vehicle (net of additions or subtractions for
mileage and equipment additions listed in the applicable guide book). For new
vehicles, wholesale value is based on the invoice amount, including destination
charges. For used vehicles, wholesale value is computed using the applicable
guide book (Kelley or NADA) in use within the market in which the vehicle is
located.
All of the Company's finance contracts are prepayable at any time. Finance
contracts acquired by the Company must prohibit the sale or transfer of the
financed vehicle without the Company's prior consent and provide for
acceleration of the maturity of the finance contract in the absence of such
consent. For an approved finance contract, the Company will agree to acquire
such finance contract from the originating dealer at a non-refundable contract
acquisition discount of approximately 8.5% to 12% of the amount financed.
CONTRACT ACQUISITION PROCESS
General. Having selected an automobile for purchase, the subprime consumer
typically meets with the dealership's F&I manager to discuss options for
financing the purchase of the vehicle. If the subprime consumer elects to
finance the vehicle's purchase through the dealer, the dealer will typically
submit the borrower's credit application to a number of potential financing
sources to find the most favorable terms. In general, an F&I department's
potential sources of financing will include banks, thrifts, captive finance
companies and independent finance companies.
For the six months ended June 30, 1996, 29,412 credit applications were
submitted to the Company. Of these 29,412 applications, as of June 30, 1996,
approximately 36% were approved and 10% were acquired by the Company.(1) The
difference between the number of applications approved and the number of finance
contracts acquired is attributable to a common industry practice in which
dealers often submit credit applications to more than one finance company and
select on the basis of the most favorable terms offered. The prospective
customer may also decide not to purchase the vehicle notwithstanding approval of
the credit application.
Contract Processing. Dealers send credit applications along with other
information to the Company's Credit Department in Austin via facsimile. Upon
receipt, the credit application and other relevant information is entered into
the Company's computerized contract administration system by the Company's
credit verification personnel and a paper-based file with the original documents
is created. Once logged into the system, the applicant's credit bureau reports
are automatically accessed and retrieved directly into the system. At this
stage, the computer assigns the credit application to the specific credit
manager assigned to the submitting dealer for credit evaluation.
Credit Evaluation. The Company applies uniform underwriting standards. In
evaluating the applicant's creditworthiness and the collateral value of the
vehicle, the credit underwriter reviews each application in accordance with the
Company's guidelines and procedures, which take into account, among other
things, the individual's stability of residence, employment history, credit
history, ability to pay, income, discretionary income and debt ratio. In
addition, the credit underwriter evaluates the applicant's credit bureau report
in order to determine if the applicant's (i) credit quality is deteriorating,
(ii) credit history suggests a high probability of default or (iii) credit
experience is too limited for the Company to assess the probability of
performance. The Company also assesses the value and useful life of the
automobile that will serve as collateral under the finance contract. Moreover,
the credit underwriters consider the suitability of a proposed loan under its
financing program in light of the (a) proposed contract term and (b) conformity
of the proposed collateral coverage to the Company's underwriting guidelines.
Verification of certain applicant-provided information (e.g., employment
and residence history) is required before the Company makes its credit decision.
Such verification typically requires submission of supporting documentation,
such as a paycheck stub or other substantiation of income, or a telephone bill
evidencing a current address. In addition, the Company does not normally approve
any applications from persons who have been the subject of two or more
bankruptcy proceedings or two or more repossessions.
- ------------
(1) Applications and approvals for May and June are based on estimates due to
loss of data incurred in recent changeover of application processing
systems.
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The Company's underwriting standards are applied by experienced credit
underwriters with a personal analysis of each application, utilizing experienced
judgment. These standards have been developed and refined by the Company's
senior operating management who, on average, possess more than 24 years in the
automobile finance industry. The Company believes that having its credit
underwriters personally review and communicate to the submitting dealership the
decision with respect to each application, including the reasons why a
particular application may have been declined, enhances the Company's
relationship with such dealers. This practice encourages F&I managers to submit
contracts meeting the Company's underwriting standards, thereby increasing the
Company's operating efficiency by eliminating the need to process applications
unlikely to be approved. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition.'
The Company's Credit Department personnel undergo ongoing internal training
programs that are scheduled on a weekly basis and are attended by such personnel
depending on their responsibilities. All of these personnel are located in the
Company's offices in Austin where they are under the supervision of the Vice
President -- Credit and the credit manager. The credit manager and the Vice
President -- Credit have an aggregate of more than 30 years of experience in the
automobile finance business. In addition, the Company reviews all repossessions
to identify factors that might require refinements in the Company's credit
evaluation procedures.
Approval Process. The time from receipt of application to final credit
approval is a significant competitive factor, and the Company seeks to complete
its funding approval decision in an average of two to three hours. When the
Company approves the purchase of a finance contract, the credit manager notifies
the dealer by facsimile or telephone. Such notice specifies all pertinent
information relating to the terms of approval, including the interest rate, the
term, information about the automobile to be sold and the amount of discount
that the Company will deduct from the amount financed prior to remitting the
funds to the dealer. The discount is not refundable to the dealer.
Contract Purchase and Funding. Upon final confirmation of the terms by the
borrower, the dealer completes the sale of the automobile to the borrower. After
the dealer delivers all required documentation (including an application for
title or a dealer guaranty of title, naming the Company as lienholder) to the
Company, the Company remits funds to the dealer via overnight delivery service,
generally within 48 hours of having received the complete loan funding package.
As a matter of policy, the Company takes such measures as it deems necessary to
obtain a perfected security interest in the related financed vehicles under the
laws of the states in which such vehicles are originated. This generally
involves taking the necessary steps to obtain a certificate of title which names
the Company as lienholder. Each finance contract requires that the automobile be
adequately insured and that the Company be named as loss payee, and compliance
with these requirements is verified prior to the remittance of funds to the
dealer. Upon funding of the finance contract and payment of the required
premium, the financed vehicle is insured under the Company's VSI Policy, which
includes coverage of property damages in the event that the borrower does not
maintain insurance.
CONTRACT SERVICING AND COLLECTION
Contract servicing includes contract administration and collection. Because
the Company believes that an active collection program is essential to success
in the subprime automobile financing market, the Company retains responsibility
for finance contract collection. The Company currently contracts with CSC
Logic/MSA L.L.P. (a Texas limited liability partnership doing business as 'Loan
Servicing Enterprises') ('LSE') to provide contract administration. The Company
may in the future assume certain of the servicing functions performed by LSE,
but there can be no assurance that this will occur.
Contract Administration. LSE provides certain finance contract
administration functions in connection with warehouse facilities and in
connection with finance contracts sold to securitization trusts, including
payment processing, statement rendering, insurance tracking, data reporting and
customer service for finance contracts. LSE inputs newly originated finance
contracts on the contract system daily. Finance contract documentation is sent
by the Company to LSE as soon as dealer funding occurs. LSE then mails a welcome
letter to the borrower and subsequently mails monthly billing statements to each
borrower approximately ten days prior to each payment due date. Any borrower
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remittances are directed to a lock box. Remittances received are then posted to
the proper account on the system. All borrower remittances are reviewed under
LSE's quality control process to assure its proper application to the correct
account in the proper amount. LSE also handles account inquiries from borrowers
and performs insurance tracking services. LSE also sends out notices to
borrowers for instances where proper collateral insurance is not documented.
Contract Collection. As collection agent, the Company is responsible for
pursuing collections from delinquent borrowers. The Company utilizes proactive
collection procedures, which include making early and frequent contact with
delinquent borrowers, educating borrowers as to the importance of maintaining
good credit, and employing a consultative and customer service approach to
assist the borrower in meeting his or her obligations. The Company's ability to
monitor performance and collect payments owed by contract obligors is a function
of its collection approach and support systems. The Company's approach to the
collection of delinquent contracts is to minimize repossessions and charge-offs.
The Company maintains a computerized collection system specifically designed to
service sub-prime automobile finance contracts. The Company believes that if
problems are identified early, it is possible to correct many delinquencies
before they deteriorate further.
The Company currently employs 19 people full-time, including twelve
collections specialists and other support personnel, in the Collections
Department. Each employee is devoted exclusively to collection functions. The
Company attempts to maintain a ratio of between 500 and 600 finance contracts
per collections specialist. As of June 30, 1996, there were 460 finance
contracts in the Company's finance contract portfolio for every collections
specialist. The Collections Department is managed by the Vice
President -- Collections, who possesses 30 years experience in the automotive
industry. The Company hires additional collections specialists in advance of
need to ensure adequate staffing and training.
The Company's collectors have real-time computer access to LSE's database.
Accounts reaching five days past due are assigned to collectors who have
specific responsibility for those accounts. These collectors contact the
customer frequently, both by phone and in writing. Accounts that reach 60 days
past due are assigned to two senior collectors who handle those accounts until
resolved. To facilitate collections from borrowers, the Company has increased
its utilization of Western Union's 'Quick Collect,' which allows borrowers to
pay from remote locations, with a check printed at the Company's office.
Consistent with the Company's internal policies and securitization documents,
finance contract provisions, such as term, interest rate, amount, maturity date
or payment schedule will not be amended, modified or otherwise changed, except
when required by applicable law or court order or where permitted under the VSI
Policy.
Payment extensions may be granted if, in the opinion of management, such
extension provides a permanent solution to resolve a temporary problem. An
extension fee must be paid by the customer prior to the extension. Normally,
there can be only one extension during the first 18 months of a finance
contract. Additional extensions may be granted if allowed under the VSI Policy,
although the Company's securitization documents restrict permitted extensions to
no longer than one month and not more than once per year. Payment due dates can
be modified once during the term of the contract to facilitate current payment
by the customer.
Repossessions and Recoveries. If a delinquency exists and a default is
deemed inevitable or the collateral is in jeopardy, and in no event later than
the 90th day of delinquency (as required by the VSI Policy), the Company's
Collections Department will initiate the repossession of the financed vehicle.
Bonded, insured outside repossession agencies are used to secure involuntary
repossessions. In most jurisdictions, the Company is required to give notice to
the borrower of the Company's intention to sell the repossessed vehicle,
whereupon the borrower may exercise certain rights to cure his or her default or
redeem the automobile. Following the expiration of the legally required notice
period, the repossessed vehicle is sold at a wholesale auto auction (or in
limited circumstances, through dealers), usually within 60 days of the
repossession. The Company closely monitors the condition of vehicles set for
auction, and procures an appraisal under the VSI Policy prior to sale.
Liquidation proceeds are applied to the borrower's outstanding obligation under
the finance contract and loss deficiency claims under the VSI Policy and Credit
Endorsement are then filed. See ' -- Insurance.'
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INSURANCE
Each finance contract requires the borrower to obtain comprehensive and
collision insurance with respect to the related financed vehicle with the
Company named as a loss payee. The Company relies on a written representation
from the selling dealer and independently verifies that a borrower in fact has
such insurance in effect when it purchases contracts. Each finance contract
acquired by the Company is covered from the moment of its purchase by the VSI
Policy, including the Credit Endorsement. The VSI Policy has been issued to the
Company by Interstate Fire & Casualty Company ('Interstate'). Interstate is an
indirect wholly-owned subsidiary of Fireman's Fund Insurance Company.
Physical Damage and Loss Coverage. The Company initially relies on the
requirement, set forth in its underwriting criteria, that each borrower maintain
adequate levels of physical damage loss coverage on the respective financed
vehicles. LSE tracks the physical damage insurance of borrowers, and contacts
borrowers in the event of a lapse in coverage or inadequate documentation.
Moreover, LSE is obligated, as servicer, subject to certain conditions and
exclusions, to assist the processing of claims under the VSI Policy. Interstate
will insure each financed vehicle securing a contract against: (i) all risk of
physical loss or damage from any external cause to financed vehicles which the
Company holds as collateral; (ii) any direct loss which the Company may sustain
by unintentionally failing to record or file the instrument evidencing each
contract with the proper public officer or public office, or by failing to cause
the proper public officer or public office to show the Company's encumbrance
thereon, if such instrument is a certificate of title; (iii) any direct loss
sustained during the term of the VSI Policy by reason of the inability of the
Company to locate the borrower, the related financed vehicle, or by reason of
confiscation of the financed vehicle by a public officer or public office; and
(iv) all risk of physical loss or damage from any external cause to a
repossessed financed vehicle for a period of 60 days while such financed vehicle
is (subject to certain exceptions) held by or being repossessed by the Company.
The physical damage provisions of the VSI Policy generally provide coverage
for losses sustained on the value of the financed vehicle securing a contract,
but in no event is the coverage to exceed: (i) the cost to repair or replace the
financed vehicle with material of like kind and quality; (ii) the actual cash
value of the financed vehicle at the date of loss, less its salvage value; (iii)
the unpaid balance of the contract; (iv) $40,000 per financed vehicle (or, in
the case of losses or damage sustained on repossessed financed vehicles, $25,000
per occurrence); or (v) the lesser of the amounts due the Company under clauses
(i) through (iv) above, less any amounts due under all other valid insurance on
the damaged financed vehicle less its salvage value. No assurance can be given
that the insurance will cover the amount financed with respect to a financed
vehicle.
All claim settlements for physical damage and loss coverage are subject to
a $500 deductible per loss. There is no aggregate limitation or other form of
cap on the number of claims under the VSI Policy. Coverage on a financed vehicle
is for the term of the related contract and is noncancellable. The VSI Policy
requires that, prior to filing a claim, a reasonable attempt be made to
repossess the financed vehicle and, in the case of claims on skip losses, every
professional effort be made to locate the financed vehicle and the related
borrower.
Credit Deficiency Endorsement. In addition to physical damage and loss
coverage, the VSI Policy contains a Credit Endorsement which provides that
Interstate shall indemnify the Company for certain losses incurred due to a
deficiency balance following the repossession and resale of financed vehicles
securing defaulted finance contracts eligible for coverage. Coverage under the
Credit Endorsement is strictly conditioned upon the Company's maintaining and
adhering to the credit underwriting criteria set forth in the Credit
Endorsement. Losses on each eligible contract are covered in an amount equal to
the deficiency balance resulting from the Net Payoff Balance less the sum of (i)
the Actual Cash Value of the financed vehicle plus (ii) the total amount
recoverable from all other applicable insurance, including refunds from
cancelable add-on products. The maximum coverage under the Credit Endorsement is
$15,000 per contract.
'Actual Cash Value' for the purposes of the Credit Endorsement only, means
the greater of (i) the price for which the subject financed vehicle is sold or
(ii) the wholesale market value at the time of the loss as determined by an
automobile guide approved by Interstate applicable to the region in which the
financed vehicle is sold.
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'Net Payoff Balance' for the purposes of the Credit Endorsement, means the
outstanding principal balance as of the default date plus late fees and
corresponding interest no more than 90 days after the date of default. In no
event shall Net Payoff Balance include non-approved fees, taxes, penalties or
assessments included in the original instrument, or repossession, disposition,
collection, remarketing expenses and fees or taxes incurred.
MANAGEMENT INFORMATION SYSTEMS
Management believes that a high level of real-time information flow and
analysis is essential to manage the Company's informational and reporting needs
and to maintain the Company's competitive position. As stated above, the Company
has contracted with a third party servicer, LSE, to provide data processing for
the Company's portfolio of finance contracts. LSE provides on-line information
processing services with terminals located in the Company's offices that are
connected to LSE's main computer center in Dallas.
In addition, management uses customized reports, with a download of
information to personal computers, to issue investor reports and to analyze the
Company's finance contract portfolio on a monthly basis. The system's
flexibility allows the Company to achieve productivity improvements with
enhanced data access. Management believes that it has sufficient systems in
place to permit significant growth in the Company's finance contract portfolio
without the need for material additional investment in management information
systems.
FUNDING/SECURITIZATION OF FINANCE CONTRACTS
Warehouse Credit Facilities. The Company obtains a substantial portion of
its working capital for the acquisition of finance contracts through warehouse
credit facilities. Under a warehouse facility, generally the lender advances
amounts requested by the borrower on a periodic basis, up to an aggregate
maximum credit limit for the facility, for the acquisition and servicing of
finance contracts or other similar assets. Until proceeds from a securitization
transaction are used to pay down outstanding advances, as principal payments are
received on the finance contracts, the principal amount of the advances may be
paid down incrementally or reinvested in additional finance contracts on a
revolving basis.
At June 30, 1996, the Company had approximately $237,000 outstanding under
the $10.0 million Sentry Facility, which expires on July 31, 1998. The proceeds
from borrowings under the Sentry Facility are used to acquire finance contracts,
to pay credit default insurance premiums and to make deposits to a reserve
account with Sentry. The Company pays a utilization fee of up to 0.21% per month
on the average outstanding balance under the Sentry Facility. The Sentry
Facility also requires the Company to pay up to 0.62% per quarter on the average
unused balance. Interest is payable monthly and accrues at a per annum rate of
prime plus 1.75% (which was approximately 10.25% at June 30, 1996).
The Sentry Facility contains certain conditions and imposes certain
requirements, including, among other things, minimum net worth and cash and cash
equivalent balances in the reserve account. Under the Sentry Facility, the
Company paid interest of $412,000 for the year ended December 31, 1995. In April
1996, the Company agreed to pay a commitment fee of $700,000 under the Sentry
Facility. The Sentry Facility is cross-collateralized to the Company's guarantee
of the Sentry Working Capital Line. See 'Certain Transactions.'
On May 22, 1996 the Company, through its wholly-owned subsidiary AutoBond
Funding Corporation II, entered into the Providian Facility, which expires
December 15, 1996. The proceeds from the borrowings under the Providian Facility
are to be used to acquire finance contracts, to pay credit default insurance
premiums and to make deposits to a reserve account. Interest is payable monthly
with a delay of 15 days and accrues at a per annum rate of LIBOR plus 2.60%
(which was 8.0375% when initially determined on May 17, 1996). The Providian
Facility also requires the Company to pay a monthly fee on the average unused
balance at a per annum rate of 0.25%. Borrowings under the Providian Facility
are rated investment-grade by a nationally recognized statistical rating
organization. The Providian Facility contains certain conditions and imposes
certain requirements similar to those in the agreements relating to the
Company's existing securitizations including, among other things, delinquency
and default triggers.
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The Company's wholly-owned subsidiary, AutoBond Funding entered into the
Nomura Facility, pursuant to a credit agreement dated as of June 16, 1995, with
a final maturity date of June 16, 2005. This facility was terminated at the
lender's option, and no new advances were made after February 6, 1996. The
Nomura Facility provided for advances to AutoBond Funding up to a maximum
aggregate principal amount of $25 million, for the acquisition of finance
contracts. On March 29, 1996, the remaining total outstanding balance of
advances of $9.0 million, and interest of $89,000, were paid by AutoBond
Funding. As of June 30, 1996 no advances were outstanding with respect to the
Nomura Facility.
Securitization Program. The periodic securitization of finance contracts is
an integral part of the Company's business. Securitizations enable the Company
to monetize its assets and redeploy its capital resources and warehouse credit
facilities for the purchase of additional finance contracts. To date, the
Company has completed three securitizations involving approximately $60.7
million in aggregate principal amount of finance contracts.
In its securitization transactions, the Company sells pools of finance
contracts to a special purpose subsidiary, which then sells the finance
contracts to a trust in exchange for cash and certain retained beneficial
interests in the trust. The trust issues two classes of fixed income investor
certificates: Class A Certificates which are sold to investors, generally at par
with a fixed coupon, and subordinated excess spread certificates (representing a
senior interest in excess spread cash flows from the finance contracts) which
are typically retained by the Company's securitization subsidiary and which
collateralize borrowings on a non-recourse basis. The Company also funds a cash
reserve account that provides credit support to the Class A Certificates. The
Company's securitization subsidiaries also retain an interest in the contracts
that is subordinate to the interest of the investor certificateholder. The
retained interests entitle the Company to receive the future excess spread cash
flows from the trust after payment to investors, absorption of losses, if any,
that arise from defaults on the transferred finance contracts and payment of the
other expenses and obligations of the trust.
Securitization transactions impact the Company's liquidity primarily in two
ways. First, the application of proceeds toward payment of the outstanding
advances on warehouse credit facilities makes additional borrowing available, to
the extent of such proceeds, under those facilities for the acquisition of
additional finance contracts. Second, additional working capital is obtained
through the Company's practice of borrowing, through the issuance of
non-recourse debt, against the value of the senior interest in the retained
excess spread.
Upon each securitization, the Company recognizes the sale of finance
contracts and records a gain or loss in an amount which takes into account the
amounts expected to be received as a result of its retained interests. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Revenues -- Gain on Sale of Finance Contracts.' At June 30, 1996,
the Company held excess servicing receivables and Class B Certificates totalling
$7.7 million, a portion of which had been pledged to secure notes payable of
$6.2 million.
If the Company were unable to securitize contracts in a financial reporting
period, the Company would incur a significant decline in total revenues and net
income or report a loss for such period. If the Company were unable to
securitize its contracts and did not have sufficient credit available, either
under its warehouse credit facilities or from other sources, the Company would
have to sell portions of its portfolio directly to investors or curtail its
finance contract acquisition activities. See 'Risk Factors -- Dependence on
Securitization Transactions' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
When the Company securitizes finance contracts, it repays a portion of its
outstanding warehouse indebtedness, making such portion available for future
borrowing. As finance contract volume increases, the Company expects to
securitize its assets at least quarterly, although there can be no assurance
that the Company will be able to do so.
The securitization trust agreements and the servicing agreement contain
certain events of administrator termination, the occurrence of which entitle the
trustee to terminate the Company's right to act as collection agent and
administrator. Events of administrator termination include: (i) defaults in
payment obligations under the trust agreements; (ii) unremedied defaults in the
performance of certain
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terms or covenants under the trust agreements, the servicing agreements or
related documents; (iii) the institution of certain bankruptcy or liquidation
proceedings against the Company; (iv) material breaches by the Company of
representations and warranties made by it under the servicing agreements and the
sale agreements pursuant to which it has sold the securitized finance contracts;
(v) the occurrence of a trigger event whereby the ratio of delinquent finance
contracts to total securitized finance contracts for each transaction exceeds
the percentage set forth in the servicing agreements; (vi) a material adverse
change in the consolidated financial condition or operations of the Company, or
the occurrence of any event which materially adversely affects the
collectibility of a material amount of the securitized finance contracts or
which materially adversely affects the ability of the Company to collect a
material amount of the finance contracts or to perform in all material respects
its obligations under the servicing agreements, trust agreements and related
documents; or (vii) any of the rating agencies rating the securitization
transactions determines that the Company's serving as collection agent under the
servicing agreement would prevent such agency from maintaining the required
ratings on such transactions, or would result in such transactions' being placed
on negative review, suspension or downgrade.
The trust agreements contain amortization events, the occurrence of any of
which may affect the Company's rights to receive payments in respect of the
future excess spread cash flows otherwise payable to it until principal and
interest payments due the holders of all investor certificates are paid in full.
Such amortization events include: (i) defaults in certain payments or repurchase
obligations under the trust agreements; (ii) unremedied defaults in the
performance of any covenants or terms of the trust agreements by a
securitization subsidiary; (iii) the occurrence of certain bankruptcy or
insolvency events of a securitization subsidiary; (iv) unremedied material
breaches of representations or warranties of a securitization subsidiary; (v)
occurrence of an event of administrator termination; (vi) failure of a
securitization subsidiary to transfer certain required amounts of unpaid
principal balance of finance contracts to each securitization trust or to retain
the resulting shortfall in the collection accounts; (vii) failure of any
transfer under the trust agreements to create, or failure of any investor
certificates to evidence, a valid and perfected first priority undivided
ownership or security interest in the pool of securitized finance contracts and
related collateral; (viii) failure of the Company to own, directly or
indirectly, 100% of the outstanding shares of common stock of any securitization
subsidiary; (ix) entry of unpaid and unstayed judgments aggregating in excess of
$25,000 are entered against any securitization subsidiary; or (x) occurrence of
a 'change in control' with respect to the Company.
COMPETITION
The subprime credit market is highly fragmented, consisting of many
national, regional and local competitors, and is characterized by relative ease
of entry and the recent arrival of a number of well capitalized publicly-held
competitors. Existing and potential competitors include well-established
financial institutions, such as banks, savings and loans, small loan companies,
industrial thrifts, leasing companies and captive finance companies owned by
automobile manufacturers and others. Many of these financial organizations do
not consistently solicit business in the subprime credit market. The Company
believes that captive finance companies generally focus their marketing efforts
on this market only when inventory control and/or production scheduling
requirements of their parent organizations dictate a need to enhance sales
volumes and exit the market once such sales volumes are satisfied. The Company
also believes that increased regulatory oversight and capital requirements
imposed by market conditions and governmental agencies have limited the
activities of many banks and savings and loans in the subprime credit market. In
many cases, those organizations electing to remain in the automobile finance
business have migrated toward higher credit quality customers to allow
reductions in their overhead cost structures.
As a result, the subprime credit market is primarily serviced by smaller
finance organizations that solicit business when and to the extent their capital
resources permit. The Company believes no one of its competitors or group of
competitors has a dominant presence in the market. The Company's strategy is
designed to capitalize on the market's relative lack of major national financing
sources. Nonetheless, several of these competitors have greater financial
resources than the Company and may have a significantly lower cost of funds.
Many of these 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 the Company. Furthermore, during the past
two years, a number of automobile finance
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companies have completed public offerings of common stock, the proceeds of which
are being used, at least in part, to fund expansion and finance increased
purchases of finance contracts. The Company's ability to compete successfully
depends largely upon its relationships with dealerships and the willingness of
dealerships to offer finance contracts to the Company that meet the Company's
underwriting criteria. There can be no assurance that the Company will be able
to continue successfully in the markets it serves.
REGULATION
The Company's business is subject to regulation and licensing under various
federal, state and local statutes and regulations. As of June 30, 1996, the
Company's business operations were conducted with dealers located in sixteen
states, and, accordingly, the laws and regulations of such states govern the
Company's operations. Most states where the Company operates (i) limit the
interest rates, fees and other charges that may be imposed by, or prescribe
certain other terms of, the finance contracts that the Company purchases and
(ii) define the Company's rights to repossess and sell collateral. In addition,
the Company is required to be licensed or registered to conduct its finance
operations in certain states in which the Company purchases finance contracts.
As the Company expands its operations into other states, it will be required to
comply with the laws of such states.
Numerous federal and state consumer protection laws and related regulations
impose substantive disclosure requirements upon lenders and servicers involved
in automobile financing. Some of the federal laws and regulations include the
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade
Commission Act, the Fair Credit Reporting Act, the Fair Credit Billing Act, the
Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal
Reserve Board's Regulations B and Z and the Soldiers' and Sailors' Civil Relief
Act.
In addition, the Federal Trade Commission ('FTC') has adopted a
holder-in-due-course rule which has the effect of subjecting persons that
finance consumer credit transactions (and certain related lenders and their
assignees) to all claims and defenses which the purchaser could assert against
the seller of the goods and services. With respect to used automobiles
specifically, the FTC's Rule on Sale of Used Vehicles requires that all sellers
of used automobiles prepare, complete and display a Buyer's Guide which explains
the warranty coverage for such automobiles. The Credit Practices Rules of the
FTC impose additional restrictions on sales contract provisions and credit
practices.
The Company believes that it is in substantial compliance with all
applicable material laws and regulations. Adverse changes in the laws or
regulations to which the Company's business is subject, or in the interpretation
thereof, could have a material adverse effect on the Company's business. In
addition, due to the consumer-oriented nature of the industry in which the
Company operates and the unclear application of various truth-in-lending laws
and regulations to certain products offered by companies in the industry,
industry participants are sometimes named as defendants in litigation involving
alleged violations of federal and state consumer lending or other similar laws
and regulation. A significant judgment against the Company or within the
industry in connection with any litigation could have a material adverse effect
on the Company's financial condition and results of operations.
In the event of default by a borrower under a finance contract, the Company
is entitled to exercise the remedies of a secured party under the Uniform
Commercial Code ('UCC'). The UCC remedies of a secured party include the right
to repossession by self-help means, unless such means would constitute a breach
of the peace. Unless the borrower voluntarily surrenders a vehicle, self-help
repossession by an independent repossession agent engaged by the Company is
usually employed by the Company when a borrower defaults. Self-help repossession
is accomplished by retaking possession of the vehicle. If a breach of the peace
is likely to occur, or if applicable state law so requires, the Company must
obtain a court order from the appropriate state court and repossess the vehicle
in accordance with that order. None of the states in which the Company presently
does business has any law that would require the Company, in the absence of a
probable breach of the peace, to obtain a court order before it attempts to
repossess a vehicle.
In most jurisdictions, the UCC and other state laws require a secured party
to provide an obligor with reasonable notice of the date, time and place of any
public sale or the date after which any private sale of collateral may be held.
Unless the obligor waives his rights after default, the obligor in most
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circumstances has a right to redeem the collateral prior to actual sale (i) by
paying the secured party all unpaid installments on the obligation, plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus in some jurisdictions, reasonable
attorneys' fees or (ii) in some states, by paying the secured party past-due
installments. Repossessed vehicles are generally resold by the Company through
wholesale auctions which are attended principally by dealers.
LITIGATION
The Company is currently not a party to any material litigation, although
it is involved from time to time in routine litigation incident to its business.
PROPERTIES AND FACILITIES
The Company's headquarters are located in approximately 18,900 square feet
of leased space at 301 Congress Avenue, Austin, Texas, for a monthly rent of
$22,838. The lease for such facility expires in June 1998. The Company's
headquarters contain the Company's executive offices as well as those related to
automobile finance contract acquisition. In addition, the Company leases
approximately 520 square feet of office space at 1010 Woodman Drive, Suite 240,
Dayton, Ohio, for its midwest regional marketing office at a rent of $550 per
month. The lease for the Ohio facility expires on February 28, 1998.
EMPLOYEES
As of June 30, 1996, the Company employed 79 persons, none of which was
covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, director designees and executive officers of the Company,
their respective ages and their present positions with the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
William O. Winsauer(1).................... 36 Chairman of the Board and Chief Executive Officer and
Director
Adrian Katz............................... 31 Vice Chairman of the Board and Chief Operating
Officer and Director
Charley A. Pond........................... 50 President
John S. Winsauer(1)....................... 34 Secretary and Director
William J. Stahl.......................... 47 Vice President and Chief Financial Officer
John T. Dibble............................ 52 Vice President -- Operations
Robert G. Barfield........................ 42 Vice President -- Marketing
Alan E. Pazdernik......................... 56 Vice President -- Credit
Robert R. Giese........................... 56 Vice President -- Collections
Robert S. Kapito.......................... 39 Director Designee(2)
Manuel A. Gonzalez........................ 45 Director Designee(2)
Stuart A. Jones........................... 41 Director Designee(2)
Thomas I. Blinten......................... 39 Director Designee(2)
</TABLE>
- ------------
(1) Messrs. William and John Winsauer are brothers.
(2) Each Director Designee has consented to become a Director on or before
completion of the Offering.
Directors serve for annual terms. Officers are elected by the Board of
Directors and serve at the discretion of the Board.
MANAGEMENT BACKGROUND
William O. Winsauer, Chairman of the Board and Chief Executive Officer
Mr. Winsauer has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since its formation in 1993. Mr. Winsauer has
been involved in arranging and developing various sources of financing for
subprime finance contracts since 1989. Mr. Winsauer was the founder of ABI in
1989 and served full time as its President and sole shareholder from 1989
through 1993, and remains its President and sole shareholder to date. ABI has no
material current operations other than to manage its and Mr. Winsauer's
investments in securitizations sponsored by Mr. Winsauer. In the late 1980s, Mr.
Winsauer began selling whole loan packages of contracts originated by the
Gillman Companies, a large dealership group based in Houston, Texas and worked
with his brother, John S. Winsauer, in certain of the transactions placed
through The Westcap Corporation in 1991 and 1992. Subsequently, Mr. Winsauer was
directly responsible for initiating, negotiating, coordinating and completing a
number of transactions involving the issuance of over $235 million of both
public and private asset-backed securities backed by subprime automobile finance
contracts, $190 million of which were sponsored by Mr. Winsauer. Mr. Winsauer
was among the first individuals to be involved in the structuring and marketing
of securitization transactions involving subprime finance contracts.
Adrian Katz, Vice Chairman, Chief Operating Officer and Director
Mr. Katz joined the Company in November 1995 and was elected Vice Chairman
of the Board of Directors and appointed Chief Operating Officer in December
1995. Immediately prior to that, from February 1995 he was employed as a
managing director at Smith Barney, Inc. (a broker/dealer), where he was
responsible for structuring asset-backed, commercial and residential
mortgage-backed securities.
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From 1989 through 1994, Mr. Katz was employed by Prudential Securities
Incorporated (a broker/dealer), where he was appointed a managing director in
1992 and where he served as a co-head of the Mortgage and Asset Capital Division
with corresponding sales, trading, banking and research management
responsibilities. From 1985 to 1989, Mr. Katz worked for The First Boston
Corporation developing software and managing the structuring of new
securitizations. Mr. Katz has been involved in the sale and financing through
securitization of consumer assets since 1985.
Charley A. Pond, President
Mr. Pond joined the Company in January 1996 as its President and is
responsible for various day-to-day operations of the Company. From June 1995 to
November 1995, Mr. Pond served as President of AutoLend Group, Inc., an
automobile finance company. Prior to that, from August 1989 to June 1995, Mr.
Pond served Mercury Finance Company, an automobile finance company, as its Vice
President and Chief Financial Officer. Prior to his tenure at Mercury, Mr. Pond
was involved with the corporate finance divisions of several New York-based
banks.
John S. Winsauer, Secretary and Director
Mr. Winsauer has served as Secretary and a Director of the Company since
October 1995. In addition, Mr. Winsauer has been a shareholder of the Company
since June 1993. Mr. Winsauer's primary responsibilities have included the
development and implementation of the Company's computer and communications
systems. From January 1993 until present, Mr. Winsauer has been employed by
Amherst Securities Group (a broker/dealer previously known as USArbour
Financial) as a Senior Vice President, prior to which he served as a Senior Vice
President of The Westcap Corporation (a broker/dealer) from April 1989 to
January 1993. From June 1989 through August 1992, in his position as Senior Vice
President with The Westcap Corporation, Mr. Winsauer participated in the
successful marketing of whole-loan packages of finance contracts placed by the
Gillman Companies.
William J. Stahl, Vice President and Chief Financial Officer
Mr. Stahl joined the Company in March 1995 as its Vice President and Chief
Financial Officer. From August 1991 to March 1995, Mr. Stahl was Senior Vice
President and Director of the financial strategies group of The Westcap
Corporation, a broker/dealer which specialized in structured investment products
for institutional investors. Prior to that, Mr. Stahl was employed in a similar
capacity at Kemper Securities, Inc. and its predecessor Underwood Neuhaus & Co.
from January 1989 until August 1991. Mr. Stahl is a CPA with approximately
thirteen years experience in public accounting, including six years as a partner
in his own firm. In addition, Mr. Stahl has ten years experience with
broker/dealers of fixed income investments as a financial analyst.
John T. Dibble, Vice President -- Operations
Mr. Dibble joined the Company in May 1994 as Vice President -- Operations
to manage its underwriting and servicing functions. From 1990 to 1994, Mr.
Dibble was a Vice President with First Interstate Bank of Texas overseeing the
collection department for the Consumer Loan Division, and was responsible for
the centralization of all collection functions for the bank's network of
branches in Texas. From 1982 to 1989, he served in various management capacities
with Citicorp Acceptance, including portfolio analysis and control, credit and
collections, pricing and financial reporting. Mr. Dibble started his career with
Ford Motor Credit Co., where he worked from 1969 to 1980, and has approximately
20 years of experience in various aspects of automotive sales finance management
and administration.
Robert G. Barfield, Vice President -- Marketing
Mr. Barfield joined the Company in 1994 as Regional Marketing Manager and
was promoted to his present position in February 1995. Previously, Mr. Barfield
was the finance director at Archer Motor Co. (an automobile dealership) from
August 1993 to September 1994. Mr. Barfield was General Manager of
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the Gullo Auto Center (an automobile dealership) from March 1992 to August 1993
and he served as General Sales Manager to Charlie Thomas Auto World (an
automobile dealership) from January 1990 to March 1992. Mr. Barfield has eleven
years experience working in the automotive finance industry.
Alan E. Pazdernik, Vice President -- Credit
Mr. Pazdernik joined the Company in September 1995 as Vice
President -- Credit. From October 1991 until he joined the Company, Mr.
Pazdernik was employed as Credit Manager by E-Z Plan, Inc., a company he created
to handle the internal financing of subprime automobile paper. Prior to October
1991, Mr. Pazdernik served over 18 years as the Director of Finance and
Insurance Operations for Red McCombs Automotive (an automobile dealership),
handling the credit, collection, and finance contract administration functions
for a $70 million portfolio of automobile finance contracts. In his present
capacity with the Company, Mr. Pazdernik manages the credit and funding
departments, and has been involved in the Company's efforts to increase market
share in the San Antonio area.
Robert R. Giese, Vice President -- Collections
Mr. Giese joined the Company in April 1994 as Vice
President -- Collections. From 1984 to April 1994, he served as Vice President
in Retail Credit Administration with First Interstate Bank of Texas, with
responsibility for controlling the performance of the consumer loan portfolio in
Texas. Mr. Giese has more than 30 years experience in sales, finance and
banking, including management experience coordinating credit underwriting,
collections, asset disposal, centralized loss recovery and loan workout
functions. His experience in sales, credit and collections supports the Company
in its management of delinquency and loss performance.
Robert S. Kapito -- Director Designee
Mr. Kapito has been nominated and has agreed to serve as a Director of the
Company upon the consummation of the offering. Since May 1990, Mr. Kapito has
been Vice Chairman of BlackRock Financial Management, an investment advisory
firm ('BlackRock'). Mr. Kapito is a member of BlackRock's Management Committee
and Investment Strategy Committee and Co-Head of the Portfolio Management Group.
Mr. Kapito also serves as Vice President for BlackRock's family of mutual funds
and for the Smith Barney Adjustable Rate Government Income Fund. Mr. Kapito has
also served since May 1987 as President of the Board of Directors of Periwinkle
National Theatre.
Manuel A. Gonzalez -- Director Designee
Mr. Gonzalez has been nominated and has agreed to serve as a Director of
the Company upon the consummation of the Offering. From September 1993 to
December 1994, Mr. Gonzalez was Executive Vice President of the Company and ABI.
Mr. Gonzalez is currently Dealer Principal/Owner of NorthPoint Pontiac Buick
GMC, an automobile dealership located in Kingwood, Texas. Since March 1991, Mr.
Gonzalez has been President of Equifirst Financial Services, Inc., a consulting
firm specializing in the automobile dealership industry. From 1988 through 1990,
Mr. Gonzalez was Chief Financial Officer for the Gillman Companies, prior to
which he served as a Vice President at First City Bank, Texas where he managed
the banking relationships of a large number of automobile dealers.
Stuart A. Jones -- Director Designee
From March 1989, to the present, Stuart Jones has been self-employed as
head of Stuart A. Jones Finance and Investments, Dallas, Texas, a
privately-owned consultancy specializing in investment banking and real estate
financing. From January, 1990 to January, 1994, Mr. Jones also served as Counsel
to the Brock Group, Ltd., Washington, D.C., an international trade and
investment strategies consulting firm, where he represented clients in various
real estate, energy and environmental matters.
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Thomas I. Blinten -- Director Designee
Since November 1995, Thomas Blinten has been a Managing Director and
executive management Committee member of Nomura Capital Services, Inc., New
York, New York, a majority-owned subsidiary of Nomura Securities Company,
responsible for interest rate swap and OTC derivative sales and trading. From
March 1993 to November 1995, Mr. Blinten was a Principal and management
committee member of General Re Financial Products, a wholly-owned subsidiary of
General Re Corporation. From July 1990 through March 1993 he was a Manager in
the Derivative Products department for Kemper Securities, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to consummation of the Offering, the Board of Directors shall have
established a Compensation Committee and an Audit Committee comprised of outside
directors. The Company's bylaws provide that each such committee shall have
three or more members, who serve at the pleasure of the Board of Directors.
The Compensation Committee will be responsible for administering incentive
grants under the Company's incentive stock option plan (the 'Option Plan') and
reviewing and making recommendations to the Board of Directors with respect to
the administration of the salaries, bonuses and other compensation of executive
officers, including the terms and conditions of their employment, and other
compensation matters.
The Audit Committee will be responsible for making recommendations to the
Board concerning the engagement of the Company's independent auditors and
consulting with independent auditors concerning the audit plan and, thereafter,
concerning the auditors' report and management letter.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company,
as well as certain other compensation paid or accrued, for the fiscal year ended
December 31, 1995 to the Company's Chief Executive Officer, and each of the
other four most highly compensated executive officers of the Company:
1995 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL
NAME AND PRESENT POSITION TOTAL SALARY BONUS COMPENSATION
- --------------------------------------------------------------- -------- ------- ------- ------------
<S> <C> <C> <C> <C>
William O. Winsauer ........................................... $ 0(1) $ 0 $ 0 $ 0(1)
Chairman of the Board and Chief Executive Officer
Robert G. Barfield ............................................ 107,675 75,500 32,175 0
Vice President -- Marketing
Adrian Katz ................................................... 94,492 18,750 0 75,742(2)
Vice Chairman and Chief Operating Officer
John T. Dibble ................................................ 95,520 90,000 5,520 0
Vice President -- Operations
William J. Stahl .............................................. 85,000 85,000 0 0
Vice President and Chief Financial Officer
</TABLE>
- ------------
(1) Although Mr. Winsauer received no compensation in the fiscal year 1995, he
received loans from the Company in the aggregate amount of $132,359. See
'Certain Transactions.'
(2) Stated value of compensation in the form of stock issuance.
Under the Company's compensation structure for fiscal 1996, the five
highest paid officers will be as follows (annual base salary in parentheses):
William O. Winsauer ($240,000); Charley A. Pond ($180,000); Adrian Katz
($150,000); William J. Stahl ($120,000); and John S. Winsauer ($120,000).
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Three members of the Company's Board of Directors, Messrs. William and John
Winsauer and Adrian Katz, participated in the Board's deliberations regarding
executive compensation.
EMPLOYMENT AGREEMENTS
Messrs. William Winsauer, Katz and Pond have entered into employment
agreements with the Company on substantially the following terms:
William O. Winsauer. Mr. Winsauer entered into an employment agreement with
the Company dated May 1, 1996. Under the terms of this agreement, Mr. Winsauer
has agreed to serve as Chief Executive Officer of the Company for a period of
five years and, during such time, to devote his full business time and attention
to the business of the Company. The agreement provides for compensation of Mr.
Winsauer at a base salary of $240,000 per annum, which may be increased or
decreased from time to time in the sole discretion of the Board, but in no event
less than $240,000 per annum. The agreement entitles Mr. Winsauer to receive the
benefits of any cash incentive compensation as may be granted by the Board to
employees, and to participate in any executive bonus or incentive plan
established by the Board from time to time.
The agreement provides Mr. Winsauer with additional benefits including (i)
the right to participate in the Company's medical benefit plan, (ii) entitlement
to benefits under the Company's executive disability insurance coverage, (iii) a
monthly automobile allowance of $1,500 plus fees, maintenance and insurance,
(iv) four weeks paid vacation and (v) all other benefits granted to full-time
executive employees of the Company.
The agreement automatically terminates upon (i) the death of Mr. Winsauer,
(ii) disability of Mr. Winsauer which continues for a period of six months,
following expiration of such six months, (iii) termination of Mr. Winsauer 'for
cause' (which termination requires the vote of a majority of the Board) or (iv)
the occurrence of the five-year expiration date, provided, however, that the
agreement may be extended for successive one-year intervals unless either party
elects to terminate the agreement in a prior written notice. Mr. Winsauer may
terminate his employment under the agreement for good reason as set forth below.
In the event of Mr. Winsauer's termination for cause, the agreement provides
that the Company shall pay Mr. Winsauer his base salary through the date of
termination and the vested portion of any incentive compensation plan to which
Mr. Winsauer may be entitled.
Mr. Winsauer may terminate his employment under the agreement for 'good
reason,' including: (i) removal of, or failure to re-elect Mr. Winsauer as Chief
Executive Officer; (ii) change in scope of responsibilities; (iii) reduction in
salary; (iv) relocation of the Company outside Austin, Texas; (v) breach by the
Company of the agreement; (vi) certain changes to the Company's compensation
plans; (vii) failure to provide adequate insurance and pension benefits; (viii)
failure to obtain similar agreement from any successor or parent of the Company;
or (ix) termination of Mr. Winsauer other than by the procedures specified in
the agreement.
Other than following a change in control, and upon termination of Mr.
Winsauer in breach of the agreement or termination by Mr. Winsauer for good
reason, the Company must pay Mr. Winsauer: (i) his base salary through the date
of termination; (ii) a severance payment equal to the base salary multiplied by
the number of years remaining under the agreement; and (iii) in the case of
breach by the Company of the agreement, all other damages to which Mr. Winsauer
may be entitled as a result of such breach, including lost benefits under
retirement and incentive plans.
In the event of Mr. Winsauer's termination following a change in control,
the Company is required to pay Mr. Winsauer an amount equal to three times the
sum of (i) his base salary, (ii) his annual management incentive compensation
and (iii) his planned level of annual perquisites. The agreement also provides
for indemnification of Mr. Winsauer for any costs or liabilities incurred by Mr.
Winsauer in connection with his employment.
Adrian Katz. Mr. Katz entered into an employment agreement with the Company
dated November 15, 1995. Under the terms of this agreement, Mr. Katz has agreed
to serve as Vice Chairman and Chief Operating Officer of the Company for a
period of three years and, during such time, to devote his full business time
and attention to the business of the Company. The agreement grants Mr. Katz a
base salary of $12,500 per full calendar month of service, which amount may be
increased from time to time
52
<PAGE>
<PAGE>
at the sole discretion of the Board. The agreement terminates upon the death of
Mr. Katz. In the event of any disability of Mr. Katz which continues for a
period of six months, the agreement may be terminated by the Company at the
expiration of such six-month period. The agreement automatically terminates upon
the discharge of Mr. Katz for cause.
Mr. Katz has agreed not to disclose certain confidential proprietary
information of the Company to unauthorized parties, except as required by law,
and to hold such information for the benefit of the Company. The agreement
contains standard non-competition covenants whereby Mr. Katz has agreed not to
conduct or solicit business with any competitors or clients of the Company
within certain restricted geographic areas for a period of two years following
the termination of his employment. The restriction also applies to the
solicitation of any current or recent employees of the Company. The restricted
areas include any territory within a 40-mile radius of an automobile dealership
with which the Company has done business during the term of the agreement.
Pursuant to the terms of the agreement, Mr. Katz received 568,750 shares of the
Company's Common Stock on January 1, 1996, equal to 10% of the Company's
outstanding shares of Common Stock following the issuance of such shares to Mr.
Katz.
Charley A. Pond. Mr. Pond entered into an employment agreement with the
Company dated February 15, 1996. Under the terms of this agreement, Mr. Pond has
agreed to serve as President of the Company for a period of three years and,
during such time, to devote his full business time and attention to the business
of the Company.
The agreement grants Mr. Pond a base salary of $15,000 per full calendar
month of service, which amount may be increased from time to time at the sole
discretion of the Board. In addition, upon the Company's successful completion
of an initial public offering of its common stock, the Company is obligated to
pay Mr. Pond a bonus of $90,000. An additional performance bonus is payable to
Mr. Pond in the event the Company meets certain sales and income targets set
forth in the agreement. Such bonus is equal to $4,500 for each 10% increase in
the Company's sales or income over each of the specified targets. As an officer
of the Company, Mr. Pond shall be entitled to participate in its stock option
plan.
The agreement terminates upon the death of Mr. Pond. In the event of any
disability of Mr. Pond which continues for a period of six months, the agreement
may be terminated by the Company at the expiration of such six-month period. The
agreement automatically terminates upon the discharge of Mr. Pond for cause. If
Mr. Pond's employment with the Company terminates prior to February 15, 1997 for
any reason other than termination for cause or voluntary termination by the
employee, the Company is obligated to pay Mr. Pond's salary for the remainder of
the first year of the agreement.
Mr. Pond has agreed not to disclose certain confidential proprietary
information of the Company to unauthorized parties, except as required by law,
and to hold such information for the benefit of the Company. The agreement
contains standard non-competition covenants whereby Mr. Pond has agreed not to
conduct or solicit business with any competitors or clients of the Company
within certain restricted geographic areas for a period of two years following
the termination of his employment. The restriction also applies to the
solicitation of any current or recent employees of the Company. The restricted
areas include any territory within a 40-mile radius of any automobile dealership
with which the Company has done business during the term of the agreement.
OPTION PLAN
Prior to completion of the Offering, management expects the Board of
Directors of the Company to adopt and the shareholders of the Company to
approve, the Company's proposed 1996 Stock Option Plan (the 'Option Plan'),
under which stock options may be granted to employees of the Company and its
subsidiaries. The Option Plan permits the grant of stock options that qualify as
incentive stock options ('ISOs') under Section 422 of the Internal Revenue Code
of 1986, as amended, and nonqualified stock options ('NSOs'), which do not so
qualify. The Company will authorize and reserve 557,000 shares (8% of the
Company's outstanding shares of Common Stock without giving effect to
outstanding warrants) for issuance under the Option Plan. The shares may be
unissued shares or treasury shares. If an option expires or terminates for any
reason without having been exercised in full, the unpurchased shares subject to
such option will again be available for grant under the Option Plan. In the
event of certain corporate reorganizations, recapitalizations or other specified
corporate
53
<PAGE>
<PAGE>
transactions affecting the Company or the Common Stock, proportionate
adjustments shall be made to the number of shares available for grant and to the
number of shares and prices under outstanding option grants made before the
event.
The Option Plan will be administered by the Compensation Committee of the
Board of Directors (the 'Committee'). Subject to the limitations set forth in
the Option Plan, the Committee has the authority to determine the persons to
whom options will be granted, the time at which options will be granted, the
number of shares subject to each option, the exercise price of each option, the
time or times at which the options will become exercisable and the duration of
the exercise period. The Committee may provide for the acceleration of the
exercise period of an option at any time prior to its termination or upon the
occurrence of specified events, subject to limitations set forth in the Option
Plan. Subject to the consent of optionees, the Committee has the authority to
cancel and replace stock options previously granted with new options for the
same or a different number of shares and having a higher or lower exercise
price, and may amend the terms of any outstanding stock option to provide for an
exercise price that is higher or lower than the current exercise price.
All employees of the Company and its subsidiaries are eligible to receive a
grant of a stock option under the Option Plan, as selected by the Committee. The
exercise price of shares of Common Stock subject to options granted under the
Option Plan may not be less than the fair market value of the Common Stock on
the date of grant. Options granted under the Option Plan will generally become
vested and exercisable over a three-year period in equal annual installments,
unless the Committee specifies a different vesting schedule. The maximum term of
options granted under the Option Plan is ten years from the date of grant. ISOs
granted to any employee who is a 10% shareholder of the Company are subject to
special limitations relating to the exercise price and term of the options. The
value of Common Stock (determined at the time of grant) that may be subject to
ISOs that become exercisable by any one employee in any one year is limited by
the Internal Revenue Code to $100,000. All options granted under the Option Plan
are nontransferable by the optionee, except upon the optionee's death in
accordance with his will or applicable law. In the event of an optionee's death
or permanent and total disability, outstanding options that have become
exercisable will remain exercisable for a period of one year, and the Committee
will have the discretion to determine the extent to which any unvested options
shall become vested and exercisable. In the case of any other termination of
employment, outstanding options that have previously become vested will remain
exercisable for a period of 90 days, except for a termination 'for cause' (as
defined), in which case all unexercised options will be immediately forfeited.
Under the Option Plan, the exercise price of an option is payable in cash or, in
the discretion of the Committee, in Common Stock or a combination of cash and
Common Stock. An optionee must satisfy all applicable tax withholding
requirements at the time of exercise.
In the event of a 'change in control' of the Company (as defined in the
Option Plan) each option will become fully and immediately vested and the
optionee may surrender the option and receive, with respect to each share of
Common Stock issuable under such option, a payment in cash equal to the excess
of the fair market value of the Common Stock at the time of the change in
control over the exercise price of the option. However, there will be no
acceleration of vesting and cash payment if the change in control is approved by
two-thirds of the members of the Board of Directors of the Company and provision
is made for the continuation or substitution of the options on equivalent terms.
The Option Plan has a term of ten years, subject to earlier termination or
amendment by the Board of Directors, and all options granted under the Option
Plan prior to its termination remain outstanding until they have been exercised
or are terminated in accordance with their terms. The Board may amend the Option
Plan at any time.
The grant of a stock option under the Option Plan will not generally result
in taxable income for the optionee, nor in a deductible compensation expense for
the Company, at the time of grant. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
NSO, the optionee will recognize ordinary income in the amount by which the fair
market value of the Common Stock on the date of exercise exceeds the exercise
price, and the Company will generally be entitled to a corresponding deduction.
The treatment of an optionee's disposition of shares of Common Stock acquired
upon the exercise of an option is dependent upon the length of time the shares
have
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<PAGE>
been held and whether such shares were acquired by exercising an ISO or an NSO.
Generally, there will be no tax consequence to the Company in connection with
the disposition of shares acquired under an option except that the Company may
be entitled to a deduction in the case of a disposition of shares acquired upon
exercise of an ISO before the applicable ISO holding period has been satisfied.
The Committee will make initial grants of stock options under the Option
Plan, effective upon the date of the Offering, to certain of the Company's
executive officers and other employees to purchase an aggregate of 300,000
shares of Common Stock at a per share exercise price equal to the Offering
Price. Under this initial phase of the Option Plan, William O. Winsauer will be
granted options to purchase a total of 40,000 shares, and John S. Winsauer,
Charley A. Pond and Adrian Katz will each be granted options to purchase 20,000
shares. The remaining options to purchase 200,000 shares will be granted to
other employees. These options will become vested and exercisable over a
three-year period in equal annual installments beginning on the first
anniversary of the Offering date. The number of shares of Common Stock that may
be subject to options granted in the future under the Option Plan to executive
officers and other employees of the Company is not determinable at this time.
DIRECTOR COMPENSATION
In return for their services to the Company, each of the non-employee
directors will be compensated in the following manner: (i) an annual payment of
$5,000 cash; (ii) payment of $500 per meeting of the Board of Directors attended
and $500 for each committee meeting attended (plus reimbursement of
out-of-pocket expenses); and (iii) an option to purchase 3,000 shares of the
Company's Common Stock, exercisable at the initial public offering price
hereunder, on or after the date commencing one year following the date of the
Offering.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation provide that, pursuant to Texas
law, no director of the Company shall be liable to the Company or its
shareholders for monetary damages for an act or omission in such director's
capacity as a director except for (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) any act or omission not in good
faith or that involves intentional misconduct or a knowing violation of law,
(iii) any transaction from which the director derived an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office or (iv) any act or omission for which the liability of a
director is expressly provided for by statute. The effect of this provision in
the Articles of Incorporation is to eliminate the right of the Company and its
shareholders (through shareholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
These provisions will not affect the liability of directors under other laws,
such as federal securities laws.
Under Section 2.02-1 of the Texas Business Corporation Act, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, subject to certain limitations. The Company's Articles of
Incorporation provide that the Company will indemnify its directors and officers
to the fullest extent permitted by law.
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CERTAIN TRANSACTIONS
The following is a summary of certain transactions to which the Company was
or is a party and in which certain executive officers, directors or shareholders
of the Company had or have a direct or indirect material interest. The Company
believes that the terms contained in each of such transactions are comparable to
those which could have been obtained by the Company from unaffiliated third
parties.
William O. Winsauer entered into a Secured Working Capital Loan Agreement
dated as of July 31, 1995 (the 'Sentry Working Capital Line') with Sentry, which
provides for a line of credit of up to $2.25 million. Proceeds from the Sentry
Working Capital Line were contributed to the Company as paid-in capital. The
obligations of Mr. Winsauer under the Sentry Working Capital Line, including all
payment obligations, are guaranteed by the Company and its affiliate, ABI, whose
sole shareholder is William O. Winsauer, pursuant to a Working Capital Guarantee
and Waiver dated as of July 31, 1995. All amounts outstanding under the Sentry
Working Capital Line ($1,910,000 at June 30, 1996), and reimbursement of a
payment of $89,000 made by the Company to Sentry in April 1996 on behalf of
Mr. Winsauer, will be paid from the sale of shares by William Winsauer as
part of the Offering. See 'Use of Proceeds.'
During 1995, the Company made loans to William O. Winsauer and John S.
Winsauer in the amount of $132,359 and $21,000, respectively. As of June 30,
1996, the outstanding amounts of these loans increased to $304,861 and $131,173,
respectively. Such loans bear no interest and have no repayment terms, but will
be repaid out of the proceeds of the sale of Common Stock by the Selling
Shareholders in the Offering. To date, the full amount on each of these loans
remains outstanding. See Note 12 to Notes to Consolidated Financial Statements.
The Company had net advances due from ABI of $86,700 as of June 30, 1996,
which funds were utilized by ABI prior to 1996 to cover expenses incurred in
connection with the management of ABI's investments in securitization trusts.
The Company and ABI entered into a management agreement dated as of January 1,
1996 (the 'ABI Management Agreement') which provides for repayment of such
advances together with interest at 10% per annum on or before May 31, 1998, the
reimbursement of expenses incurred on behalf of ABI and for an annual fee
payable by ABI to the Company for services rendered by it or the Company's
employees on behalf of ABI. The ABI Management Agreement states that the Company
shall provide the following management services for ABI on an ongoing basis: (i)
day-to-day management of ABI's portfolio of partnership interests in the
securitization trusts sponsored by ABI between 1992 and 1994, including various
monitoring and reporting functions; (ii) certain cash management services,
including the advancing of funds to pay ABI's ordinary business expenses and
(iii) providing advice as to regulatory compliance. The ABI Management Agreement
also provides that the Company will perform certain accounting functions on
behalf of ABI including (i) maintenance of financial books and records, (ii)
monitoring of cash management functions, (iii) preparation of financial
statements and tax returns and (iv) providing advice in connection with
retention of independent accountants. As compensation for services rendered
thereunder, the ABI Management Agreement provides that ABI shall pay the Company
an annual fee of $50,000, payable quarterly. In addition, the agreement provides
for the quarterly reimbursement of advances made by the Company of out-of-pocket
costs and expenses on behalf of ABI.
The Company entered into a shareholders' agreement (the 'Shareholder
Agreement'), with Messrs. John and William Winsauer and Adrian Katz, dated as of
January 1, 1996. The Shareholder Agreement provides, among other things, that in
the event any party to the Shareholder Agreement, other than William Winsauer,
shall receive a bona fide offer to purchase any or all of his shares of Common
Stock of the Company, such selling shareholder shall first offer such shares for
sale to the Company upon the same terms and at the same price as are set forth
in the offer received by such selling shareholder. In the event the Company
declines to purchase such shares, the selling shareholder is obligated to offer
such shares for sale to William Winsauer upon the same terms and at the same
price. On or before the effective date of the Offering, the Shareholder
Agreement will be terminated.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of June 30, 1996 and
as adjusted to reflect the sale of the shares of Common Stock in the Offering
(assuming no exercise of the Underwriters' over-allotment option), based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director and each officer of the Company with beneficial
ownership of Common Stock and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING SHARES OFFERING
----------------------- OFFERED IN -----------------------
NAME AND ADDRESS NUMBER PERCENTAGE THE OFFERING NUMBER PERCENTAGE
- ------------------------------------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
William O. Winsauer ............................. 3,839,062 67.50% 171,000 3,668,062 52.69%
301 Congress Avenue
Austin, Texas 78701
John S. Winsauer ................................ 1,279,688 22.50 54,000 1,225,688 17.60
301 Congress Avenue
Austin, Texas 78701
Adrian Katz ..................................... 568,750 10.00 0 568,750 8.17
301 Congress Avenue
Austin, Texas 78701
Total (all officers and directors as a
group).................................... 5,687,500 100.00% 225,000 5,462,500 78.46%
</TABLE>
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DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value.
Common Stock. As of June 30, 1996, there were 5,687,500 shares of Common
Stock outstanding. Holders of Common Stock are not entitled to any preemptive
rights. The Common Stock is neither redeemable nor convertible into any other
securities. All outstanding shares of Common Stock are fully paid and
nonassessable. All shares of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor.
Each holder of Common Stock is entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of shareholders,
including the election of directors. Shares of Common Stock do not have
cumulative voting rights.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share equally and ratably in all of the
assets remaining, if any, after satisfaction of all debts and liabilities of the
Company.
Preferred Stock. The Board of Directors, without further shareholder
action, is authorized to issue shares of Preferred Stock in one or more series
and to fix the terms and provisions of each series, including dividend rights
and preferences over dividends on the Common Stock, conversion rights, voting
rights (in addition to those provided by law), redemption rights and the terms
of any sinking fund therefor, and rights upon liquidation, including preferences
over the Common Stock. Under certain circumstances, the issuance of a series of
Preferred Stock could have the effect of delaying, deferring or preventing a
change of control of the Company and could adversely affect the rights of the
holders of the Common Stock. As of June 30, 1996 there were no issued and
outstanding shares of Preferred Stock and there is no current intention to issue
any Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
WARRANTS
The Company currently has one outstanding Warrant (the 'Warrant') with
respect to its Common Stock, which was issued on March 12, 1996, in favor of a
private investor (the 'Warrant Holder'). The Warrant entitles the Warrant
Holder, upon its exercise, to purchase from the Company 18,811 shares of its
Common Stock (the 'Warrant Shares') at $0.53 per share. The exercise price per
share may be adjusted over time due to certain adjustments that are to be made
to the number of shares constituting a 'Warrant Share' in the event of Common
Stock splits, dilutive issuances of additional Common Stock, issuance of
additional warrants or other rights, or issuance of securities convertible into
Common Stock by the Company.
The Warrant provides the Warrant Holder with certain registration rights
that arise upon the Company's proposal to register, subsequent to its initial
public offering, its Common Stock for sale to the public under the Securities
Act. In such event, the Warrant obligates the Company to give written notice to
the Warrant Holder of its intention to register shares in a public offering.
Upon the written request of the Warrant Holder, received by the Company within
20 days after the giving of any such notice by the Company, to register any of
its Warrant Shares and/or Warrant Shares issuable upon exercise of a Warrant
held by such Warrant Holder, the Company must use its best efforts to cause the
Warrant Shares as to which registration shall have been so requested to be
included in the registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition by the Warrant
Holder (in accordance with its written request) of such Warrant Shares.
Alternatively, the Company may include the Warrant Shares as to which
registration shall have been requested by a Warrant Holder in a separate
registration statement to be filed concurrently with the registration statement
proposed to be filed by the Company. The Warrant also provides that in the event
that any registration statement filed by the Company shall relate, in whole or
in part, to an underwritten public offering, the number of Warrant Shares to be
included in such registration statement may be
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reduced or no Warrant Holders may be included in such registration, subject to
certain conditions, if and to the extent that the managing underwriters shall
give their written opinion that such inclusion would materially and adversely
affect the marketing of the securities to be sold therein by the Company. Except
as set forth above, the Warrant sets no limit on the number of registrations
that may be requested pursuant to the terms of the Warrant.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND TEXAS
CORPORATION LAW
GENERAL
The provisions of the Articles of Incorporation, the Bylaws and the Texas
Business Corporation Act (the 'TBCA') described in this section may affect the
rights of the Company's shareholders.
AMENDMENT OF ARTICLES OF INCORPORATION
Under the TBCA, a corporation's articles of incorporation may be amended by
the affirmative vote of the holders of two-thirds of the total outstanding
shares entitled to vote thereon, unless a different amount, not less than a
majority, is specified in the articles of incorporation. The Company's Articles
of Incorporation reduces such amount to a majority.
CUMULATIVE VOTING
Under the TBCA, cumulative voting is available unless prohibited by a
corporation's articles of incorporation. The Company's Articles of Incorporation
expressly prohibits cumulative voting.
CLASSIFIED BOARD
The TBCA permits but does not require, the adoption of a classified board
of directors consisting of any number of directors with staggered terms, with
each class having a term of office longer than one year but not longer than
three years. The TBCA also provides that no classification of directors shall be
effective for any corporation if any shareholder has the right to cumulate his
vote unless the board of directors consists of nine or more members. The Company
has not adopted a classified board of directors.
REMOVAL OF DIRECTORS
The TBCA provides that if a corporation's articles of incorporation or
bylaws so provide, at a meeting of shareholders called for that purpose, any
director or the entire board of directors may be removed with or without cause,
by the vote of the holders of the portion of shares specified in the
corporation's articles of incorporation or bylaws, but not less than a majority
of the shares entitled to vote at an election of directors. Neither the
Company's Articles of Incorporation nor its Bylaws provide for the removal of
directors; under the TBCA removal of directors is permitted by majority with or
without cause.
INSPECTION OF SHAREHOLDER REGISTER
The TBCA permits any person who shall have been a shareholder for at least
six months immediately preceding his demand, or who is the holder of at least 5%
of the outstanding stock of the corporation, to examine the shareholder list,
provided that a written demand setting forth a proper purpose of such
examination is made and served on the statutory agent of the corporation.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
Under the TBCA a special meeting of shareholders of a corporation may be
called by the president, board of directors or shareholders as may be authorized
in the articles of incorporation or bylaws of the corporation or by the holders
of at least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting, unless the articles of incorporation
provide for a lesser or greater percentage (but not more than 50%). The
Company's Articles of Incorporation do not provide for a lesser or a greater
percentage. In addition, the Company's Bylaws provide that such a special
meeting may be called by the Chairman of the Board, the Chief Executive Officer,
the Secretary or any two directors of the Company.
59
<PAGE>
<PAGE>
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
Under the TBCA, shareholders have the right, subject to certain exceptions,
to vote on all mergers to which the corporation is a party. In certain
circumstances, different classes of securities may be entitled to vote
separately as classes with respect to such mergers. Under the Company's Articles
of Incorporation, approval of the holders of at least a majority of all
outstanding shares entitled to vote is required for a merger. The approval of
the shareholders of the surviving corporation in a merger is not required under
Texas law if: (i) the corporation is the sole surviving corporation in the
merger; (ii) there is no amendment to the corporation's articles of
incorporation; (iii) each shareholder holds the same number of shares after the
merger as before with identical designations, preferences, limitations and
relative rights; (iv) the voting power of the shares outstanding after the
merger plus the voting power of the shares issued in the merger does not exceed
the voting power of the shares outstanding prior to the merger by more than 20%;
(v) the number of shares outstanding after the merger plus the shares issued in
the merger does not exceed the number of shares outstanding prior to the merger
by more than 20%; and (vi) the board of directors of the surviving corporation
adopts a resolution approving the plan of merger.
The Company's Articles of Incorporation further provide that the Company
may sell, lease, exchange or otherwise dispose of all, or substantially all, of
its property, other than in the usual and regular course of business, or
dissolve, if the shareholders owning a majority or more of all the votes
entitled to be cast in the transaction approve the transaction. However, certain
of the Company's securitization documents prohibit mergers and sales of
substantially all assets.
ACTION WITHOUT A MEETING
Under the TBCA, any action to be taken by shareholders at a meeting may be
taken without a meeting if all shareholders entitled to vote on the matter
consent to the action in writing. In addition, a Texas corporation's articles of
incorporation may provide that shareholders may take action by a consent in
writing signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting. The Company's Articles of Incorporation contain such a provision.
DISSENTERS' RIGHTS
Under the TBCA, a shareholder is entitled to dissent from and, upon
perfection of the shareholder's appraisal rights, to obtain the fair value of
his or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the corporation,
and certain amendments to the corporation's articles of incorporation that
materially and adversely affect shareholder rights.
DIVIDENDS AND STOCK REPURCHASES AND REDEMPTIONS
The TBCA provides that the board of directors of a corporation may
authorize, and the corporation may make, distributions subject to any
restrictions in its articles of incorporation and the following limitations:
(1) A distribution may not be made by a corporation if after giving
effect thereto the corporation would be insolvent or the distribution
exceeds the surplus of the corporation, provided, however, that if the net
assets of a corporation are not less than the amount of the proposed
distribution the corporation may make a distribution involving a purchase
or redemption if made by the corporation to: (a) eliminate fractional
shares; (b) collect or compromise indebtedness owed by or to the
corporation; (c) pay dissenting shareholders entitled to payment for their
shares under the TBCA; or (d) effect the purchase or redemption of
redeemable shares in accordance with the TBCA.
(2) The corporation may make a distribution not involving a purchase
or redemption of any of its own shares if the corporation is a consuming
assets corporation.
60
<PAGE>
<PAGE>
PREEMPTIVE RIGHTS
Under the TBCA, shareholders of a corporation have a preemptive right to
acquire additional, unissued, or treasury shares of the corporation, or
securities of the corporation convertible into or carrying a right to subscribe
to or acquire shares, except to the extent limited or denied by statute or by
the articles of incorporation. The Company's Articles of Incorporation expressly
deny preemptive rights.
DISSOLUTION
The TBCA permits, and the Company's Articles of Incorporation allow, that
voluntary dissolution may occur upon the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 6,981,311 shares
of Common Stock outstanding (7,206,311 shares if the Underwriters'
over-allotment option is exercised in full). Of such shares, the shares sold in
the Offering (other than shares which may be purchased by 'affiliates' of the
Company) will be freely tradeable without restriction or further registration
under the Securities Act. The 5,481,311 remaining shares of Common Stock are
'restricted securities,' as that term is defined under Rule 144 promulgated
under the Securities Act, and may only be sold pursuant to a registration
statement under the Securities Act or an applicable exemption from the
registration requirements of the Securities Act, including Rule 144 and 144A
thereunder. Approximately 69,800 shares will be eligible for sale pursuant to
Rule 144 immediately after the Offering, subject to compliance with such Rule
and the contractual arrangements disclosed below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least two years from the later of the date such
restricted shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (69,813 shares based on the number of shares
to be outstanding immediately after this Offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume in the
public market during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales under Rule 144 are also subject
to certain requirements as to the manner and notice of sale and the availability
of public information concerning the Company.
Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two-year holding period. Restricted shares held by affiliates of the
Company eligible for sale in the public market under Rule 144 are subject to the
foregoing volume limitations and other restrictions.
Further, under Rule 144(k), if a period of at least three years has elapsed
between the later of the date restricted shares were acquired from the Company
and the date they were acquired from an affiliate of the Company and the person
acquiring such shares was not an affiliate for at least three months prior to a
proposed sale, such person would be entitled to sell the shares immediately
without regard to volume limitations and the other conditions described above.
The Company and all holders of Common Stock prior to the Offering have
agreed not to, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of any Common Stock, including, but not limited to, any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Principal Financial Securities,
Inc. See 'Underwriting.' No predictions can be made as to the effect, if any,
that market sales of shares of existing shareholders or the availability of such
shares for future sale will have on the market price of shares of Common Stock
prevailing from time to time. The prevailing market price of Common Stock after
the Offering could be adversely affected by future sales of substantial amounts
of Common Stock by existing shareholders or the perception that such sales could
occur.
61
<PAGE>
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the 'Underwriting Agreement') among the Company, the Selling Stockholders and
the underwriter named below (the 'Underwriters'), for whom Principal Financial
Securities, Inc. and Cruttenden Roth Incorporated are acting as the
representatives (the 'Representatives'), each of the Company and the Selling
Shareholders have agreed to sell to the Underwriters, and each of the
Underwriters severally has agreed to purchase from the Company and the Selling
Shareholders, the respective number of shares of Common Stock set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------- ---------
<S> <C>
Principal Financial Securities, Inc....................................
Cruttenden Roth Incorporated...........................................
---------
Total............................................................. 1,500,000
---------
---------
</TABLE>
The Underwriters are committed to purchase and pay for all such shares if
any are purchased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $
per share of Common Stock. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share of Common Stock on
sales to certain other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be changed by the
Underwriters.
The Company has agreed to pay the Representatives a non-accountable expense
allowance equal to $100,000 for expenses in connection with this offering. The
Representatives' expenses in excess of such allowance will be borne by the
Representatives. To the extent that the expenses of the Representatives are less
than the non-accountable expense allowance, the excess may be deemed to be
compensation to the Representatives.
The Representatives have advised the Company that they do not expect any
sales of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.
Prior to the Offering, there has been no public trading market for the
Common Stock. Although the Company has applied for quotation of the Common Stock
on Nasdaq, there can be no assurance that any active trading market will develop
for the Common Stock or, if developed, will be maintained. The initial public
offering price will be determined through negotiations between the Company and
the Representatives. The factors to be considered in determining the initial
public offering price will include the history of and the prospects for the
industry in which the Company competes, the ability of the Company's management,
the past and present operations of the Company, the historical results of
operations of the Company, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of the offering and the
recent market prices of securities of generally comparable companies.
The Company has granted the Underwriters an option exercisable during the
30-day period after the date of this Prospectus to purchase up to 225,000
additional shares of Common Stock, solely to cover over-allotments, if any, at
the initial public offering price less the underwriting discount, as set forth
on the cover page of this Prospectus.
The Company and all holders of Common Stock prior to the Offering have
agreed that they will not, without the prior written consent of the
Representatives, directly or indirectly, offer, sell, grant any option to
purchase or otherwise dispose (or announce the offer, sale, grant of any option
to purchase or other disposition) of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock for a period of 180 days after the date of this Prospectus.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
62
<PAGE>
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the common stock offered hereby will
be passed upon for the Company by Dewey Ballantine, New York, New York. Dewey
Ballantine will rely as to matters of Texas law upon the opinion of Butler &
Binion, L.L.P. Certain legal matters with respect to the Offering will be passed
upon for the Underwriters by Fulbright & Jaworski L.L.P., San Antonio, Texas.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1995 and the
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the period from August 1, 1994 through December 31, 1994 and for the
year ended December 31, 1995, included in this prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
CHANGE IN ACCOUNTANTS
In September 1995, in anticipation of the commencement of the Company's
securitization program and its status as a public company, the Company's Board
of Directors appointed Coopers & Lybrand L.L.P. as the Company's independent
certified public accountants. Prior thereto, Mann Frankfort Stein & Lipp
(Houston, Texas) ('Mann Frankfort') served as the Company's independent
accountants.
During the Company's fiscal years ended December 31, 1994 and 1995, and the
subsequent interim period from January 1, 1996 through the date hereof, there
have been no disagreements with Mann Frankfort on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to its satisfaction, would have caused Mann
Frankfort to make reference thereto in its report on the financial statements
for the period from September 1, 1994 to March 31, 1995. The report of Mann
Frankfort on the Company's financial statements for such audit period did not
contain an adverse opinion or a disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope or accounting principles, except that
Mann Frankfort was unable to obtain an independent accountant's report on the
internal control procedures of LSE and was unable to apply other auditing
procedures regarding certain finance receivables. Accordingly, Mann Frankfort
was unable at such time to express an opinion on the Company's financial
statements. Following receipt of such information from LSE, Mann Frankfort was
subsequently able to issue an unqualified report as of October 6, 1995. Coopers
& Lybrand L.L.P. has since conducted an audit of the Company's financial
condition and operations for the period covered by the Mann Frankfort audit.
From time to time, Mann Frankfort continues to perform various accounting
services on behalf of the Company.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-1 (of which this Prospectus is
a part) under the Securities Act of 1933, as amended (the 'Securities Act'),
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or any other document are not necessarily complete, and in each
instance, reference is made to the copy of such contract or document filed as an
exhibit or schedule to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including exhibits thereto, may be inspected without charge at the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the New York Regional Office located at 7 World Trade
Center, New York, New York 10048, and at the Chicago Regional Office located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained, at prescribed rates, from the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to furnish to its shareholders with annual reports
containing financial statements audited by its independent auditors and with
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
The Commission maintains a Web site at http://www.sec.gov pursuant to Item
502(a)(2) under Regulation S-K as recently amended in SEC Release No. 33-7289
(May 9, 1996), wherefrom investors may obtain copies of the registration
statement and exhibits.
63
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets, December 31, 1994 and 1995 and June 30, 1996 (Unaudited)...................... F-3
Consolidated Statements of Operations for the Period From August 1, 1994 (Inception) through December 31,
1994, the Year Ended December 31, 1995 and the Six-Month Periods Ended June 30, 1995 (Unaudited) and 1996
(Unaudited).............................................................................................. F-4
Consolidated Statements of Shareholders' Equity for the Period From August 1, 1994 (Inception) to December
31, 1994, the Year Ended December 31, 1995 and the Six-Month Period Ended June 30, 1996 (Unaudited)...... F-5
Consolidated Statements of Cash Flows for the Period From August 1, 1994 (Inception) to December 31, 1994,
the Year Ended December 31, 1995 and the Six-Month Periods Ended June 30, 1995 (Unaudited) and 1996
(Unaudited).............................................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
AUTOBOND ACCEPTANCE CORPORATION
We have audited the accompanying consolidated balance sheets of AutoBond
Acceptance Corporation and Subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the period from August 1, 1994 (Inception) through December 31, 1994
and for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AutoBond
Acceptance Corporation and Subsidiaries as of December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for the period
from August 1, 1994 (Inception) through December 31, 1994 and for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Austin, Texas
May 1, 1996
F-2
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 92,660 $ 1,822,881
Restricted cash...................................................... $ 138,176 360,266 276,297
Cash held in escrow.................................................. 1,322,571 1,666,847
Finance contracts held for sale, net................................. 2,361,479 3,354,821 545,681
Repossessed assets held for sale..................................... 673,746 513,568
Class B Certificates................................................. 2,834,502 6,092,308
Excess servicing receivable.......................................... 846,526 1,574,761
Debt issuance cost................................................... 700,000 823,860
Trust receivable..................................................... 525,220 2,057,568
Due from affiliate................................................... 86,700
Prepaid expenses and other assets.................................... 354,208 832,100
---------- ----------- -----------
Total assets............................................... $2,499,655 $11,064,520 $16,292,571
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit agreement...................................... $2,054,776 $ 1,150,421 $ 237,292
Notes payable................................................... 2,674,597 6,248,219
Repurchase agreement............................................ 1,061,392 --
Subordinated debt............................................... 300,000
Accounts payable and accrued liabilities........................ 25,636 1,836,082 1,506,843
Bank overdraft.................................................. 23,314 861,063 2,185,847
Payable to affiliate............................................ 504,534 255,597 --
Deferred income taxes........................................... 199,000 1,169,000
---------- ----------- -----------
Total liabilities.......................................... 2,608,260 8,038,152 11,647,201
---------- ----------- -----------
Shareholders' equity:
Common stock, no par value; 25,000,000 shares authorized;
5,118,753 shares, 5,118,753 shares and 5,687,500 shares issued
and outstanding,.............................................. $ 1,000 $ 1,000 $ 1,000
Additional paid-in capital...................................... 451,000 2,912,603 2,912,603
Deferred compensation........................................... (62,758) (36,990)
Loans to shareholders........................................... (16,000) (153,359) (436,034)
Retained earnings (accumulated deficit)......................... (544,605) 328,882 2,204,791
---------- ----------- -----------
Total shareholders' equity (deficit)....................... (108,605) 3,026,368 4,645,370
---------- ----------- -----------
Total liabilities and shareholders' equity................. $2,499,655 $11,064,520 $16,292,571
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED JUNE 30,
THROUGH DECEMBER DECEMBER 31, ------------------------
31, 1994 1995 1995 1996
---------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Interest income................................. $ 38,197 $ 2,880,961 $ 801,781 $1,470,351
Interest expense................................ (19,196) (2,099,867 ) (384,353) (1,137,520)
---------------- ------------ ---------- ----------
Net interest income........................ 19,001 781,094 417,428 332,831
Gain on sale of finance contracts............... 4,085,952 133,684 5,743,986
Servicing fee income............................ 8,563 277,208
---------------- ------------ ---------- ----------
Total revenues........................ 19,001 4,867,046 559,675 6,354,025
---------------- ------------ ---------- ----------
Expenses:
Provision for credit losses..................... 45,000 48,702 205,000 63,484
Salaries and benefits........................... 225,351 1,320,100 380,083 1,846,047
General and administrative...................... 244,974 1,462,740 581,889 884,348
Other operating expenses........................ 48,281 963,017 324,075 564,237
---------------- ------------ ---------- ----------
Total expenses........................ 563,606 3,794,559 1,491,047 3,358,116
---------------- ------------ ---------- ----------
Income (loss) before taxes and extraordinary loss.... (544,605) 1,072,487 (931,372) 2,995,909
Provision for income taxes........................... 199,000 1,020,000
---------------- ------------ ---------- ----------
Income (loss) before extraordinary loss.............. (544,605) 873,487 (931,372) 1,975,909
Extraordinary loss, net of tax benefits of $50,000... (100,000)
---------------- ------------ ---------- ----------
Net income (loss)............................... $ (544,605) $ 873,487 $ (931,372) $1,875,909
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
Income (loss) per common share:
Income (loss) before extraordinary loss......... $ (0.11) 0.17 (0.18) 0.35
Extraordinary loss.............................. (0.02)
---------------- ------------ ---------- ----------
Net income (loss)............................... (0.11) .17 (0.18) 0.33
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
Weighted average shares outstanding.................. 5,118,753 5,190,159 5,118,753 5,698,367
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
--------- ------ ---------- ------------
<S> <C> <C> <C> <C>
Capital contributions at inception................ 5,118,753 $1,000 $ 451,000
Loans to shareholders.............................
Net loss..........................................
--------- ------ ---------- ------------
Balance, December 31, 1994........................ 5,118,753 1,000 451,000
Capital contributions............................. 2,323,103
Loans to shareholders.............................
Deferred compensation per employee contract....... 138,500 $ (138,500)
Amortization of deferred compensation............. 75,742
Net income........................................
--------- ------ ---------- ------------
Balance, December 31, 1995........................ 5,118,753 1,000 2,912,603 (62,758)
Stock issued per employee contract................ 568,747
Loans to shareholders.............................
Amortization of deferred compensation............. 25,768
Net income........................................
--------- ------ ---------- ------------
Balance, June 30, 1996 (unaudited)................ 5,687,500 $1,000 $2,912,603 $ (36,990)
--------- ------ ---------- ------------
--------- ------ ---------- ------------
<CAPTION>
LOANS TO RETAINED
SHAREHOLDERS EARNINGS TOTAL
------------ ---------- ----------
<S> <C> <C> <C>
Capital contributions at inception................ $ 452,000
Loans to shareholders.............................$ (16,000 ) (16,000)
Net loss.......................................... $ (544,605) (544,605)
------------ ---------- ----------
Balance, December 31, 1994........................ (16,000 ) (544,605) (108,605)
Capital contributions............................. 2,323,103
Loans to shareholders............................. (137,359 ) (137,359)
Deferred compensation per employee contract.......
Amortization of deferred compensation............. 75,742
Net income........................................ 873,487 873,487
------------ ---------- ----------
Balance, December 31, 1995........................ (153,359 ) 328,882 3,026,368
Stock issued per employee contract................
Loans to shareholders............................. (282,675 ) (282,675)
Amortization of deferred compensation............. 25,768
Net income........................................ 1,875,909 1,875,909
------------ ---------- ----------
Balance, June 30, 1996 (unaudited)................$ (436,034 ) $2,204,791 $4,645,370
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED JUNE 30,
THROUGH DECEMBER DECEMBER 31, ---------------------------
31, 1994 1995 1995 1996
----------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (544,605) $ 873,487 $ (931,372) $ 1,875,909
Adjustments to reconcile net income to net cash used
in operating activities:
Amortization of finance contract acquisition
discount and insurance......................... (4,513) (795,579) (41,805) (878,557)
Amortization of deferred compensation............ 75,742 25,768
Provision for credit losses...................... 45,000 48,702 205,000 63,484
Deferred income taxes............................ 199,000 970,000
Amortization of excess servicing receivable...... 48,687 534,014
Amortization of debt issuance cost............... 135,571
Changes in operating assets and liabilities:
Restricted cash.............................. (138,176) (222,090) (377,992) 83,969
Cash held in escrow.......................... (1,322,571) (344,276)
Prepaid expenses and other assets............ (354,208) (98,307) (477,892)
Class B Certificates......................... (2,834,502) (3,257,806)
Excess servicing receivable.................. (895,213) (79,934) (1,262,249)
Accounts payable and accrued liabilities..... 25,636 1,110,446 388,672 (329,239)
Due to/due from affiliate.................... 504,534 (248,937) 548,510 (342,297)
Purchases of finance contracts....................... (2,453,604) (31,200,131) (12,206,952) (33,358,304)
Repayments of finance contracts...................... 51,638 2,660,018 705,171 324,957
Sales of finance contracts........................... 27,399,543 1,351,303 35,842,076
----------------- ------------ ----------- ------------
Net cash used in operating activities............ (2,514,090) (5,457,606) (10,537,706) (394,872)
----------------- ------------ ----------- ------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts.............. (525,220) (1,532,348)
Loans to shareholders................................ (16,000) (137,359) 4,138 (282,675)
Disposal proceeds from repossessions................. 220,359 975,662
----------------- ------------ ----------- ------------
Net cash used in investing activities............ (16,000) (442,220) 4,138 (839,361)
----------------- ------------ ----------- ------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
agreements......................................... 2,054,776 (904,355) 11,017,513 (913,129)
Debt issuance costs.................................. (259,431)
Proceeds (repayments) from borrowings under
repurchase agreement............................... 1,061,392 (1,061,392)
Proceeds from notes payable.......................... 2,674,597 6,734,306
Payments on notes payable............................ (3,160,684)
Proceeds from subordinated debt borrowings........... 300,000
Shareholder contributions............................ 452,000 2,323,103 (124,071)
Increase in book overdraft........................... 23,314 837,749 447,039 1,324,784
----------------- ------------ ----------- ------------
Net cash provided by financing activities........ 2,530,090 5,992,486 11,340,481 2,964,454
----------------- ------------ ----------- ------------
Net increase in cash and cash equivalents................ 0 92,660 806,913 1,730,221
Cash and cash equivalents at beginning of period......... 0 0 0 92,660
----------------- ------------ ----------- ------------
Cash and cash equivalents at end of period............... $ 0 $ 92,660 $ 806,913 $ 1,822,881
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 19,196 $ 2,099,867 $ 384,353 $ 1,011,710
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Cash paid for income taxes........................... $ 0 $ 0 $ 0 $ 0
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Non-cash investing and financing activities:
Accrual of debt issuance cost........................ $ 0 $ 700,000 $ 0 $ 0
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Repossession of automobiles.......................... 0 $ 849,756 $ 44,349 $ 815,484
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial statements and following notes, insofar as they are
applicable to the six-month periods ended June 30, 1995 and 1996, and
transactions subsequent to May 1, 1996, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments, consisting of only normal recurring
accruals considered necessary for a fair presentation of the unaudited
consolidated results of operations for the six-month periods ended June 30, 1995
and 1996, have been included.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AutoBond Acceptance Corporation (the 'Company') was incorporated in June
1993 and commenced operations August 1, 1994. The Company is engaged in the
business of acquiring, securitizing and servicing automobile finance contracts
('Finance Contracts') on new and used automobiles for individuals with subprime
credit histories.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
RESTRICTED CASH
In accordance with the Company's revolving credit facilities, the Company
is required to maintain a cash reserve with its lenders of 1% to 6% of the
proceeds received from the lender for the origination of the Finance Contracts.
Access to these funds is restricted by the lender; however, such funds may be
released in part upon the occurrence of certain events including payoffs of
Finance Contracts.
CASH HELD IN ESCROW
Upon closing of a securitization transaction, certain funds due to the
various parties, including the Company and its warehouse lenders, frequently
remain in escrow pending disbursement by the Trustee one to ten days subsequent
to closing.
TRUST RECEIVABLE
At the time a securitization closes, the Company is required to establish a
cash reserve within the trust for future credit losses. Additionally, depending
on each securitization structure, a portion of the Company's future servicing
cash flow is required to be deposited as additional reserves for credit losses.
The December 1995, March 1996 and June 1996 securitization transactions resulted
in initial cash reserves of approximately $525,000, $331,000 and $357,000,
respectively, approximating 2% of the Finance Contracts sold to the trusts. The
trust reserves will be increased from excess cash flows until such time as they
attain a level of 6% of the outstanding principal balance.
FINANCE CONTRACTS HELD FOR SALE
Finance Contracts held for sale are stated at the lower of aggregated
amortized cost, or market value. Market value is determined based on the
estimated value of the Finance Contracts if securitized and sold.
F-7
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company generally acquires Finance Contracts at a discount, and
purchases loss default and vender single interest physical damage insurance on
the Finance Contracts. The purchase discount and insurance are amortized as an
adjustment to the related Finance Contracts' yield and operating expense,
respectively, utilizing the same basis as that used to record income on the
Finance Contracts, over the contractual life of the related loans. At the time
of sale, any remaining unamortized amounts are netted against the Finance
Contract's principal amount outstanding to determine the resultant gain or loss
on sale.
Allowance for credit losses on the Finance Contracts is based on the
Company's historical default rate, the liquidation value of the underlying
collateral in the existing portfolio, estimates of repossession costs and
probable recoveries from insurance proceeds. The allowance is increased by
provisions for estimated future credit losses which are charged against income.
The allowance account is reduced for direct charge-offs using the specific
identification method, and for estimated losses upon repossession of automobiles
which is netted against the related Finance Contracts and transferred to
Repossessed assets held for sale.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of
long-lived assets other than financial instruments, excess servicing receivables
and deferred tax assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation of impairment is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
REPOSSESSED ASSETS HELD FOR SALE
Automobiles repossessed and held for sale are initially recorded at the
lower of the net recorded investment in the Finance Contracts on the date of
repossession or the fair value of the automobiles. Fair value is determined
based on the expected cash proceeds from the sale of the assets and applicable
insurance payments, net of all disposition costs. Due to the relatively short
time period between acquisition and disposal of the assets, discounting of the
expected net cash proceeds to determine fair value is not utilized. Subsequent
impairment reviews are performed quarterly on a disaggregated basis. A valuation
allowance is established if the carrying amount is greater than the fair value
of the assets. Subsequent increases and decreases in fair value result in
adjustment of the valuation allowance which is recorded in earnings during the
period of adjustment. Adjustments for subsequent increases in fair value are
limited to the existing valuation allowance amount, if any. During each of the
periods presented, no valuation allowance has been required.
CLASS B CERTIFICATES
Pursuant to the securitization transactions, the related Trusts have issued
Class B Certificates to the Company which are subordinate to the Class A
Certificates and senior to the excess servicing receivable with respect to cash
distributions from the Trust. The Company accounts for the Class B Certificates
as trading securities in accordance with Statement of Financial Accounting
Standards ('SFAS') No. 115, 'Accounting for Certain Investments in Debt and
Equity Securities.' SFAS No. 115 requires fair value accounting for these
certificates with the resultant unrealized gain or loss recorded in the
statements of operations in the period of the change in fair value. The Company
determines fair value on a disaggregated basis utilizing a discounted cash flow
analysis similar to that described below for determining market value of the
excess servicing receivable, as well as other unique characteristics such as the
remaining principal balance in relation to estimated future cash flows and the
expected remaining terms of the certificates. During each of the periods
presented, there have been no unrealized gains or losses on the Class B
Certificates. The Class B Certificates accrue interest at 15%.
F-8
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS SERVICING RECEIVABLE
Excess servicing receivable includes the estimated present value of future
net cash flows from securitized receivables over the amounts due to the Class A
and Class B Certificateholders in the securitizations and certain expenses paid
by the entity established in connection with the securitization transaction. The
Finance Contracts sold in conjunction with the securitization transactions are
treated as sale transactions in accordance with SFAS No. 77, 'Reporting by
Transferors for Transfers of Receivables with Recourse.' Gain or loss is
recognized on the date the Company surrenders its control of the future economic
benefits relating to the receivables and the investor has placed its cash in the
securitization trust. Accordingly, all outstanding debt related to the Finance
Contracts sold to the securitization trust is deemed to be simultaneously
extinguished. The Company sells 100% of the Finance Contracts and retains a
participation in the future cash flows released by the securitization Trustee.
The Company also retains the servicing rights, and contracts with third parties
to perform certain aspects of the servicing function.
The discount rate utilized to determine the excess servicing receivable is
based on assumptions that market participants would use for similar financial
instruments subject to prepayment, default, collateral value and interest rate
risks. The future net cash flows are estimated based on many factors including
contractual principal and interest to be received, as adjusted for expected
prepayments, defaults, collateral sales proceeds, insurance proceeds, payments
to investors on the pass-through securities, servicing fees and other costs
associated with the securitization transaction and related loans. The gain from
securitization transactions include the excess servicing receivable and Class B
Certificates plus the difference between net proceeds received on the
transaction date and the net carrying value of Finance Contracts held for sale.
The carrying value of the excess servicing receivable is amortized in
proportion to and over the period of estimated net future excess servicing fee
income, for which the amortization is recorded as a charge against servicing fee
income. The excess servicing receivable is reviewed quarterly to determine if
differences exist between estimated and actual credit losses and prepayment
rates at each balance sheet date using the discount factor applied in the
original determination of the excess servicing receivable. The Company's
analysis determines whether the excess servicing receivable is in excess of the
present value of the estimated remaining cash flows. The Company does not
increase the carrying value of the excess servicing receivable for favorable
variances from original estimates, but to the extent that actual results exceed
the Company's prepayment or loss estimates, any required decrease adjustment is
reflected as a write down of the receivable and a related charge against current
period earnings.Write downs of excess servicing receivables due to modification
of future estimates as a result of the quarterly impairment reviews are
determined on a disaggregated basis consistent with the risk characteristics of
the underlying loans consisting principally of origination date and originating
dealership. There were no material adjustments to the carrying value of the
excess servicing receivable during 1995 or the six-month period ended June 30,
1996.
DEBT ISSUANCE COST
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the lives of the
related debt.
FEDERAL INCOME TAXES
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered
F-9
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or settled. 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.
EXTRAORDINARY LOSS
The extraordinary loss in 1996 was from a $150,000 prepayment fee related
to a $2,684,000 term loan with a finance company during 1996. The term loan
carried a stated interest rate of 20% (see Note 6).
EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of
common shares and common share equivalents outstanding during the year. Primary
and fully diluted earnings per share are the same for all periods presented.
Effective May 30, 1996, the Board of Directors of the Company voted to effect a
767.8125-for-1 stock split. All share information and earnings per share
calculations for the periods presented in the financial statements herein, and
the notes hereto, have been retroactively restated for such stock split.
PERVASIVENESS OF ESTIMATES
The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTEREST INCOME
Interest income on Finance Contracts acquired prior to December 31, 1995 is
determined on a monthly basis using the Rule of 78s method which approximates
the simple interest method. Subsequent to December 31, 1995, the Company uses
the simple interest method to determine interest income on Finance Contracts
acquired. The Company discontinues accrual of interest on loans past due for
more than 90 days. The Company accrues interest income on the Class B
Certificates (see Note 4) monthly at 15% using the interest method.
CONCENTRATION OF CREDIT RISK
The Company acquires Finance Contracts from a network of automobile dealers
located in sixteen states, including Texas, Arizona, Oklahoma, New Mexico,
Connecticut, Georgia and Utah. For the five-month period ended December 31,
1994, the year ended December 31, 1995 and the six months ended June 30, 1996,
the Company had a significant concentration of Finance Contracts with borrowers
in Texas, which approximated 94%, 91% and 91% of total Finance Contracts,
respectively.
F-10
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS:
Effective January 1, 1996 the Company adopted SFAS No. 122 which requires
that upon sale or securitization of servicing-retained finance contracts, the
Company capitalize the cost associated with the right to service the finance
contracts based on their relative fair values. Fair value is determined by the
Company based on the present value of estimated net future cash flows related to
servicing income. The cost allocated to the servicing right is amortized in
proportion to and over the period of estimated net future servicing fee income.
SFAS No. 122 had no impact on the Company's financial statements for the
six-month period ended June 30, 1996 and would have had no material impact on
any of the prior periods presented as servicing fees approximate cost.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-Based Compensation.' SFAS No. 123 establishes fair
value-based financial accounting and reporting standards for all transactions in
which a company acquires goods or services by issuing its equity instruments or
by incurring a liability to suppliers in amounts based on the price of its
common stock or other equity instruments.
During 1996, the Company adopted the disclosure-only alternative under SFAS
No. 123, and will continue to account for stock-based compensation as prescribed
by Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees.'
3. FINANCE CONTRACTS HELD FOR SALE:
The following amounts are included in Finance Contracts held for sale as
of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Principal balance of Finance Contracts held for sale.......... $2,459,424 $3,539,195 $ 566,743
Prepaid insurance............................................. 156,095 260,155 17,997
Contract acquisition discounts................................ (209,040) (350,827) (25,122)
Allowance for credit losses................................... (45,000) (93,702) (13,937)
---------- ---------- ----------
$2,361,479 $3,354,821 $ 545,681
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4. EXCESS SERVICING RECEIVABLE:
During December 1995, the Company completed its first securitization
transaction since inception through the sale of certain Finance Contracts to
AutoBond Receivable Trust 1995-A (the 'Trust'). The Finance Contracts were sold
at the outstanding principal balance of the Finance Contracts which approximated
$26.2 million and the Company, through AutoBond Funding Corporation 1995,
retained a subordinated interest (Class B Certificate) in the Trust from
discounted net cash flows generated by the Finance Contracts in excess of
principal and interest paid to the Class A Certificate holder. At December 31,
1995, the Class A Certificate had an aggregate principal balance of
approximately $26.2 million and accrues interest at 7.23%, and the Class B
Certificate had an aggregate nominal principal balance of approximately $2.8
million and accrues interest at 15%. AutoBond Funding Corporation 1995 also has
the right to the remaining Trust cash flows ('Transferor's Interest') after
payment on the Class A and Class B Certificates, absorption of net losses from
defaults on the underlying finance contracts, and payment of the other expenses
of the Trust. Such Transferor's Interest discounted at 15% is recorded as an
increase to excess servicing receivable for each securitization transaction.
The Company is required to represent and warrant certain matters with
respect to the Finance Contracts sold to the Trust, which generally duplicate
the substance of the representations and warranties made by the dealers in
connection with the Company's purchase of the Finance Contracts. In the event of
a breach by the Company of any representation or warranty, the Company is
obligated to
F-11
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repurchase the Finance Contracts from the Trust at a price equal to the
remaining principal plus accrued interest. The Company has not recorded any
liability and has not been obligated to purchase Finance Contracts under the
recourse provisions during any of the reporting periods.
On March 29, 1996, the Company completed its second securitization
transaction through the sale of certain Finance Contracts to AutoBond
Receivables Trust 1996-A. The Finance Contracts were sold at the outstanding
principal balance of $16.6 million and resulted in an increase of excess
servicing receivable and Class B Certificates of $606,068 and $2,059,214,
respectively.
During June 1996, the Company completed its third securization transaction
through the sale of certain Finance Contracts to AutoBond Receivables Trust
1996-B. The Finance Contracts were sold at the outstanding principal balance of
$17.8 million and resulted in an increase of excess servicing receivable and
Class B Certificates of $654,181 and $2,066,410, respectively.
5. REVOLVING CREDIT AGREEMENTS:
Effective August 1, 1994, the Company entered into a Secured Revolving
Credit Agreement with Sentry Financial Corporation ('Sentry') which was amended
and restated on July 31, 1995. The amended agreement ('Revolving Credit
Agreement') provides for a $10,000,000 warehouse line of credit which terminates
December 31, 2000, unless terminated earlier by the Company or Sentry upon
meeting certain defined conditions. The proceeds of the Revolving Credit
Agreement are to be used to originate and acquire Finance Contracts, to pay for
loss default insurance premiums, to make deposits to a reserve account with
Sentry, and to pay for fees associated with the origination of Finance
Contracts. The Revolving Credit Agreement is collateralized by the Finance
Contracts acquired with the outstanding borrowings, and a guarantee by the
majority shareholder and an affiliate, wholly owned by the majority shareholder.
The Company pays a utilization fee of up to 0.21% per month on the average
outstanding balance of the Revolving Credit Agreement. The Revolving Credit
Agreement also requires the Company to pay up to 0.62% per quarter on the
average unused balance. Interest is payable monthly and accrues at a rate of
prime plus 1.75% (10.25% at December 31, 1995). The Revolving Credit Agreement
contains certain restrictive covenants, including requirements to maintain a
certain minimum net worth, and cash and cash equivalent balances. Under the
Revolving Credit Agreement, the Company paid interest of $411,915 for the year
ended December 31, 1995.
Pursuant to the Revolving Credit Agreement, the Company is required to pay
a $700,000 warehouse facility fee payable upon the successful securitization of
Finance Contracts. The $700,000 is payable in varying amounts after each of the
first three securitizations. The Company accrued the $700,000 debt issuance cost
upon the first securitization in December 1995, the date the Company determined
the liability to be probable in accordance with SFAS No. 5. The $700,000 debt
issuance cost is being amortized as interest expense through December 31, 2000,
the termination date of the Revolving Credit Agreement, utilizing the effective
interest method.
Effective June 16, 1995, the Company entered into a $25,000,000 Credit
Agreement with Nomura Asset Capital Corporation ('Nomura') which allowed for
advances to the Company through June 2000 with all outstanding amounts to mature
June 2005. Advances outstanding under the facility accrued interest at the three
month LIBOR rate plus 6.75% which approximated 12.59% at December 31, 1995. The
warehouse facility allowed Nomura to terminate the agreement upon 120 days
notice. On October 6, 1995, the Company received notice of Nomura's intent to
terminate, and all outstanding advance amounts together with accrued interest
were paid by the Company prior to March 31, 1996. No advances under the Credit
Agreement were outstanding as of each of the balance sheet dates.
Effective May 21, 1996 the Company, through its wholly-owned subsidiary
AutoBond Funding Corporation II, entered into a $20 million revolving warehouse
facility (the 'Revolving Warehouse Facility'), with Peoples Security Life
Insurance Company (an affiliate of Providian Capital Management), which expires
December 15, 1996. The proceeds from the borrowings under the Revolving
Warehouse Facility are to be used to acquire Finance Contracts, to pay credit
default
F-12
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance premiums and to make deposits to a reserve account. Interest is
payable monthly at a per annum rate of LIBOR plus 2.60%. The Revolving Warehouse
Facility also requires the Company to pay a monthly fee on the average unused
balance of 0.25% per annum. The Revolving Warehouse Facility is collateralized
by the Finance Contracts acquired with the outstanding borrowings. The Revolving
Warehouse Facility contains certain covenants and representations similar to
those in the agreements governing the Company's existing securitizations.
6. NOTES PAYABLE:
Pursuant to the securitization completed in December 1995, the Company
entered into a term loan agreement with a finance company to borrow
approximately $2,684,000. The loan was collateralized by the Company's Class B
Certificate in the Trust as well as the Transferor's Interest in the cash flows
of the Trust (see Note 4). The loan accrued interest at 20% per annum payable
monthly and principal payments were made based on principal payments received on
the Class B Certificates.
Effective April 8, 1996, the outstanding balance of $2,585,757 was
refinanced through a non-recourse term loan entered into with a new finance
company. The term loan is collateralized by the Company's Class B Certificates
(see Note 4), and matures April 8, 2002. The term loan bears interest at 15% per
annum payable monthly. Principal and interest payments on the term loan are paid
directly by the Trustee to the finance company and are based on payments
required to be made to the Class B Certificateholder pursuant to the Trust. The
Company can prepay the term loan in whole or part at any time if the holder
seeks to transfer such loan to a third party.
Effective March 28, 1996, the Company obtained another non-recourse term
loan in the amount of $2,059,214 from an institutional investor under similar
terms as described in the preceding paragraph. The loan is collateralized by the
Class B Certificates issued to the Company pursuant to the March 29, 1996
securitization transaction. The Company may prepay the loan in whole or in part
at any time subsequent to March 28, 1997, or any time after receiving notice by
the investor of its intent to transfer the loan to a third party. The maturity
date of the loan is the earlier of March 28, 2002 or the date that all
outstanding principal and accrued interest has been paid by the Trustee or the
Company.
Effective June 27, 1996, the Company obtained a third non-recourse term
loan in the amount of $2,066,410 from an institutional investor under similar
terms as described in the preceding two paragraphs. The loan is collateralized
by the Class B Certificates issued to the Company pursuant to the June 27, 1996
securitization transaction. The Company may prepay the loan in whole or in part
at any time subsequent to June 27, 1997, or any time after receiving notice by
the investor of its intent to transfer the loan to a third party. The maturity
date of the loan is the earlier of April 15, 2002 or the date that all
outstanding principal and accrued interest has been paid by the Trustee or the
Company.
During July 1996, a private investment management company entered into a
commitment agreement to provide the Company financing collateralized by the
senior excess spread interests to be created in the Company's next five proposed
securitization transactions. Timing and amount of payments of interest and
principal on the loans will correspond to distributions from the securitization
trusts on the Class B Certificates. The interest rate on such loans will be 15%
per annum, payable monthly and the borrowings will include a 3% origination fee.
The commitment is subject to the Company's ability to continue meeting several
provisions, including: (1) similarly structured securitization transactions; (2)
the absence of rating downgrades and defaults from previous securitizations; and
(3) satisfactory performance reports.
7. REPURCHASE AGREEMENT:
On December 20, 1995, the Company entered into an agreement to sell certain
Finance Contracts totaling $1,061,392 to a finance company, and repurchase such
Finance Contracts in January 1996 for an amount equal to the remaining unpaid
principal balance plus interest accruing at an annual rate of 19%.
F-13
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company repurchased such Finance Contracts during January 1996 in accordance
with the terms of the agreement.
8. SUBORDINATED DEBT:
Effective March 12, 1996, the Company received proceeds of $300,000 from an
individual for a 10% Subordinated Note with a detachable warrant to purchase
18,811 shares of common stock of the Company. The note bears interest at 10% per
annum and the principal together with accrued interest is payable on March 12,
1997. The debt is uncollateralized and is subordinate to the other indebtedness
and guarantees of the Company. The warrant allows for the purchase of common
stock at an exercise price equal to the fair market value as of March 12, 1996,
the date of grant. The warrant is exercisable in full or part during the period
commencing six months after the effective date of the Company's initial public
offering and ending 1.5 years thereafter. Management has determined that the
fair value of the warrant at its issuance date was de minimis.
9. INCOME TAXES:
The provision for income taxes for 1995 consists of a deferred tax
provision of $199,000 and no current liability. Due to net losses incurred from
inception through December 31, 1994, the Company has no provision in 1994. The
reconciliation between the provision for income taxes and the amounts that would
result from applying the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994
(INCEPTION) THROUGH YEAR ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED JUNE
1994 1995 30, 1996
------------------- ------------ ----------
<S> <C> <C> <C>
Federal tax at statutory rate of 34%................. $(185,000) $ 365,000 $1,019,000
Nondeductible expenses............................... 2,000 17,000 1,000
Change in valuation allowance........................ 183,000 (183,000) --
------------------- ------------ ----------
Provision for income taxes...................... $ -- $ 199,000 $1,020,000
------------------- ------------ ----------
------------------- ------------ ----------
</TABLE>
Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. Significant components of
the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Deferred Tax Assets:
Allowance for credit losses......................................... $ 15,000 $ 32,000 $ 53,000
Other............................................................... -- 116,000 266,000
Net operating loss.................................................. 168,000 1,042,000 1,498,000
--------- ---------- ----------
Gross deferred tax assets........................................... 183,000 1,190,000 1,817,000
--------- ---------- ----------
Deferred Tax Liability --
Gain on securitizations............................................. -- 1,389,000 2,986,000
--------- ---------- ----------
Net temporary differences................................................ 183,000 (199,000) (1,169,000)
Valuation allowance...................................................... (183,000) -- --
--------- ---------- ----------
Net deferred tax liability..................................... $ 0 $ 199,000 $1,169,000
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
At December 31, 1995, the Company had a net operating loss carryforward of
$3,067,000 which will expire beginning in fiscal year 2009. The 1994 net
operating loss carryforward was reserved in full at
F-14
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994 due to the uncertainty of realization of the deferred asset.
In 1995, the valuation allowance was reversed to reflect the estimated
realizability of the operating loss carryforwards.
10. EARNINGS PER SHARE
The following table reconciles the number of common shares shown as
outstanding on the balance sheet with the number of common and common equivalent
shares used in computing primary earnings per share as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1994 SIX MONTHS
(INCEPTION) YEAR ENDED ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, 1994 1995 1996
------------------ ------------ ------------
<S> <C> <C> <C>
Common shares outstanding........................................ 5,118,753 5,118,753 5,687,500
Effect of using weighted common and common equivalent shares
outstanding.................................................... 71,406 (7,113)
Effect of shares issuable to warrant holder...................... 17,980
------------------ ------------ ------------
Shares used in computing primary earnings per share.............. 5,118,753 5,190,159 5,698,367
------------------ ------------ ------------
------------------ ------------ ------------
</TABLE>
11. STOCKHOLDERS' EQUITY
Effective May 30, 1996, the Board of Directors adopted Restated Articles of
Incorporation which authorized 25,000,000 shares of no par value common stock
and 5,000,000 shares of no par value preferred stock.
12. RELATED PARTY TRANSACTIONS:
The Company shares certain general and administrative expenses with
AutoBond, Inc. ('ABI'), which was founded and is 100% owned by the Chief
Executive Officer ('CEO') of the Company. The CEO owns 67.5% of the Company.
Each entity is allocated expenses based on a proportional cost method, whereby
payroll costs are allocated based on management's review of each individual's
responsibilities, and costs related to office space and equipment rentals are
based on managements' best estimate of usage during the year. Miscellaneous
expenses are allocated based on the specific purposes for which each expense
relates. Management believes the methods used to allocate the general and
administrative expenses shared with ABI are reasonable, and that the expenses
reported in the financial statements after the ABI allocations approximate the
expenses that would have been incurred on a stand-alone entity basis. Total
expenses allocated to the Company from ABI amounted to approximately $441,000
for the period from August 1, 1994 (inception) to December 31, 1994 and
$2,163,000 for the year ended December 31, 1995. Additionally, neither the
Company nor any of its affiliates have paid any compensation to its CEO during
any of the periods presented herein; however, management of the Company expects
to commence compensation payments to the CEO during the latter half of 1996 (see
Note 13). The Company estimates that a reasonable amount of compensation to pay
the CEO on a stand-alone entity basis would approximate $40,000 and $100,000 for
the five months ended December 31, 1994 and the year ended December 31, 1995,
respectively.
The Company has advanced approximately $132,000 and $305,000 as of December
31, 1995 and June 30, 1996, respectively, to Will Winsauer, CEO and majority
shareholder of the Company, and approximately $21,000 and $131,000 as of
December 31, 1995 and June 30, 1996 to John Winsauer, a significant shareholder
of the Company. The advances are non-interest bearing amounts that have no
repayment terms and have been shown as a reduction of shareholders' equity.
These Selling Shareholders have agreed to use the net proceeds to be received by
them from the initial public offering to repay such outstanding balances in
full.
F-15
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company and ABI entered into a management agreement dated as of January
1, 1996 (the 'ABI Management Agreement') which provides for repayment by ABI of
$141,090 of advances outstanding as of the effective date in the form of an
uncollateralized note. The note matures on May 31, 1998 and bears interest at
10% payable at maturity. The Management Agreement requires ABI to pay an annual
fee of $50,000 to the Company for services rendered by it or the Company's
employees on behalf of ABI as follows: (i) monitoring the performance of certain
partnership interests owned by ABI and its sole shareholder, (ii) certain cash
management services, including the advancing of funds to pay ABI's ordinary
business expenses and (iii) providing advice as to regulatory compliance. The
ABI Management Agreement also provides that the Company will perform certain
accounting functions on behalf of ABI including (i) maintenance of financial
books and records, (ii) monitoring of cash management functions, (iii)
preparation of financial statements and tax returns and (iv) providing advice in
connection with retention of independent accountants. The ABI Management
Agreement further provides for the reimbursement of advances made by the Company
for out-of-pocket costs and expenses incurred on behalf of ABI.
13. EMPLOYMENT AGREEMENTS:
During 1995 and 1996, the Company entered into three-year employment
agreements with three officers of the Company. One employment agreement is dated
November 15, 1995 and is effective from such date through November 15, 1998.
This agreement is automatically extended unless the Company gives six months
notice of its intent not to extend the terms of the agreement.
The agreement provides for a minimum monthly salary of $12,500, together
with shares of the Company's common stock, issuable January 1, 1996, equal to
10% of the outstanding shares after giving effect to the shares issued to the
employee. Half of such issued shares are not subject to forfeiture whereas the
remaining 50% are subject to forfeiture. Equal amounts of the forfeitable shares
bear no risk of forfeiture upon the officer remaining employed as of November
15, 1996 and November 15, 1997, respectively.
The Company valued the shares to be issued January 1, 1996 based on an
independent appraisal of the Company as of November 15, 1995, the measurement
date, and recorded an increase to additional paid-in capital and deferred
compensation of $138,500. Deferred compensation is amortized on a straight-line
basis over the two forfeiture periods ending November 15, 1997 resulting in
compensation expense of $75,742 and $25,768 for the year ended December 31, 1995
and the six-month period ended June 30, 1996.
The second employment agreement is dated February 15, 1996 and is effective
from such date through February 15, 1997. This agreement provides for a minimum
monthly salary of $15,000 and further provides for a $90,000 bonus in the event
the Company successfully completes an initial public offering prior to February
28, 1997. Additionally, the officer is entitled to receive a performance bonus
in the event the Company meets certain sales and income targets as defined in
the agreement, and is limited to $90,000 annually. If the officer is terminated
prior to February 15, 1997 for any reason other than a discharge by the Company
for cause or termination initiated by the officer, then the remaining portion of
the first year salary becomes immediately due and payable to the officer or his
beneficiary.
The third employment agreement is dated May 31, 1996, and is effective from
such date for five years. The agreement provides for compensation at a base
salary of $240,000 per annum, which may be increased and may be decreased to an
amount of not less than $240,000, at the discretion of the Board of Directors.
The agreement entitles the chief executive officer to receive the benefits of
any cash incentive compensation as may be granted by the Board to employees,
and to participate inany executive bonus or incentive plan established by the
Board of Directors.
The agreement provides the officer with additional benefits including (i)
the right to participate in the Company's medical benefit plan, (ii) entitlement
to benefits under the Company's executive
F-16
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disability insurance coverage, (iii) a monthly automobile allowance of $1,500
together with maintenance and insurance, (iv) six weeks paid vacation and (v)
all other benefits granted to full-time executive employees of the Company.
The agreement automatically terminates upon (i) the death of the officer,
(ii) disability of the officer for six continuous months together with the
likelihood that the officer will be unable to perform his duties for the
following continuous six months, as determined by the Board of Directors, (iii)
termination of the officer 'for cause' (which termination requires the vote of a
majority of the Board) or (iv) the occurrence of the five-year expiration date
provided, however, the agreement may be extended for successive one-year
intervals unless either party elects to terminate the agreement in a prior
written notice. The officer may terminate his employment for 'good reason' as
defined in the agreement. In the event of the officer's termination for cause,
the agreement provides that the Company shall pay the officer his base salary
through the date of termination and the vested portion of any incentive
compensation plan to which the officer may be entitled.
Other than following a change in control, if the Company terminates the
officer in breach of the agreement, or if the officer terminates his employment
for good reason, the Company must pay the officer: (i) his base salary through
the date of termination; (ii) a severance payment equal to the base salary
multiplied by the number of years remaining under the agreement; and (iii) in
the case of breach by the Company of the agreement, all other damages to which
the officer may be entitled as a result of such breach, including lost benefits
under retirement and incentive plans.
In the event of the officer's termination following a change in control,
the Company is required to pay the officer an amount equal to three times the
sum of (i) his base salary, (ii) his annual management incentive compensation
and (iii) his planned level of annual perquisites. The agreement also provides
for indemnification of the officer for any costs or liabilities incurred by the
officer in connection with his employment.
14. COMMITMENTS AND CONTINGENCIES:
An affiliate of the Company leases office space, furniture, fixtures and
equipment under operating leases and allocates a significant portion of such
costs to the Company based on estimated usage (see Note 12). The affiliate
reports such leases as operating leases. Total rent expense allocated to the
Company under all operating leases was approximately $61,000 and $351,000 in
1994 and 1995, respectively.
The aggregate minimum rental commitments of the affiliate for all
non-cancelable operating leases with initial or remaining terms of more than one
year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
1996........................................................ $382,888
1997........................................................ 378,488
1998........................................................ 154,250
</TABLE>
The Company has guaranteed a working capital line entered into by the
Company's majority shareholder. Total borrowings of $2,250,000 under such line
of credit were contributed to the Company as additional paid-in capital during
the year ended December 31, 1995. The indebtedness of the majority shareholder
is repaid from and collateralized by a portion of cash flows from Finance
Contracts underlying certain securitization transactions completed by the
majority shareholder and affiliates owned by the majority shareholder. The
outstanding balance guaranteed by the Company at December 31, 1995 was
approximately $2,000,000. All amounts outstanding under the working capital
line, if any, are expected to be repaid from the sale of a portion of the
majority shareholder's common stock upon successful completion by the Company of
an initial public offering. In April 1996, the Company made a
F-17
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payment of $89,000 as a principal reduction in the working capital line to bring
the outstanding balance to the maximum permitted outstanding amount as of March
31, 1996.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
During 1995, the Company adopted SFAS No. 107, 'Disclosures about Fair
Value of Financial Instruments' which requires disclosure of fair value of
information for financial instruments. The estimated fair value amounts 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 would 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.
NOTE PAYABLE, REVOLVING CREDIT BORROWINGS AND REPURCHASE AGREEMENT
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. The
revolving credit lines are variable rate loans, resulting in a fair value that
approximates carrying cost at December 31, 1995. Additionally, due to the
December borrowing date, the note payable and repurchase agreement fair values
approximate cost at December 31, 1995.
FINANCE CONTRACTS HELD FOR SALE
The fair value of Finance Contracts held for sale is based on the estimated
proceeds expected on securitization of the Finance Contracts held for sale.
EXCESS SERVICING RECEIVABLE
The fair value is determined based on discounted future net cash flows
utilizing a discount rate that market participants would use for financial
instruments with similar risks. Due to the nature of this financial instrument
and the recent securitization transaction date, the carrying amount approximates
fair value.
The estimated fair values of the Company's financial instruments at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents......................................... $ 92,660 $ 92,660
Finance Contracts held for sale, net.............................. 3,354,821 3,354,821
Repossessed assets held for sale, net............................. 673,746 673,746
Class B Certificates.............................................. 2,834,502 2,834,502
Excess servicing receivable....................................... 846,526 846,526
Note payable...................................................... 2,674,597 2,674,597
Revolving credit borrowings....................................... 1,150,421 1,150,421
Repurchase agreement.............................................. 1,061,392 1,061,392
</TABLE>
F-18
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... S-2
Schedule II -- Valuation and Qualifying Accounts........................................................... S-3
</TABLE>
All other consolidated financial statement schedules not listed have been
omitted since the required information is either included in the consolidated
financial statements and the notes thereto or is not applicable or required.
S-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
AUTOBOND ACCEPTANCE CORPORATION
Our report on the consolidated financial statements of AutoBond Acceptance
Corporation and Subsidiaries as of December 31, 1995 and 1994 and for the period
from August 1, 1994 (inception) to December 31, 1994 and for the year ended
December 31, 1995, is included on page F-2 of this Registration Statement. In
connection with our audits of such consolidated financial statements, we have
also audited the related consolidated financial statement schedule listed on the
index on page S-1 of this Registration Statement.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Austin, Texas
May 1, 1996
S-2
<PAGE>
<PAGE>
SCHEDULE II
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
OF PERIOD EXPENSES RETIREMENTS OF PERIOD
------------ ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Allowance for Credit Losses:
Period from August 1, 1994
(Inception) to December 31, 1994............... $ -- $ 45,000 $ -- $45,000
Year ended December 31, 1995..................... $ 45,000 $ 48,702 $ -- $93,702
</TABLE>
S-3
<PAGE>
<PAGE>
__________________________________ _________________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY
UNDERWRITER OR THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE AS TO WHICH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................................................................................. 3
Risk Factors....................................................................................................... 7
Use of Proceeds.................................................................................................... 15
Dividend Policy.................................................................................................... 15
Dilution........................................................................................................... 16
Capitalization..................................................................................................... 17
Selected Consolidated Financial and Operating Data................................................................. 18
Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 20
Business........................................................................................................... 32
Management......................................................................................................... 48
Certain Transactions............................................................................................... 56
Principal and Selling Shareholders................................................................................. 57
Description of Capital Stock....................................................................................... 58
Shares Eligible for Future Sale.................................................................................... 61
Underwriting....................................................................................................... 62
Legal Matters...................................................................................................... 63
Experts............................................................................................................ 63
Change in Accountants.............................................................................................. 63
Additional Information............................................................................................. 63
Index to Consolidated Financial Statements......................................................................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,500,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PRINCIPAL FINANCIAL
SECURITIES, INC.
CRUTTENDEN ROTH
INCORPORATED
, 1996
__________________________________ _________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................................ $10,182
NASD filing fee.................................................................... 3,453
Printing expenses.................................................................. *
Accounting fees and expenses....................................................... *
Legal fees and expenses............................................................ *
Nasdaq listing fees................................................................ *
Fees and expenses (including legal fees) for qualifications under state securities
laws............................................................................. 15,000
Transfer agent's fees and expenses................................................. *
Miscellaneous...................................................................... *
-------
Total.............................................................................. $ *
-------
-------
</TABLE>
- ------------
* To be filed by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq listing fees are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides:
1. A corporation may indemnify any officer or director from
and against any judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by him in an action, suit,
investigation or other proceeding to which he is, was, or is
threatened to be a party; provided that it is determined by the
Board of Directors, a committee thereof, special legal counsel,
or a majority of the stockholders that such officer or director:
(a) conducted himself in good faith; (b) (i) in the case of his
conduct as a director of the corporation, reasonably believed
that his conduct was in the best interest of the corporation or
(ii) in all other cases, that his conduct was at least not
opposed to the corporation's interest; and (c) in a criminal
case, had no reasonable cause to believe his conduct was
unlawful. In matters as to which the officer or director is
found liable to the corporation or is found liable on the basis
that a personal benefit was improperly received by him, such
indemnity is limited to the reasonable expenses actually
incurred. No indemnification is permitted with respect to any
proceeding in which the officer or director is found liable for
willful or intentional misconduct in the performance of his duty
to the corporation.
2. A corporation shall indemnify an officer or director
against reasonable expenses incurred by him in connection with
an action, suit, investigation, or other proceeding to which he
is, was, or was threatened to be a party if he has been wholly
successful in its defense.
3. A corporation may advance an officer or director the
reasonable costs of defending an action, suit, investigation or
other proceeding in certain cases.
4. A corporation shall have power to purchase and maintain
insurance on behalf of any person who 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 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
liability under the provisions of this Article.
II-1
<PAGE>
<PAGE>
The Company's Articles of Incorporation provide that the Company will
indemnify its directors and officers to the fullest extent permitted by law.
The Company is in the process of procuring directors' and officers'
liability insurance in the amount of $5 million.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1995, March 1996 and June 1996, the Company's three
securitization subsidiaries issued approximately $26.2 million, $16.6 million
and $17.8 million, respectively, in Class A investor Certificates, evidencing an
undivided ownership interest in a pool of finance contracts with an initial
aggregate unpaid principal balance equal to the initial principal balance of
such Class A Certificates, and with an initial gross principal balance slightly
in excess of such Class A balance. Each of the outstanding Class A Certificates
received a rating upon issuance of 'A' from Fitch and 'A3' from Moody's. The
certificates issued in the December 1995, March 1996 and June 1996
securitizations have final maturity dates of April 15, July 15 and September 15,
2002, respectively. In each case, the Class A Certificates were privately placed
with sophisticated institutional investors pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the 'Securities Act'). The Company has
financed on a non-recourse basis approximately 80% of the retained excess spread
from each of the 1995 and 1996 securitizations with sophisticated institutional
investors.
In March 1996, the Company issued to a private investor, pursuant to
Section 4(2) of the Securities Act, a Subordinated Note (the 'Subordinated
Note') in the amount of $300,000 and a Warrant (the 'Warrant') for the purchase
of 18,811 shares of Common Stock. The payment obligations of the Company under
the Subordinated Note are subordinated to all other indebtedness of the Company
that is not specifically designated as subordinate to the Subordinated Note. The
Subordinated Note carries a per annum interest rate equal to 10% and has a final
maturity date of March 12, 1997.
The Warrant entitles the holder, upon exercise thereof, to purchase from
the Company shares of its Common Stock, at a price per share equal to the fair
market value of the Common Stock as of the date of grant. The exercise price per
share may deviate from the initial public offering price over time as certain
adjustments may be made to the number of shares constituting a purchasable
'share' resulting from stock splits, issuance of additional Common Stock,
issuance of additional warrants or other rights or issuance of securities
convertible into Common Stock by the Company. The Warrant provides the holder
with certain registration rights that arise upon the Company's proposal to
register, subsequent to its initial public offering, the Common Stock for sale
to the public under the Securities Act.
In November 1995, the Company agreed to issue, pursuant to Section 4(2) of
the Securities Act, to Adrian Katz 568,750 shares of Common Stock in
consideration for current and future services. Such shares were issued in
January 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* -- Underwriting Agreement
3.1`D' -- Restated Articles of Incorporation of the Company
3.2`D' -- Amended and Restated Bylaws of the Company
5.1* -- Opinion of Dewey Ballantine
10.1 -- Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of December 15, 1995 by
and between the Company and AutoBond Funding Corporation I
10.2 -- Security Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II, the Company and
Norwest Bank Minnesota, National Association
10.3 -- Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond Funding Corporation II, the
Company and Peoples Life Insurance Company
10.4`D' -- Servicing Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II, CSC Logic/MSA
L.L.P., doing business as 'Loan Servicing Enterprise', the Company and Norwest Bank Minnesota, National
Association
10.5 -- Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and between the Company and
AutoBond Funding Corporation II
10.6`D' -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31, 1995 between Sentry
Financial Corporation and the Company
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
10.7`D' -- Management Administration and Services Agreement dated as of January 1, 1996 between the Company and
AutoBond, Inc.
10.8`D' -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.9 -- Employment Agreement dated February 15, 1996 between Charles A. Pond and the Company
10.10`D' -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the Company
10.11`D' -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by Interstate Fire &
Casualty Company
10.12`D' -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.13* -- Employee Stock Option Plan
10.14 -- Dealer Agreement, dated November 9, 1994, between the Company and Charlie Thomas Ford, Inc.
16.1`D' -- Change in certifying accountant's letter
21.1`D' -- Subsidiaries of the Company
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2* -- Consent of Dewey Ballantine (contained in Exhibit 5.1)
23.3 -- Consents of Director Designees
24.1`D' -- Power of Attorney (included on signature page of Registration Statement)
27.1`D' -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
`D' Previously Filed
(b) Financial Statements
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Austin, State of Texas, on August 29, 1996.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ WILLIAM O. WINSAUER
...................................
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
indicated on September 17, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------------------------------------------
<C> <S>
By: /s/ WILLIAM O. WINSAUER Chairman of the Board, Chief Executive Officer and Director
......................................... (Principal Executive Officer)
(WILLIAM O. WINSAUER
AS ATTORNEY-IN-FACT)
* Vice Chairman of the Board, Chief Operating Officer and Director
.........................................
(ADRIAN KATZ)
* Vice President and Director
.........................................
(JOHN S. WINSAUER)
* Chief Financial Officer (Principal Financial and Accounting Officer)
.........................................
(WILLIAM J. STAHL)
</TABLE>
*By: /s/ WILLIAM O. WINSAUER
..................................
(WILLIAM O. WINSAUER
AS ATTORNEY-IN-FACT)
II-4
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* -- Underwriting Agreement
3.1`D' -- Restated Articles of Incorporation of the Company
3.2`D' -- Amended and Restated Bylaws of the Company
5.1* -- Opinion of Dewey Ballantine
10.1 -- Amended and Restated Loan Origination, Sale and Contribution Agreement dated as of
December 15, 1995 by and between the Company and AutoBond Funding Corporation I
10.2 -- Security Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II,
the Company and Norwest Bank Minnesota, National Association
10.3 -- Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond Funding
Corporation II, the Company and Peoples Life Insurance Company
10.4`D' -- Servicing Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II,
CSC Logic/MSA L.L.P., doing business as 'Loan Servicing Enterprise', the Company and
Norwest Bank Minnesota, National Association
10.5 -- Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and
between the Company and AutoBond Funding Corporation II
10.6`D' -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31,
1995 between Sentry Financial Corporation and the Company
10.7`D' -- Management Administration and Services Agreement dated as of January 1, 1996 between
the Company and AutoBond, Inc.
10.8`D' -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.9 -- Employment Agreement dated February 15, 1996 between Charles A. Pond and the Company
10.10`D' -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the
Company
10.11`D' -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by
Interstate Fire & Casualty Company
10.12`D' -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
10.13* -- Employee Stock Option Plan
10.14 -- Dealer Agreement, dated November 9, 1994, between the Company and Charlie Thomas
Ford, Inc.
16.1`D' -- Change in certifying accountant's letter
21.1`D' -- Subsidiaries of the Company
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2* -- Consent of Dewey Ballantine (contained in Exhibit 5.1)
23.3 -- Consents of Director Designees
24.1`D' -- Power of Attorney (included on signature page of Registration Statement)
27.1`D' -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
`D' Previously Filed
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
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EXECUTION COPY
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
Dated as of December 15, 1995
by and between
AUTOBOND ACCEPTANCE CO.
and
AUTOBOND FUNDING CORPORATION I
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TABLE OF CONTENTS
Page
SECTION 1. Definitions; Interpretation.............................. 1
SECTION 2. Sale and Disposition of Eligible
Auto Loans.......................................... 10
SECTION 3. Intended Characterization; Grant
of Security Interest................................ 14
SECTION 4. Conditions Precedent to Purchase......................... 15
SECTION 5. Representations and Warranties of
AutoBond............................................ 16
SECTION 6. Additional Covenants of AutoBond......................... 22
SECTION 7. Termination.............................................. 24
SECTION 8. Events of Purchase Termination........................... 25
SECTION 9. Indemnification.......................................... 26
SECTION 10. Confidentiality.......................................... 28
SECTION 11. No Proceedings........................................... 28
SECTION 12. Notices, Etc............................................. 28
SECTION 13. No Waiver; Remedies...................................... 28
SECTION 14. Binding Effect; Assignability............................ 29
SECTION 15. Amendments; Consents and Waivers;
Entire Agreement.................................... 29
SECTION 16. Severability............................................. 29
SECTION 17. GOVERNING LAW; CONSENT TO
JURISDICTION; WAIVER OF JURY
TRIAL............................................... 30
SECTION 18. Headings................................................. 30
SECTION 19. Execution in Counterparts................................ 30
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EXHIBITS
EXHIBIT A - FORM OF SALE ASSIGNMENT
EXHIBIT B - FORM OF OFFICER'S CERTIFICATE
EXHIBIT C - FORM OF OPINION
EXHIBIT D - FORM OF REPURCHASE ASSIGNMENT
EXHIBIT E - FORM OF DEALER AGREEMENT
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AMENDED AND RESTATED LOAN ORIGINATION, SALE AND CONTRIBUTION AGREEMENT
(the "Agreement"), dated as of December 15, 1995, by and between AutoBond
Acceptance Co. (the "AutoBond"), a Texas corporation, and its successors and
permitted assigns and AutoBond Funding Corporation I ("AutoBond Funding"), a
Delaware corporation, and its successors and assigns.
W I T N E S S E T H:
WHEREAS, AutoBond Funding has been formed for the sole purpose of
acquiring and holding Auto Loans pending transfer of such Auto Loans in one or
more Dispositions;
WHEREAS, from time to time, AutoBond intends to sell or contribute Auto
Loans to AutoBond Funding and AutoBond Funding intends to purchase and/or accept
Auto Loans from AutoBond to hold pending transfer thereof in connection with one
or more Dispositions; and
WHEREAS, subject to the terms and conditions set forth herein, AutoBond
agrees, from time to time, to sell or contribute Auto Loans to AutoBond Funding
and AutoBond Funding agrees to purchase and/or accept Auto Loans from AutoBond;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
SECTION 1. Definitions; Interpretation.
(a) In this Agreement the following capitalized terms have the respective
following meanings:
"Adverse Claim" means a claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, or other
type of preferential arrangement having the effect of a lien or security
interest upon or with respect to (i) any Auto Loans sold hereunder other
than in favor of Purchaser and the Trustee with respect to this Agreement
or (ii) any Financed Vehicle securing payment of any such Auto Loan other
than in favor of the Obligor, Purchaser and the Trustee.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, 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
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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.
"Amount Financed" means, with respect to any Auto Loan, the meaning
ascribed thereto in the applicable disclosure documents given to the
Obligor in satisfaction of the requirements of the Federal
Truth-in-Lending Act.
"Approval Date" means, with respect to any Auto Loan, the date on
which AutoBond makes its written credit approval with respect to the
Obligor under such Auto Loan.
"AutoBond" means AutoBond Acceptance Co., a Texas
corporation.
"AutoBond Funding" means AutoBond Funding Corporation I, a Delaware
corporation and its successors and assigns.
"AutoBond Program" means the auto loan origination program in
accordance with which certain member dealers originate auto loans in
accordance with the AutoBond Program Manual.
"AutoBond Program Manual" means the AutoBond Program Manual in
effect as of the date hereof, as modified from time to time pursuant to
Section 2(c).
"Auto Loan" means a consumer automobile loan financing the purchase
of new and used automobiles, light-duty trucks and vans, which loans are
secured by a lien and security interest in the automobile financed
thereunder in favor of the loan holder.
"Business Day" means any day other than a Saturday or a Sunday, or
another day an which commercial banks in the States of New York, Minnesota
or Texas (or in any other state in which the Servicer or AutoBond are
located) are required, or authorized by law, to close or, for purposes of
calculating interest on the Advances, on which commercial banks are not
open for domestic and foreign exchange business in New York, New York and
London, England (as specified in writing from time to time by AutoBond
Funding or AutoBond).
"Business Day Certificate" means an Officer's Certificate of
AutoBond specifying days other than Saturdays or Sundays which are not
Business Days.
"Certificate Rate" means for any period of calculation, the weighted
average rate at which the Sold Auto Loans have been financed or
securitized.
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"Closing Date" means December 29, 1995.
"Collateral Account" has the meaning specified in Section 2(d).
"Collateral Agent" means the Person designated as such by AutoBond
Funding in writing to AutoBond.
"Collection Account" has the meaning specified in Section 2(d).
"Collection Agent" means AutoBond Acceptance Co., a Texas
corporation, its permitted successors and assigns.
"Credit Agreement" means any warehouse credit agreement between
AutoBond Funding and a lender.
"Credit and Collection Policies" means written policies consistent
with the requirements of this Agreement and the Servicing Agreement, in
effect from time to time formulated by the Administrator as to the
requirements of certain surviving matters.
"Credit Endorsement" means the deficiency balance endorsement issued
by Interstate under the VSI Policy.
"Cut-Off Date" means December 15, 1995 with respect to the initial
Sale Date hereunder, and the last Business Day of the previous calendar
month with respect to any subsequent Sale Date hereunder.
"Dealer" means an automobile dealer who has entered into a Dealer
Agreement with AutoBond with respect to, among other things, the
origination of the Eligible Auto Loans.
"Dealer Agreement" means an agreement between AutoBond and a Dealer
relating to the origination, purchase and sale of Auto Loans substantially
in the form attached to the AutoBond Program Manual.
"Debt" means for any Person, (a) indebtedness of such Person for
borrowed money or credit extended, (b) obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c)
obligations of such Person to pay the deferred purchase price of property
or services, (d) obligations of such Person as lessee under leases which
have been or should be, in accordance with GAAP, recorded as capital
leases, (e) obligations secured by any lien or other charge upon property
or assets owned by such Person, even though such Person has not assumed or
become liable for the payment of such obligations, (f) obligations of such
Person under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise
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acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses
(a) through (e) above, and (g) liabilities in respect of unfunded vested
benefits under plans covered by ERISA. For the purposes hereof, the term
"guarantee" shall include any agreement, whether such agreement is on a
contingency or otherwise, to purchase, repurchase or otherwise acquire
Debt of any other Person, or to purchase, sell or lease, as lessee or
lessor, property or services, in any such case primarily for the purpose
of enabling another Person to make payment of Debt, or to make any payment
(whether as an advance, capital contribution, purchase of an equity
interest or otherwise) to assure a minimum equity, asset base, working
capital or other balance sheet or financial condition, in connection with
the Debt of another Person, or to supply funds to or in any manner invest
in another Person in connection with Debt of such Person.
"Defaulted Auto Loan" means an Auto Loan which by its terms has more
than 10% of any installment of principal or interest which is 60 or more
days contractually past due.
"Defaulted Receivable" means, as of the end of any Due Period, (a) a
Defaulted Auto Loan, (b) a Receivable as to which the proceeds of the sale
of the related Financed Vehicle have been received by the Administrator
and (c) a Receivable as to which the Administrator has determined (or
should have determined in accordance with the Credit and Collection
Policies) that no further proceeds other than from the Insurance Policies
are expected to be received or that such Receivable is uncollectible and
such determination was made at or prior to the last day of such Due
Period.
"Determination Date" means the 10th day of each month (or the
preceding Business Day, if such day is not a Business Day).
"Disposition" has the meaning specified in Section 2(j).
"Due Period" means (a) for the initial Due Period, the period from
the Closing Date through December 31, 1995 and (b) thereafter, each
calendar month.
"Eligible Dealer" means a franchised Dealer (A) duly licensed and
authorized by Governmental Authorities and the relevant manufacturers, as
applicable, as a dealer in new or used Financed Vehicles, (B) as to which
AutoBond has performed an investigation in accordance with the customary
and usual standards of sub-prime automobile finance companies and (C) as
to which AutoBond has not received notice from AutoBond in accordance with
Section 2(b), prior to the related Approval Date, that such Dealer has
ceased to be an Eligible Dealer.
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"Eligible Receivable" means any Auto Loan which complies with the
representations and warranties set forth in Section 5(b).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Purchase Termination" has the meaning specified in Section
8.
"Financed Vehicles" means new and used automobiles and light-duty
trucks and vans, the purchase of which is financed by the Auto Loans.
"Governmental Authority" means the United States of America, any
federal, state, local or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions thereof or pertaining thereto.
"Indemnified Amounts" has the meaning specified in Section 9.
"Indemnified Party" means AutoBond Funding, the Trustee, the
Certificateholders (as defined in the Pooling Agreement) each holder of
the indebtedness issued by AutoBond Funding and the successors, assigns,
Affiliates, agents, officers, shareholders, directors, servants and
employees thereof.
"Loan Acquisition Price" means, with respect to any Auto Loan to be
sold pursuant to Section 2, an amount equal to the sum of (i) the product
of (A) 0.915 and (B) the Amount Financed and (ii) accrued but unpaid
interest on such Auto Loan as of the related Sale Date.
"Loan Documents" means, with respect to an Auto Loan, (i) the
original retail installment loan contract and security agreement
evidencing such Auto Loan, (ii) the original confirmation of title, copy
of the application for title or letter of guaranty from the applicable
Dealer, as the case may be, for the related Financed Vehicle, (iii) a copy
of the credit application and (iv) the original confirmation of payment of
premiums required under the VSI Policy.
"Loan File" means, with respect to any Auto Loan, the original
retail installment loan contract and security agreement evidencing the
Auto Loan and originals or copies of such other documents and instruments
relating to such Auto Loan and the security interest on the selected
Financed Vehicle as specified in the Credit and Collection policies.
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"Lockbox" means the lockbox and account established in the name of
the Trustee on behalf of the Trust, pursuant to the Corporate Cash
Management Services Agreement, dated December __, 1995 between the Trustee
and the Lockbox Bank.
"Lockbox Bank" means ComerciaBank-Texas.
"Necessary Consents" means all necessary consents to the closing of
the transactions contemplated hereby, in form and substance satisfactory
to AutoBond and AutoBond Funding.
"Net Payoff Balance" means, in respect of any Precomputed
Receivables, the net payoff less any accrued but unpaid late charges, as
determined in accordance with the worksheet attached as Schedule 2 to the
Pooling Agreement.
"Net Principal Balance" means, with respect to any Precomputed
Receivable, the Net Payoff Balance as of the due date of the last full
Scheduled Payment, or if more recent, the due date of the last periodic
payment of principal thereon.
"Obligor" means, with respect to any Auto Loan, the Person primarily
obligated to make payments in respect thereto.
"Original Principal Balance" means the Net Principal Balance of a
Precomputed Receivable and otherwise the outstanding principal balance of
a Receivable, in each case as of the related Cut-Off Date prior to its
transfer to the Purchaser.
"Other Disposition" has the meaning specified in Section 2(j).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
association, joint venture, Governmental Authority or any other entity of
whatever nature.
"Pooling Agreement" means the Pooling and Trust Agreement dated as
of December 15, 1995 among AutoBond, AutoBond 1995 and the Trustee, as
amended from time to time.
"Precomputed Receivable" means any Auto Loan under which earned
interest (which may be referred to in the Auto Loan as the add-on finance
charge) and principal is determined according to the sum of periodic
balances or the sum of monthly balances or the sum of the digits or any
equivalent method commonly referred to as the "Rule of 78s".
"Principal Balance" of a Receivable means, on any date of
determination, the Original Principal Balance minus that
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portion of all payments received on or prior to such date allocable to
principal.
"Purchaser" means AutoBond Funding, its permitted successors and
assigns.
"Receivable" means a fixed-rate fully amortizing closed-end consumer
installment Auto Loan (upon which interest is calculable based upon either
a simple interest basis or the Rule of 78s), arising from the sale of a
Financed Vehicle and transferred hereunder, and which includes, without
limitation, (i) the related Sale Assignment, (ii) all security interests
or liens and property subject thereto from time to time purporting to
secure payment by the Obligor thereunder, including, without limitation,
the Financed Vehicle, AutoBond's rights under the related Dealer
Agreement, (iii) all guarantees, indemnities and warranties, proceeds of
insurance policies, (including, without limitation, the rights with
respect thereto under the VSI Policy and the other Insurance Policies)
certificates of title and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such loan,
(iv) all collections and all related Loan Documents, Loan Files and
records with respect to the foregoing and (v) all proceeds of any of the
foregoing.
"Recoveries on Receivables" means, for any Due Period, all amounts
received by the Servicer, the Administrator, the Transferor or the Trustee
during such Due Period with respect to (a) Defaulted Receivables from any
source, including, without limitation, net proceeds from the repossession
and liquidation of Financed Vehicles, proceeds of insurance (including
insurance maintained by Obligor and the Insurance Policies), and (b) the
Repurchase Price of Receivables repurchased by Seller or AutoBond pursuant
to Section 5(d).
"Related Documents" means the Origination and Sale Agreement, this
Agreement, the Pooling Agreement and the Servicing Agreement, the
Insurance Policies, each Sale Assignment and all documents and instruments
required to be delivered hereunder or thereunder.
"Repurchase Price" means, with respect to any Sold Auto Loan which
Seller or AutoBond is obligated to repurchase, an amount equal to (i) the
Unpaid Principal Balance of such Sold Auto Loan as of the end of the
preceding Due Period plus (ii) accrued and unpaid interest in respect
thereof calculated at the greater of the APR (as defined in the Pooling
Agreement) or the Certificate Rate from the last day to which interest has
been paid and credited to the Lockbox or Collection Account on such
Receivable through the last day of such Due Period, minus (iii) the amount
of any principal deposited in
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the Lockbox or the Collection Account in respect of such Auto Loan since
the end of such Due Period.
"Repurchase Requirement" has the meaning specified in Section 5(d).
"Sale" means a sale of an Auto Loan to AutoBond Funding in
accordance with Section 2.
"Sale Assignment" means, with respect to any Auto Loan sold or
contributed hereunder, the assignment substantially in the form of Exhibit
A hereto and made a part hereof.
"Sale Date" means, with respect to any Auto Loan, the date on which
such Auto Loan is sold or contributed in accordance with Section 2.
"Sales Finance Company License" means a current license issued to
AutoBond authorizing it to make, purchase, and sell Auto Loans in each
state in which such license is required.
"Scheduled Payment" means a payment due on an Auto Loan in
accordance with its terms.
"Securitization" has the meaning specified in Section 2(j).
"Securitization Trust" has the meaning specified in Section 2(j).
"Selling Dealer" means with respect to each Sold Auto Loan, the
Dealer that sold such Sold Auto Loan to AutoBond.
"Servicer" means CSC Logic/MSA L.L.P., a Texas limited liability
partnership, doing business as Loan Servicing Enterprise, and permitted
successors and assigns.
"Selling Dealer" means, with respect to each Sold Auto Loan, the
Eligible Dealer that sold such Sold Auto Loan to AutoBond.
"Servicer" means CSC Logic/MSA L.L.P., a Texas limited liability
partnership, doing business as Loan Servicing Enterprise, and any
successor thereto in accordance with a Servicing Agreement.
"Servicing Agreement" means any Servicing Agreement for
the servicing of Sold Auto Loans.
"Sold Auto Loan" means an Eligible Auto Loan sold to AutoBond
Funding in accordance with Section 2.
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"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other
Persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Termination Date" has the meaning specified in Section 7.
"Trust" means the AutoBond Receivables Trust 1995-A, created
pursuant to the Pooling Agreement.
"Trustee" means Norwest Bank Minnesota, National Association, as
trustee under the Pooling Agreement, and any successor thereto in
accordance with the Pooling Agreement.
"UCC" means the Uniform Commercial Code as in effect in the relevant
state.
"Unpaid Principal Balance" means, with respect to any Auto Loan as
of any Determination Date, (i) for an Auto Loan bearing interest
calculable on a simple interest basis, the unpaid principal amount for
such Auto Loan or (ii) for a Precomputed Receivable, the Net Principal
Balance, in each case as of the end of the most recent Due Period
preceding such Determination Date; provided, that for any Auto Loan where
the net Unrealized Amount (as defined in the Pooling Agreement) equals the
Unpaid Principal Balance, such Unpaid Principal Balance shall thereafter
equal zero (other than for purposes of calculating the Repurchase Price).
"VSI Policy" means the Vender's single Interest Insurance Policy,
including the Credit Endorsements, issued by Interstate Fire & Casualty
Company, insuring against risk of physical damage or other losses on the
Financed Vehicles, a copy of which is attached as an Exhibit to the
Pooling Agreement.
"Whole Loan Sales" has the meaning specified in Section 2(j).
(b) The following rules apply to this Agreement:
(i) the singular includes the plural and the plural includes the
singular;
(ii) "or" is not exclusive and "include" and "including" are not
limiting;
(iii) a reference to any agreement or other contract includes
permitted supplements and amendments;
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(iv) a reference to a law includes any amendment or modification
to such law and any rules or regulations issued thereunder or any law
enacted in substitution or replacement therefor;
(v) a reference to a person includes its permitted successors and
assigns;
(vi) a reference to a Section, an Exhibit or a Schedule without
further reference is to the relevant Section, Exhibit or Schedule of this
Agreement;
(vii) any right may be exercised at any time and from time to time;
and
(viii) words such as "hereunder", "hereto", "hereof" and "wherein"
and other words of like import shall, unless the context clearly indicates
to the contrary, refer to the whole of this Agreement and not to any
particular Section, subsection or clause hereof.
SECTION 2. Sale and Disposition of Eligible Auto Loans.
(a) From time to time, AutoBond has agreed and agrees to sell or
contribute (and by execution of this Agreement and any Sale Assignment does
hereby sell or contribute) to AutoBond Funding, subject to the terms and
conditions of this Agreement, all right, title and interest of AutoBond in and
to:
(i) fixed-rate fully amortizing closed-end consumer installment Auto
Loans listed on Schedule 1 to a Sale Assignment, all principal Payments
paid in respect thereof after the related Cut-off Date and all monies due,
to become due or paid in respect thereof after the related Sale Date and
all liquidation proceeds and recoveries thereon;
(ii) all security interests and liens and property subject thereto
from time to time purporting to secure payment by Obligors under the Sold
Auto Loans, including, without limitation, the Financed Vehicles;
(iii) all rights (but no obligations) under the Dealer Agreements
and all proceeds from recourse to Dealers relating to the Sold Auto Loans;
(iv) all guaranties, indemnities and warranties, and proceeds of
insurance policies (including the Insurance Policies), certificates of
title and other title documentation and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Sold Auto Loans;
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(v) all collections and records (including computer records) with
respect to the foregoing;
(vi) all documents relating to the Sold Auto Loans, including those
contained in the Loan Files and all Loan Documents; and
(vii) all proceeds and other benefits (and including all items of
property described in Schedule 3 to the Pooling Agreement) of any and all
of the foregoing.
Subject to the terms and conditions of this Agreement, AutoBond Funding agrees
to purchase or accept the foregoing from AutoBond. To the extent that the Loan
Acquisition Price paid to Seller for any Sold Auto Loan is less than the fair
market value of such Sold Auto Loan, the difference between such fair market
value and the Loan Acquisition Price shall be deemed to be a capital
contribution made by Seller to Purchaser on the relevant Sale Date.
(b) The parties hereto agree that the obligation to repay an Auto Loan
purchased by AutoBond Funding pursuant hereto must be secured by a Financed
Vehicle sold to an Obligor by an Eligible Dealer. An otherwise Eligible Dealer
shall cease to be an Eligible Dealer within fifteen calendar days or sooner, if
practicable, following a determination by AutoBond, or following the receipt by
AutoBond of written notice of the determination of AutoBond Funding that such
dealer has ceased to be an Eligible Dealer. Following any such determination,
AutoBond agrees that it will approve no additional Auto Loans as Eligible Auto
Loans, which are originated by such Dealer.
(c) The parties hereto agree that the AutoBond Program Manual may be
modified from time to time by AutoBond (i) in any immaterial respect, without
the consent of the parties hereto and (ii) in any material respect, with the
consent of the parties hereto, but in each case, subject to the consent of the
Trustee and any lender under a Credit Agreement.
(d) In order to offer an Auto Loan for sale by AutoBond to AutoBond
Funding, AutoBond shall deliver to the Collateral Agent, on any Business Day
each of the Loan Documents and the originally executed Sale Assignment therefor.
Upon receipt by the Collateral Agent of the complete Loan Documents and the duly
executed original Sale Assignment and subject to the terms of this Agreement,
the Collateral Agent or the Trustee, as the case may be, on behalf of AutoBond
Funding, will transfer from an account (the "Collateral Account" or the
"Collection Account", as the case may be) established at the Collateral Agent or
the Trustee, as the case may be, for the purpose of funding the purchase of
Eligible Auto Loans in accordance with this Agreement, to AutoBond an amount
equal to the Loan Acquisition Price with respect to such Auto Loan by the close
of business for the Collateral Agent or the Trustee, as the case may be, on or
before the second Business Day following the
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receipt by the Collateral Agent of such Loan Documents and Sale Assignment.
(e) Upon payment of the Loan Acquisition Price and execution of the Sale
Assignment with respect to a Sold Auto Loan, the ownership of each such Sold
Auto Loan and all collections allocable to principal thereon since the related
Cut-off Date and all other property interests or rights conveyed pursuant to and
referenced in Section 2(a) hereof, shall be vested in AutoBond Funding and
AutoBond shall not take any action inconsistent with such ownership nor claim
any ownership interest in any such Sold Auto Loan for any purpose whatsoever
other than consolidated federal and state income tax reporting; provided, that
AutoBond, in its capacity as Collection Agent on behalf of the Collateral Agent
or the Trustee, as the case may be, will remain as lienholder with respect to
the related Financed Vehicle.
(f) On or prior to the related Sale Date, AutoBond shall indicate in its
computer files and other records that each Sold Auto Loan has been sold to
Purchaser and transferred and assigned to the Trust pursuant to the Pooling
Agreement. In addition, on or prior to the third Business Day after the Closing
Date, AutoBond shall file, at its own expense, financing statements in favor of
the Purchaser and the Trustee or the Collateral Agent, as the case may be, as
assignee with respect to the Sold Auto Loans meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
or appropriate to perfect the acquisition of the Auto Loans by AutoBond Funding
from AutoBond and the first priority interest of AutoBond Funding therein, and
shall deliver file-stamped copies of such financing statements to AutoBond
Funding and the Trustee or the Collateral Agent, as the case may be. In
addition, each of AutoBond and Autobond Funding shall respond to any inquiries
with respect to ownership of a Sold Auto Loan by stating that such Sold Auto
Loan has been sold to AutoBond Funding and that AutoBond is not the owner of
such Sold Auto Loan and that such Sold Auto Loan has been assigned to the
Trustee or the Collateral Agent, as the case may be; provided, however, that
AutoBond may respond to inquiries by an Obligor by confirming its role as
Collection Agent.
(g) AutoBond at any time and from time to time shall, at its sole cost and
expense, afford AutoBond Funding, the Trustee or the Collateral Agent, as the
case may be, and their respective authorized agents and representatives upon
reasonable notice, reasonable access during regular business hours to their
records relating to their performance under and compliance with the Related
Documents and will cause their respective personnel to assist in any examination
of such records to enable Purchaser and/or the Trustee to determine their
compliance with the terms of the Related Documents. The examination referred to
in the immediately preceding sentence will be conducted in a manner that does
not unreasonably interfere with AutoBond's normal operations or customer or
employee relations.
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(h) AutoBond agrees that, from time to time, at its expense, it will
promptly execute and deliver all further instruments, notices and documents, and
take all further action, that may be necessary or appropriate, as reasonably
determined by AutoBond Funding, or that AutoBond Funding may reasonably request,
in order to perfect, protect or more fully evidence the transfer of ownership of
the Sold Auto Loans to AutoBond Funding or to enable AutoBond Funding or its
assignee to exercise or enforce any of its respective rights hereunder or under
any Sale Assignment, as the case may be or to otherwise facilitate any
Disposition. Without limiting the generality of the foregoing, AutoBond will
promptly, upon the request of AutoBond Funding, will enforce the terms of each
Dealer Agreement with respect to the obligations of the respective Dealers
thereunder and will deposit any amounts recovered in respect of Sold Auto Loans
pursuant to such Dealer Agreement in the Loan Revenue Account established
pursuant to the Security Agreement or, if such Sold Auto Loan is not pledged
under the Security Agreement, in such other account as directed by AutoBond
Funding.
(i) Any action required or permitted to be taken by AutoBond Funding in
furtherance of its obligation to purchase Eligible Auto Loans hereunder,
including enforcement of its rights and receipt of documents, may be delegated
by it to one or more agents (including the Collateral Agent and the Servicer),
or assigned to an assignee pursuant to a Disposition, in each case to be
designated by it in writing to AutoBond.
(j) AutoBond acknowledges that AutoBond Funding has been formed with the
intent that the Sold Auto Loans will, from time to time, be pooled and disposed
of by AutoBond Funding, either (i) in structured-finance securitization
transactions, including through AutoBond Funding Corporation 1995 (each, a
"Securitization"), (ii) pursuant to whole-loan sales (each, a "Whole-Loan Sale")
or (iii) in some other form of disposition (each, an "Other Disposition" and,
together with Securitizations and Whole-Loan Sales, "Dispositions"). In
connection with Securitizations, the Sold Auto Loans may be transferred to one
or more trusts (each, a "Securitization Trust").
(k) Each Auto Loan offered by AutoBond for sale to AutoBond Funding
pursuant hereto may include an optional credit life, accident and health
insurance policy, other cancelable insurance products or optional extended
service contract (i) approved and sponsored in accordance with and pursuant to
the AutoBond Program Manual or (ii) at the option of AutoBond approved but not
sponsored in accordance with and pursuant to the AutoBond Program Manual,
including, in either case, the criteria set forth in the AutoBond Program Manual
with respect to the financial standing of the institutions offering such
policies and/or contracts. In the event an optional credit life, accident and
health insurance policy or optional extended service contract approved but not
sponsored in accordance with and pursuant to the AutoBond Program Manual is
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canceled and a return premium is required to be made, AutoBond will exercise its
best efforts to recover such amount from the respective Dealer, and AutoBond
agrees to promptly remit to the Collateral Agent any amount so received.
(l) Except as specifically provided for herein, the sale and the purchase
of the Auto Loans under this Agreement is without recourse to AutoBond; provided
that AutoBond shall be liable to the Purchaser for all representations,
warranties, covenants and indemnities made by them under this Agreement.
(m) Neither AutoBond Funding nor any assignee shall have any obligation or
liability with respect to any Auto Loan nor shall AutoBond Funding or any
assignee have any liability to any Obligor in respect of any Auto Loan. No such
obligation or liability is intended to be assumed by AutoBond Funding or any
assignee herewith and any such liability hereby is expressly disclaimed.
SECTION 3. Intended Characterization; Grant of Security Interest.
It is the intention of the parties hereto that each transfer of Eligible
Receivables to be made pursuant to the terms hereof shall constitute a sale or
capital contribution by AutoBond to AutoBond Funding and not a loan. In the
event, however, that a court of competent jurisdiction were to hold that any
such transfer constitutes a loan and not a sale or capital contribution, it is
the intention of the parties hereto that AutoBond shall be deemed to have
granted to AutoBond Funding as of the date hereof a first priority perfected
security interest in all of AutoBond's right, title and interest in, to and
under each Sold Auto Loan, and all proceeds thereof. In the event of the
characterization of any such transfer as a loan, the amount of interest payable
or paid with respect to such loan under the terms of this Agreement shall be
limited to an amount which shall not exceed the maximum nonusurious rate of
interest allowed by the applicable state law or any applicable law of the United
States permitting a higher maximum nonusurious rate that preempts such
applicable state law, which could lawfully be contracted for, charged or
received (the "Highest Lawful Rate"). In the event any payment of interest on
any such loan exceeds the Highest Lawful Rate, the parties hereto stipulate that
(a) to the extent possible given the term of such loan, such excess amount
previously paid or to be paid with respect to such loan be applied to reduce the
principal balance of such loan, and the provisions thereof immediately be deemed
reformed and the amounts thereafter collectible thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for thereunder and (b) to the extent that the reduction of the principal
balance of, and the amounts collectible under, such loan and the reformation of
the provisions thereof described in the immediately preceding clause (a) is not
possible given the term of such loan, such excess amount
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will be deemed to have been paid with respect to such loan as a result of an
error and upon discovery of such error or upon notice thereof by any party
hereto such amount shall be refunded by the recipient thereof.
SECTION 4. Conditions Precedent to Purchase.
(a) The obligation of AutoBond Funding to purchase Auto Loans pursuant to
Section 2 on the first Sale Date is subject to the fulfillment to the
satisfaction of, or waiver by, AutoBond Funding of prior to or on the Closing
Date, the condition precedent that AutoBond Funding shall have received on or
before the Closing Date the following, in form and substance satisfactory to
AutoBond Funding:
(i) a certificate of the secretary or assistant secretary of
AutoBond (on which certificate such party may conclusively rely until such
time as it shall receive from AutoBond a revised certificate meeting the
requirements of this subsection) certifying as of the Closing Date: (A)
the names and true signatures of the officers authorized on its behalf to
sign this Agreement, (B) a copy of AutoBond's organizational documents and
(C) a copy of the resolutions of the board of directors of AutoBond
approving this Agreement and the transactions contemplated hereby or other
evidence of the authorization of AutoBond to enter into this Agreement and
the transactions contemplated hereby, reasonably satisfactory in form and
substance to AutoBond Funding;
(ii) an Officer's Certificate in the form of Exhibit B attached
hereto and made a part hereof; and
(iii) the opinion of Dewey Ballantine, counsel to AutoBond in the
form attached hereto as Exhibit C.
The statements as to which an officer of AutoBond certifies in the Officer's
Certificate described in Section 4(a)(v) shall be deemed re-certified by such
officer or his successor on each Sale Date as though certified thereby on such
Sale Date and with respect to such Sale Date, except as specifically disclosed
in a prior instance to AutoBond Funding in writing and specifically consented to
by AutoBond Funding in its sole discretion.
(b) Each Sale (including the first Sale pursuant hereto) shall be subject
to the further conditions precedent that on the related Sale Date, AutoBond
shall have:
(i) delivered to AutoBond Funding acknowledgment copies of proper
financing statements (Form UCC-3), if any, necessary to release all
security interests and other rights of any Person in each Auto Loan being
sold on such Sale Date previously granted by AutoBond; and
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(ii) delivered to AutoBond Funding evidence (A) that AutoBond, as
collection agent and custodian on behalf of AutoBond Funding and the
Collateral Agent or on behalf of any applicable assignee, holds a first
priority perfected security interest in each Financed Vehicle securing
each Eligible Auto Loan being sold on such Sale Date or (B) of the
commencement of all necessary and appropriate actions that would result in
the valid perfection of a first priority security interest in each
Financed Vehicle securing each Auto Loan being sold on such Sale Date in
favor of AutoBond in such capacity, upon completion of processing by the
applicable state agency.
SECTION 5. Representations and Warranties of AutoBond.
(a) AutoBond represents and warrants to AutoBond Funding, as of the date
hereof (which representations and warranties shall be deemed reaffirmed on each
Sale Date as though made on such Sale Date) with respect to AutoBond as follows:
(i) AutoBond is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Texas, is duly qualified
to do business and is in good standing in every jurisdiction in which the
nature of its business requires it to be so qualified;
(ii) AutoBond has the power and authority to own and convey all of
its properties and assets and to execute and deliver this Agreement and to
perform the transactions contemplated hereby;
(iii) the execution, delivery and performance by AutoBond of this
Agreement and the transactions contemplated hereby, (A) have been duly
authorized by all necessary corporate or other action on the part of
AutoBond, (B) do not contravene or cause AutoBond to be in default under
(1) AutoBond's articles of incorporation or by-laws, (2) any contractual
restriction with respect to any debt of AutoBond or contained in any
indenture, loan or credit agreement, lease, mortgage, security agreement,
bond, note, or other agreement or instrument binding on or affecting
AutoBond or its property or (3) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to, binding on or
affecting AutoBond or its property and (C) do not result in or require the
creation of any Adverse Claim;
(iv) this Agreement has been duly executed and delivered on behalf
of AutoBond;
(v) no consent of, or other action by, and no notice to or filing
with, any Governmental Authority or any other party, is required for the
due execution, delivery and performance by AutoBond of this Agreement or
for the
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perfection of or the exercise by AutoBond Funding of any of its rights or
remedies hereunder, other than the Necessary Consents, each of which has
been obtained and complete copies of which have been provided to AutoBond
Funding except that the exercise of remedies hereunder may require notices
and other actions in accordance with applicable law at the applicable
time;
(vi) this Agreement is the legal, valid and binding obligation of
AutoBond, enforceable against AutoBond in accordance with its respective
terms, except as such enforceability may be limited by applicable federal
or state insolvency, bankruptcy, reorganization or other laws relating to
or affecting the enforcement of creditor's rights and general principles
of equity; and
(vii) there is no pending or threatened action, suit or proceeding,
against or affecting AutoBond or the property of AutoBond, in any court or
tribunal, or before any arbitrator of any kind or before or by any
Governmental Authority (A) asserting the invalidity of this Agreement, (B)
seeking to prevent the sale and assignment of any Auto Loan or the
consummation of any of the transactions contemplated hereby or (C) seeking
any determination or ruling that might materially and adversely affect (1)
the performance by AutoBond of this Agreement, (2) the validity or
enforceability of this Agreement, (3) any Auto Loan, (4) the tax
attributes of the Sales or (5) the financial condition of AutoBond.
(b) With respect to each Auto Loan, AutoBond represents and warrants to
AutoBond Funding, as of the Sale Date on which such Auto Loan becomes a Sold
Auto Loan, that:
(i) such Auto Loan complies in full with, and has been originated in
accordance with, the AutoBond Program Criteria and the AutoBond Program
Manual;
(ii) AutoBond has conducted each of the procedures set forth in the
AutoBond Program Manual to evaluate the Obligor's application in
accordance with the Credit and Collection policies;
(iii) upon completion of processing by the applicable state agency,
such Auto Loan shall include a validly perfected first priority security
interest in the Financed Vehicle securing such Auto Loan in favor of
AutoBond or its designated assignee as secured party which security
interest is assignable and, if applicable, has been so assigned to
AutoBond or its designated assignee and such Financed Vehicle is free and
clear of any Adverse Claim and, so long as AutoBond Funding or its
assignee remains the owner of such Auto Loan, AutoBond will hold such
security interest solely as an agent of AutoBond Funding or its assignee,
will take all necessary steps to maintain such security interest and will
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not transfer such security interest to any other party without the prior
written consent of AutoBond Funding or its assignee;
(iv) such Auto Loan has not been satisfied, subordinated or
rescinded; and no provision of such Auto Loan has been waived, altered or
modified in any respect, except by instruments or documents identified in
the Loan File;
(v) such Auto Loan is not and will not be subject to any right of
rescission, set-off, recoupment, counterclaim or defense, whether arising
out of transactions concerning such Auto Loan between the Obligor and the
Dealer, the Dealer and AutoBond, or otherwise and no such right has been
asserted with respect thereto;
(vi) immediately prior to assigning such Auto Loan to AutoBond
Funding, AutoBond was the sole owner and had full right to transfer such
Auto Loan to AutoBond Funding; such Auto Loan has not been sold, assigned
or pledged by AutoBond to any other Person and AutoBond has conveyed to
AutoBond Funding good and marketable title to such Auto Loan, free and
clear of any Adverse Claim;
(vii) on the date of its transfer, such Auto Loan is not a Defaulted
Auto Loan and there is no default, breach, violation, or event permitting
acceleration under the Auto Loan, and no event has occurred which, with
notice and the expiration of any grace or cure period or both, would
constitute a default, breach, violation, or event permitting acceleration
under such Receivables; provided that, (A) with respect to any Auto Loan
acquired by the Purchaser on the Closing Date, if such Auto Loan is not 60
days or more contractually past due and (B) with respect to any Auto Loan
acquired by the Purchaser after the Closing Date, if such Auto Loan is not
more than one payment past due, such Auto Loan shall be deemed not to be
in payment default, unless such Receivable is a Defaulted Receivable;;
(viii) the Loan File related to such Auto Loan contains each of the
documents required by the AutoBond Program Manual;
(ix) the down payment described in such Loan File was paid to the
related Dealer in the manner stated therein;
(x) the Financed Vehicle securing the Obligor's obligation to pay
under such Auto Loan has been delivered to and accepted by the Obligor;
(xi) such Auto Loan is denominated and payable in United States
dollars;
(xii) such Auto Loan contains enforceable provisions such as to
render the rights and remedies of the holder
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thereof adequate for the realization of the security afforded by the
related collateral;
(xiii) such Auto Loan has been originated and sold in the ordinary
course of AutoBond's and the related Dealer's business, and such Auto Loan
has been entered into by the related Dealer pursuant to standard terms of
loan documentation in accordance with the AutoBond Program, copies of
which have been certified to AutoBond Funding;
(xiv) the Dealer Agreement relating to such Auto Loan is in effect,
whereby the related Dealer warrants delivery of title to such Financed
Vehicle, indemnifies AutoBond against fraud and misrepresentation by the
related Dealer and its employees and represents and warrants that such
Dealer did not accept any side notes as any part of the down-payment
portion of the related Obligor's purchase price, and AutoBond's rights
thereunder with regard to such Auto Loan, have been validly assigned to,
and are enforceable against the related Dealer by, AutoBond Funding or its
assignee, along with any other rights of recourse which AutoBond has
against the related Dealer, without prejudice to any rights (A) AutoBond
Funding may have against AutoBond and (B) AutoBond may have against the
related Dealer with regard to Auto Loans that are not Sold Auto Loans;
(xv) the related Dealer is an Eligible Dealer;
(xvi) this Agreement and each related Sale Assignment constitutes a
valid sale, transfer, assignment set-over and conveyance to AutoBond
Funding of all right, title and interest of AutoBond and the Selling
Dealer in and to such Auto Loan now existing and hereafter created, and
upon its receipt of such Auto Loan and payment of the related Loan
Acquisition Price, AutoBond Funding will have good and marketable title to
such Auto Loan free and clear of any Adverse Claim and such Auto Loan
shall be freely transferable by AutoBond Funding without the required
consent of any party;
(xvii) such Auto Loan does not (A) contravene in any material
respect any laws, rules or regulations applicable thereto in connection
with the origination of such Auto Loan (specifically excluding laws, rules
or regulations applicable thereto in connection with post-origination
compliance, including, but not limited to, laws, rules and regulations
applicable thereto in connection with fair credit billing, fair credit
reporting and fair debt collection practices) or (B) except as required by
applicable law, impose any liability or obligation of the Dealer or
AutoBond on AutoBond Funding or its assignee with respect to such Auto
Loan;
(xviii) there are no procedures or investigations pending or, to the
best of AutoBond's knowledge, threatened before any
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Governmental Authority (A) asserting the invalidity of such Auto Loan, or
(B) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of such Auto Loan;
(xix) AutoBond and, to the best of its knowledge, the Selling
Dealer, have duly fulfilled all obligations on their part to be fulfilled
under or in connection with such Auto Loan and have done nothing to impair
the rights of AutoBond Funding in such Auto Loan or the rights of AutoBond
Funding in the proceeds with respect thereto, and have paid in full all
taxes and other charges payable in connection with such Auto Loan and the
transfer of such Auto Loan to AutoBond Funding, which could impair or
become a lien prior to AutoBond Funding's interest in such Auto Loan;
(xx) the Sale Assignment has been duly executed and delivered by
AutoBond;
(xxi) the residence of the related Obligor is located within the
borders of the United States of America;
(xxii) the original of the retail installment sale contract and note
evidencing such Auto Loan has been delivered to the Collateral Agent;
(xxiii) the Obligor is not a Governmental Authority; and
(xxiv) such Auto Loan is eligible for coverage under the VSI Policy
then in effect with respect to the Sold Auto Loans.
(c) It is understood and agreed that the representations and warranties
set forth in this Section 5 shall survive the sale or contribution of a Sold
Auto Loan to AutoBond Funding and any assignment of such Sold Auto Loan by
AutoBond Funding to any subsequent assignee and shall continue so long as any
such Sold Auto Loan shall remain outstanding until such time as such Sold Auto
Loan is repurchased pursuant to Section 5(d). AutoBond acknowledges that it has
been advised that AutoBond Funding may assign all or part of its right, title
and interest in and to each Sold Auto Loan and its right to exercise the
remedies created by this Section 5 to a subsequent assignee. AutoBond agrees
that, upon any such assignment, any subsequent assignee may enforce directly,
without joinder of AutoBond Funding (but subject to any defense that AutoBond
may have under this Agreement), the purchase obligations of AutoBond set forth
in Section 5(d) with respect to breaches of the representations and warranties
set forth in Section 5(a) and Section 5(b).
(d) Upon discovery by AutoBond Funding, any subsequent assignee or
AutoBond of (i) a breach of any of the representations and warranties in Section
5(a) or Section 5(b) which materially and adversely affects the value of a Sold
Auto Loan or the interests of
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AutoBond Funding or a subsequent assignee therein or (ii) the failure of
AutoBond to deliver original certificates of title in accordance with Section
6(m), the party discovering such breach or failure to deliver shall give prompt
written notice to the other parties. If, at the time of such discovery, (i) no
loss has yet occurred with respect to such Sold Auto Loan, (ii) such breach or
failure to deliver is curable and (iii) AutoBond shall have failed to cure such
breach or failure to deliver within, in the case of a breach, 30 days, and, in
the case of a failure to deliver, seven Business Days, after the earlier of (A)
AutoBond's discovery of such breach or failure to deliver and (B) AutoBond's
receipt of written notice of such breach or failure to deliver, then if
requested in writing by notice from AutoBond Funding or any subsequent assignee,
AutoBond shall immediately repurchase such Sold Auto Loan by remitting an amount
equal to the Repurchase Price in the manner specified in such notice; provided,
however, if any such breach under Section 5(b) is due to a breach or default by
a Dealer under a Dealer Agreement, AutoBond shall have 30 days in which to cure
such breach or default with respect to such Dealer, in which case AutoBond will
promptly notify the Lender. If AutoBond fails to cure such Dealer breach or
default within 30 days, then AutoBond shall be obligated to repurchase the
affected Sold Auto Loans pursuant to this Section 5(d). Any such repurchase
shall be made without recourse against, or warranty, express or implied, of
AutoBond Funding or any such assignee. Notwithstanding the immediately preceding
sentence, in connection with any such repurchase, AutoBond Funding shall in
writing represent to AutoBond (i) the amount of the remaining balance of the
relevant Sold Auto Loan and (ii) that AutoBond Funding has not violated in any
material way any laws applicable to the collectibility of such Sold Auto Loan.
AutoBond Funding or any subsequent assignee shall execute and deliver an
assignment substantially in the form of Exhibit D attached hereto and made a
part hereof to vest ownership of such Sold Auto Loan in AutoBond. If, at the
time of the discovery of such breach or failure to deliver, a loss has occurred
with respect to such Sold Auto Loan, then AutoBond shall pay to AutoBond Funding
or any subsequent assignee an amount equal to the amount, if any, by which the
Repurchase Price exceeds the net proceeds from such Sold Auto Loan. It is
understood and agreed that the obligation of AutoBond to repurchase any Sold
Auto Loan pursuant to this Section 5(d) or to make the payment described in the
immediately preceding sentence (the "Repurchase Requirement") shall constitute
the sole remedy for the breach of any representation or warranty set forth in
Section 5(b) or the failure by AutoBond to deliver an original certificate of
title in accordance with Section 6(m); provided, that the foregoing limitation
shall not be construed to limit in any manner AutoBond Funding's rights to (a)
declare the Termination Date to have occurred to the extent that such breaches
or failures to deliver also constitute, or contribute to the determination of,
an Event of Purchase Termination, (b) indemnification to the extent available
under Section 9, or (c) offset the amount of the Repurchase Price from the Loan
Acquisition Price in connection with any other Sold
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Auto Loans. It is also understood and agreed that upon the repurchase by
AutoBond of a Sold Auto Loan in accordance with this Section 5(d) and the
payment by AutoBond of all monies required to be paid by it under this Section
5(d) it is the intention of the parties hereto and AutoBond Funding warrants
that, if the seller of such Sold Auto Loan is AutoBond Funding, AutoBond shall
own all right, title and interest of AutoBond Funding in and to such Sold Auto
Loan.
(e) Subject to Section 9, with respect to any representations and
warranties contained in Section 5(b) which are made to the best of AutoBond's
knowledge, if it is discovered that any representation and warranty is
inaccurate and such inaccuracy materially and adversely affects the value of a
Sold Auto Loan or the interests of AutoBond Funding or any assignee thereof,
then notwithstanding AutoBond's lack of knowledge of the accuracy of such
representation and warranty at the time such representation or warranty was
made, such inaccuracy shall be deemed a breach of such representation or
warranty for purposes of the Repurchase Requirement described in Section 5(d).
(f) It is understood and agreed that the Repurchase Requirement shall
survive any assignment of a Sold Auto Loan by AutoBond Funding to any subsequent
assignee and shall continue so long as any such Sold Auto Loan shall remain
outstanding notwithstanding any termination of this Agreement.
SECTION 6. Additional Covenants of AutoBond. AutoBond shall,
unless AutoBond Funding shall otherwise consent in writing:
(a) comply in all material respects with all applicable laws, rules,
regulations and orders with respect to itself, its business and
properties;
(b) preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its organization and, if
applicable, all necessary Sales Finance Company Licenses;
(c) [reserved];
(d) furnish, or cause to be furnished, to AutoBond Funding as soon
as available and in any event within 120 days after the end of each fiscal
year of AutoBond, a copy of the consolidated financial statement of
AutoBond and its consolidated subsidiaries as of the end of such year and
the related consolidated statements of income and retained earnings, and
of cash flow, of AutoBond and its consolidated Subsidiaries for such year,
in each case reported on by a firm of independent public accountants which
is a member of the American Institute of Certified Public Accountants;
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(e) promptly after the occurrence thereof, deliver notice of any
pending or threatened action, suit or proceeding of a type described in
Section 5(a)(vii);
(f) as soon as possible and in any event within five days after the
occurrence of an Event of Purchase Termination as defined in Sections 8(a)
through and including 8(g) (including without limitation a material
adverse change in the financial condition of AutoBond as determined by
AutoBond Funding) or each event which, with the giving of notice or lapse
of time or both, would constitute an Event of Purchase Termination,
furnish to AutoBond Funding the statement of an officer of AutoBond
setting forth complete details of such Event of Purchase Termination or
event and the action which AutoBond has taken, is taking and proposes to
take with respect thereto;
(g) if requested by AutoBond Funding, promptly verify the accuracy
of any background information concerning AutoBond required for any
offering document with respect to the sale of securities backed by the
Sold Auto Loans, and allow such information to be published in such public
offering documents; provided, that no financial statements of AutoBond
shall be so published without AutoBond's written consent which consent
shall not be unreasonably withheld;
(h) maintain, at its own expense, with responsible insurance
companies such insurance on such of its properties, in such amounts and
against such risks as is customarily maintained by similar businesses. No
provision of this Section 6(h) requiring insurance shall relieve AutoBond
from its duties and obligations as set forth in this Agreement. AutoBond
shall be deemed to have complied with this provision in whole or in
applicable part if one of its Affiliates has such applicable policy or
policies and, by the terms thereof, the coverage afforded thereunder
extends to AutoBond. AutoBond shall, upon the request of AutoBond Funding,
file with AutoBond Funding a list of the insurance then in effect, stating
the names of the insurance companies, the amounts of the insurance, the
dates of expiration thereof, and the properties and risks covered thereby;
(i) use reasonable efforts to promptly acquire, maintain and/or
deliver to AutoBond Funding, as the case may be, from time to time, such
other information, documents, records or reports, including tax returns
and reports, respecting the Auto Loans or the condition or operations,
financial or otherwise, of AutoBond or any of its Subsidiaries, as
AutoBond Funding may, from time to time, reasonably require including, but
not limited to, such information, documents, records or reports which
AutoBond Funding is requested or required by applicable law (including any
requirement of law arising by means of deposition, interrogatory, request
for information,
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subpoena, civil investigative demand or similar process or by a regulatory
body or agency or other legal entity) to provide to a third party
(including any Governmental Authority) and such information that is
desirable to obtain in connection with any Disposition including any such
information requested by any ratings agency involved in any Disposition;
provided, that appropriate confidentiality shall be maintained by AutoBond
Funding and or any third party and that the requesting third party has an
appropriate reason to obtain information that pertains to the AutoBond
Program;
(j) keep a copy of this Agreement in its official records;
(k) use its best efforts to comply with and adhere to the AutoBond
Program Manual;
(l) deliver to the Collateral Agent or, upon a Disposition, the
assignee designated by AutoBond Funding, on the earlier to occur of (i)
the seventh day following the date of the issuance by the relevant state
title registration agency of an original certificate of title for an
Financed Vehicle and (ii) the date which is the 135th day after the Sale
Date of the related Auto Loan, an original certificate of title for the
related Financed Vehicle issued by the relevant state title registration
agency; provided, that AutoBond shall be obligated to purchase, in
accordance with Section 5(d), each Auto Loan in connection with which an
original certificate of title is not so delivered to the Collateral Agent
or such assignee; and
(m) agree to reasonable amendments to this Agreement which do not
add material responsibilities of AutoBond hereunder and which do not
diminish the material benefits of AutoBond hereunder which amendments are
necessary (i) to ensure the assignment by the rating agency rating the
securities to be issued in connection with a Disposition of a desirable
(in the sole discretion of AutoBond Funding) rating of such securities or
(ii) to prevent a review with negative implications, suspension,
downgrade, withdrawal or other impairment of the rating assigned to such
securities.
SECTION 7. Termination. This Agreement shall have an initial term of five
years, commencing on the date hereof, and shall thereafter be automatically
renewed for successive one-year periods; provided, however, that this Agreement
will terminate on the date (the "Termination Date"), if any, that is the earlier
to occur of the following events:
(a) the date an Event of Purchase Termination shall have been
declared or deemed declared in accordance with the provisions of Section
8; or
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(b) at the expiration of the then current term if either party gave
notice to the other of its election not to renew this Agreement no less
than ninety days prior to the expiration of such term.
SECTION 8. Events of Purchase Termination. If any of the following events
(each, an "Event of Purchase Termination") shall occur and be continuing:
(a) AutoBond shall fail to perform or observe any material term,
covenant or agreement contained in this Agreement and such failure shall
remain unremedied for 30 days after written notice thereof shall have been
given by AutoBond Funding to AutoBond; or
(b) a default shall have occurred and be continuing under any
instrument or agreement evidencing, securing or providing for the issuance
of a material amount of Debt, which default results in the acceleration of
such Debt; or
(c) AutoBond shall generally not pay any of its respective debts as
such debts become due, or AutoBond shall admit in writing its inability to
pay its Debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
AutoBond seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or any of its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment of a
conservator, receiver, trustee, custodian or other similar official for it
or for any substantial part of its property, or any of the actions sought
in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian
or other similar official for, it or for any substantial part of its
property) shall occur; or AutoBond shall take any corporate action to
authorize any of the actions set forth in this subsection; or
(d) judgments or orders of any court, arbitrator or other
Governmental Authority for the payment of money (other than such judgments
or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $50,000 in the aggregate against AutoBond
shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 30 days or more; or
(e) there is a material breach of any of the representations and
warranties of AutoBond set forth in Section 5(a); or
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(f) any Governmental Authority (including the Internal Revenue
Service or the Pension Benefit Guaranty Corporation) shall file notice of
a lien with regard to the assets of AutoBond (other than a lien (i)
limited by its terms to assets other than Auto Loans and (ii) not
materially adversely affecting the financial condition of AutoBond); or
(g) this Agreement and the Sale Agreement shall for any reason cease
to evidence the transfer to AutoBond Funding of the legal, equitable and
marketable title to, and ownership of, the Auto Loans; or
(h) AutoBond Funding becomes obligated to cease purchasing Auto
Loans from AutoBond in accordance with any Credit Agreement or otherwise
pursuant to a Disposition;
then and in any such event, AutoBond Funding may, by notice to AutoBond declare
an Event of Purchase Termination to have occurred, in which case the Termination
Date shall be the date such notice is given without demand, protest or further
notice of any kind, all of which are hereby expressly waived by AutoBond;
provided, that in the event that any of the Events of Purchase Termination
described in subsections (c) or (g) of this Section 8 shall have occurred, an
Event of Purchase Termination shall be deemed to have been declared in which
case the Termination Date shall be on the date on which such Event of Purchase
shall have occurred, without demand, protest or any notice of any kind, all of
which are hereby expressly waived by AutoBond; provided, further, that in the
event that the Event of Purchase Termination described in subsection (i) of this
Section 8 shall have occurred, AutoBond Funding shall not unreasonably
discriminate against AutoBond in terminating this Agreement. Upon any such
actual declaration or deemed declaration, (i) all of AutoBond's rights under
this Agreement (except its rights by virtue of AutoBond Funding not having
performed its obligations and agreements hereunder) shall terminate and (ii)
AutoBond Funding shall have, in addition to all other rights and remedies under
this Agreement, all other rights and remedies provided under the UCC and other
applicable law, which rights shall be cumulative.
SECTION 9. Indemnification. Without limiting any other rights that an
Indemnified Party may have hereunder or under applicable law, AutoBond hereby
agrees to pay on demand to each Indemnified Party any and all amounts necessary
to indemnify such Indemnified Party from and against any and all claims, losses
and liabilities and related costs and expenses, including taxes and reasonable
attorneys' fees and disbursements ("Indemnified Amounts") which may be imposed
on, incurred by or asserted against an Indemnified Party in any way arising out
of or resulting from:
(a) any representation or warranty made or deemed made by AutoBond
(or any of its officers) under this Agreement, or
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any report delivered by AutoBond pursuant hereto or any other information
delivered by AutoBond pursuant hereto, having been incorrect in any
material respect when made or deemed made or delivered (except with
respect to any representation and warranty arising under Section 5(b)
(other than Section 5(b)(xxi)(A) in respect of losses to or damages
imposed on AutoBond Funding or its assignee in excess of the Repurchase
Price of a Sold Auto Loan) in respect of a Sold Auto Loan, as to which
AutoBond Funding's remedies are set forth in Section 5(d));
(b) the failure by AutoBond to comply with any term, provision or
covenant contained in this Agreement, or any agreement executed in
connection with this Agreement;
(c) the failure to vest and maintain vested in AutoBond Funding, or
to transfer to AutoBond Funding, legal, equitable and marketable title to
and ownership of the Auto Loans which are, or are purported to be, Sold
Auto Loans, together with all proceeds in respect thereof, free and clear
of any Adverse Claim (except as permitted hereunder) whether existing at
the time of the proposed sale of such Auto Loan or at any time thereafter
and without limitation to the remedies set forth in Section 5; or
(d) the actions or inactions of AutoBond or any officer, director,
employee or agent of AutoBond;
excluding, however, (a) recourse for any uncollectible Sold Auto Loan; provided,
that the foregoing shall not be deemed to limit AutoBond Funding's rights under
Sections 5(d), 9(c), 9(d) and, with respect to a breach in the representation
and warranty set forth in Section 5(b)(xxi)(A), Section 9(a), (b) Indemnified
Amounts to the extent resulting from the negligence or willful misconduct on the
part of any Indemnified Party and (c) with respect to Sections 9(a) and 9(d)
only, (i) Indemnified Amounts to the extent resulting solely from fraud or
misrepresentation with respect to an Auto Loan on the part of an Obligor (A)
which AutoBond had no knowledge of at the time of sale of the related Financed
Vehicle or (B) with respect to which AutoBond had no knowledge of any fact which
should have led it to expect at the time of the sale of the related Financed
Vehicle that such Auto Loan would not be paid in full when due because of fraud
or misrepresentation on the part of such Obligor and (ii) Indemnified Amounts
resulting solely from the non-payment by an Obligor of the amounts due under an
Auto Loan. AutoBond acknowledges that AutoBond Funding intends to assign its
rights of indemnity granted hereunder to an assignee and upon such assignment,
such assignee shall have all rights of AutoBond Funding hereunder and may in
turn assign such rights. AutoBond agrees that, upon such assignment, such
assignee may enforce directly, without joinder of AutoBond Funding, the
indemnities set forth in this Section 9. It is understood and agreed that the
indemnity
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obligations of AutoBond hereunder shall survive the termination of this
Agreement or of any Sold Auto Loan.
SECTION 10. Confidentiality. Except to the extent otherwise required by
applicable law or unless AutoBond Funding shall otherwise consent in writing,
AutoBond agrees to maintain the confidentiality of the original or any copy of
all or any part of this Agreement (and all drafts hereof and documents ancillary
thereto including any letters of intent) in its communications with third
parties and otherwise and not to disclose the existence, or the terms, of this
Agreement or to deliver or otherwise make available such documents to any third
party (other than its directors, officers, employees, accountants examiners or
counsel, or as required by law). AutoBond shall not make use in any manner
whatsoever (except as required by law) of the names of any of the participants
in the AutoBond Program without the prior written consent of AutoBond Funding.
AutoBond shall not act on the behalf of, in the name of, or make agreements on
behalf of, AutoBond Funding without the express written consent of AutoBond
Funding.
SECTION 11. No Proceedings. AutoBond hereby agrees that it will not,
directly or indirectly, institute, or cause to be instituted, against AutoBond
Funding any proceeding of the type referred to in Section 8(c) so long as there
shall not have elapsed one year plus one day since the latest maturing
securities issued by AutoBond Funding or any Securitization Trust have been paid
in full in cash. The foregoing covenant shall not limit AutoBond's right to
institute legal proceedings of a type other than that referred to in Section
8(c) against the AutoBond Funding for any breach by AutoBond Funding of its
obligations hereunder.
SECTION 12. Notices, Etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing and mailed or
telecommunicated, or delivered as to each party hereto, at its address set forth
under its name on the signature page hereof or at such other address as shall be
designated by such party in a written notice to the other parties hereto. All
such notices and communications shall not be effective until received by the
party to whom such notice or communication is addressed.
SECTION 13. No Waiver; Remedies. No failure on the part of AutoBond,
AutoBond Funding or any assignee thereof to exercise, and no delay in
exercising, any right hereunder or under any Sale Assignment shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
other remedies provided by law.
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SECTION 14. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of AutoBond, AutoBond Funding and their respective
successors and permitted assigns. The Trustee and any other assignee shall be an
express third party beneficiary of this Agreement, entitled to directly enforce
this Agreement. AutoBond may not assign any of its rights and obligations
hereunder or any interest herein without the prior written consent of AutoBond
Funding, the Trustee and any other assignee. AutoBond Funding may, and intends
to, assign all of its rights hereunder and AutoBond consents to any such
assignment. This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until its termination; provided, that the rights and
remedies with respect to any breach of any representation and warranty made by
AutoBond pursuant to Section 5, the Repurchase Requirement and the
indemnification and payment provisions of Section 9 shall be continuing and
shall survive any termination of this Agreement.
SECTION 15. Amendments; Consents and Waivers; Entire Agreement. No
modification, amendment or waiver of, or with respect to, any provision of this
Agreement, and all other agreements, instruments and documents delivered
thereto, nor consent to any departure by AutoBond from any of the terms or
conditions thereof shall be effective unless it shall be in writing and signed
by the Trustee and each of the parties hereto. Any waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
consent to or demand by AutoBond in any case shall, in itself, entitle it to any
other consent or further notice or demand in similar or other circumstances.
This Agreement and the documents referred to herein embody the entire agreement
of AutoBond and AutoBond Funding (but not of AutoBond Funding and any third
parties) with respect to the Auto Loans and supersede all prior agreements and
understandings between such parties relating to the subject hereof. AutoBond
acknowledges that in connection with the intended assignment by AutoBond Funding
of all of its right, title and interest in and to each Sold Auto loan to an
assignee, AutoBond Funding intends to enter into certain financing and security
arrangements with such assignee pursuant to which such assignee, subject to the
terms of such arrangements, shall provide funds to AutoBond Funding to purchase
Auto Loans hereunder and pursuant to which the ability of AutoBond Funding to
perform hereunder (including its ability to purchase Auto Loans and to render
consents hereunder) shall be subject to the consent of such assignee.
Notwithstanding the above, the obligation of AutoBond Funding to perform
hereunder shall not be diminished by the existence of such arrangements.
SECTION 16. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and
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enforceability of the remaining provisions or obligations, or of such provision
or obligation, shall not in any way be affected or impaired thereby in any other
jurisdiction. Without limiting the generality of the foregoing, in the event
that a Governmental Authority determines that AutoBond Funding may not purchase
or acquire Auto Loans, the transactions evidenced hereby shall constitute a loan
and not a purchase and sale, notwithstanding the otherwise applicable intent of
the parties hereto and AutoBond shall be deemed to have granted to AutoBond
Funding as of the date of each Sale a first priority perfected security interest
in all of AutoBond's right, title and interest in, to and under the Sold Auto
Loans, and all proceeds thereof.
SECTION 17. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS
OF LAW.
(B) AUTOBOND AND AUTOBOND FUNDING HEREBY SUBMIT TO THE NONEXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET
FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. AUTOBOND AND AUTOBOND FUNDING EACH HEREBY WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF AUTOBOND OR AUTOBOND FUNDING TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY OF THEM TO BRING ANY
ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(C) AUTOBOND AND AUTOBOND FUNDING EACH HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
SECTION 18. Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
SECTION 19. Execution in Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of
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which when so executed shall be deemed to be an original and both of which when
taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
AUTOBOND ACCEPTANCE CO.,
By: ______________________________________
Name:
Title:
Address: 301 Congress Avenue
Austin, Texas 78701
Attention: William Winsauer
Telephone number: (800) 305-4901
Telecopier number: (512) 472-1548
AUTOBOND FUNDING CORPORATION I
By: ______________________________________
Name:
Title:
Address: 301 Congress Avenue
Austin, Texas 78701
Attention: William Winsauer
Telephone number: (800) 305-4901
Telecopier number: (512) 472-1548
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EXHIBIT A
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CORP.
AND
AUTOBOND FUNDING CORPORATION I
[FORM OF SALE ASSIGNMENT]
SALE ASSIGNMENT, dated as of ___________, 199_, between AUTOBOND
ACCEPTANCE CO. ("Autobond") and AUTOBOND FUNDING CORPORATION I ("Funding").
1. We refer to the Amended and Restated Loan Origination, Sale and
Contribution Agreement (the "Sale Agreement") dated as of December 15, 1995
between AutoBond and Funding. All provisions of such Sale Agreement are
incorporated herein by reference. All capitalized terms shall have the meanings
set forth in the Sale Agreement.
2 [Pursuant to the Sale Agreement, AutoBond does hereby sell, transfer,
assign, set over and convey to Funding all right, title and interest of AutoBond
in and to the Auto Loans listed on Schedule 1 hereto (each, a "Sold Auto Loan")
and Funding does hereby purchase each such Sold Auto Loan.]
3. [Pursuant to the Sale Agreement, AutoBond does hereby contribute,
transfer, assign, set over and convey to Funding, without recourse, all right,
title and interest of AutoBond in and to the Auto Loans listed on Schedule 1
hereto (each, a "Contributed Auto Loan") and Funding does hereby accept such
contribution to its stated capital.]
4. The Principal Balance for the Sold Auto Loans sold and purchased hereby
is $________. [The Loan Acquisition Price for the Sold Auto Loans sold and
purchased hereby is $________; representing 92% of the Principal Balance [plus
accrued interest of $_______]. The Loan Acquisition Price shall be payable in
full contemporaneously with the execution of this Sale Assignment. In addition,
the Collateral Agent will remit to AutoBond, on behalf of Funding, pursuant to
Section 6.04(a)(i) of the Security Agreement, payment of the Credit Default and
VSI Insurance Purchase Price in the amount of $__________, which amount AutoBond
shall apply towards obtaining the agreed upon insurance on the Sold Auto Loans
sold and assigned hereunder.]
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IN WITNESS WHEREOF, the parties have caused this Sale Assignment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AUTOBOND ACCEPTANCE CO. AUTOBOND FUNDING CORPORATION
By:____________________ By:_________________________
Name:__________________ Name:_______________________
Title:_________________ Title:______________________
2
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SCHEDULE 1
SOLD AUTO LOANS
Principal Balance: $_______________________
CONTRIBUTED RECEIVABLES
Principal Balance: $_______________________
3
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EXHIBIT B
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CO.
AND
AUTOBOND FUNDING CORPORATION I
[FORM OF OFFICER'S CERTIFICATE
FOR AUTOBOND]
I hereby certify that I am a duly elected [Officer] of AutoBond Acceptance
Co. ("AutoBond") with all requisite knowledge of the matters set forth below and
further certify as follows:
1. No proceedings looking toward merger, liquidation, dissolution or
bankruptcy of AutoBond are pending or contemplated.
2. There is no litigation pending, or to my knowledge, threatened,
which, if determined adversely to AutoBond, would adversely affect the
execution, delivery or enforceability of the Amended and Restated Loan
Origination, Sale and Contribution Agreement, dated as of December 15,
1995 (the "Agreement"), by and between AutoBond and AutoBond Funding
Corporation I, or the sale of the Auto Loans as provided therein.
3. With respect to the Agreement, AutoBond has complied with all the
agreements by which it is bound and has satisfied all the conditions on
its part to be performed or satisfied prior to the date hereof.
4. No Event of Purchase Termination, or other event of default in
the performance of any of AutoBond's covenants or agreements under the
Agreement has occurred and is continuing, nor has an event occurred which
with the passage of time or notice or both would become such an event of
default.
5. AutoBond is not a party to, or governed by, any contract,
indenture, mortgage, loan agreement, note, lease, deed of trust or other
instrument which restricts AutoBond's ability to act as agent in
connection with the sale of Auto Loans or consummate any of the
transactions contemplated by the Agreement.
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6. For tax, accounting, and reporting purposes, AutoBond will not
show the Sold Auto Loans as assets on its books.
7. AutoBond (a) is solvent; (b) is paying its debts as they mature;
(c) neither intends to incur, nor believes that it would incur, debts
beyond its ability to pay as they mature; and (d) has an adequate amount
of capital to conduct its business and anticipates no difficulty in
continuing to do so for the foreseeable future.
8. AutoBond has and maintains all material permits, licenses,
authorizations, registrations, approvals and consents of Governmental
Authorities necessary for (a) the activities and business of AutoBond as
currently conducted, (b) the ownership, use, operation and maintenance of
its properties, facilities and assets, and (c) the performance by AutoBond
of the Agreement.
9. The representations and warranties of AutoBond set forth in
Section 5(a) of the Agreement are true and correct on and as of the date
hereof and any other Sale Date on which this certificate is deemed to be
restated, before and after giving effect to the Sale on such date and to
the application of the proceeds therefrom, as though made on and as of
such Sale Date and the representations and warranties set forth in Section
5(b) are true and correct on and as of such Sale Date with respect to the
Sold Auto Loans.
10. The Termination Date has not occurred.
The statements listed above shall be deemed to be re-certified by me or my
successor in accordance with the last sentence of Section 4(a) of the Agreement.
All capitalized terms used herein that are not otherwise defined shall
have the respective meanings ascribed thereto in the Agreement.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the
seal of AutoBond an of this __ day of ____________, 199_.
By:__________________________________
Name:
Title:
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EXHIBIT D
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CO.
AND
AUTOBOND FUNDING CORPORATION I
[FORM OF REPURCHASE ASSIGNMENT]
REPURCHASE ASSIGNMENT (this "Purchase Assignment"), dated as of _________,
199_ between AutoBond Acceptance Co. ("AutoBond") and [AutoBond Funding
Corporation I ("AutoBond Funding")] [ASSIGNEE OF AUTOBOND FUNDING].
We refer to the Amended and Restated Loan Origination, Sale and
Contribution Agreement (the "Agreement"), dated as of December 15, 1995, by and
between AutoBond and AutoBond Funding. All capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Agreement.
Pursuant to Section 5(d) of the Agreement, AutoBond Funding [ASSIGNEE OF
AUTOBOND FUNDING] does hereby sell, transfer, assign, set over and convey to
AutoBond, without recourse or warranty, express or implied, all right, title and
interest of AutoBond Funding [ASSIGNEE OF AUTOBOND FUNDING] in and to the Auto
Loans listed on Schedule 1 attached hereto and made a part hereof (each, a
"Repurchased Auto Loan"), in consideration for receipt of the aggregate
Repurchase Price for such Repurchased Auto Loans, and AutoBond does hereby
purchase each such Repurchased Auto Loan.
The Repurchase Price for each Repurchased Auto Loan is set forth on
Schedule 1 attached hereto and made a part hereof.
THIS PURCHASE ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAW.
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IN WITNESS WHEREOF, the parties have caused this Repurchase Assignment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
AUTOBOND ACCEPTANCE CO.,
By:______________________________
Name:
Title:
AUTOBOND FUNDING CORPORATION I
[ASSIGNEE OF AUTOBOND FUNDING]
By:______________________________
Name:
Title:
2
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SCHEDULE 1 TO EXHIBIT D
TO THE LOAN ORIGINATION AGREEMENT
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EXHIBIT E
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CO.
AND
AUTOBOND FUNDING CO.
[FORM OF DEALER AGREEMENT]
AUTOBOND ACCEPTANCE CORP.
Dealer Agreement
This dealer Agreement ("Agreement") is made and entered into this ____ day of
____________________________, 19__ at ______________________, Texas, by and
between ________________________________, __________________________________ __,
____________, Texas __________________
(Dealer Name) Address)
(City) (Zip Code)
(herein called "Seller") and AutoBond Acceptance Corporation, 301 Congress
Avenue, Suite 900, Austin, Texas 78701 (herein called "Autobond").
Seller is the originator of certain automobile retail installment contracts (the
"Contracts") which Contracts arise out of Seller's sale of motor vehicles to
purchasers ("Obligors"). Seller will from time to time, sell Contracts to
AutoBond and AutoBond will from time to time, purchase Contracts from Seller.
Seller and AutoBond desire to formally set out the rights, obligations and
responsibilities of the parties with respect to the Contracts purchased by
AutoBond and therefore, the parties agree as follows:
APPLICABILITY. Unless otherwise agreed in writing, this Agreement shall cover
all purchasers of Contracts by AutoBond from Seller. Seller and AutoBond are
deemed to be independent contracting parities and this Agreement does not
establish an agency relationship between the parties.
PURCHASE PRICE OF CONTRACTS. AutoBond shall purchase the Contracts at a price
agreed upon by the Seller and AutoBond. Such price shall vary from time to time
and will be established by AutoBond and provided in writing to the Seller.
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CONSIDERATION. In consideration for the purchase of the Contracts by AutoBond,
Seller agrees to sell, assign, convey, transfer, and set over to AutoBond all of
Seller's rights, title, and interest in and to the Contracts and all related
documents, including, but not limited to, all security agreements, credit
applications, title applications, financing agreements, insurance policy
applications, and proofs of insurance (collectively "Contract Documents") and
the rights conferred thereunder. All assignments shall be made by properly
completing the assignment section of each Contract. As additional consideration
for the purchase of the Contracts, Seller agrees to pay AutoBond a
non-refundable purchase fee. Said fee will be due at the time of the assignment
of the Contracts to AutoBond.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. In consideration of
AutoBond's purchase of the contracts, Seller hereby represents, warrants and
covenants the following:
A.The Contract Documents represent a genuine obligation of the named Obligor
thereon, is valid and binding in accordance with their terms, is enforceable by
AutoBond and its assigns and is subject to no legal or equitable defenses,
setoffs, or counter claims. The Obligor of each of the contracts was of legal
age and capacity at the time of execution thereof.
B.The Contracts will have arisen out of the sale of the property described in
the Contract Documents on the terms described therein.
C.Seller complied with and the Contract Documents are in compliance with all
applicable federal and state laws, including but not limited to, consumer credit
transaction laws.
D.The contracts are not usurious under applicable laws.
E.The non-refundable purchase fee due AutoBond for each Contract sold by the
Seller to AutoBond was not included in the Obligor's purchase price of the motor
vehicle involved, and the fee was not passed on in any manner to the purchaser
of the motor vehicle.
F.Seller will deliver, or cause to be delivered to AutoBond the original motor
vehicle title issued by the applicable state authority. Seller is the sole owner
of the Contracts and has the authority to sell, transfer, and assign the same
pursuant to this Agreement. The Contract Documents, including the credit
application, represent the entire agreement between the Seller and the Obligor
with respect thereto and the Contract documents have not been modified,
superseded or waived by any act or omission by the Seller. AutoBond, as
subsequent owner of the Contracts, will have a valid first lien and security
interest in the collateral described in the Contract Documents and will be
entitled to enforce such rights to their fullest extent.
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G.Seller will obtain from the Obligor appropriate documentation to evidence the
existence of all physical damage insurance required by State law or regulation,
or required pursuant to the Contract Documents, and will furnish such
documentation to AutoBond.
H.Seller will promptly forward to AutoBond any and all communication, inquiries
or remittances relating to the Contracts and will assist AutoBond in collection
of the monies due pursuant to the Contract Documents if requested.
I.Seller will not use AutoBond's name in any advertising or promotion without
the express written consent of AutoBond.
J.Seller will not accept side notes as any part of the downpayment portion of
Obligor's purchase price. All down payments must be made in cash, cashier's
check or by money order. Seller may not make any payments for the Obligor.
K.Seller has no knowledge of any facts that would impair the validity or
enforceability of the Contracts and all statements of fact contained in the
Contract Documents are true to the best of Seller's knowledge.
L.Seller must use a vendor designated and chosen by AutoBond to supply any
credit insurance, GAP insurance, unemployment insurance or vehicle service
contracts.
M.In the event any motor vehicle sold pursuant to a Contract that AutoBond has
purchased from Seller is repossessed, or the Contract is charged-off as
uncollectible, or the Obligor files for bankruptcy, Seller will pay or cause to
be paid, to AutoBond the total of any unearned credit insurance premium, GAP
insurance premium, unemployment insurance premium and any unearned vehicle
service contract amount existing at the time of such repossession, charge-off,
or bankruptcy, provided that AutoBond shall request, in writing to the Seller,
cancellation of the insurance policy or contract corresponding to the particular
premium or amount.
ASSIGNMENT WITHOUT RECOURSE: REMEDIES FOR BREACH. Except as hereinafter
stipulated in this section, Seller's assignment of the Contracts and Contract
Documents to AutoBond is without recourse.
Upon breach of any representation, warranty, covenant or condition of this
Agreement or any of the Contracts, including, but not limited to the terms of
the sale being exactly as stated in the Contract Documents, and that the down
payment does not include any side note(s), deferred down-payment(s), or
post-dated or held check(s). Seller will, upon demand, repurchase any one or all
of the Contracts ("Designated Contracts") at a price equal to the then remaining
unpaid amounts owing by the Obligor(s)
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under the Designated Contracts, including without limitation all unpaid
principal, accrued and unpaid interest, and all other payments due and payable
under or pursuant to the Contract Documents.
In the event that Seller fails to repurchase within thirty (30) days of
AutoBond's demand any of the Contracts which AutoBond purchased pursuant to this
Agreement and AutoBond undertakes legal action to enforce Seller's repurchase
obligation hereunder. Seller shall be liable to AutoBond for all amounts owned
by Seller to AutoBond, and for all costs of such legal action, including court
costs and reasonable attorney's fees. Seller agrees to indemnify AutoBond from
and against any and all liability, loss or damage Autobond incurs as a result of
claims, demands, costs or judgments against AutoBond by reason of falsity of or
Seller's breach of any of the representations or warranties set forth in this
Agreement or the Contract Documents.
AGREEMENT SUPPLEMENTAL TO ASSIGNMENT. The terms of this Agreement are in
addition to and not in substitution or abrogation of the terms and conditions of
the form of assignment appearing as part of the Contract Documents.
WAIVER OF NOTICES. Seller hereby waives notice of any breach under any Contract
Documents or this Agreement.
BENEFITS OF ASSIGNEES. The provisions of this Agreement shall be binding on and
shall inure to the benefit of the successors, transferees and assigns of Seller
and AutoBond.
ENTIRE AGREEMENT. This document contains the entire Agreement of the parties and
cannot be modified except in a writing signed by both the Seller and AutoBond.
The parties agree to do such other things and take such other action as
reasonably necessary to carry out the intent of the parties as expressed in this
Agreement. This Agreement supersedes, amends, and restates in its entirety all
prior agreements, if any, entered into between the parties thereto. Any such
prior agreement are separately of no further force and effect, and any and all
dealings by and between the parties with regard to the subject matter hereof are
governed exclusively by the terms and conditions of this Agreement.
NOTICES. All notices provided herein shall be in writing, and may be served in
person or by mail, and shall be considered delivered, in the case of notice by
mail, on the earlier date of receipt by the addressee of three (3) business days
after posting in a correctly addressed envelope with postage prepaid.
TERMINATION. Either party, on fifteen (15) days' notice to the other party may
terminate this Agreement; however, such termination shall not affect Seller's
and AutoBond's obligations as to Contracts purchased prior to the date of
termination.
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GOVERNING LAW. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas. The obligation of the parties are
performable and venue for any legal action arising out of this Agreement shall
be in Tarrant County, Texas.
WITNESS our signatures as of this the ____ day of ________, 19__.
SELLER: PURCHASER:
AutoBond Acceptance
Corporation
By:_______________________________
By:_______________________________
Title:__________________________
Title:__________________________
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Execution Copy - WP Version
Exhibit C
to
Credit Agreement
- --------------------------------------------------------------------------------
SECURITY AGREEMENT
among
AUTOBOND FUNDING CORPORATION II
(as Borrower)
AUTOBOND ACCEPTANCE CORPORATION.
(as Administrator)
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(as Collateral Agent)
Dated as of May 21, 1996
- --------------------------------------------------------------------------------
AUTOBOND FUNDING CORPORATION II
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. DEFINED TERMS........................................ 1
SECTION 2. SECURITY INTERESTS................................... 9
SECTION 3. CERTAIN RIGHTS OF SECURED PARTIES WITH
RESPECT TO COLLATERAL................................ 10
SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT..................................... 11
SECTION 5. REPRESENTATIONS, WARRANTIES AND
COVENANTS............................................ 13
SECTION 6. COLLATERAL ACCOUNT................................... 15
6.01. Establishment and Maintenance of
Lockbox and Collateral Account....................... 15
6.02. Required Deposits to the Accounts.................... 15
6.03. Right of Withdrawal from the
Collateral Account................................... 17
6.04. Application of Funds in the
Collateral Account; Application of
Proceeds of Realization on
Collateral........................................... 17
6.05. Investment of Funds Deposited in
Collateral Account................................... 21
SECTION 7. DISPOSITIONS OF AUTO LOANS........................... 21
SECTION 8. THE COLLATERAL AGENT................................. 21
8.01. Appointment.......................................... 21
8.02. Exculpatory Provisions............................... 22
8.03. Reliance by Collateral Agent......................... 23
8.04. Notice of Default.................................... 23
8.05. Non-Reliance on Collateral Agent..................... 23
8.06. Successor Collateral Agent........................... 24
8.07. Delivery of Collateral and Permitted
Investments.......................................... 25
8.08. Duties and Covenants of Collateral
Agent................................................ 25
8.09. Annual Report and Quarterly
Certificate.......................................... 28
SECTION 9. AMENDMENTS AND WAIVERS............................... 29
SECTION 10. NOTICES.............................................. 30
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Page
----
SECTION 11. LIMITATION ON COLLATERAL AGENT'S DUTY
IN RESPECT OF COLLATERAL............................. 31
SECTION 12. SEVERABILITY......................................... 31
SECTION 13. NO WAIVER; CUMULATIVE REMEDIES....................... 31
SECTION 14. PAYMENT OF EXPENSES AND TAXES........................ 32
SECTION 15. SUCCESSORS AND ASSIGNS; GOVERNING LAW................ 34
SECTION 16. ENFORCEMENT RIGHTS OF LENDERS........................ 34
SECTION 17. BANKRUPTCY PETITION AGAINST THE
BORROWER............................................. 35
SECTION 18. MISAPPLICATION OF FUNDS.............................. 35
SECTION 19. COUNTERPART SIGNATURES............................... 35
SECTION 20. THIRD PARTY BENEFICIARY.............................. 35
SECTION 21. STATUS OF COLLATERAL AGENT........................... 35
SECTION 22. ACTS OF LENDERS...................................... 36
EXHIBITS
EXHIBIT A - FORM OF COLLATERAL ASSIGNMENT
EXHIBIT B - FORM OF TRUST RECEIPT
EXHIBIT C - FORM OF COLLATERAL AGENT REPORT
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SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 21, 1996 made by and among
AUTOBOND FUNDING CORPORATION II, a Delaware corporation (the "Borrower"),
AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation ("AutoBond") and NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION ("Norwest"), as collateral agent (in such
capacity, the "Collateral Agent").
W I T N E S S E T H
WHEREAS, the Borrower has entered into a Credit Agreement dated as
of May 21, 1996 (as may from time to time, be amended, supplemented, or
modified, the "Credit Agreement") with Peoples Security Life Insurance Company,
as lender (the "Initial Lender") and AutoBond, pursuant to which advances will
be made to the Borrower (the "Advances") from time to time;
WHEREAS, the Borrower has entered into the Loan Origination, Sale
and Contribution Agreement, dated as of May 21, 1996 (as from time to time
amended, supplemented or modified, the "Loan Acquisition Agreement"), with
AutoBond, pursuant to which the Borrower agrees to purchase Eligible Auto Loans;
and
WHEREAS, it is a condition to the obligations of the Lenders to make
the Advances under the Credit Agreement that the Borrower and the Collateral
Agent shall have executed and delivered to the Initial Lender this Security
Agreement.
NOW, THEREFORE, to induce the Lenders to make the Advances, the
Borrower hereby agrees with the Collateral Agent, for the benefit of the Secured
Parties, as follows:
SECTION 1. DEFINED TERMS.
(a) The terms "inventory", "goods", "accounts", "contract rights",
"chattel paper", "general intangibles", "checks", "instruments", "securities"
and "documents" have the respective meanings ascribed in the UCC.
(b) Capitalized terms used herein undefined shall, unless otherwise
defined herein, have the respective meanings ascribed in the Credit Agreement;
and the following terms shall have the following meanings:
"Accounts" shall mean the Lockbox Account, the Collateral
Account, the Reserve Account, the Loan Purchase Account and the
Loan Revenue Account.
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"Aggregate Net Weighted Average APR" with respect to any Collection
Period shall mean the percentage derived by (a) dividing (i) the sum of the
product for each Specified Sold Auto Loan of (A) its stated annual percentage
rate, (B) its Unpaid Principal Balance and (C) the number of days during such
Collection Period that such Specified Sold Auto Loan was outstanding, divided by
the number of days in such Collection Period, divided by (ii) the sum of the
product for each Specified Sold Auto Loan of (A) its Unpaid Principal Balance
and (B) the number of days during such Collection Period that such Specified
Sold Auto Loan was outstanding, divided by the number of days in such Collection
Period, and (b) subtracting from such percentage the Monthly Servicing Fee
Percentage.
"Amount Financed" shall mean, with respect to any Sold Auto Loan,the
meaning ascribed thereto in the applicable disclosure documents given to the
obligor in satisfaction of the requirements of the Federal Truth-in-Lending Act.
"Approval Date" shall mean, with respect to any Auto Loan, the date
on which AutoBond makes its written credit approval with respect to the obligor
under such Auto Loan.
"Approved Contract/Policy Provider" shall mean any provider of
credit default or vendor's single interest insurance approved by the Initial
Lender.
"Automobile" shall mean a new or used automobile, light- duty truck
or van.
"Collateral" shall have the meaning specified in Section 2.
"Collateral Account" shall have the meaning assigned to such term in
Section 6.01 hereof.
"Collateral Agent Fee" shall mean, as of any Payment Date, the sum
of (a) the product of (i) 1/12th, (ii) 0.20% annual percentage rate and (iii)
the daily average aggregate principal balance of all Specified Sold Auto Loans
that are not Defaulted Auto Loans during such Collection Period immediately
preceding such Payment Date and (b) any expenses reimbursable in accordance with
the Collateral Agent's activities under this Agreement and the Servicing
Agreement, including, without limitation, the costs and expenses incurred by the
Collateral Agent in connection with the assumption of the duties and obligations
of the Servicer pursuant to the Servicing Agreement.
"Collateral Assignment" shall mean a certificate of assignment by
the Borrower to the Collateral Agent, substantially in the form of Exhibit A
giving notice of, and evidencing the
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pledge of Specified Sold Auto Loans and related collateral to the Collateral
Agent for the benefit of the Lenders.
"Collection Agent" shall mean the collection agent under
the Servicing Agreement.
"Collection Agent Fee" shall mean, (a) so long as AutoBond is acting
as collection agent under the Servicing Agreement, a fee equal to the product of
(i) $7 and (ii) the total number of Specified Sold Auto Loans which were
outstanding at any time during the preceding Interest Period, plus Reimbursable
Collection Agent Expenses and (b) if AutoBond is not the Collection Agent under
the Servicing Agreement, a fee equal to the product of (i) $2.50 and (ii) the
total number of Specified Sold Auto Loans which were outstanding at any time
during the preceding Interest Period, plus Reimbursable Collection Agent
Expenses.
"Collection Period" shall mean, (a) with respect to the initial
Collection Period, the period commencing on the Initial Closing Date and ending
on May 31, 1996, and (b) thereafter, with respect to any Payment Date, the
period commencing on the first day of the calendar month preceding the calendar
month in which such Payment Date occurs and ending on the last day of the
calendar month preceding the calendar month in which such Payment Date occurs.
"Defaulted Auto Loan" means an Auto Loan which by its terms had more
than 10% of any installment of principal or interest which is 60 or more days
contractually past due.
"Delinquency Ratio" means, as of any Determination Date, the
percentage equivalent of a fraction (a) the numerator of which equals the sum of
(i) the aggregate Unpaid Principal Balance of Specified Sold Auto Loans which
have become Defaulted Auto Loans as of the end of the most recently ended
Collection Period minus (ii) the sum of the aggregate Unpaid Principal Balance
of (A) all Specified Sold Auto Loans against which insurance claims have been
filed as of the end of the most recently ended Collection Period and (B)
Specified Sold Auto Loans for which the related Financed Vehicles are subject to
repossession as of the end of the most recently ended Collection Period and
which are not included in (B), and (b) the denominator of which equals the
aggregate Unpaid Principal Balance of Specified Sold Auto Loans outstanding as
of the end of the most recently ended Collection Period minus the amount
determined pursuant to clause (ii) above.
"Determination Date" shall mean the 10th day of each month (or the
immediately preceding Business Day, if such day is not a Business Day).
"Excess Reserve Account Amount" shall mean, as of each Payment Date,
the amount, if any, held in the Reserve Account in
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excess of the Reserve Account Required Balance after giving effect to any
withdrawals from the Reserve Account pursuant to Section 6.04(d)(i), (ii) and
(iii) on such Payment Date.
"Event of Purchase Termination" shall have the meaning assigned to
such term in the Loan Acquisition Agreement.
"Financed Vehicle" shall mean a new or used automobile, van or
light-duty truck, the purchase of which the Obligor financed with an Auto Loan.
"Loan Acquisition Price" shall mean with respect to any Specified
Sold Auto Loan to be purchased by the Borrower an amount equal to the product of
(i) 0.98 and (ii) the Unpaid Principal Balance of such Auto Loan and (b) accrued
but unpaid interest on such Auto Loan as of the related Sale Date.
"Loan Documents" means, with respect to a Sold Auto Loan, (a) the
original retail installment loan contract and security agreement evidencing such
a Sold Auto Loan, (b) the original confirmation of title, copy of the
application for title or letter of guaranty from the applicable Dealer, as the
case may be, for the related Financed Vehicle, (c) a copy of the credit
application, (d) the original confirmation of payment of premiums required under
the VSI Policy and (e) a copy of the funding check made to the order of the
Dealer.
"Loan Purchase Account" shall have the meaning assigned to such term
in Section 6.01 hereof.
"Loan Revenue Account" shall have the meaning assigned to such term
in Section 6.01 hereof.
"Lockbox" means the segregated lockbox and account established in
the name of the Collateral Agent on behalf of the Lenders for the sole purpose
of receiving collections on the Specified Sold Auto Loans, pursuant to the
Corporate Cash Management Services Agreement, dated May 21, 1996, between
Comerica Bank - Texas and the Collateral Agent.
"Lockbox Bank" means Comerica Bank - Texas and its successors and
assigns.
"Monthly Servicing Fee Percentage" with respect to any Interest
Period shall mean the percentage equivalent of a fraction (a) the numerator of
which is twelve times the sum of the Servicer Fee, the Collection Agent Fee and
the Collateral Agent Fee payable in respect of such Interest Period, and (b) the
denominator of which is the sum of the product for each Specified Sold Auto Loan
of (i) its Unpaid Principal Balance and (ii) the number of days during such
Collection Period that such Specified Sold Auto Loan
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was outstanding, divided by the number of days in such Collection Period.
"Net Loss Ratio" shall mean, as of any Determination Date, the
percentage equivalent of a fraction (a) the numerator of which equals (i) the
Net Unrealized Amounts on Specified Sold Auto Loans that became subject to
repossession during the most recently ended Collection Period, plus (ii) any
adjustments (which may be positive or negative) to Net Unrealized Amounts from a
prior period and not reflected, and (b) the denominator of which equals the
average aggregate Unpaid Principal Balance of Specified Sold Auto Loans
outstanding during the most recently ended Collection Period.
"Net Unrealized Amount" means, (a) with respect to any Auto Loan
which is more than 90 days contractually past due or where the Financed Vehicle
is otherwise subject to repossession (including voluntary or involuntary, or
upon casualty), the Unpaid Principal Balance of such Auto Loan minus the sum of
(i) any repossession proceeds allocable to principal actually received on such
Auto Loan, (ii) any insurance proceeds allocable to principal actually received
from a claim with respect to such Auto Loan and (iii) refunds received from the
cancellation of any insurance policies or service contracts with respect to such
Auto Loan, and (b) with respect to any Auto Loan where the related Obligor is in
bankruptcy, the amount of losses allocable to principal incurred thereon.
"Net Weighted Average Excess Spread" with respect to any Interest
Period shall mean (a) the Aggregate Net Weighted Average APR, minus (b) LIBOR
for such Interest Period plus 2.60%.
"Post-Sale Adjustment" shall have the meaning assigned to such term
in the Servicing Agreement.
"Payment Date" shall mean the 15th day of each month (or, if such
day is not a Business Day, the next succeeding Business Day) commencing June 15,
1996
"Proceeds" shall have the meaning assigned such term under the UCC
of the State of New York, and of each other jurisdiction whose law governs the
grant or perfection of the Collateral Agent's interest in the particular
proceeds of the Collateral and shall also include (to the extent not already
included): (a) any and all proceeds of any insurance, indemnity, warranty,
guaranty or letter of credit payable to the Borrower from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or rights to amounts payable to the Borrower from time to time
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any person acting under color of governmental
authority), (c) any and all other amounts, products,
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offspring, rents or profits from time to time paid or payable under or in
connection with the Collateral and (d) all additions to or substitutions or
replacements for any of the Collateral.
"Program Documents" shall mean the Credit Agreement, this Security
Agreement, the Servicing Agreement, the Sale Assignments, the Note and the Loan
Acquisition Agreement.
"Program Manual" shall mean the AutoBond Program Manual in effect as
of the date hereof, as modified from time to time.
"Reserve Account" shall have the meaning assigned to such term in
Section 6.01 hereof.
"Reserve Account Balance" shall mean the amount of funds on deposit
in the Reserve Account.
"Reserve Account Deficiency Amount" shall mean as of any Payment
Date the amount by which the Reserve Account Required Balance exceeds the
Reserve Account Balance as of such Payment Date.
"Reimbursable Collection Agent Expenses" means, with respect to any
Payment Date, all reasonable and customary out-of-pocket fees and expenses of
third parties incurred by the Collection Agent (including expenses related to
financing statements and titles required to be paid or reimbursed by the
Collection Agent) in connection with their respective repossession activities,
including, without limitation, fees of attorneys, appraisers, third party
collateral managers and others (who shall have been retained by the Collection
Agent, in accordance with the Servicing Agreement) for the Collection Period
immediately preceding such Payment Date, but not including expenses paid net of
recoveries.
"Reserve Account Required Balance" shall mean, as of any Payment
Date, the greater of (a) $150,000 and (b) the product of (i) the Target Reserve
Percentage and (ii) the aggregate principal amount of all Advances outstanding
as of such Payment Date (after giving effect to any payments to be made on such
Payment Date, if any).
"Responsible Officer" shall mean, when used with respect to the
Collateral Agent, any officer within the corporate trust department (or any
successor thereof) including any vice president, assistant vice president, or
any officer or assistant officer of the Collateral Agent customarily performing
functions similar to those performed by any of the above-designated officers.
"Secured Parties" shall mean the Lenders from time to time in
respect of the Advances.
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"Servicer Fee" shall mean, as of any Payment Date, the sum of (a) an
initial booking fee equal to the product of (i) $10 and (ii) the number of
additional Specified Sold Auto Loans purchased by the Borrower during the
immediately preceding Interest Period, (b) a servicing fee equal to the product
of (i) $8.00 and (ii) the total number of Specified Sold Auto Loans which were
outstanding at any time during the preceding Interest Period and (c) any
expenses reimbursable in accordance with the Servicing Agreement.
"Sold Auto Loans" shall have the meaning assigned thereto in the
Loan Acquisition Agreement.
"Specified Reserve Allocation Percentage" shall have the following
meaning as of each Determination Date. If the Net Weighted Average Excess Spread
in respect of the preceding Interest Period is:
(i) greater than 7.5%, 35%;
(ii) less than or equal to 7.5% and greater than
6.5%, 60%;
(iii) less than or equal to 6.5% and greater than
5.5%, 75%;
(iv) less than or equal to 5.5% and greater than
5%, 90%; and
(v) less than or equal to 5%, 100%.
"Specified Sold Auto Loan" shall mean each Sold Auto Loan specified
in a Collateral Assignment to be included in the Collateral hereunder.
"Target Reserve Percentage" shall mean 6%; provided, that if, as of
a Determination Date,
(a) the average of the Net Loss Ratios for the immediately
preceding three Collection Periods is greater than or equal to 2.75%
but less than 4%, the Target Reserve Percentage shall equal 9%;
(b) the average of the Net Loss Ratios for the immediately
preceding three Collection Periods is greater than or equal to 4%,
the Target Reserve Percentage shall equal 12%;
(c) the average of the Net Loss Ratios for the immediately
preceding six Collection Periods is less than 4% but equal to or
greater than 2.75%, then the Target Reserve Percentage shall revert
to 9%;
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(d) the average of the Net Loss Ratios for the immediately
preceding six Collection Periods is less than 2.75%, then the Target
Reserve Percentage shall revert to 6%;
(e) the Delinquency Ratio is greater than or equal to 7%, then
the Target Reserve Percentage shall equal 9%; and
(f) the average of the Delinquency Ratio over two Collection
Periods is less than 7%, then the Target Reserve Percentage shall
revert to 6%;
(g) there occurs an Event of Collection Agent Termination with
respect to AutoBond under Sections 3.07(c) or (d) of the Servicing
Agreement, then the Target Reserve Percentage shall equal 10%; and
(h) if the Specified Reserve Allocation Percentage equals 100%,
then the Target Reserve Percentage shall equal 100%.
If more than one of the foregoing clauses is applicable as of a
particular Determination Date, then the applicable Target Reserve Percentage
shall be the highest amount so applicable.
"Upfront Collection Agent Fee" shall mean, so long as AutoBond is
not the Collection Agent, a fee equal to the product of (a) $5 and (b) the total
number of Specified Sold Auto Loans which were outstanding at any time during
the preceding Interest Period.
"Uniform Commercial Code" or "UCC" shall mean, with respect to any
jurisdiction, the Uniform Commercial Code, or any successor statute, or any
comparable law, as the same may from time to time be amended, supplemented or
otherwise modified and in effect.
"Unpaid Principal Balance" shall mean, with respect to any Auto Loan
as of any Determination Date, (a) for an Auto Loan bearing interest calculable
on a simple interest basis, the unpaid principal amount for such Auto Loan or
(b) for a Precomputed Receivable, the Net Principal Balance, in each case as of
the end of the most recent Collection Period, provided that, for any Auto Loan
where the Net Unrealized Amount equals the Unpaid Principal Balance, such Unpaid
Principal Balance shall thereafter equal zero (other than for purposes of
calculating the Net Unrealized Amounts and the Delinquency and the Net Loss
Ratios).
"Unused Facility Amount" shall mean, with respect to any Payment
Date, daily average of the total of (a) $20,000,000 minus (b) the aggregate
principal balance of all Advances outstanding during the immediately preceding
Collection Period.
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"Unused Facility Fee" shall mean, with respect to any Payment Date,
the product of (i) a fraction (A) the numerator of which is the number of days
elapsed during the immediately preceding Collection Period and (B) the
denominator of which is 360, (ii) the Unused Facility Amount and (iii) the
Unused Facility Fee Rate.
"Unused Facility Fee Rate" shall mean the per annum rate agreed to
by the Borrower and the Initial Lender.
"VSI Policy" shall mean the Vendor's Single Interest Insurance
Policy (including the Credit Endorsement), issued by Interstate Fire & Casualty
Company to AutoBond, insuring against risk of physical damage and other losses
on the Financed Vehicles.
SECTION 2. SECURITY INTERESTS.
(a) As security for the prompt, complete and unconditional payment
and performance of all obligations of the Borrower in respect of the Advances,
the Borrower hereby pledges, assigns, transfers and delivers to the Collateral
Agent for the benefit of the Secured Parties, and grants to the Collateral Agent
for the benefit of the Secured Parties, a continuing first lien on, and first
and prior security interest in, all of the Borrower's right, title and interest
in, to and under the following:
(i) each Specified Sold Auto Loan, including without limitation,
all rights to payments thereunder, purchased by or otherwise conveyed to
or established by the Borrower pursuant to the Loan Acquisition Agreement;
(ii) each Automobile and all other Property, now or hereafter
acquired, securing or evidenced by, each Specified Sold Auto Loan,
including, without limitation, the certificate of title relating to each
Automobile, any insurance proceeds with respect to any such Automobile or
Specified Sold Auto Loan, the proceeds of any repossession and liquidation
of any such Automobile, rights under judgments with respect to defaulted
obligors, rights to deficiency judgments with respect to defaulted
obligors and rights under any service contracts with respect to any such
Automobile;
(iii) the Loan Purchase Account, the Loan Revenue Account and the
Reserve Account and all moneys, checks, instruments, documents,
securities, Investments, deposits and other credits (whether or not
permitted by the Program Documents) credited to the Collateral Account, or
otherwise held by the Collateral Agent;
(iv) all securities and other Investments held at any time on
behalf of the Borrower in the Collateral Account;
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(v) any proceeds of any credit default and VSI insurance
purchased by the Borrower in respect of each Specified Sold Auto Loan;
(vi) the Loan Acquisition Agreement, the Credit Agreement, the
Lockbox Agreement and the Servicing Agreement; and
(vii) all Proceeds of any of the foregoing.
(b) All rights of the Collateral Agent and the Secured Parties and
all liens and security interests granted hereunder, shall be absolute,
unconditional and irrevocable unless and until released pursuant to the Program
Documents, irrespective of any condition or circumstance whatsoever.
(c) The grant of the security interest to the Collateral Agent
pursuant to this Section 2 shall not: (i) relieve the Borrower from the
performance of any term, covenant, condition or agreement on the Borrower's part
to be performed or observed under or in connection with the Collateral, (ii)
impose any obligation on the Collateral Agent or the Secured Parties to perform
or observe any such term, covenant, condition or agreement on the Borrower's
part to be so performed or observed, or (iii) impose any liability on the
Collateral Agent or the Secured Parties for any act or omission on the part of
the Borrower, or any Person acting as agent for or on behalf of the Borrower,
relative to or for any breach of any representation or warranty on the part of
the Borrower in connection with the Collateral.
SECTION 3. CERTAIN RIGHTS OF SECURED PARTIES WITH RESPECT TO COLLATERAL.
Upon the occurrence and during the continuance of an Event of
Default, the Borrower hereby irrevocably authorizes the Collateral Agent to
execute and deliver, as the attorney-in-fact of the Borrower, any consent,
waiver or amendment which, under the terms of any Program Document, is or may be
executed and delivered by the Borrower with respect to the Collateral, subject
to the provisions of the Program Documents; provided, however, that the
Collateral Agent shall have no duty or obligation to execute and deliver any
such consent, waiver or amendment unless directed in writing to take the actions
specified therein by the Lenders in respect of at least 66 2/3% in aggregate
principal amount of the Advances outstanding; and provided, further, that the
Collateral Agent shall not be required to take any action which the Collateral
Agent reasonably believes may be contrary to applicable law or which would
expose the Collateral Agent to financial liability if the Collateral Agent has
reasonable grounds to believe that repayment of such financial liability is not
reasonably assured to it. The Borrower hereby agrees to remit to the Collateral
Agent
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for deposit in accordance with this Agreement any and all Proceeds
of any Collateral received by the Borrower.
SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT.
(a) (i) If at any time an Event of Default shall have occurred and
be continuing, the Collateral Agent may, without demand of performance or
other demand, advertisement or notice of any kind (except for any notice
of the time and place of public or private sale required by law) to or
upon the Borrower or any other Person (all of which demands,
advertisements and/or notices are hereby expressly waived), and in its own
name or in the name of the Borrower, forthwith demand, collect, receive,
sue for, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, grant an option or options to purchase,
contract to sell or otherwise dispose of and deliver said Collateral, or
any part thereof, in one or more parcels at public or private sale or
sales, at any location or locations at the option of the Collateral Agent
acting upon any instructions received from the Lenders in respect of a
majority in aggregate principal amount of Advances outstanding, all upon
such terms and conditions and at such prices as such Lenders may deem
advisable, for cash or on credit or for future delivery without assumption
of any credit risk, with the right of the Collateral Agent or any Secured
Party upon any such public sale or sales to purchase the whole or any part
of said Collateral so sold, free of any right of redemption in the
Borrower, which right is hereby expressly waived and released. At the
instruction of the Lenders in respect of a majority in aggregate principal
amount of Advances outstanding, the Collateral Agent may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed
for the sale, and such sale may be made at any time or place to which the
same may be so adjourned.
(ii) If at any time an Event of Default shall have occurred and
be continuing and the Lenders in respect of a majority in aggregate
principal amount of Advances outstanding give written direction to the
Collateral Agent as to the disposition of the Collateral or as to the
exercise of remedies against the Collateral, the Collateral Agent hereby
agrees to follow such direction; provided, however, no provision of this
Agreement shall require the Collateral Agent to take any action which it
or its counsel deems to be unlawful nor shall the Collateral Agent be
obligated to expend or risk its own funds or otherwise incur any financial
liability in the performance of any rights, powers or duties hereunder, if
the Collateral Agent shall have reasonable
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grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it. Until all
Advances have been repaid and satisfied in full, the Collateral Agent
shall be obligated, subject to the foregoing proviso, to take direction
only from the Lenders in respect of a majority in aggregate principal
amount of Advances outstanding as to, upon the occurrence and during the
continuance of an Event of Default, the disposition of the Collateral, or
the exercise of remedies against or in connection with the Collateral.
(iii) If an Event of Default shall have occurred and be
continuing, then the Collateral Agent may, at any time thereafter, without
demand of performance or other demand, succeed to the Borrower's rights
and privileges with respect to the Loan Acquisition Agreement, the Credit
Agreement and the Servicing Agreement; provided that, notwithstanding the
foregoing, during such time as an Event of Default is continuing the
Collateral Agent shall have no authority to purchase any additional
Eligible Auto Loans under the Loan Acquisition Agreement to be included in
the Collateral hereunder as Specified Sold Auto Loans; and provided,
further that the Collateral Agent will not have assumed and will not be
obligated to perform any of the duties, obligations, covenants or
agreements of the Borrower under any such agreement.
(iv) Notwithstanding the above provisions of this Section
4(a), the Collateral Agent may not sell or otherwise liquidate the
Collateral following an Event of Default, other than an Event of Default
as described in paragraphs (a) and (b) of Section 13.1 of the Credit
Agreement, unless (A) the Collateral Agent shall have received written
evidence reasonably satisfactory to the Collateral Agent that the Lenders
in respect of 100% in aggregate principal amount of the Advances
outstanding consent thereto, (B) the proceeds of such sale or liquidation
distributable to the Lenders, as determined by the Lenders, are sufficient
to discharge in full the principal of and the accrued interest on and fees
in respect of the Advances at the date of such sale or liquidation;
written evidence of such determination to be provided by the Lenders to
the Collateral Agent or (C) the Lenders determine that the Collateral will
not continue to provide sufficient funds for the payment of principal of
and interest on and fees in respect of the Advances as and when they would
have become due if the Advances had not been declared due and payable and
the Lenders provide written notice to the Collateral Agent to such effect.
(b) If any notification of a proposed disposition of the
Collateral is required by law, such notification shall be deemed
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reasonably and properly given if made in any manner provided in Section 10
hereof at least ten days before such disposition.
(c) In addition to the rights, powers and remedies granted to it in
this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Advances, the Collateral Agent shall have all of
the rights, powers and remedies now or hereafter permitted in law or equity,
including, without limitation, those of a secured party under the UCC of the
State of New York and any other applicable jurisdiction.
(d) The Collateral Agent shall apply the net proceeds of any
collection, recovery, receipt, appropriation, realization or sale referred to
above in this Section 4 in accordance with the provisions of Section 6.04(e)
hereof. The Borrower shall remain absolutely liable for the amount, if any, by
which the amount due under the Advances exceeds the proceeds of any such
collection, recovery, receipt, appropriation, realization or sale.
(e) The Borrower shall provide written payment instructions
(including the account number of the bank account to which payments are to be
directed and the name, address and ABA number of the bank in which such account
is maintained, if payments are to be made to such party by the wire transfer of
immediately available funds) to the Collateral Agent. Failure to provide such
notice shall not affect the Borrower's right to receive any funds to which it is
otherwise entitled in accordance with the Program Documents, but failure to
deliver such notice may result in a delay in the receipt of such funds.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Borrower represents, warrants and agrees, as of the date hereof,
and as of each Closing Date, that:
(a) No security agreement, financing statement, equivalent security
or lien instrument or continuation statement listing the Borrower as debtor
covering all or any part of the Collateral is on file or of record in any
jurisdiction, except such as may have been filed, for the benefit of the Secured
Parties recorded or made by the Borrower in favor of the Collateral Agent
pursuant to this Security Agreement or the Credit Agreement.
(b) Except to the extent that AutoBond remains the prior lienholder
with respect to each Automobile securing a Specified Sold Auto Loan in
accordance with the terms of the Credit Agreement, this Security Agreement is
effective to create a valid and continuing Lien on the Collateral in favor of
the Collateral Agent for the benefit of the Secured Parties, which Lien is prior
to all other Liens except Permitted Liens, and is enforceable as such as against
creditors of and purchasers from the Borrower. All
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action necessary or desirable to protect and perfect such security interest has
been duly taken.
(c) The Borrower's chief executive office is at 301 Congress Avenue,
Austin, Texas 78701 and there have been no other office locations for the prior
four months. The Borrower will not change its name and will not change its
principal place of business or chief executive office unless the Borrower shall
have given the Collateral Agent at least thirty (30) days prior written notice
thereof and the Borrower shall have taken all action necessary to assure
continuous perfection of the security interest held by the Collateral Agent in
the Collateral as evidenced by an opinion of counsel addressed to the Collateral
Agent and the Lenders to the effect that the lien and security interest created
by this Security Agreement with respect to such Collateral will continue to be
maintained, and that the priority thereof will not be affected, after giving
effect to such action or actions.
(d) At any time and from time to time, and at the sole expense of
the Borrower, the Borrower will promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as the
Lenders in respect of a majority in aggregate principal amount of Advances
outstanding may reasonably deem desirable in obtaining the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code in effect in any jurisdiction with respect to the
liens and security interests granted hereby. The Borrower also hereby authorizes
the Collateral Agent to file any such financing or continuation statement
without the signature of the Borrower to the extent permitted by applicable law;
provided, however, that such authorization shall not be deemed to create a duty
in the Collateral Agent. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any promissory note or other
instrument, or any chattel paper, the Borrower shall immediately notify the
Collateral Agent and shall duly endorse such note, instrument or chattel paper
to the order of the Collateral Agent and deliver such note, instrument or
chattel paper to the Collateral Agent promptly, and shall take such other
actions and execute such other documents as may be required by law to perfect
the Collateral Agent's interest in such note, instrument or chattel paper.
(e) The Borrower will warrant and defend the Collateral Agent's
right, title and interest in and to the Collateral, for the benefit of the
Secured Parties against the claims and demands of all Persons whomsoever.
(f) All authorizations in this Security Agreement for the Collateral
Agent to endorse checks, instruments and securities and to execute, deliver and
file financing statements, continuation
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statements, security agreements and other instruments with respect to the
Collateral are powers coupled with an interest and are irrevocable so long as
any Advances are outstanding; provided however, the foregoing authorizations
shall not create any duty or obligation on the part of the Collateral Agent
other than those obligations set forth in this Agreement.
SECTION 6. COLLATERAL ACCOUNT.
6.01. Establishment and Maintenance of Lockbox and Collateral
Account. AutoBond shall cause to be established and maintained at all times a
lockbox and related account (the "Lockbox") on behalf of and in the name of the
Collateral Agent. The Collateral Agent shall possess all right, title and
interest in all funds on deposit from time to time in the Lockbox and in all
proceeds thereof. The Lockbox shall be under the sole dominion and control of
the Collateral Agent on behalf of the Lenders. The Collateral Agent agrees to
cause the Lockbox Bank to sweep funds from the Lockbox to the Collateral Account
at least once each week. Autobond agrees to require, and to cause the Servicer
to require, that all payments by Obligors on Specified Sold Auto Loans be made
to the Lockbox (and that only payments on Specified Sold Auto Loans will be
received in the Lockbox and no other funds other than funds in which the
Collateral Agent has an interest hereunder will be commingled therein). In
addition, concurrently with the execution and delivery hereof, the Collateral
Agent shall establish the following segregated accounts entitled (a) the
"AutoBond Funding Loan Purchase Account, Norwest Bank Minnesota, National
Association, as Collateral Agent" (the "Loan Purchase Account"); (b) the
"AutoBond Funding Loan Revenue Account, Norwest Bank Minnesota, National
Association, as Collateral Agent" (the "Loan Revenue Account"); and (c) the
"AutoBond Funding Reserve Account, Norwest Bank Minnesota, National Association,
as Collateral Agent" (the "Reserve Account"). The Loan Purchase Account, the
Loan Revenue Account and the Reserve Account are sometimes collectively referred
to herein as the "Collateral Account". The Collateral Account shall be
maintained in the State of Minnesota in either (i) segregated trust accounts
with the corporate trust department of Norwest or any replacement collateral
agent or (ii) segregated deposit accounts with banks or trust companies (which
may include the Collateral Agent or a replacement collateral agent) the
short-term debt obligations of which are rated "A-1+" by S&P and the short-term
deposits of which are rated no less than "Baa3" by Moody's. The Borrower shall
have no right of withdrawal from the Collateral Account.
6.02. Required Deposits to the Accounts. (a) The Borrower shall
cause the following amounts to be paid to the Collateral Agent for deposit to
the accounts established pursuant to Section 6.01:
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(i) on the initial Closing Date, an amount equal to the greater
of (A) $150,000 or (B) 2% of the aggregate principal amount of Advances
outstanding on such date, shall be deposited in the Reserve Account;
(ii) all amounts payable to the Borrower by or on behalf of
Lenders in respect of Advances shall be deposited directly in the Loan
Purchase Account;
(iii) all amounts representing payments in respect of Specified
Sold Auto Loans (including, without limitation, all Recoveries on
Receivables, all late charges, all payments in respect of the Repurchase
Price of Specified Sold Auto Loans repurchased by AutoBond in accordance
with the Loan Acquisition Agreement and all proceeds of any Dispositions)
shall be deposited in the Loan Revenue Account;
(iv) all amounts in respect of principal of Permitted Investments
shall be allocated to the account to which the funds applied for purchase
of such Permitted Investments were deposited;
(v) all amounts representing insurance proceeds in respect of
Specified Sold Auto Loans (including, without limitation, the proceeds of
any credit default or VSI insurance) shall be deposited in the Loan
Revenue Account;
(vi) all amounts representing repossession proceeds in respect of
Specified Sold Auto Loans shall be deposited in the Loan Revenue Account;
and
(vii) all other amounts paid to the Borrower under the Program
Documents, other than indemnity payments made to the Borrower in respect
of Specified Sold Auto Loans, and all investment earnings on Permitted
Investments shall be deposited in the Loan Revenue Account.
(b) The Collateral Agent is hereby irrevocably authorized and
empowered, as the Borrower's attorney-in-fact, to endorse any check or any other
instrument or security presented for deposit in the Collateral Account requiring
the endorsement of the Borrower; provided, however, the foregoing authorizations
shall not create any duty or obligation on the part of the Collateral Agent.
(c) Notwithstanding the foregoing provisions of this Section 6.02,
if at any time the Borrower, AutoBond or any Person on behalf of the Borrower or
AutoBond (including the Servicer under the Servicing Agreement), receives any
proceeds or payments required to be deposited in the Collateral Account, all
such amounts shall be held by the Borrower, AutoBond or such other person as the
agent of, and in trust for, the Collateral Agent and shall, forthwith upon
receipt by the Borrower, AutoBond or such
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other Person, be turned over to the Collateral Agent for deposit to the Loan
Revenue Account or the Loan Purchase Account, as the case may be, in the same
form as received by the Borrower, AutoBond or such other Person (and, if
received in the form of a check, instrument or security requiring endorsement,
duly endorsed on behalf of the Borrower, AutoBond or such other Person to the
order of the Collateral Agent).
(d) The Borrower shall cause all amounts remitted to the Collateral
Agent for deposit pursuant to Section 6.02(a) to be identified to permit the
deposit of the same into the appropriate account; any amounts received by the
Collateral Agent without sufficient identification shall be deposited by the
Collateral Agent into the Loan Revenue Account until such time as sufficient
identification is received, at which time the Collateral Agent is authorized, if
necessary, to withdraw such amounts from the Loan Revenue Account and deposit
same in accordance with such identification.
6.03. Right of Withdrawal from the Collateral Account. In
furtherance of the security interest provided in Section 2, the Collateral
Agent, acting on behalf of the Secured Parties, and the Borrower, agree (a) that
the Collateral Account shall be maintained in the name of the Collateral Agent,
(b) that the Collateral Account shall be subject to the exclusive dominion of
the Collateral Agent, and (c) that the Collateral Agent shall have the sole
right of withdrawal from the Collateral Account. The Borrower, the Lender, the
Servicer and AutoBond shall timely provide written remittance information to the
Collateral Agent specifying payment instructions with respect to amounts payable
pursuant to each provision of Section 6.04. The Collateral Agent shall have no
liability to the Borrower, any Lender or any other Person for failure to pay
funds to any Person in accordance with Section 6.04 in the absence of timely
receipt of such written remittance instructions or in the event of any errors in
such written remittance instructions.
6.04. Application of Funds in the Collateral Account; Application of
Proceeds of Realization on Collateral. (a) Except as otherwise provided in
Section 6.05, if no Event of Default shall have occurred and be continuing, the
Collateral Agent, in the case of clause (iii), on each Payment Date or, in the
case of clause (ii), on each Business Day, shall apply collected funds in the
Loan Purchase Account in the following order of priority pursuant to written
instructions of the Borrower in the case of clauses (i) and (ii) or pursuant to
the Servicer Report (as defined in the Servicing Agreement) in the case of
clause (iii):
(i) on each Closing Date other than the Initial Closing Date,
deposit to the Reserve Account, 2% of each related Advance;
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(ii) to pay to AutoBond an amount equal to the Eligible Auto
Loan Purchase Prices, in respect of all Specified Sold Auto Loans, if any,
to be acquired by the Borrower on such date (other than with respect to
any Specified Sold Auto Loan conveyed by AutoBond to the Borrower as a
contribution to capital) on or before 10:00 a.m., New York City time;
provided that, with respect to each such Specified Sold Auto Loan, such
amounts shall be payable only if the Collateral Agent has received
original or officially certified copies of each of the Loan Documents with
respect to such Specified Sold Auto Loan from AutoBond; and
(iii) to pay to the Lenders, pro rata, all interest on the
Advances and any Unused Facility Fee then due to the extent funds on
deposit in the Loan Revenue Account and the Reserve Account on such date
are insufficient therefor;
and, if any such funds shall remain unused after being applied for the foregoing
purposes, so long as any Advances remain outstanding the remaining funds shall
be retained in the Loan Purchase Account and continue to be Collateral
hereunder, and if so instructed in writing by AutoBond, may be invested or
withdrawn by the Collateral Agent in accordance with Section 6.05 hereof. The
Collateral Agent may liquidate any investment when required to make an
application pursuant to clauses (i) and (ii) above. No investment made pursuant
to this section will have a maturity later than one Business Day prior to the
date on which such funds will be needed to make payment on the Advances.
(b) [Reserved].
(c) If no Event of Default or Amortization Event shall have occurred
and be continuing, the Collateral Agent on each Payment Date shall apply funds
held in the Loan Revenue Account in respect of the prior Collection Period in
the following order of priority (in accordance with the Servicer Report):
(i) to the Lenders, pro rata, an amount equal to accrued
and unpaid interest on the Advances;
(ii) to the Collateral Agent, the Servicer and the
Collection Agent (to the extent AutoBond is not the Collection Agent), an
amount equal to the Collateral Agent Fee, the Servicer Fee, and the
Upfront Collection Agent Fee, respectively, payable on such Payment Date;
(iii) to the Lenders, pro rata, an amount equal to the
Unused Facility Fee payable on such Payment Date;
(iv) to the Loan Purchase Account for reinvestment in
Advances, all remaining amounts allocable to principal unless directed by
the Initial Lender to pay to the
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Lenders, pro rata, as payment of principal on the Advances an amount equal
to any principal received in respect of Specified Sold Auto Loans during
the immediately preceding Collection Period;
(v) to the Reserve Account, an amount equal to the lesser
of (A) the Specified Reserve Allocation Percentage of available remaining
funds and (B) the Reserve Account Deficiency Amount, until the Reserve
Account Balance equals the Reserve Account Required Balance;
(vi) to the Collection Agent, an amount equal to the sum of
(i) the Collection Agent Fee payable on such Payment Date and (ii) any
late charges received in respect of Specified Sold Auto Loans during the
immediately preceding Collection Period;
(vii) to the discharge of all other obligations of the
Borrower which are then due under the Program Documents (or, to the extent
such obligations have not yet matured, to be set aside and held in trust
solely to satisfy such obligations, as and when they mature or otherwise
become due) in an amount equal to such obligations; and
(viii) to the Borrower, an amount equal to any funds
remaining in the Loan Revenue Account.
(d) If no Event of Default or Amortization Event shall have occurred
and be continuing, the Collateral Agent on each Payment Date shall apply funds
held in the Reserve Account in the following order of priority (in accordance
with the Servicer Report):
(i) to the Lenders, pro rata, an amount equal to the accrued and
unpaid interest and fees on the Advances (including, any accrued and
unpaid Unused Facility Fees) to the extent that funds on deposit in the
Loan Revenue Account on such date are insufficient therefor;
(ii) on each Maturity Date, to the Lenders, pro rata, an amount
equal to the principal of the Advances due and payable on such date to the
extent that funds on deposit in the Loan Revenue Account on such date are
insufficient therefor;
(iii) to the Loan Revenue Account, if 30 days have passed since
the cancellation of any optional credit life, accident and health
insurance policy or optional extended service contract in respect of any
Specified Sold Auto Loan and the Borrower has not received a refund of any
unearned Dealer's commission or insurance premium, an amount equal to such
unearned Dealer's commission or insurance premium; and
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(iv) to the Loan Revenue Account, an amount equal to the Excess
Reserve Account Amount.
(e) If an Event of Default or an Amortization Event shall have
occurred and be continuing, the Collateral Agent shall apply all amounts held in
the Loan Purchase Account, the Loan Revenue Account and the Reserve Account and
the proceeds of any collection, recovery, receipt, appropriation, realization or
sale of any Collateral in connection with any Event of Default (after deducting
all reasonable costs and expenses of every kind incurred in any way relating to
the exercise of rights of the Collateral Agent with respect to the Collateral
upon an Event of Default, including reasonable attorney's fees and expenses) in
the following order of priority (in accordance with the Servicer Report):
(i) to the Collateral Agent, an amount equal to all fees,
costs and expenses owing to the Collateral Agent under this Agreement;
(ii) to the Servicer, an amount equal to all fees, costs and
expenses owing to the Servicer under the Servicing Agreement;
(iii) to the Lenders, pro rata, in the following order of
priority (A) an amount equal to all unpaid interest on, (B) other amounts
due or to become due with respect to including, without limitation, any
accrued and unpaid Unused Facility Fees, and (C) principal of, the
Advances, (in the event any such principal is not due and the Advances
have not been accelerated, all such amounts shall be retained in the
Collateral Account and applied solely to pay principal of and interest on,
and other amounts due or to become due with respect to, the Advances, as
and when due until all principal and interest on, and other amounts due or
to become due with respect to, the Advances shall have been paid and
satisfied in full);
(iv) to the discharge of all other obligations of the Borrower
which are then due (or, to the extent such obligations have not yet
matured, to be set aside and held in trust solely to satisfy such
obligations, as and when they mature or otherwise become due) in an amount
equal to such obligations; and
(v) to the Borrower, an amount equal to any funds remaining in
the Collateral Account.
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6.05. Investment of Funds Deposited in Collateral Account. The
Collateral Agent shall, in accordance with the provisions of this Section 6.05,
invest and reinvest, at the written direction of AutoBond, in the Collateral
Agent's own name or in the name of the Collateral Agent's nominee, collected
funds in each of the Loan Purchase Account, the Loan Revenue Account and the
Reserve Account in Permitted Investments which shall mature, or be redeemed at
the option of the holder, prior to the respective dates when the money invested
in such Permitted Investments is required for application in accordance with
this Section 6. [To the extent that the sum of amounts held in the Loan Purchase
Account exceeds $5,000,000, the Collateral Agent shall notify the Borrower and
the Lender. In the event that three (3) Business Days following the Business Day
on which the amount on deposit in the Loan Purchase Account exceeded $5,000,000,
the amount on deposit in the Loan Purchase Account (after giving effect to any
disbursements pursuant to Section 6.04(a) on such date) is still greater than
$5,000,000, the Collateral Agent, unless otherwise directed by the Initial
Lender, shall withdraw an amount equal to the amount by which the amount on
deposit in the Loan Purchase Account exceeds $4,000,000 and disburse such amount
to the Lenders, pro rata as a prepayment of Advances in accordance with Section
8 of the Credit Agreement.]
SECTION 7. DISPOSITIONS OF AUTO LOANS.
The Collateral Agent at the written direction of the Initial Lender
shall release from the lien of this Agreement any of the Specified Sold Auto
Loans held as Collateral upon a Disposition, a prepayment of Advances or a
repurchase by AutoBond in accordance with the terms of the Credit Agreement;
provided, that the proceeds of any such Disposition, voluntary prepayment or
repurchase (net of expenses and costs) have been deposited into the Loan Revenue
Account for application in accordance with Section 6.04(c); provided, however,
that, upon satisfaction of the conditions set forth in this Section 7, the
Collateral Agent will release to or at the direction of AutoBond the certificate
of title with respect to a Financed Vehicle subject to a Disposition within one
Business Day of such request by AutoBond. Any Disposition shall in and of itself
have no effect on the obligation of the Lender under the Credit Agreement to
make Advances.
SECTION 8. THE COLLATERAL AGENT.
8.01. Appointment. By accepting the benefits of the security
interest granted herein, each Secured Party hereby irrevocably designates and
appoints Norwest Bank Minnesota, National Association as the Collateral Agent of
such Secured Party under this Security Agreement, and each such Secured Party
irrevocably authorizes Norwest Bank Minnesota, National Association as the
Collateral Agent for such Secured Party, to take such action
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on its behalf under the provisions of this Security Agreement and to exercise
such powers and perform such duties as are expressly delegated to the Collateral
Agent by the terms of this Security Agreement together with such other powers as
are reasonably incidental thereto but in each instance solely at the written
instruction of the Lenders in respect of at least a majority in aggregate
principal amount of Advances outstanding. Notwithstanding any provision to the
contrary elsewhere in this Security Agreement, the Collateral Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
in the Servicing Agreement, or any fiduciary relationship with any Secured
Party, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Security Agreement or
otherwise exist against the Collateral Agent. Norwest Bank Minnesota, National
Association hereby accepts its appointment as Collateral Agent, subject to, and
in reliance upon, the provisions of this Section 8.01.
8.02. Exculpatory Provisions. Neither the Collateral Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (a) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Security Agreement (except for
its or such Person's own negligence or wilful misconduct), or (b) responsible in
any manner to any of the Secured Parties for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained herein or in the Loan Acquisition Agreement, the Servicing Agreement,
the Credit Agreement or in any certificate, report, statement or other document
referred to or provided for in, or received by the Collateral Agent under or in
connection with, this Agreement, the Loan Acquisition Agreement, the Servicing
Agreement or the Credit Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency (except with respect to
enforceability of this Agreement and the Servicing Agreement as it relates to
the Collateral Agent) of this Agreement, the Loan Acquisition Agreement, the
Servicing Agreement, the Lockbox Agreement, the Credit Agreement, the Advances
or the Collateral or for any failure of the Borrower to perform its obligations
hereunder or under the Loan Acquisition Agreement, the Servicing Agreement, the
Lockbox, the Credit Agreement or the Advances. The Collateral Agent shall not be
under any obligation to any Secured Party to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, any of the Program Documents, or to inspect the properties, books or records
of the Borrower or the Servicer. Except for its duty to maintain possession of
the Auto Loans and as set forth in this Agreement, the Collateral Agent shall at
no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any security interest in any Automobile
or any Auto Loan, or the perfection or priority of such a security interest or
the maintenance of any such perfection or priority or for or with respect to the
ability of the Auto Loans
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to generate the payments to be distributed to the Lender under the Credit
Agreement, including, without limitation, the existence, condition, location and
ownership of any Financed Vehicle; the existence of any insurance thereon
(including, without limitation, any credit default or VSI insurance thereon);
the compliance by the Borrower, the Servicer or the Collection Agent with any
covenant or the breach by the Borrower, the Servicer or the Collection Agent of
any warranty or representation made under this Agreement or the Servicing
Agreement or in any related document; the accuracy of any such warranty or
representation; any investment of monies by the Collateral Agent in accordance
with the terms of this Agreement or the Servicing Agreement or any loss
resulting therefrom; the acts or omissions of the Borrower, the Servicer, the
Collection Agent or any Obligor; or any action of the Servicer or the Collection
Agent taken in the name of the Collateral Agent.
8.03. Reliance by Collateral Agent. The Collateral Agent shall be
entitled to rely, and shall be fully protected in relying, upon any Advance,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Collateral
Agent. The Collateral Agent shall be fully justified in failing or refusing to
take any action under this Security Agreement unless it shall first receive such
written advice or concurrence as it deems appropriate or it shall first be
indemnified to its satisfaction (by one or more Secured Parties) against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Collateral Agent may from time to time
consult with legal counsel, independent accountants or other experts of its own
selection in the event of any disagreement, controversy, question or doubt as to
the construction of any provision of this Agreement or any of its duties
hereunder, and the Collateral Agent shall be fully protected in acting in good
faith in reliance upon the advice or opinion of any such counsel or other
expert.
8.04. Notice of Default. The Collateral Agent shall not be deemed to
have knowledge or notice of the occurrence of any Event of Default under the
Credit Agreement unless a Responsible Officer has received written notice from
the Lenders of a majority in aggregate principal amount of Advances outstanding
or the Borrower referring to this Security Agreement and describing such Event
of Default or unless a Responsible Officer otherwise has actual knowledge of
such Event of Default.
8.05. Non-Reliance on Collateral Agent. Neither the
Collateral Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates has made any
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representations or warranties to the Secured Parties, and no act by the
Collateral Agent hereafter taken, including any review of the affairs of the
Borrower, shall be deemed to constitute any representation or warranty by the
Collateral Agent to any Secured Party. Each Secured Party represents (or will be
deemed to have represented at such time as such party becomes a Secured Party
hereunder) to the Collateral Agent that it has, independently and without
reliance upon the Collateral Agent, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and made its own decision to extend credit to
the Borrower. Each Secured Party will, independently and without reliance upon
the Collateral Agent, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Security
Agreement, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished by the Collateral Agent hereunder,
the Collateral Agent shall have no duty or responsibility to provide any Secured
Party with any credit or other information concerning the business, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of the Collateral Agent or any of its
officers, directors, employees, agencies, attorneys-in-fact or affiliates.
8.06. Successor Collateral Agent. The Collateral Agent may resign as
collateral agent hereunder and under the Servicing Agreement upon 60 days'
notice to the Borrower, AutoBond and the Lenders. The Collateral Agent may be
removed at any time by the Borrower acting at the direction of, or with the
consent of, the Lenders in respect of the majority in aggregate principal amount
of the Advances outstanding if at any time the Collateral Agent shall fail to
comply with its obligations under this Security Agreement. No such resignation
or removal shall be effective unless and until a successor collateral agent has
accepted appointment as such pursuant to this Agreement and in the case of a
removal, any and all amounts then due to the Collateral Agent hereunder have
been paid in full. If the Collateral Agent shall resign or be removed as
collateral agent, then the Borrower shall appoint a commercial bank having a
combined capital and surplus of at least $250,000,000, subject to supervision or
examination by federal or state authority and having an established place of
business in the United States as successor collateral agent for the Secured
Parties upon (a) acceptance of such appointment by such successor collateral
agent, (b) the approval of such appointment by the Lenders in respect of a
majority in aggregate principal amount of the Advances outstanding, and (c) the
filing of any necessary amendments to any UCC financing statements to reflect
such
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appointment. Such successor collateral agent shall succeed to the rights, powers
and duties of the Collateral Agent, and the term "Collateral Agent" shall mean
such successor collateral agent effective upon its appointment, and the former
Collateral Agent's rights, powers and duties as Collateral Agent shall be
terminated, without any other or further act or deed on the part of such former
Collateral Agent. Such successor collateral agent shall be entitled to amend any
UCC financing statements and any other filings, recordation and declarations it
deems advisable or necessary in connection with such termination and
cancellation. After any retiring Collateral Agent's resignation or removal
hereunder as Collateral Agent, the provisions of this Section 8 and Section 14
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Collateral Agent under this Security Agreement. Notwithstanding the
foregoing, if no successor collateral agent shall be appointed as aforesaid, or
if appointed, such successor shall not have accepted its appointment within
thirty (30) days after resignation of the Collateral Agent, the Collateral Agent
may petition a court of competent jurisdiction to make such appointment.
8.07. Delivery of Collateral and Permitted Investments. All
certificates representing or evidencing the Collateral and Permitted Investments
from time to time shall be delivered to and held by or on behalf of the
Collateral Agent pursuant hereto and shall, in the case of the Collateral, be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank. Each Secured Party hereby
appoints the Collateral Agent as its agent for the purpose of holding any Auto
Loans and Permitted Investments. The Collateral Agent shall be the agent solely
of the Secured Parties and shall not be the agent of the Borrower. The
Collateral Agent shall not release possession of any Auto Loans or any documents
related thereto except (a) upon receipt of a trust receipt substantially in the
form attached hereto as Exhibit B obligating the Servicer or AutoBond, acting as
subservicer under the Servicing Agreement, to hold same in trust for the benefit
of the Secured Parties and obligating the Servicer or AutoBond, as the case may
be, to return same when the need therefor no longer exists, (b) upon receipt of
written notification from the Servicer pursuant to Section 2.07 of the Servicing
Agreement that the Auto Loan has been paid in full, (c) in connection with a
Disposition or other prepayment in full of Advances or (d) in connection with
any repurchase by AutoBond in accordance with the terms of the Loan Acquisition
Agreement upon the receipt by the Collateral Agent of the Repurchase Price.
8.08. Duties and Covenants of Collateral Agent.
(a) The Collateral Agent undertakes to perform the duties as are set
forth in this Agreement, including, without limitation:
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(i) upon the request of AutoBond and/or the Servicer, providing
information reasonably within its possession and within reasonable time
constraints regarding payments and receipt of funds from and to AutoBond
and the Servicer;
(ii) acting as custodian of all documents delivered to it related
to the Collateral;
(iii) depositing funds received by it, whether as proceeds of
Advances, as collections on Auto Loans, as proceeds of repossession or
otherwise in accordance with the terms of this Agreement;
(iv) making payments from amounts held in the Collateral Account,
whether on the Advances, to the Servicer, to AutoBond or otherwise based
solely upon timely receipt of remittance information from the Borrower,
the Lenders, the Servicer and AutoBond in accordance with the terms of
this Agreement;
(v) upon the request of the Servicer, providing information
reasonably within its possession and within reasonable time constraints
regarding servicing, repossession and insurance with respect to the Auto
Loans to the Servicer;
(vi) providing the collateral agent report, substantially in form
of Exhibit C hereto, with respect to the Auto Loans on or before the
fifteenth (15th) day of each month (or if such fifteenth day is not a
Business Day, the next succeeding business day), except in the case where
the seventh (7th) Business Day of such month falls on or after the
eleventh (11th) day of the month, in which case, the collateral agent
report shall be provided on or before the seventeenth (17th) day of such
month (or if such seventeenth day is not a Business Day, on the next
succeeding Business Day); and
(vii) providing to the Borrower and the Servicer, a weekly report
summarizing each application for title with respect to any Automobile
securing a Specified Sold Auto Loan for which the Collateral Agent has
not, as of 10 weeks following the date of such Specified Sold Auto Loan's
related Contract, received a new title certificate from the appropriate
state agency;
(b) The Collateral Agent covenants and agrees that it will:
(i) not directly or indirectly create, incur, assume or suffer
to exist any Lien against the Collateral or any part thereof other than as
set forth herein;
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(ii) upon receipt of written notice from the Servicer that an
Auto Loan has been paid in full (to the extent such amounts have been
deposited in the Loan Revenue Account), execute and return to the Servicer
documents prepared and furnished to the Collateral Agent by the Servicer
as shall be necessary to release the lien over the related Automobile;
(iii) upon receipt pursuant to the Servicing Agreement of the
Servicer Report, annual financial statements or monthly compliance
statements, promptly forward a copy of such documents to the Lender;
(iv) determine whether officer's certificates and opinions of
counsel delivered pursuant to the Servicing Agreement comply in form with
the Servicing Agreement and in making such determination the Collateral
Agent may request direction from the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of the
Advances outstanding);
(v) upon the written direction of a Lender, request from the
Servicer certification evidencing the fidelity bond and insurance coverage
required by the Servicing Agreement and upon receipt shall forward such
certification to the Lender and the Borrower;
(vi) upon receipt from the Servicer of a written notice of
cancellation or modification of the fidelity bond and insurance coverage
required by the Servicing Agreement, promptly forward a copy of such
notice to the Lender and the Borrower;
(vii) upon the written direction of the Lender (or, if multiple
Lenders, the Lenders in respect of a majority in aggregate principal
amount of the Advances outstanding), consent to a change in business,
merger, consolidation or disposition of assets of the Servicer;
(viii) upon a Responsible Officer obtaining actual knowledge of the
occurrence of a change in business, merger, consolidation or disposition
of assets by the Servicer, promptly give notice of such event to the
Lender and the Borrower and, if directed to do so by the Lender (or, if
multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of the Advances outstanding), terminate the
responsibilities of the Servicer, in accordance with the Servicing
Agreement;
(ix) upon a Responsible Officer obtaining actual knowledge of the
occurrence of an Event of Servicing
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Termination or an Event of Default, promptly give notice to the Lender and
the Borrower of such occurrence;
(x) upon the written direction of the Lender (or, if multiple
Lenders, the Lenders in respect of a majority in aggregate principal
amount of the Advances outstanding), deliver notice to the Servicer
stating that an Event of Servicing Termination has occurred and thereby
terminate the responsibilities of the Servicer under the Servicing
Agreement; and
(xi) upon a Responsible Officer obtaining actual knowledge of the
occurrence of an event the occurrence of which together with notice to the
appropriate party would constitute an Event of Servicing Termination,
Event of Purchase Termination or an Event of Default, promptly give notice
of the occurrence of such event to the Lender and the Borrower.
8.09. Annual Report and Quarterly Certificate.
(a) The Collateral Agent shall deliver to the Lender as soon as
available, but in any event within 120 days after the end of each of its fiscal
years, a consolidated and consolidating balance sheet of it or its parent and
its subsidiaries, if any, as at such last day of the fiscal year, consolidated
statements of income and retained earnings and statements of cash flow, for each
such fiscal year, each prepared in accordance with generally accepted accounting
principles, in reasonable detail, and as to the consolidated statements,
certified without qualification by an independent public accountant, who may
also render other services to the Collateral Agent or any of its affiliates, and
certified, as to the consolidating statements, by the chief financial officer of
the Collateral Agent, as fairly presenting the financial position and the
results of operations of the Collateral Agent as at and for the year ending on
its date and as having been prepared in accordance with generally accepted
accounting principles.
(b) The Collateral Agent shall deliver to the Lender by the 5th
Business Day following the end of each fiscal quarter an Officer's Certificate
stating, as to each signer thereof, that (a) a review of the activities of the
Collateral Agent during the preceding fiscal quarter and of performance under
this Agreement has been made under such officer's supervision and (b) to the
best of such officer's knowledge, based on such review, the Collateral Agent has
fulfilled all its obligations under this Agreement throughout such fiscal
quarter, or, if there has been a default in the fulfillment of any such
obligation, or if an event has occurred that with notice or lapse of time or
both would become a default under this Agreement specifying each such default or
event known to such officer and the nature and status thereof and remedies
therefor being pursued.
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8.10. Delivery of Documents. On or before the Initial Closing Date,
the Collateral Agent shall have delivered to the Borrower and the Lender the
following, in form and substance satisfactory to the Borrower and the Lender:
(a) a certificate of an assistant secretary of the Collateral Agent
certifying as to certain corporate matters in a format acceptable to the
Lender; and
(b) a certificate of an officer of the Collateral Agent as to the
establishment of the Lockbox Account, the Loan Purchase Account, the Loan
Revenue Account and the Reserve Account.
8.11. Instructions of the Lender. Whenever the Collateral Agent is
required to consent to any action hereunder or under the Servicing Agreement,
the Collateral Agent shall so notify the Lenders and shall act in accordance
with the written instructions of Lenders holding 51% of Advances outstanding.
SECTION 9. AMENDMENTS AND WAIVERS.
With the written consent of AutoBond (such consent not to be
unreasonably withheld) and the Lenders in respect of a majority in aggregate
principal amount of Advances outstanding, the Collateral Agent and the Borrower
may, from time to time, enter into written amendments, supplements or
modifications hereto for the purpose of adding any provision to this Security
Agreement or changing in any manner the rights of the Collateral Agent or the
Borrower hereunder, and, with the written consent of (a) on or prior to the
Initial Closing Date, the Lender and (b) after the Initial Closing Date, the
Lenders in respect of at least 66-2/3% in aggregate principal amount of Advances
outstanding, the Collateral Agent on behalf of the Secured Parties may execute
and deliver to the Borrower a written instrument waiving, on such terms and
conditions as may be specified in such instrument, any of the requirements of
this Security Agreement; provided, however, that no such waiver and no such
amendment, supplement or modification shall (a) amend the definition of Secured
Parties or amend, modify or waive any provision of Section 6 hereof or this
Section 9 without the written consent of each Secured Party whose rights under
this Security Agreement would be affected thereby, or (b) amend, modify or waive
any provision of Section 8 or otherwise alter the duties, rights or obligations
of the Collateral Agent without the written consent of all the Secured Parties.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Secured Parties and shall be binding upon the Borrower,
the Secured Parties and the Collateral Agent.
In executing any supplement, amendment or modification of this
Security Agreement, the Collateral Agent shall be entitled to
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receive and shall be fully protected in relying upon an opinion of counsel
stating that the execution of such supplement, amendment or modification is
authorized or permitted by this Section 9. The Collateral Agent may, but shall
not be obligated to, enter into any such supplement, amendment or modification
that affects the Collateral Agent's own rights, duties or immunities under this
Security Agreement or otherwise.
The Borrower and the Secured Parties agree not to execute any
supplement, amendment or modification to any Program Document to which the
Collateral Agent is not a party, without the prior written consent of the
Collateral Agent, if the effect of such supplement, amendment or modification
would be to affect the Collateral Agent's rights, duties, or immunities under
this Security Agreement, and they agree to promptly forward to the Collateral
Agent any such supplement, amendment or modification.
SECTION 10. NOTICES.
Unless otherwise expressly provided herein, all notices, requests
and demands to or upon the respective parties hereto to be effective shall be in
writing and, unless otherwise expressly provided herein, shall be deemed to have
been duly given or made when delivered by hand, or when deposited in the mail,
postage prepaid, or in the case of telegraphic notice, when delivered to the
telegraph company, or, in the case of facsimile notice, when sent, confirmation
received, addressed as follows, or to such other addresses as may be hereafter
notified by the respective parties hereto:
The Borrower:
AutoBond Funding Corporation II
301 Congress Avenue
Austin, Texas 78701
Attention: President
Telecopy: (512) 472-1548
AutoBond:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Attention: William Winsauer
Telecopy: (512) 472-1548
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The Collateral Agent:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department - William T. Milbauer
Telecopy: (612) 667-9825
To the Lenders at the address as the Lenders shall have furnished to the
Borrower (with a copy to the Collateral Agent) in writing;
provided, that any notice to or upon the Borrower shall be deemed to have been
duly given or made as aforesaid when so given or made to the Borrower whether or
not any other party indicated above as the recipient of a copy thereof shall
have received a copy of each notice.
SECTION 11. LIMITATION ON COLLATERAL AGENT'S DUTY IN RESPECT OF
COLLATERAL.
Except as set forth herein and beyond the safe custody thereof, the
Collateral Agent shall not have any duty as to any Collateral in its possession
or control or the possession or control of any agent or nominee of it or any
income thereof or as to the preservation of rights against prior parties or any
other rights pertaining thereto.
SECTION 12. SEVERABILITY.
Any provision of this Security Agreement which is prohibited or
unenforceable in any jurisdiction shall as to such jurisdiction be ineffective
to the extent of such prohibition or unenforceability without invalidation of
the remaining provisions hereof and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
SECTION 13. NO WAIVER; CUMULATIVE REMEDIES.
Neither the Collateral Agent nor the Secured Parties shall by any
act, delay, omission or otherwise be deemed to have waived any of its or their
rights or remedies hereunder and no waiver shall be valid unless in writing,
signed by the Collateral Agent on behalf of the Secured Parties, and then only
to the extent therein set forth. A waiver by the Collateral Agent of any right
or remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Collateral Agent or the Secured Parties would
otherwise have had on any future occasion. No
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failure to exercise nor any delay in exercising on the part of the Collateral
Agent or the Secured Parties any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently and are not exclusive of any rights and remedies provided by law.
SECTION 14. PAYMENT OF EXPENSES AND TAXES.
(a) The Borrower hereby agrees to pay to the Collateral Agent a fee
for its services hereunder equal to the Collateral Agent Fee. AutoBond agrees to
pay, indemnify, and to hold the Collateral Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp and other similar taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Security Agreement, and any such other documents, and to pay,
indemnify, and hold the Collateral Agent and its officers, directors,
shareholders, employees, agents and representatives harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Security Agreement and any such other documents
(including, but not limited to, those incurred by any negligent act or negligent
omission to act of the Collateral Agent) (all the foregoing, collectively, the
"indemnified liabilities"); provided, that AutoBond shall not be liable to the
Collateral Agent for any (i) losses incurred by the Collateral Agent as a result
of the fraudulent actions, misrepresentations, negligence or willful misconduct
of the Collateral Agent or (ii) losses, claims, damages, liabilities and
expenses arising out of the imposition by any taxing authority of any federal
income, state or local income or franchise taxes, or any other taxes imposed on
or measured by gross or net income, gross or net receipts, capital, net worth
and similar items (including any interest, penalties or additions with respect
thereto) upon the Collateral Agent with respect to its receipt of the Collateral
Agent Fee hereunder (including any liabilities, costs or expenses with respect
thereto). The obligations of AutoBond under this Section 14 shall survive the
termination of this Security Agreement and the discharge of the other
obligations of AutoBond hereunder and also shall survive the resignation or
removal of the Collateral Agent hereunder.
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(b) Promptly after receipt by the Collateral Agent of notice of the
commencement of any action, such Collateral Agent shall, if a claim in respect
thereof is to be made against AutoBond under this Section 14, notify AutoBond in
writing of the commencement thereof; but the omission so to notify AutoBond will
not relieve AutoBond from any liability which it may have to the Collateral
Agent except to the extent AutoBond is prejudiced thereby. In case any action is
brought against the Collateral Agent, and it notifies AutoBond of the
commencement thereof, AutoBond will be entitled to appoint counsel satisfactory
to AutoBond (who shall not, except with the consent of the Collateral Agent, be
counsel to the Borrower or AutoBond) to represent the Collateral Agent in such
action; provided, however, that, if the defendants in any action include both
the Collateral Agent and AutoBond and the Collateral Agent shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to AutoBond, the Collateral Agent shall
have the right to select separate counsel to defend such action on behalf of it.
Upon receipt of notice from AutoBond to the Collateral Agent of its election so
to appoint counsel to defend such action and approval by the Collateral Agent of
such counsel, AutoBond will not be liable to the Collateral Agent under this
Section 14 for any legal or other expenses subsequently incurred by the
Collateral Agent in connection with the defense thereof unless (i) the
Collateral Agent shall have employed separate counsel in accordance with the
proviso to the next preceding sentence, (ii) AutoBond shall not have employed
counsel satisfactory to the Collateral Agent to represent the Collateral Agent
within a reasonable time after notice of commencement of the action or (iii)
AutoBond has authorized the employment of counsel for the Collateral Agent at
the expense of AutoBond; and except that, if clause (i) or (iii) is applicable,
such liability shall be only in respect of the counsel referred to in such
clause (i) or (iii).
(c) If the indemnification provided for in this Section 14 is
unavailable or insufficient to hold harmless the Collateral Agent under
subsection (a) or (b) above, then AutoBond shall contribute to the amount paid
or payable by the Collateral Agent as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by AutoBond on the one
hand and the Collateral Agent on the other from the transactions contemplated by
this Agreement 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 AutoBond on the one hand and the Collateral Agent on the other in
connection with the actions or omissions which resulted in such losses, claims,
damages or liabilities as well as any other relevant equitable considerations.
The Collateral Agent and AutoBond agree that it would not be just and
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equitable if contributions pursuant to this subsection (c) were to be determined
by pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this subsection (c). The amount payable by AutoBond as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (c) shall be deemed to include any legal or other expenses reasonably
incurred by the Collateral Agent in connection with investigating or defending
any action or claim which is the subject of this subsection (c). No person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(d) The obligations of the Borrower, AutoBond and the Collateral
Agent under this Section 14 shall be in addition to any liability which each of
them may otherwise have.
(e) The agreement, indemnities and other statements of the parties
hereto in or made pursuant to this Section 14 will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any other parties hereto or any of the officers,
directors or controlling persons referred to in this Section 14. The provisions
of this Section 14 shall survive the termination or cancellation of this
Agreement.
SECTION 15. SUCCESSORS AND ASSIGNS; GOVERNING LAW.
This Security Agreement and all obligations of the Borrower
hereunder shall be binding upon the successors and assigns of the Borrower, and
shall, together with the rights and remedies of the Collateral Agent hereunder,
inure to the benefit of the Collateral Agent, the Secured Parties and their
respective successors and assigns. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 16. ENFORCEMENT RIGHTS OF LENDERS.
Unless the Collateral Agent shall fail to take action required to be
taken by it under the terms of this Agreement, no Lender shall have any right
directly to enforce the security interests granted by this Security Agreement.
No Lender shall have any right to require the Collateral Agent to take or fail
to take any action under this Security Agreement, except as otherwise provided
in this Security Agreement.
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SECTION 17. BANKRUPTCY PETITION AGAINST THE BORROWER.
The Collateral Agent hereby covenants and agrees that, until the
expiration of the later of (a) the date which is one year and one day after the
payment in full of all outstanding Advances, and (b) the date which is one year
and one day after the payment in full of all investor certificates or other
securities outstanding and issued pursuant to a Disposition, it will not
institute against, or join any other Person in instituting against, the Borrower
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding or other similar proceeding under the laws of the United States or
any state of the United States.
SECTION 18. MISAPPLICATION OF FUNDS.
The Collateral Agent agrees that any funds incorrectly paid to it by
the Borrower shall be promptly returned to the Borrower upon receipt of written
notice from the Borrower that such funds were incorrectly paid to the Collateral
Agent prior to the Collateral Agent's transfer of such funds in accordance with
this Agreement. The Collateral Agent shall be completely protected against any
liability for returning such funds in reliance on such written notice that funds
were incorrectly paid.
SECTION 19. COUNTERPART SIGNATURES.
This Agreement may be executed and delivered to you simultaneously
in two (2) or more counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute but one and the same instrument.
SECTION 20. THIRD PARTY BENEFICIARY.
For all purposes of this Agreement, each of the Lenders shall be a
third party beneficiary of the agreements and covenants herein contained and the
Servicer shall be a third party beneficiary of the provisions of this Agreement
which specify the amount and priority of payment of the Servicer Fee.
SECTION 21. STATUS OF COLLATERAL AGENT.
The parties hereto acknowledge and agree that upon payment in full
of all amounts owing under the Credit Agreement and the release of the Secured
Parties' security interest in the Collateral, the rights of the Collateral Agent
to indemnification and payment of its fees and expenses under this Agreement
shall continue.
35
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SECTION 22. ACTS OF LENDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Lender may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by the Lender in person or by agents duly
appointed in writing; and except as herein otherwise expressly provided such
action shall become effective when such instrument or instruments is or are
delivered to the Collateral Agent. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Agreement if made in the manner provided in this Section 22.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Collateral Agent
deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Lender shall bind the Lender in respect of
anything done, omitted or suffered to be done by the Collateral Agent in
reliance thereon, whether or not notation of such action is made upon the Note.
36
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed by their duly authorized officers as of the date first
set forth above.
AUTOBOND FUNDING
CORPORATION II
By:_________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By:__________________________
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Collateral Agent
By:___________________________
Name:
Title:
Acknowledged as of this
21st day of May, 1996
PEOPLES SECURITY LIFE INSURANCE COMPANY
as Initial Lender
By:_________________________
Name:
Title:
37
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<PAGE>
EXHIBIT A
[FORM OF COLLATERAL ASSIGNMENT]
COLLATERAL ASSIGNMENT, dated as of __________, 199_ among AutoBond Funding
Corporation II (the "Transferor"), AutoBond Acceptance Corporation ("AutoBond")
and Norwest Bank Minnesota, National Association, as Collateral Agent (the
"Collateral Agent").
1. We refer to the Security Agreement (the "Security Agreement"), dated as
of May 21, 1996, by and among the Borrower, AutoBond Acceptance Corporation, as
Administrator and the Collateral Agent and acknowledged by Peoples Security Life
Insurance Company, as Initial Lender. All provisions of such Security Agreement
are incorporated by reference. All capitalized terms shall have the meanings set
forth in the Security Agreement.
2. As security for the prompt, complete and unconditional payment and
performance of all obligations of the Borrower in respect of the Advances, the
Borrower hereby pledges, assigns, transfers and delivers to the Collateral Agent
for the benefit of the Secured Parties, and grants to the Collateral Agent for
the benefit of the Secured Parties, a continuing first lien on, and first and
prior security interest in, all of the Borrower's title and interest in, to and
under following:
(i) each Specified Sold Auto Loan listed on Schedule 1 hereto,
including without limitation, all rights to payments thereunder, purchased
by or otherwise conveyed to or established by the Borrower pursuant to the
Loan Acquisition Agreement;
(ii) each Automobile and all other Property, now or hereafter
acquired, securing or evidenced by, each such Specified Sold Auto Loan,
including, without limitation, the certificate of title relating to each
Automobile, any insurance proceeds with respect to any such Automobile or
such Specified Sold Auto Loan, the proceeds of any repossession and
liquidation of any such Automobile, rights under judgments with respect to
defaulted obligors, rights to deficiency judgments with respect to
defaulted obligors and rights under any service contracts with respect to
any such Automobile;
(iii) any proceeds of any credit default and VSI Policy or any
other insurance policy purchased by the Borrower in respect of each such
Specified Sold Auto Loan; and
(iv) all Proceeds of any of the foregoing.
3. Each of AutoBond and the Borrower does hereby certify:
A-1
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(i) the representations and warranties of the Borrower set
forth in Sections 2.1 and 2.3(a) of the Credit Agreement and the
Administrator in Section 3.02 of the Servicing Agreement, are true
and correct on and as of the date hereof, before and after giving
effect to the transfer evidenced hereby and to the application of
the proceeds therefrom, as though made on and as of such date;
(ii) no event has occurred, or would result from such assignment
or from the application of the proceeds therefrom, which constitutes
an Event of Default or a Funding Termination Event or would
constitute an Event of Default or a Funding Termination Event but
for the requirement that notice be given or time elapse or both;
(iii) Each of AutoBond and the Borrower is in compliance with
each of its covenants set forth in the Security Agreement; and
(iv) the aggregate Unpaid Principal Balance of the Receivables
listed on Schedule 1 hereto to be transferred by the Secured Parties
pursuant to this Collateral Assignment is $__________.
IN WITNESS WHEREOF, the parties have caused this Collateral
Assignment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
AUTOBOND FUNDING CORPORATION II, as
Borrower
By:__________________________
Name:
Title:
NORWEST BANK MINNESOTA, National
Association, as Collateral Agent
By:__________________________
AutoBond Acceptance Corporation
Individually and as Administrator
By:_____________________________
Name:
Title:
A-2
<PAGE>
<PAGE>
Schedule 1
to
Collateral Assignment dated _____________, 1996
A-3
<PAGE>
<PAGE>
EXHIBIT B
TRUST RECEIPT
[DATE]
AutoBond Funding Corporation I
301 Congress Avenue
Austin, Texas 78701
Re: Amended and Restated Servicing
Agreement, dated as of May 21, 1996
(the "Servicing
Agreement") among AutoBond Funding
Corporation II, AutoBond Acceptance
Corporation, CSC Logic/MSA
L.L.P. and Norwest Bank Minnesota,
National Association
Ladies and Gentlemen:
In accordance with Section 2.07 of the Servicing Agreement, the
undersigned hereby certifies that it has taken possession of the items set forth
on Annex I hereto with respect to the Auto Loans identified below. The
undersigned (i) confirms that it holds such items in trust for the benefit of
the Lender and (ii) agrees to promptly return such items to the Collateral Agent
after its need for possession of them ceases, except for title and security
instruments which the undersigned is required under applicable law to otherwise
deal with in furtherance of its duties under the Servicing Agreement.
Auto Loans:
[CSC LOGIC/MSA L.L.P. or
AutoBond Acceptance Corporation]
By: ______________________________
Name:
Title:
B-1
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EXHIBIT C
FORM OF COLLATERAL AGENT REPORT
The undersigned, a duly authorized representative of Norwest Bank
Minnesota, National Association, as collateral agent pursuant to the Security
Agreement, dated as of May 21, 1996 (the "Security Agreement"), between AutoBond
Funding Corporation II, AutoBond Acceptance Corporation and Norwest Bank
Minnesota, National Association, does hereby certify as follows:
1. Aggregate amount on deposit in the Loan
Purchase Account as of the end of the
most recent Collection Period......................$_______________.
2. Aggregate amount on deposit in the Loan
Revenue Account as of the end of the most
recent Collection Period...........................$_______________.
3. Aggregate amount on deposit in the Reserve
Account as of the end of the most recent
Collection Period..................................$_______________.
4. The Reserve Account Required Balance...............$_______________.
Capitalized terms used in this Certificate have their meanings set forth
in the Security Agreement. This Certificate is delivered pursuant to Section
8.08 of the Security Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
this ____ day of __________, ____.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
as Collateral Agent
By:_____________________
Name:
Title:
C-1
<PAGE>
<PAGE>
================================================================================
AUTOBOND FUNDING CORPORATION II
(as Borrower),
AUTOBOND ACCEPTANCE CORPORATION
(as Administrator)
and
PEOPLES SECURITY LIFE INSURANCE COMPANY
(as Lender)
------------------------------
CREDIT AGREEMENT
------------------------------
Dated as of May 21, 1996
- --------------------------------------------------------------------------------
AUTOBOND FUNDING CORPORATION II
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. COMMITMENT
Section 1.1 Advances..................................... 1
Section 1.2 Borrowings; Closings......................... 2
Section 1.3 Notices of Advances.......................... 3
Section 1.4 Use of Proceeds.............................. 3
Section 1.5 Security Agreement........................... 3
Section 1.6 Increased Costs.............................. 3
Section 1.7 Taxes........................................ 7
Section 1.8 Definitions.................................. 10
Section 1.9 Term......................................... 10
Section 1.10 Payment Instructions......................... 10
SECTION 2. REPRESENTATIONS AND WARRANTIES
Section 2.1 General Representations and
Warranties of the Borrower................... 10
Section 2.2 General Representations and
Warranties of AutoBond....................... 15
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL
ADVANCE ON INITIAL CLOSING DATE
Section 3.1 Other Agreements............................. 28
Section 3.2 Audited Financial Statements................. 28
Section 3.3 Opinion of Special Counsel for the
Lender....................................... 28
Section 3.4 Opinions of Counsel for AutoBond............. 28
Section 3.5 Fitch Rating Letter.......................... 28
Section 3.6 Officer's Certificates....................... 28
Section 3.7 Organizational and Other Documents........... 28
Section 3.8 Financing Statements......................... 29
Section 3.9 Necessary Consents........................... 29
SECTION 4. CONDITIONS OF OBLIGATION TO MAKE ADVANCES
ON ANY CLOSING DATE
Section 4.1 Performance of Obligations; No Old
Advances..................................... 29
Section 4.2 Representations True; No Event of
Default...................................... 29
Section 4.3 Taxes........................................ 29
Section 4.4 No Merger or Change in Control............... 30
Section 4.5 Searches..................................... 30
Section 4.6 Consents and Approvals....................... 30
Section 4.7 Proceedings, Instruments, etc................ 30
Section 4.8 Loan Acquisition Agreement; Use of
Proceeds..................................... 30
Section 4.9 Other Documents.............................. 31
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Page
----
Section 4.10 Monthly Accountants Letter................... 31
Section 4.11 Continuance of a Funding
Termination Event or Event of
Default...................................... 31
SECTION 5. [Reserved].
SECTION 6. AUTOBOND
Section 6.1 Duties of AutoBond........................... 31
Section 6.2 [Reserved]................................... 32
SECTION 7. CERTAIN SPECIAL RIGHTS.
Section 7.1 Home Office Payment.......................... 32
Section 7.2 Certain Taxes................................ 33
Section 7.3 Substitution of Initial Lender............... 33
SECTION 8. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 8.1 Advance Maturity............................. 34
Section 8.2 Mandatory Prepayments........................ 34
Section 8.3 Voluntary Prepayments........................ 35
Section 8.4 Prepayment Notice............................ 35
SECTION 9. ASSIGNMENTS AND PARTICIPATIONS
Section 9.1 Assignments.................................. 35
Section 9.2 Participations............................... 36
SECTION 10. CERTAIN COVENANTS OF THE BORROWER
Section 10.1 Maintenance of Office........................ 37
Section 10.2 Existence.................................... 37
Section 10.3 General Maintenance of Business,
Etc.......................................... 38
Section 10.4 Inspection................................... 38
Section 10.5 Compliance with Law, etc..................... 38
Section 10.6 Payment of Taxes and Claims.................. 39
Section 10.7 Limitations on Indebtedness.................. 39
Section 10.8 Restricted Investments....................... 39
Section 10.9 Nature of Business........................... 39
Section 10.10 Consolidation and Merger; Sales of
Properties................................... 39
Section 10.11 Further Assurances........................... 40
Section 10.12 Independence................................. 40
Section 10.13 Other Agreements and Parties................. 41
Section 10.14 Investment Company Act....................... 42
Section 10.15 Purchases of Auto Loans...................... 42
Section 10.16 Liens........................................ 43
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Page
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SECTION 11. CERTAIN COVENANTS OF AUTOBOND
Section 11.1 Existence.................................... 43
Section 11.2 Compliance with Law, etc..................... 43
Section 11.3 Payment of Taxes and Claims.................. 43
Section 11.4 Inspection................................... 44
Section 11.5 Consolidation and Merger..................... 44
Section 11.6 Further Assurances........................... 45
Section 11.7 Independence................................. 45
Section 11.8 Other Agreements............................. 46
SECTION 12. INFORMATION TO BE FURNISHED TO LENDER
Section 12.1 Information to be Furnished by the
Borrower..................................... 46
Section 12.2 Information to be Furnished by
AutoBond..................................... 47
SECTION 13. DEFAULTS, REMEDIES AND TERMINATION
Section 13.1 Events of Default; Amortization
Events; Acceleration of Advances............. 49
Section 13.2 Default Remedies............................. 52
Section 13.3 Notice of Default............................ 53
Section 13.4 Annulment of Acceleration of
Advances..................................... 53
Section 13.5 Remedies Upon Occurrence of
Amortization Event........................... 54
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES
Section 14.1 Definitions.................................. 55
Section 14.2 Directly or Indirectly....................... 71
Section 14.3 Accounting Terms............................. 71
Section 14.4 Governing Law................................ 71
Section 14.5 Headings..................................... 71
Section 14.6 Independence of Covenants, etc............... 71
SECTION 15. INDEMNIFICATION AND FUNDING LOSSES
Section 15.1 Indemnification.............................. 71
Section 15.2 Indemnification with respect to the
Specified Sold Auto Loans.................... 74
SECTION 16. MISCELLANEOUS
Section 16.1 Notices...................................... 76
Section 16.2 Survival..................................... 76
Section 16.3 Successors and Assigns....................... 76
Section 16.4 Amendment and Waiver......................... 76
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Page
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Section 16.5 Counterparts................................. 77
Section 16.6 Reproduction of Documents.................... 78
Section 16.7 Consent to Jurisdiction and Venue............ 78
Section 16.8 No Petition.................................. 79
Section 16.9 Acts of Lender............................... 79
Section 16.10 Confidentiality.............................. 79
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Borrowing Notice
EXHIBIT C Form of Security Agreement
EXHIBIT D Form of Repurchase Assignment
EXHIBIT E Form of Borrower Opinion
EXHIBIT F Form of AutoBond Opinion
EXHIBIT G Form of Local Counsel Opinion
EXHIBIT H Form of Monthly Accountant's Letter
EXHIBIT I Form of Monthly Statement
iv
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CREDIT AGREEMENT dated as of May 21, 1996 between AutoBond Funding
Corporation II, a Delaware corporation (the "Borrower"), AutoBond Acceptance
Corporation, a Texas corporation ("AutoBond") and Peoples Security Life
Insurance Company (the "Initial Lender").
The Borrower has requested that the Initial Lender make advances to it in
an aggregate amount not exceeding $20,000,000 at any time outstanding and the
Initial Lender is prepared to make such advances upon the terms and subject to
the conditions hereof. Accordingly, the parties hereto agree as follows:
SECTION 1. COMMITMENT.
Section 1.1 Advances. The Initial Lender agrees, on the terms of this
Agreement and subject to the conditions hereof, to make Advances to the Borrower
during the period from and including the date hereof to but not including
December 15, 1996 in an aggregate principal amount at any one time outstanding
up to but not exceeding the amount of the Commitment as then in effect. Subject
to the terms of this Agreement, during such period the Borrower may borrow,
repay and re-borrow the amount of the Commitment. Each Advance shall (a) mature
on the Maturity Date and (b) bear interest from the date thereof until such
Advance shall be paid in accordance with the terms hereof (whether at maturity,
mandatory prepayment, by acceleration or otherwise) at the per annum rate with
respect to each Interest Period at the Interest Rate, payable on each Payment
Date following such Interest Period in accordance with the provisions of the
Security Agreement. Interest shall be computed on the basis of the actual number
of days in such Interest Period and a three hundred and sixty day year. Each
Advance shall bear interest during any Interest Period during such time as an
Event of Default or an Amortization Event has occurred and is continuing and to
the extent permitted by applicable law on any overdue installment of interest,
at the per annum rate with respect to each Interest Period equal to the lesser
of (x) the Interest Rate plus 2.00% and (y) 11%. If the Borrower shall have paid
or agreed to pay any interest on any Advance in excess of that permitted by law,
then it is the express intent of the parties hereto with respect thereto that
(i) to the extent possible given the term of such Advance, all excess amounts
previously paid or to be paid by the Borrower be applied to reduce the principal
amount of such Advance and the provisions thereof immediately be deemed reformed
and the amounts thereafter collectable thereunder reduced,
<PAGE>
<PAGE>
without the necessity of the execution of any new document, so as to comply with
the then applicable law, but so as to permit the recovery of the fullest amount
otherwise called for thereunder and (ii) to the extent that the reduction of the
principal amount of, and the amounts collectible under, such Advance and the
reformation of the provisions thereof described in the immediately preceding
clause (i) are not possible given the term of such Advance, such excess amount
shall be deemed to have been paid with respect to such Advance as a result of an
error and upon the Lender obtaining actual knowledge of such error, such amount
shall be refunded to the Borrower. Each Advance shall be subject to mandatory
prepayment as set forth in Section 8.2 hereof. Except as provided in Section 1.7
hereof, all sums payable by the Borrower under this Credit Agreement and the
Advances shall be paid without counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
Section 1.2 Borrowings; Closings. (a) This Agreement and the other Program
Documents shall be executed [and the initial Advance is to be made] at a closing
to be held on a date determined to be mutually acceptable to the Borrower and
the Initial Lender, 10:00 A.M., New York City time (the "Initial Closing Date"),
at the offices of Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019. Additional Advances will be made no more frequently than once each
calendar week on the first Business Day of each calendar week (each, a
"Subsequent Closing Date", the Subsequent Closing Dates, together with the
Initial Closing Date, the "Closing Dates," and, either the Initial Closing Date
or a Subsequent Closing Date, a "Closing Date") to the extent the Lender has
received prior notice thereof in accordance with the provisions of Section 1.3
hereof.
(b) The Advances shall be evidenced by a single promissory note (the
"Note") of the Borrower in substantially the form of Exhibit A hereto, dated the
date of the delivery of such Note to the Initial Lender under this Agreement,
payable to the Initial Lender in a principal amount equal to the amount of the
Commitment as in effect from time to time and otherwise duly completed. The date
and amount of each Advance made by the Initial Lender to the Borrower and each
payment made on account of the principal thereof, shall be recorded by the
Initial Lender on its books and, prior to any transfer of the Note, endorsed by
the Initial Lender on the schedule attached to the Note or any continuation
thereof.
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(c) The Initial Lender shall be entitled to have the Note subdivided, by
exchange for Notes of lesser denominations or otherwise in connection with an
assignment of all or any portion of the Advances and the Note pursuant to the
terms of this Agreement; provided that in no event may the Note be subdivided
into denominations of less than $500,000.
(d) Each Advance shall be made by wire transfer of immediately available
funds to the Loan Purchase Account.
Section 1.3 Notices of Advances. The Borrower will give notice
substantially in the form of Exhibit B hereto of each Advance (a "Borrowing
Notice") to the Initial Lender and the Collateral Agent, which notice shall be
irrevocable and effective only upon receipt by the Initial Lender and the
Collateral Agent, and which shall specify the date upon which such borrowing is
to occur and the amount of such subsequent Advance, which amount, unless
otherwise agreed to by the Initial Lender, shall not (a) in the case of the
initial Advance, be less than $5,000,000, (b) in the case of the first Advance
following a Disposition, be less than $750,000 nor more than $5,000,000 and (c)
in the case of all other Advances, shall not be greater than $5,000,000 nor less
than the lesser of (i) the Available Facility Amount and (ii) $750,000. Such
notice shall be given not later than 12:00 (noon) New York time on the day which
is two (2) Business Days prior to the related Closing Date. Any notice received
by the Initial Lender after 12:00 (noon) New York time on any Business Day shall
be deemed to have been received on the next succeeding Business Day. On the date
specified in such notice, the Initial Lender will, subject to the conditions set
forth and in accordance with the terms of this Agreement, make an Advance in the
aggregate principal amount set forth in such notice.
Section 1.4 Use of Proceeds. The proceeds of each Advance (net of expenses
and costs) will be used as contemplated by Section 4.8.
Section 1.5 Security Agreement. The Advances are to be secured pursuant to
a Security Agreement, dated as of the date hereof (the "Security Agreement"),
among the Borrower, AutoBond and Norwest Bank Minnesota, National Association,
as Collateral Agent (together with any successors thereto, the "Collateral
Agent"), substantially in the form of Exhibit C (as from time to time amended,
supplemented or modified).
3
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Section 1.6 Increased Costs. (a) In the event that any change after the
date upon which the Lender makes an Advance or acquires an interest in an
Advance in any Requirement of Law (including any change to the certificate of
incorporation, articles of association, by-laws or other organizational or
governing documents of the Lender, but only to the extent that such change is
the result of the compliance by the Lender with any request or directive
reflecting a change in Requirement of Law from any central bank or other
Governmental Authority in the United States of America), or in the
interpretation or application thereof or compliance by the Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority in the United States of America made after
the date upon which the Lender makes its Advances or acquires an interest in an
Advance:
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to this Agreement or the Note, or change the basis of taxation of
payments in respect thereof (except for taxes referred to in Section
1.7(a) and Section 15.1(a)(iii) and changes in the rate of tax on the
overall net income of the Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by the
Lender; or
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to reduce the amount receivable
hereunder in respect of the Advance below that which such Lender would have
received but for such change or compliance, then after submission by the Lender
to the Borrower and the Collateral Agent of a written request therefor, the
Collateral Agent shall, subject to Section 1.6(c), on behalf of the Borrower,
pay to the Lender any additional amounts necessary to compensate the Lender for
such reduced amount receivable.
(b) In the event that the Lender shall have determined that any change
after the date upon which the Lender makes an Advance or acquires an interest in
an Advance in any Requirement of Law (including any change to the certificate of
incorporation, articles of association,
4
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<PAGE>
by-laws or other organizational or governing documents of the Lender, but only
to the extent that such change is the result of the compliance by the Lender
with any request or directive reflecting a change in Requirement of Law from any
central bank or other Governmental Authority in the United States of America)
regarding capital adequacy or in the interpretation or application thereof or
compliance by the Lender or any corporation controlling the Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any Governmental Authority in the United States of America made
subsequent to the date upon which such Lender makes its Advances or acquires its
interest in an Advance does or shall have the effect of reducing the rate of
return on the Lender's or such corporation's capital as a consequence of the
transactions contemplated hereby to a level below that which the Lender or such
corporation would have achieved but for such change or compliance (taking into
consideration the Lender's or such corporation's policies with respect to
capital adequacy) by an amount reasonably deemed thereby to be material, then,
from time to time, after submission by the Lender to the Borrower and the
Collateral Agent of a written request therefor, the Collateral Agent shall,
subject to Section 1.6(c), on behalf of the Borrower, pay to the Lender such
additional amount or amounts as will compensate the Lender for such reduction;
provided that to the extent that six months or more pass between the date upon
which the Lender obtains actual knowledge of the liability resulting in such
reduction and the date upon which the Lender provides notice of such reduction
to the Borrower hereunder, the Borrower shall not be liable for amounts relating
to the period six months or more prior to the date of such notice.
(c) The Lender agrees that it shall use its best efforts to take any
actions that will avoid the need for, or reduce the amount of, any increased
amounts referred to in Section 1.6(a) or (b); provided, that no Lender shall be
obligated to take any actions that would, in the sole opinion of the Lender, be
disadvantageous to the Lender in any material respect.
(d) If the Lender claims the increased amounts described in Section 1.6(a)
or (b) ("Increased Cost"), the Lender will furnish to the Borrower and the
Collateral Agent a certificate setting forth the basis and amount of each
request by the Lender for any such Increased Cost. If the Borrower, within 30
days after receiving a notice of the basis and amount of such Increased Cost,
disputes the basis or amount set forth in such notice, the Lender and the
Borrower shall consult in good faith to resolve such
5
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dispute. If such consultation does not resolve such dispute within 45 days (or
such longer period as the Lender and the Borrower may then agree) after the
Lender shall have provided the Borrower with such notice, the Borrower may
request that the Lender furnish to an independent accounting firm selected by
the Borrower and reasonably acceptable to the Lender (the "Independent
Accountant") all information reasonably necessary to permit the confirmation of
the accuracy of the Lender's computation of the Increased Cost described in such
notice. Within 30 days of the receipt of such information, the Independent
Accountant either shall confirm the accuracy of such computation or shall notify
the Lender and the Borrower that such computation proposed by the Lender is
inaccurate. In the latter event, the Lender shall consult with the Borrower and
the Independent Accountant as to the proper computation of the Increased Costs,
whereupon the Lender shall recompute the Increased Costs in such a manner as
shall enable the Independent Accountant to confirm their accuracy. The Borrower
and the Lender agree that the sole responsibility of the Independent Accountant
shall be to verify the calculation of the Increased Costs and that matters of
interpretation of the Program Documents are not within the scope of its
responsibilities. All expenses incurred by the Lender and the Borrower in
connection with the verification procedures described in this Section 1.6
(including the fees and expenses of the Independent Accountant) shall be paid by
the Borrower. Any information provided to the Independent Accountant by the
Lender shall be and remain the exclusive property of the Lender and shall be
deemed by the parties to be (and the Independent Accountant shall confirm in
writing that it will treat such information as) the private, proprietary and
confidential property of the Lender, and no Person other than the Lender and the
Independent Accountant shall be entitled thereto or to any review thereof, and
all such information shall be returned to the Lender contemporaneously with the
completion of the verification procedure. Notwithstanding the foregoing, the
Lender shall not be obligated to disclose to any Person (other than the
Independent Accountant, subject to agreement by the Independent Accountant to
keep all information therein confidential), or permit any Person (other than the
Independent Accountant, subject to agreement by the Independent Accountant to
keep all information contained therein confidential) to examine, any federal,
state or local income tax returns of the Lender or any of its Affiliates.
(e) Failure on the part of the Lender to demand compensation for any
Increased Cost or amount pursuant to
6
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<PAGE>
Section 1.6(a) with respect to any period shall not constitute a waiver of the
Lender's right to demand compensation with respect to such period; provided that
to the extent that six months or more pass between the date upon which the
Lender obtains actual knowledge of the liability resulting in such reduction and
the date upon which the Lender provides notice of such reduction to the Borrower
hereunder, the Borrower shall not be liable for amounts relating to the period
six months or more prior to the date of such notice.
(f) The Borrower shall have the right, and the Lender shall cooperate
fully, to replace any Lender which makes a claim pursuant to this Section 1.6
with a new lender that will succeed to the rights of such Lender under this
Agreement; provided, that such Lender shall not be replaced hereunder with a new
lender until such Lender has been paid in full all amounts owed to it pursuant
to this Agreement; provided, further, that the Borrower shall provide such
Lender with an Officer's Certificate stating that such new lender is not subject
to, or has agreed not to seek, such increased costs.
Section 1.7 Taxes. (a) All payments made by the Collateral Agent on behalf
of the Borrower, under this Agreement shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority in the United States of America, excluding, in the case
of the Lender, net income taxes and franchise taxes imposed on the Lender as a
result of a present or former connection between the jurisdiction of the
government or taxing authority imposing such tax and the Lender (excluding a
connection arising solely from the Lender having executed, delivered, performed
its obligations or received a payment under, or enforced, this Agreement) or any
political subdivision or taxing authority thereof or therein, and also excluding
United States of America withholding taxes to the extent that a Lender
incorporated in or under the laws of a jurisdiction other than the United
States, any state thereof or the District of Columbia fails to provide to the
Collateral Agent at such times as are required by law a duly completed and
executed Internal Revenue Service form 1001 or 4224, as applicable (all such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"), provided that the Lender is not
subject to backup withholding or provides the Collateral Agent with a duly
completed and executed Internal
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Revenue Service form W-8 or W-9, as appropriate. If any Taxes are required to be
withheld from any amounts payable to the Lender hereunder, after submission by
the Lender to the Borrower and the Collateral Agent of a written request
therefor, the amounts so payable to the Lender shall be increased by the
Collateral Agent, subject to Section 1.7(c), on behalf of the Borrower, to the
extent necessary to yield to the Lender (after payment of all Taxes) interest or
any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement, except that no increase shall be made if the Lender
is subject to backup withholding and fails to provide the Collateral Agent with
a duly completed and executed Internal Revenue Service form W-8 or W-9, as
appropriate. Any Lender shall utilize available tax credits to decrease amounts
payable with respect to any such withholding which the Lender in its sole
judgment believes are directly related to this Agreement, except that no
increase shall be made if the Lender is subject to backup withholding and fails
to provide the Collateral Agent with a duly completed and executed Internal
Revenue Service form W-8 or W-9, as appropriate. Nothing in the preceding
sentence shall give the Borrower or any other third party rights to inspect,
audit or otherwise request information regarding Lender records, including
records relating to available tax credits. If the Borrower fails to pay any
Taxes when due to the appropriate taxing authority the Collateral Agent shall,
subject to Section 1.7(c), on behalf of the Borrower, pay the Lender for any
incremental taxes, interest or penalties that may become payable by the Lender
as a result of any such failure.
(b) If the Lender claims the amounts for Taxes referred to in Section
1.7(a), the Lender will furnish to the Borrower and the Collateral Agent an
officer's certificate setting forth the basis and amount of each request by the
Lender for such Taxes. If the Borrower, within 30 days after receiving a notice
of the basis and amount of such Taxes, disputes the basis or amount set forth in
such notice, the Lender and the Borrower shall consult in good faith to resolve
such dispute. If such consultation does not resolve such dispute within 45 days
(or such longer period as the Lender and the Borrower may then agree) after the
Lender shall have provided the Borrower with such notice, the Borrower may
request that the Lender furnish to an Independent Accountant all information
reasonably necessary to permit the confirmation of the accuracy of the Lender's
computation of the Taxes described in such notice. Within 30 days of the receipt
of such information, the Independent Accountant either shall confirm the
accuracy of such computation or shall notify the Lender and the Borrower
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that such computation proposed by the Lender is inaccurate. In the latter event,
the Lender shall consult with the Borrower and the Independent Accountant as to
the proper computation of the Taxes, whereupon the Lender shall recompute the
Taxes in such a manner as shall enable the Independent Accountant to confirm
their accuracy. The Borrower and the Lender agree that the sole responsibility
of the Independent Accountant shall be to verify the calculation of the Taxes
and that matters of interpretation of the Program Documents are not within the
scope of its responsibilities. All expenses incurred by the Lender and the
Borrower in connection with the verification procedures described in this
Section 1.7 (including the fees and expenses of the Independent Accountant)
shall be paid by the Borrower. Any information provided to the Independent
Accountant by the Lender shall be and remain the exclusive property of the
Lender and shall be deemed by the parties to be (and the Independent Accountant
shall confirm in writing that it will treat such information as) the private,
proprietary and confidential property of the Lender, and no Person other than
the Lender and the Independent Accountant shall be entitled thereto or to any
review thereof, and all such information shall be returned to the Lender
contemporaneously with the completion of the verification procedure.
Notwithstanding the foregoing, the Lender shall not be obligated to disclose to
any Person (other than the Independent Accountant, subject to the agreement by
the Independent Accountant to keep all information therein confidential), or
permit any Person (other than the Independent Accountant, subject to the
agreement by the Independent Accountant to keep all information contained
therein confidential) to examine, any federal, state or local income tax returns
of the Lender or any of its Affiliates.
(c) The Lender agrees that it shall use its best efforts to take any
actions that will avoid the need for, or reduce the amount of, any increased
amounts referred to in Section 1.7(a); provided, that no Lender shall be
obligated to take any actions that would, in the sole reasonable opinion of the
Lender, be disadvantageous to the Lender in any material respect.
(d) The Lender, by its making of an Advance or acceptance of any interest
in any Advance, agrees to treat the interests evidenced by the Advances as
indebtedness for all tax purposes, and further agrees that any Person acquiring
an interest in any Advance from or through it may do so only subject to the
obligation to comply with this
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Agreement as to the treatment of such Advance as indebtedness for all tax
purposes.
(e) The Borrower shall have the right, and the Lender shall cooperate
fully, to replace any Lender which makes a claim pursuant to this Section 1.7
with a new lender that will succeed to the rights of such Lender under this
Agreement; provided, that such Lender shall not be replaced hereunder with a new
lender until such Lender has been paid in full all amounts owed to it pursuant
to this Agreement; provided, further, that the Borrower shall provide such
Lender with an Officer's Certificate stating that such new lender is not subject
to, or has agreed not to seek, such amounts for Taxes.
Section 1.8 Definitions. Capitalized terms used in this Agreement are
defined in Section 14.1 hereof. References to a "Section", "Schedule" or
"Exhibit" are, unless otherwise specified, to the appropriate Section, Schedule
or Exhibit of this Agreement.
Section 1.9 Term. The Commitment will terminate on December 15, 1996
unless terminated prior to such date in accordance with the terms hereof.
Section 1.10 Payment Instructions. Each of the Lender and AutoBond shall
provide written payment instructions (including the account number of the bank
account to which payments are to be directed and the name, address and ABA
number of the bank in which such account is maintained, if payments are to be
made to such party by the wire transfer of immediately available funds) to the
Collateral Agent. Failure to provide such notice shall not affect such party's
right to receive any funds to which it is otherwise entitled in accordance with
the Program Documents, but failure to deliver such notice may result in a delay
in the receipt of such funds.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender, as of the date hereof,
and as of each Closing Date, as follows:
Section 2.1 General Representations and
Warranties of the Borrower.
(a) Organization and Authority. The Borrower:
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(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware;
(ii) has all requisite power and authority to own and operate its
properties and to conduct its business as currently conducted and as
proposed to be conducted by the Program Documents to enter into the
Program Documents to which it is a party, to issue and deliver the Note
and to perform its obligations under the Program Documents to which it is
a party and the Note;
(iii) has made all filings and holds all franchises, licenses,
permits and registrations which are required under the laws of each
jurisdiction in which the properties owned (or held under lease) by it or
the nature of its activities makes such filings, franchises, licenses,
permits or registrations necessary.
(b) Place of Business. The address of the principal place of business and
chief executive office of the Borrower is 301 Congress Avenue, Austin, Texas
78701 and there have been no other such locations during the immediately
preceding four months except as may have been previously disclosed in writing to
the Initial Lender.
(c) Compliance with Other Instruments, etc. The Borrower is not in
violation of any term of its certificate of incorporation or by-laws. Neither
the execution, delivery or performance by the Borrower of the Program Documents
to which it is a party or the Note nor the borrowings hereunder does or will (i)
conflict with or violate the certificate of incorporation or by-laws of the
Borrower, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any Lien on any of the Properties of the Borrower pursuant to the
terms of any instrument or agreement to which the Borrower is a party or by
which it is bound, or (iii) require any consent of or other action by any
trustee or any creditor of, any lessor to or any investor in the Borrower.
(d) No Materially Adverse Contracts, etc. The Borrower is not a party to
or bound by (nor are any of its Properties affected by) any contract or
agreement, or subject to any order, writ, injunction or decree or other action
of any court or any governmental department, commission, bureau, board or other
administrative agency or official, or any charter or other
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corporate or contractual restriction, which materially and adversely affects, or
in the future will materially and adversely affect, the business, earnings,
prospects, properties or condition (financial or other) of the Borrower.
(e) Compliance with Law. The Borrower is in compliance with all statutes,
laws and ordinances and all governmental rules and regulations to which it or
any of its Properties are subject. The policies and procedures set forth in the
Program Manual are in compliance with all applicable statutes, laws and
ordinances and all governmental rules and regulations. Neither the execution,
delivery or performance of the Program Documents to which it is a party or the
Note nor the borrowings hereunder does or will cause the Borrower to be in
violation of any law or ordinance, or any order, rule or regulation, of any
federal, state, municipal or other governmental or public authority or agency.
(f) Pending Litigation, etc. There is no action at law, suit in equity or
other proceeding or investigation (whether or not purportedly on behalf of the
Borrower) in any court, tribunal or by or before any other governmental or
public authority or agency or any arbitrator or arbitration panel, pending or,
to the best knowledge of the Borrower, threatened against or affecting the
Borrower or any of its respective Properties (i) an adverse determination of
which could materially and adversely affect the business, earnings, prospects,
Properties or condition (financial or other) of the Borrower, each taken as a
whole or (ii) that could question the validity of any Program Document to which
it is a party or the Note or the priority or perfection of any Liens created
under the Security Agreement. The Borrower is not in default with respect to any
order, writ, injunction, judgment or decree of any court or other governmental
or public authority or agency or arbitrator or arbitration panel.
(g) Taxes. The Borrower and each entity which might have tax liabilities
for which the Borrower is or may be liable, has filed all tax returns and paid
all taxes required by law to be filed or paid, which are due pursuant to said
returns (or which to the knowledge of the Borrower are due and payable) and on
all assessments received by the Borrower or such entity, as the case may be,
other than taxes being contested in good faith by appropriate proceedings
diligently conducted and for which adequate reserves have been established in
accordance with generally accepted accounting principles. No extensions of
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the time for the assessment of deficiencies have been granted by the Borrower.
There are no material Liens on any Properties of the Borrower imposed or arising
as a result of the delinquent payment or the nonpayment of any tax, assessment,
fee or other governmental charge. There are no applicable taxes, fees or other
governmental charges due and payable by the Borrower in connection with the
execution and delivery by the Borrower of the Program Documents to which it is a
party or the Note or the borrowings hereunder.
(h) Investment Company Act. The Borrower is not an "investment company",
or an "affiliated person" of an "investment company", or a company "controlled"
by an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended, and the Borrower is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.
(i) Margin Rules. Without limiting the foregoing, the application in
accordance with the Program Documents of any part of the proceeds from the
Advances by the Borrower pursuant to this Agreement will not violate or result
in a violation of Section 7 of the Securities Exchange Act or any regulations
issued pursuant thereto, including, without limitation, Regulation G (12 C.F.R.,
Part 207), as amended, Regulation T (12 C.F.R., Part 220), as amended, and
Regulation X (12 C.F.R., Part 224), as amended, of the Board of Governors of the
Federal Reserve System. The assets of the Borrower do not include any "margin
stock" within the meaning of such Regulation G, and the Borrower does not have
any intention of acquiring any such margin stock.
(j) Proceedings. The Borrower has taken all action necessary to authorize
the execution and delivery of the Program Documents to which it is a party and
the Note and the borrowings hereunder and the performance of all obligations to
be performed by it hereunder and thereunder.
(k) No Event of Default or Default. No event has occurred, and no
condition exists, that constitutes a Default or an Event of Default.
(l) No Consents. No prior consent, approval or authorization of,
registration, qualification, designation, declaration or filing with, or notice
to any federal, state or local governmental or public authority or agency, is or
will be required for (i) the valid execution, delivery and performance by the
Borrower of the Program Documents to
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which it is a party or the Note, (ii) the perfection or maintenance of the Liens
intended to be created by the Security Agreement (including the first priority
status thereof) or (iii) the borrowings hereunder, other than such UCC filings
as have been provided to the Initial Lender. The Borrower has obtained all
consents, approvals or authorizations of, made all declarations or filings with,
or given all notices to, all federal, state or local governmental or public
authorities or agencies which are necessary for the continued conduct by the
Borrower of its business as now conducted and as proposed to be conducted as
contemplated by the Program Documents.
(m) Validity of Program Documents and Note. The Program Documents to which
it is a party have each been duly executed and delivered by the Borrower and
constitute legal, valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms. Upon receipt by the Borrower of the
proceeds of the initial Advance as provided in this Agreement, the Note will
have been duly issued and will constitute the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms.
(n) Representations and Warranties in Program Documents. The
representations and warranties of the Borrower contained in each of the Program
Documents to which it is a party and in any document, certificate or instrument
delivered pursuant to any such Program Document are true and correct and the
Lender may rely on such representations and warranties, if not made directly to
the Lender, as if such representations and warranties were made directly to the
Lender.
(o) Solvency. The Borrower is Solvent and, immediately after giving effect
to the issue of the Note and the consummation of the other transactions
contemplated by this Agreement, the Borrower will be Solvent.
(p) Full Disclosure. The Program Documents to which it is a party and any
certificate, report, statement or other writing furnished to the Lender by or on
behalf of the Borrower in connection with the negotiation of any such Program
Document are accurate and complete with respect to the information purported to
be set forth therein. There is no fact known to the Borrower that has not been
disclosed to the Lender in writing that (i) materially and adversely affects, or
in the future may materially and adversely affect, the business, earnings,
prospects, properties or condition (financial or other) of the Borrower, or (ii)
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materially and adversely affects, or in the future could materially and
adversely affect, the ability of the Borrower to perform its obligations under
the Program Documents or the Note.
(q) Non-Consolidation. The Borrower has been operated in such a manner
that it would not be substantively consolidated in the bankruptcy trust estate
of any Affiliate, such that the separate existence of the Borrower and any
Affiliate would be disregarded.
(r) Representations and Warranties Updated. The representations and
warranties set forth above shall be deemed repeated on, and as of, each Closing
Date.
Section 2.2 General Representations and Warranties of AutoBond.
AutoBond represents and warrants to the Lender, as of the date hereof, and
as of each Closing Date, as follows:
(a) Organization and Authority. AutoBond:
(i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas;
(ii) has all requisite power and authority to own and operate its
properties and to conduct its business as currently conducted and as
proposed to be conducted as contemplated by the Program Documents to which
it is a party, to enter into the Program Documents to which it is a party
and to perform its obligations under the Program Documents to which it is
a party.
(iii) has made all filings and holds all franchises, licenses,
permits and registrations which are required under the laws of each
jurisdiction in which the properties owned (or held under lease) by it or
the nature of its activities makes such filings, franchises, licenses,
permits or registrations necessary.
(b) Place of Business. The address of the principal place of business and
chief executive office of AutoBond is 301 Congress Avenue, Austin, Texas 78701
and there have been no other such locations during the immediately preceding
four months except as may have been previously disclosed in writing to the
Initial Lender.
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(c) Compliance with Other Instruments, etc. AutoBond is not in violation
of any term of its articles of incorporation or by-laws. The execution, delivery
and performance by AutoBond of the Program Documents to which it is a party do
not and will not (i) conflict with or violate the articles of incorporation or
by-laws of AutoBond, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of, or constitute a default under, or result in
the creation of any Lien on any of the Properties or assets of AutoBond pursuant
to the terms of any instrument or agreement to which AutoBond is a party or by
which it is bound, or (c) require any consent of or other action by any trustee
or any creditor of, any lessor to or any investor in AutoBond.
(d) No Materially Adverse Contracts, etc. AutoBond is not a party to or
bound by (nor are any of its Properties affected by) any contract or agreement,
or subject to any order, writ, injunction or decree or other action of any court
or any governmental department, commission, bureau, board or other
administrative agency or official, or any charter or other corporate or
contractual restriction, which materially and adversely affects, or in the
future will materially and adversely affect, the business, earnings, prospects,
Properties or condition (financial or other) of AutoBond.
(e) Compliance with Law. AutoBond is in compliance with all statutes, laws
and ordinances and all governmental rules and regulations to which it is
subject, the violation of which, either individually or in the aggregate, could
materially adversely affect the business, earnings, Properties or condition
(financial or other) of AutoBond, each taken as a whole. The policies and
procedures set forth in the Program Manual are in compliance with all applicable
statutes, laws and ordinances and all governmental rules and regulations. The
execution, delivery and performance of the Program Documents to which it is a
party do not and will not cause AutoBond to be in violation of any law or
ordinance, or any order, rule or regulation, of any federal, state, municipal or
other governmental or public authority or agency.
(f) Pending Litigation, etc. There is no action at law, suit in equity or
other proceeding or investigation (whether or not purportedly on behalf of
AutoBond) in any court, tribunal or by or before any other governmental or
public authority or agency or any arbitrator or arbitration panel, pending or,
to the best knowledge of AutoBond, threatened against or affecting AutoBond or
any of its
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respective Properties (i) an adverse determination of which could materially and
adversely affect the business, earnings, prospects, Properties or condition
(financial or other) of AutoBond, each taken as a whole or (ii) that could
question the validity of the Program Documents. AutoBond is not in default with
respect to any order, writ, injunction, judgment or decree of any court or other
governmental or public authority or agency or arbitrator or arbitration panel.
(g) Taxes. AutoBond and each entity which might have tax liabilities for
which AutoBond is or may be liable, has filed all tax returns and paid all taxes
required by law to be filed or paid, which are due pursuant to said returns (or
which to the knowledge of AutoBond are due and payable) and on all assessments
received by AutoBond or such entity, as the case may be, other than taxes being
contested in good faith by appropriate proceedings diligently conducted and for
which adequate reserves have been established in accordance with generally
accepted accounting principles. No extensions of the time for the assessment of
deficiencies have been granted by AutoBond. There are no material Liens on any
Properties of AutoBond imposed or arising as a result of the delinquent payment
or the nonpayment of any tax, assessment, fee or other governmental charge.
There are no applicable taxes, fees or other governmental charges due and
payable by AutoBond in connection with the execution and delivery of the Program
Documents to which it is a party.
(h) Investment Company Act. AutoBond is not an "investment company", or an
"affiliated person" of an "investment company", or a company "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended, and AutoBond is not an "investment adviser" or an "affiliated
person" of an "investment adviser" as such terms are defined in the Investment
Advisers Act of 1940, as amended.
(i) Proceedings. AutoBond has taken all action necessary to authorize the
execution and delivery by it of the Program Documents to which it is a party and
the performance of all obligations to be performed by it under the Program
Documents.
(j) No Event of Default. No event has occurred and is continuing, and no
condition exists, that constitutes a Default or an Event of Default.
(k) No Consents. No prior consent, approval or authorization of,
registration, qualification, designation,
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declaration or filing with, or notice to any federal, state or local
governmental or public authority or agency, is, was or will be required for the
valid execution, delivery and performance by AutoBond of the Program Documents
to which it is a party. AutoBond has obtained all consents, approvals or
authorizations of, made all declarations or filings with, or given all notices
to, all federal, state or local governmental or public authorities or agencies
which are necessary for the continued conduct by AutoBond of its respective
businesses as now conducted, other than such consents, approvals,
authorizations, declarations, filings and notices which, neither individually
nor in the aggregate, materially and adversely affect, or in the future will
materially and adversely affect, the business, earnings, prospects, properties
or condition (financial or other) of AutoBond.
(l) Validity of Agreement. The Program Agreements to which it is a party
have been duly executed and delivered by AutoBond and constitute the legal,
valid and binding obligation of AutoBond, enforceable in accordance with their
terms.
(m) Representations and Warranties in Program Documents. (i) The
representations of AutoBond contained in any document, certificate or instrument
delivered pursuant to the Program Documents are true and correct in all material
respects and the Lender may rely on such representations and warranties, if not
made directly to the Lender, as if such representations and warranties were made
directly to the Lender.
(ii) Each acquisition of a Specified Sold Auto Loan by the Borrower has
been or will be made in compliance with all requirements specified in the
Program Documents; and AutoBond has performed all of its obligations with
respect to such Specified Sold Auto Loan, including, without limitation, the
payment to the related Dealer of all amounts then owing to such Dealer by
AutoBond in respect of such Specified Sold Auto Loan.
(n) Solvency. AutoBond is Solvent.
(o) Full Disclosure. The Program Documents to which it is a party and any
certificate, report, statement or other writing furnished to the Lender by or on
behalf of AutoBond in connection with the negotiation of any such Program
Document and the issuance of the Note are accurate and complete with respect to
the information purported to be set forth therein. There is no fact known to
AutoBond that
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has not been disclosed to the Lender in writing that (i) materially and
adversely affects, or in the future may materially and adversely affect, the
business, earnings, prospects, properties or condition (financial or other) of
AutoBond, or (ii) materially and adversely affects, or in the future could
materially and adversely affect, the ability of AutoBond to perform its
obligations under the Program Documents.
(p) Representations and Warranties Updated. The representations and
warranties set forth above shall be deemed repeated on, and made as of, each
Closing Date.
Section 2.3 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SPECIFIED SOLD
AUTO LOANS.
(a) With respect to each Auto Loan, each of AutoBond and the Borrower
represents and warrants to the Lender, as of the Closing Date on which such Auto
Loan becomes a Specified Sold Auto Loan, that:
(i) such Auto Loan complies in full with, and has been originated in
accordance with, the criteria set forth in the AutoBond Program and the
AutoBond Program Manual;
(ii) AutoBond has conducted each of the procedures set forth in the
AutoBond Program Manual to evaluate the Obligor's application in
accordance with the criteria set forth in the AutoBond Program;
(iii) on and after such Closing Date, there shall exist under each
such Auto Loan a valid, subsisting and enforceable security interest in
the Financed Vehicle securing each such Auto Loan and at such time an
enforcement of such security interest is sought and at all times there
shall exist a valid, subsisting and enforceable first priority perfected
security interest in such Financed Vehicle in favor of AutoBond as
Collection Agent on behalf of the Collateral Agent; and (a) if such Auto
Loan was originated in a state in which notation of a security interest on
the title document for the Financed Vehicle securing such Auto Loan is
required or permitted to perfect such security interest, the title
document for such Financed Vehicle shows, or if a new or replacement title
document is being applied for with respect to such
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Financed Vehicle the title document will show AutoBond (as agent for
Borrower and the Collateral Agent) as the sole holder of a security
interest in such Financed Vehicle and (b) if such Auto Loan was originated
in a state in which a financing statement under the UCC is required to
perfect a security interest in motor vehicles, such filings or recordings
have been duly made and show AutoBond (as agent for the Borrower and the
Collateral Agent) as the sole holder of a security interest in such
Financed Vehicle, and in the case of either (a) or (b), the Borrower and
the Collateral Agent have the same rights as AutoBond has or would have
(if AutoBond were still the owner of an Auto Loan) against the Obligor and
all creditors of the Obligor claiming an interest in such Financed
Vehicle;
(iv) such Auto Loan has not been satisfied, subordinated or
rescinded; and no provision of such Auto Loan has been waived, altered or
modified in any respect, except by instruments or documents identified in
the Loan File;
(v) such Auto Loan is not and will not be subject to any right of
rescission, set-off, recoupment, counterclaim or defense, whether arising
out of transactions concerning such Auto Loan between the Obligor and the
Dealer, the Dealer and AutoBond, or otherwise and no such right has been
asserted with respect thereto; the operation of the terms of such Auto
Loan or the exercise of any right thereunder will not render any such Auto
Loan unenforceable in whole or in part;
(vi) upon assigning such Auto Loan to the Borrower, AutoBond had
full right to transfer such Auto Loan to the Borrower, and AutoBond
conveyed sole ownership of and good and marketable title to such Auto Loan
to the Borrower; upon assigning such Auto Loan to the Collateral Agent,
the Borrower had full right to assign such Auto Loan to the Collateral
Agent;
(vii) such Auto Loan is not a Defaulted Auto Loan on the date of its
transfer and there is no default, breach, violation, or event permitting
acceleration under such Auto Loan, and no event
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has occurred which, with notice and the expiration of any grace or cure
period or both, would constitute a default, breach, violation, or event
permitting acceleration under such Auto Loan; provided that, (A) with
respect to Auto Loans assigned by the Borrower to the Collateral Agent on
the Closing Date, if such Auto Loan is not 60 days or more contractually
past due and (B) with respect to Auto Loans assigned by the Borrower to
the Collateral Agent after the Closing Date, if such Auto Loan is not more
than one payment past due, such Auto Loan shall be deemed not to be in
payment default, unless such Auto Loan is a Defaulted Auto Loan;
(viii) the Loan File related to such Auto Loan contains each of the
documents required by the AutoBond Program Manual and the contractual
documents contained in such Loan File constitute the entire agreement with
respect to such Auto Loan between the Obligor and the related Dealer and,
with the exception of the related Dealer Agreement, between the Dealer and
AutoBond;
(ix) the down payment described in the Loan File relating to such
Auto Loan was paid to the related Dealer in the manner stated therein at
the time of the origination of such Auto Loan, the proceeds thereof were
fully disbursed; there is no requirement for further advances thereunder;
and all fees and expenses in connection thereof have been paid;
(x) the Financed Vehicle securing the Obligor's obligation to pay
under such Auto Loan has been delivered to and accepted by the Obligor;
(xi) such Auto Loan is denominated and payable in United States
dollars;
(xii) the documents evidencing such Auto Loan contain customary and
enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization of the security afforded by
the related collateral;
(xiii) the Dealer Agreement relating to such Auto Loan is in effect,
whereby the related Dealer warrants delivery of title to such Financed
Vehicle, indemnifies AutoBond against fraud and
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misrepresentation by the related Dealer and its employees and represents
and warrants that such Dealer did not accept any side notes as any part of
the down-payment portion of the related Obligor's purchase price, and
AutoBond's rights thereunder with regard to such Auto Loan have been
validly assigned by AutoBond to the Borrower, and are enforceable against
the related Dealer by, the Borrower, the Collateral Agent or its assignee,
along with any other rights of recourse which AutoBond has against the
related Dealer, without prejudice to any rights (A) the Collateral Agent
or the Lenders may have against the Borrower, (B) the Borrower may have
against AutoBond, and (C) AutoBond may have against the related Dealer
with regard to Auto Loans that are not Sold Auto Loans;
(xiv) each Auto Loan was acquired by AutoBond from an "Eligible
Dealer"; each Auto Loan was acquired by the Borrower from AutoBond, and
the acquisition by AutoBond of any Auto Loan from a Dealer was not an
extension of financing to such Dealer but was acquired in a transaction
constituting a "true sale" under applicable state law;
(xv) AutoBond has no knowledge of any fact which should have led it
to expect at the time of sale of such Auto Loan, that (A) such Auto Loan
was made by the Selling Dealer and sold by such Dealer to AutoBond with
any conduct constituting fraud or misrepresentation on the part of such
Dealer or (B) that such Auto Loan would not be paid in full when due
because of fraud or misrepresentation on the part of the related Obligor;
(xvi) such Auto Loan was not originated in any jurisdiction the laws
of which prohibit the Selling Dealer from transferring such Auto Loan to
AutoBond or prohibit AutoBond from transferring such Auto Loan to the
Borrower, or the Borrower from assigning such Auto Loans to the Collateral
Agent, nor is such Auto Loan subject to the laws of any such jurisdiction;
(xvii) the Security Agreement and each related Collateral Assignment
constitutes a valid sale, transfer, assignment set-over and conveyance to
the Collateral Agent of all right, title and
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interest of the Borrower, AutoBond and the Selling Dealer in and to such
Auto Loan now existing and hereafter created, and upon its receipt of such
Auto Loan and payment of the related Loan Acquisition Price to AutoBond,
the Borrower will have good and marketable title to such Auto Loan free
and clear of any Adverse Claim (other than that of the Collateral Agent)
and such Auto Loan shall be freely transferable by the Borrower without
the required consent of any party (other than the Collateral Agent); each
Assignment is in a form sufficient to (i) convey such Auto Loan to the
Borrower under all applicable law in the state in which the related
Financed Vehicles is located and (ii) permit the assignee or its agents to
exercise all rights granted by the Obligor under such Auto Loan and such
other documents and all rights available under applicable law to the
obligee under such Auto Loan;
(xviii) such Auto Loan does not (A) contravene in any material
respect any state and federal laws, rules or regulations applicable
thereto in connection with the origination of such Auto Loan, including
without limitation, usury, disclosure, truth in lending, equal credit and
similar laws, the Federal Trade Commission Act and applicable state laws
governing motor vehicle installment sale or loan contracts, (but
specifically excluding laws, rules or regulations applicable thereto in
connection with post-origination compliance, including, but not limited
to, laws, rules and regulations applicable thereto in connection with fair
credit billing, fair credit reporting and fair debt collection practices)
or (B) except as required by applicable law, impose any liability or
obligation of the Dealer, AutoBond or the Borrower on the Collateral Agent
or its assignee with respect to such Auto Loan; the receipt of interest on
such Auto Loan by the Lenders will not violate any such laws;
(xix) there are no proceedings or investigations pending or, to the
best of the Borrower's or AutoBond's knowledge, threatened before any
Governmental Authority (A) asserting the invalidity of such Auto Loan or
the bankruptcy or insolvency of the related Obligor, (B) seeking the
payment of such Auto Loan or (C) seeking any determination or ruling that
might materially and
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adversely affect the validity or enforceability of such Auto Loan;
(xx) the Borrower, AutoBond and the Dealer have duly fulfilled all
obligations on their part to be fulfilled under or in connection with such
Auto Loan and have done nothing to impair the rights of the Collateral
Agent in such Auto Loan or the rights of the Borrower or the Collateral
Agent in the proceeds with respect thereto; the Borrower, AutoBond and the
Selling Dealer have paid in full all taxes and other charges payable in
connection with such Auto Loan and the transfer of such Auto Loan to the
Borrower, which could impair or become a lien prior to the Borrower or
Collateral Agent's interest in such Auto Loan; there are no prior liens
for work performed affecting any Financed Vehicle which are or may become
a lien prior to or equal with the security interest granted in the related
Auto Loan. There are no liens against any Financed Vehicle for delinquent
taxes;
(xxi) the applicable Assignment has been duly executed and delivered
by AutoBond and the information regarding the Auto Loans in such Sale
Assignment and Schedules attached thereto is true and correct as of the
Cut-Off Date relating to such Closing Date;
(xxii) the residence of the related Obligor is located within the
borders of the United States of America;
(xxiii) there is only one original of the retail installment sale
contract or promissory note and security agreement evidencing such Auto
Loan, such original has been delivered to the Collateral Agent pursuant to
the Security Agreement and there are no custodial agreements in effect
that would adversely affect the ability of the Collateral Agent to
maintain possession thereof pursuant to the Security Agreement;
(xxiv) the Obligor is not a Governmental Authority;
(xxv) the retail installment sale contract or promissory note and
security agreement evidencing such Auto Loan constitute "chattel
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paper" within the meaning of the UCC in effect in the State of Texas and
all filings required to be made and all actions required to be taken or
performed by any Person in any jurisdiction to give the Borrower an
ownership interest in such Auto Loan have been made, taken or performed;
(xxvi) such Auto Loan is and will continue to be eligible for
coverage and is covered under the Insurance Policies;
(xxvii) each such Auto Loan constitutes "chattel paper" as described
in the UCC and constitutes and shall continue to constitute a legal, valid
and binding obligation of the Obligor thereunder and is enforceable in
accordance with its terms, except only as such enforcement may be limited
by laws affecting the enforcement of creditors' rights generally, and all
parties to such Auto Loan had full legal capacity to execute such Auto
Loan and all documents related thereto and to grant the security interest
purported to be granted thereby;
(xxviii) at the origination date of each such Auto Loan, the related
Financed Vehicle was covered by a comprehensive and collision insurance
policy (a) in an amount at least equal to the lesser of (1) the actual
cash value of the related Financed Vehicle or (2) the unpaid balance owing
on such Auto Loan, (b) naming AutoBond as a loss payee and (c) insuring
against loss and damage due to fire, theft, transportation, collision and
other risks generally covered by comprehensive and collision coverage;
(xxix) the collection practices employed by AutoBond with respect to
each such Auto Loan have been in all material respects legal, proper,
prudent and customary in the automobile installment sales contract or
installment loan servicing business;
(xxx) the purchase price paid to the related Dealer for the
acquisition of such Auto Loan was paid directly to the Dealer in a timely
fashion; and
(xxxi) the first Scheduled Payment on such Auto Loan was made, or,
if the first Scheduled
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Payment on an Auto Loan has not yet been made as of the related
Cut-Off Date preceding its transfer, such Scheduled Payment will be made
on or prior to the 60th day after the due date for such Scheduled Payment.
(b) It is understood and agreed that the representations and warranties
set forth in this Section 2.3 shall survive the sale or contribution of a
Specified Sold Auto Loan to the Borrower and any assignment of such Specified
Sold Auto Loan by the Borrower to the Collateral Agent pursuant to the Security
Agreement and shall continue so long as any such Specified Sold Auto Loan shall
remain outstanding until such time as such Specified Sold Auto Loan is
repurchased pursuant to Section 2.3(c). AutoBond acknowledges that it has been
advised that the Borrower may assign all or part of its right, title and
interest in and to each Specified Sold Auto Loan and its right to exercise the
remedies created by this Section 2.3 to the Collateral Agent. AutoBond agrees
that, upon any such assignment, the Collateral Agent may enforce directly,
without joinder of the Borrower (but subject to any defense that AutoBond may
have under this Agreement), the purchase obligations of AutoBond set forth in
Section 2.3(c) with respect to breaches of the representations and warranties
set forth in Section 2.2 and Section 2.3(a).
(c) Upon the occurrence of a breach of any of the representations and
warranties in Section 2.2 or Section 2.3(a) which may, or does, materially and
adversely affect a Specified Sold Auto Loan or the interests of the Borrower or
the Collateral Agent on behalf of the Secured Parties therein, the party
discovering such breach or failure to deliver shall give prompt written notice
to the other parties. In addition, with respect to any Auto Loan in respect of
which the title document was being applied for on the applicable Closing Date,
if such title document has not been received by the Servicer within 135 days
after such Closing Date, AutoBond shall give the Borrower, the Lender and the
Collateral Agent notice of such fact. If AutoBond does not correct or cure such
breach or failure within 30 days of such notice, occurrence or discovery, then
AutoBond shall immediately repurchase the affected Auto Loan at a purchase price
equal to the Repurchase Price. Any such repurchase shall be made without
recourse against, or warranty, express or implied, of the Borrower or the
Collateral Agent. The Repurchase Price shall be paid to the Collateral Agent for
deposit in the Loan Revenue Account, and upon receipt thereof, the Borrower and
the Collateral Agent shall execute and deliver an assignment substantially
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in the form of Exhibit D attached hereto and made a part hereof to vest
ownership of such Specified Sold Auto Loan in AutoBond or as directed by
AutoBond. If, at the time of the discovery of such breach or failure to deliver,
a loss has occurred with respect to the liquidation of such Specified Sold Auto
Loan, then AutoBond shall pay to the Borrower or the Collateral Agent an amount
equal to the amount, if any, by which the Repurchase Price exceeds the net
proceeds from such Specified Sold Auto Loan. It is understood and agreed that
the obligation of AutoBond to repurchase any Specified Sold Auto Loan pursuant
to this Section 2.3(c) or to make the payment described in the immediately
preceding sentence (the "Repurchase Requirement") shall constitute the sole
remedy for the breach of any representation or warranty set forth in Section
2.3(a) or the failure by AutoBond to deliver an original certificate of title in
accordance with this Section 2.3(c); provided, that the foregoing limitation
shall not be construed to limit in any manner the Borrower's rights to (a)
declare the Termination Date to have occurred to the extent that such breaches
or failures to deliver also constitute, or contribute to the determination of,
an Event of Purchase Termination under the Loan Acquisition Agreement, (b)
indemnification to the extent provided in Section 15.2, or (c) offset the amount
of the Repurchase Price from the Loan Acquisition Price in connection with any
other Specified Sold Auto Loans. It is also understood and agreed that upon the
repurchase by AutoBond of a Specified Sold Auto Loan in accordance with this
Section 2.3(c) and the payment by AutoBond of all monies required to be paid by
it under this Section 2.3(c), it is the intention of the parties hereto and the
Borrower warrants that, if the seller of such Specified Sold Auto Loan is the
Borrower, AutoBond shall own all right, title and interest of the Borrower in
and to such Specified Sold Auto Loan.
(d) It is understood and agreed that the Repurchase Requirement shall
survive any assignment of a Specified Sold Auto Loan by the Borrower to the
Collateral Agent and shall continue so long as any such Specified Sold Auto Loan
shall remain outstanding notwithstanding any termination of this Agreement.
SECTION 3. CONDITIONS OF OBLIGATION TO MAKE INITIAL ADVANCE ON INITIAL CLOSING
DATE.
The Initial Lender's obligation to make the initial Advance hereunder on
the Initial Closing Date shall be subject to the satisfaction, prior to or
concurrently
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with the making of such Advance, of the conditions set forth in Section 4
hereof, as well as the following conditions:
Section 3.1 Other Agreements. The Program Documents and the Note shall
each have been duly authorized by all necessary action. The Borrower and
AutoBond shall have duly executed and delivered the Program Documents to which
they are a party and, in the case of the Borrower, the Note and such Program
Documents are in full force and effect.
Section 3.2 Audited Financial Statements. The Initial Lender shall have
received a copy of AutoBond's consolidated financial statements for the year
ended December 31, 1995, certified by Coopers & Lybrand without any material
adverse change from the draft consolidated financial statements for the year
ended December 31, 1995 previously provided to the Initial Lender.
Section 3.3 Opinion of Special Counsel for the Lender. The Initial Lender
shall have received from Dewey Ballantine, who are acting as special New York
counsel for the Lender in connection with the transactions contemplated by this
Agreement, an opinion, dated the Initial Closing Date, in the form attached
hereto as Exhibit E.
Section 3.4 Opinions of Counsel for AutoBond. The Initial Lender shall
have received from Kirkley, Schmidt & Cotten, who are acting as special Texas
counsel for AutoBond in connection with the transactions contemplated by this
Agreement, an opinion, dated the Initial Closing Date, in the form attached as
Exhibits F and G.
Section 3.5 Fitch Rating Letter. The Lender shall have received written
confirmation from Fitch that Fitch has assigned a rating of no less than "A" to
the Note.
Section 3.6 Officer's Certificates. The Initial Lender shall have received
(a) an officer's certificate from the Borrower with respect to the matters set
forth in Sections 4.1 and 4.2, (b) an officer's certificate from AutoBond with
respect to the matters set forth in Sections 4.1, 4.2 and 4.6 and (c) a copy of
the officer's certificate from the Servicer delivered pursuant to Section
2.19(d) of the Servicing Agreement.
Section 3.7 Organizational and Other Documents. The Initial Lender shall
have received certified copies of the organizational documents of the Borrower
and of AutoBond and of all formalities authorizing the
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execution, delivery and performance hereof and of the Program Documents to which
each is a party and, in the case of the Borrower, the Note.
Section 3.8 Financing Statements. Financing statements naming the Borrower
as debtor and the Collateral Agent on behalf of the Lender as secured party
(each, a "Financing Statement") shall have been executed and delivered to the
Collateral Agent for filing in accordance with the applicable Uniform Commercial
Code with the Secretary of State of the State of Texas and with such other
filing officer within or without Texas as the Initial Lender shall request,
which Financing Statements constitute all of the filings required to perfect the
security interests intended to be created by the Security Agreement.
Section 3.9 Necessary Consents. The Lender shall have received a copy of
all consents to, or releases of any lien in respect to any Specified Sold Auto
Loans subject or to be subject hereto, in form and substance satisfactory to the
Lender.
SECTION 4. CONDITIONS OF OBLIGATION TO MAKE ADVANCES ON ANY CLOSING DATE.
The Initial Lender's obligation to make Advances hereunder on any Closing
Date shall be subject to the satisfaction, prior to or concurrently with the
making of such Advances, of the following conditions:
Section 4.1 Performance of Obligations; No Old Advances. The Borrower and
AutoBond shall each have performed all of their respective obligations to be
performed hereunder prior to or on such Closing Date. No Advances shall have
been outstanding in excess of 120 days.
Section 4.2 Representations True; No Event of Default. The representations
and warranties of the Borrower pursuant to Section 2.1 and of AutoBond pursuant
to Section 2.2 shall be true on and as of such Closing Date and the
representations and warranties with respect to the Specified Sold Auto Loans
shall be true on and as of the related Closing Date with the same effect as
though such representations and warranties had been made on and as of such
Closing Date. There shall exist on such Closing Date no Default or Event of
Default.
Section 4.3 Taxes. Any taxes, fees and other charges due in connection
with the borrowings hereunder or
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the issuance of the Note (other than any income or franchise taxes incurred by
the Lender) shall have been paid in full by the Borrower.
Section 4.4 No Merger or Change in Control. Neither AutoBond nor the
Borrower shall: (a) have dissolved or liquidated or consolidated or merged with,
or been would up into, or sold, leased or otherwise disposed of all or
substantially all of its Properties to, any Person (other than a merger into a
wholly-owned Subsidiary for the purposes of reincorporation); and (b) neither
AutoBond nor the Borrower shall have been the subject of a Change of Control.
Section 4.5 Searches. The Borrower shall have delivered to the Initial
Lender such evidence (including without limitation, Uniform Commercial Code
search certificates, releases and termination statements) as the Initial Lender
may request to establish that there are no financing statements filed against
the Collateral other than with respect to Permitted Liens.
Section 4.6 Consents and Approvals. The Borrower and AutoBond shall have
obtained any necessary consents, waivers, approvals, authorizations,
registrations, filings, licenses and notifications (including, if necessary,
qualifying to do business in, and qualifying under the applicable consumer laws
of, each jurisdiction where the Borrower and AutoBond is then doing business, or
is expected to be doing business utilizing the proceeds of such Advance) and the
same shall be in full force and effect.
Section 4.7 Proceedings, Instruments, etc. All proceedings and actions
taken on or prior to such Closing Date in connection with the transactions
contemplated by this Agreement, the Program Documents and the Note, and all
instruments incident thereto, shall be in form and substance reasonably
satisfactory to the Initial Lender, and the Initial Lender shall have received
copies of all documents that the Initial Lender or they may reasonably request
in connection with such proceedings, actions and transactions (including,
without limitation, copies of court documents, certifications and evidence of
the correctness of the representations and warranties contained herein and
certifications and evidence of the compliance with the terms and the fulfillment
of the conditions of the Program Documents and the Note, in form and substance
satisfactory to the Initial Lender).
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Section 4.8 Loan Acquisition Agreement; Use of Proceeds. The Borrower
shall have entered into the Loan Acquisition Agreement and the proceeds of the
Advances shall not exceed the amount the Collateral Agent, on behalf of the
Borrower, is required to pay on the date of making of such Advances in respect
of Loan Acquisition Prices; provided, that, so long as (after giving effect to
the application of the Advance proceeds) the aggregate amount of Permitted
Investments is no greater than $1,000,000, at the direction of AutoBond a
portion of the Proceeds of the Advances may be applied to purchase Permitted
Investments, pending application to the acquisition of Eligible Auto Loans. The
Loan Acquisition Agreement shall have been duly authorized, executed and
delivered by the parties thereto. Copies of the duly executed Loan Acquisition
Agreement, together with the opinions of counsel and officer's certificates
delivered in connection therewith, shall have been delivered to the Initial
Lender and to the Collateral Agent.
Section 4.9 Other Documents. The Borrower and AutoBond shall have
delivered to the Initial Lender such other documents, instruments, approvals
(and if requested certified duplication of executed copies thereof) and opinions
as the Initial Lender may have reasonably requested. Each of the Program
Documents shall remain in full force and effect.
Section 4.10 Monthly Accountants Letter. On the initial Closing Date and
on each successive Payment Date the Collateral Agent and the Lender shall have
received a letter, dated within 4 days of such Payment Date, of Independent
Public Accountants to the effect set forth in Exhibit H.
Section 4.11 Continuance of a Funding Termination Event or Event of
Default. No Funding Termination Event, Event of Default, or Amortization Event
shall have occurred and be continuing.
SECTION 5. [Reserved].
SECTION 6. AUTOBOND.
Section 6.1 Duties of AutoBond. AutoBond, in its capacity as
Administrator, undertakes to perform for the benefit of the Borrower and, for
the term of this Agreement, the Lender, such duties as are set forth in the
Program Documents and the Program Manual, including, without limitation:
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(a) marketing of the program, soliciting Dealers for participation
in the program, conducting due diligence with respect to each Dealer and
enrolling such Dealers in the program;
(b) maintaining the Program Manual in accordance with the terms of
the Program Documents and making material changes thereto only with the
consent of the Borrower and the Initial Lender;
(c) training the Dealers in the implementation of the program and
monitoring the performance of the Dealers and the compliance of the
Dealers with the terms of the program;
(d) terminating Dealers in accordance with the Program Documents and
the Program Manual;
(e) subject to Section 6.3, maintaining the VSI Policy with respect
to the Specified Sold Auto Loans, making claims thereunder and, to the
extent it receives any payments in respect thereof, forward such payments
to the Collateral Agent and reporting to the Lenders regarding such
receipt of payment; and
(f) such other duties as are necessary in connection with the
program or as may reasonably be required by the Lender.
Section 6.2 [Reserved].
Section 6.3 VSI and Credit Default Insurance. AutoBond agrees that upon
the occurrence of an Event of Purchase Termination (as defined in the Loan
Acquisition Agreement), it will assign to the Borrower all of its right to make
claims or receive payments in respect of the VSI Policy applicable to the
Specified Sold Auto Loans.
SECTION 7. CERTAIN SPECIAL RIGHTS.
Section 7.1 Home Office Payment. Notwithstanding any provision to the
contrary in the Program Documents, the Collateral Agent, on behalf of the
Borrower, will punctually pay in immediately available funds prior to noon, New
York City time, all amounts payable with respect to the Advances in accordance
with the provisions of this Agreement and the Security Agreement (without the
necessity for any presentation or surrender thereof or any notation of such
payment thereon) in the manner and at any address as the
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Lender may from time to time direct in writing. The Initial Lender agrees that,
as promptly as practicable after the payment or prepayment of any Advance, the
Initial Lender will record such payment or prepayment on the Note. The Borrower
will afford the benefits of this Section 7.1 to any Assignee, each of which, by
its receipt and acceptance of a Note, will be deemed to have made the same
agreement relating to the Advances as the Initial Lender has made in this
Section 7.1. The Borrower shall only be obligated to make payments on any
Advance to an Assignee in the manner provided in this Section 7.1 from and after
the time such Assignee provides to the Borrower and the Collateral Agent written
notice of its election to receive payments in such manner and the address to
which payments are to be directed (including the account number of Assignee's
bank account to which payments are to be directed and the name, address and ABA
number of the bank in which such account is maintained, if payments are to be
made to such Assignee by the wire transfer of immediately available funds).
Section 7.2 Certain Taxes. The Borrower will pay all taxes (other than
income or franchise taxes incurred by the Lender) in connection with the
execution and delivery of this Agreement and the Security Agreement, the
issuance of the Note(s) by the Borrower, the borrowings hereunder and any
modification of the Program Documents or the Note requested or required by the
Borrower and will save the Lender harmless, without limitation as to time,
against any and all liabilities (including, without limitation, any interest or
penalty for nonpayment or delay in payment, or any income taxes paid by the
Lender or any Assignee in connection with any reimbursement by the Borrower for
the payment by any other Person of any such taxes) with respect to all such
taxes. The obligations of the Borrower under this Section 7.2 shall survive the
payment in full of the Advances and the termination of the Program Documents.
Section 7.3 Substitution of Initial Lender. The Initial Lender shall have
the right to substitute any of the Initial Lender's Affiliates as the maker of
all or any portion of the aggregate principal amount of Advances to be made by
the Initial Lender (so long as any such Affiliate is not engaged in any
principal line of business substantially similar to the general nature of the
business presently conducted by the Borrower), by written notice delivered to
the Borrower, which notice shall be signed by both the Initial Lender and such
Affiliate and shall contain such Affiliate's agreement to be bound by this
Agreement. The Borrower agrees that upon receipt of such notice (a) wherever the
word "the Initial Lender" is used in this
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Agreement (other than in this Section 7.3) such word shall be deemed to refer to
such Affiliate in addition to or instead of to the Initial Lender, as the case
may be, and (b) the Initial Lender shall, to the extent of the assumption by
such Affiliate of the Initial Lender's obligations hereunder, be released from
its obligations under this Agreement. The Borrower also agrees that if the
Initial Lender, at any time, acquires from any Affiliate all or any portion of
such Affiliate's rights under this Agreement, wherever the word "the Initial
Lender" is used in this Agreement such word shall thereafter be deemed to refer
to the Initial Lender in addition to or instead of to such Affiliate, as the
case may be, and such Affiliate shall, to the extent of the assumption by the
Initial Lender of such Affiliates obligations hereunder, be released from all of
its obligations under this Agreement. Notwithstanding any other provision of
this Section 7.3, neither the Initial Lender nor any Affiliate thereof shall be
entitled to substitute any other party as the maker of any Advances if as a
result of such substitution the Borrower would be required to register as an
"investment company" under the Investment Company Act of 1940, as amended.
SECTION 8. ADVANCE MATURITY; ADVANCE PREPAYMENTS.
Section 8.1 Advance Maturity. Each Advance shall be due and payable 120
days after the related Closing Date. On December 27, 1996 or such later date
agreed to by the Borrower and the Lender the remaining unpaid principal amount
of the Advances, together with accrued interest thereon and unpaid fees with
respect thereto, shall be due and payable.
Section 8.2 Mandatory Prepayments. At least once each calendar quarter,
commencing the quarter ending June 30, 1996, the Borrower shall prepay all
outstanding Advances, including all interest and fees accrued to the date of
such prepayment. The Collateral Agent is directed to apply all funds in the
Collateral Account to such prepayment in accordance with the Security Agreement.
The Collateral Agent shall also immediately prepay the Advances, without
premium, together with interest accrued on the amount to be prepaid to the date
of prepayment and any unpaid fees with respect thereto, on each Payment Date
pursuant to Section 6.04 of the Security Agreement, upon the Lender's
instructions. No prepayment pursuant to this Section 8.2 shall in and of itself
have any effect on the obligation of the Initial Lender to make Advances under
this Agreement nor the right of the Borrower to reborrow an
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amount equal to such repayment. Upon the occurrence of an Event of Default, the
Borrower will make payments on the Advances in accordance with Section 13 hereof
and Section 6.04 of the Security Agreement.
Section 8.3 Voluntary Prepayments.
(a) The Borrower may, upon thirty (30) days written notice, voluntarily
prepay Advances at any time in accordance with this Section 8.3 pursuant to a
securitization Disposition; provided that the Borrower may only prepay Advances
pursuant to this Section 8.3 if it prepays all Advances outstanding at such
time.
(b) Any prepayment of Advances pursuant to Section 8.3 shall be at a price
equal to one hundred percent (100%) of the aggregate outstanding principal
amount of Advances prepaid, together with accrued and unpaid interest as of the
date set for prepayment and all unpaid fees.
Section 8.4 Prepayment Notice. AutoBond shall provide written notice to
the Lender of any mandatory or voluntary prepayment as early as practicable
prior to the date for such prepayment, but in no event later than 12:00 (noon)
New York City time on the fifth Business Day prior to the date for such
prepayment.
Section 8.5 Payment Following an Amortization Event. At any time, upon
three (3) Business Days prior written notice to the Lender the Borrower may pay
the outstanding principal amount of any Advance that is subject to an
Amortization Event, plus accrued and unpaid interest thereon (calculated in
accordance with Section 1.1), plus any accrued and unpaid fees with respect
thereto. Following such payment, such Amortization Event shall no longer be
continuing.
SECTION 9. ASSIGNMENTS AND PARTICIPATIONS.
Section 9.1 Assignments. (a) The Borrower may not assign its rights or
obligations hereunder or under the Note without the prior consent of the Lender
in its sole discretion (or, if multiple Lenders, the Lenders in respect of a
majority in aggregate principal amount of Advances outstanding).
(b) Subject to Section 7.3, the Initial Lender may not assign all or any
portion of the Commitment without the prior written consent of the Borrower. The
Lender may,
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however, (i) without the consent of the Borrower, assign to any commercial
lending institution familiar with the asset-backed securities market or (ii)
with the prior written consent of the Borrower, assign to any other entity
(each, an "Assignee"), all or any portion of the Advances or the Notes; provided
that any assignment of a portion of the Advances or the Notes shall be in an
amount not less than the Minimum Assignment Denomination. Upon written notice to
the Borrower of an assignment in accordance with the preceding sentence (which
notice shall identify the Assignee and the amount and the identity of the
Advances assigned), the Assignee shall have, to the extent of such assignment
(unless otherwise provided in such assignment), the obligations, rights and
benefits of the Lender hereunder with respect to the Advance(s) assigned to it.
For all purposes of this Agreement, the Assignee shall, so long as the
Advance(s) assigned to such Assignee remain unpaid, be entitled to the rights
and benefits of this Agreement with respect to the Advance(s) assigned to it as
if (and the Borrower shall be directly obligated to such Assignee under this
Agreement as if) such Assignee were the "Lender" for purposes of this Agreement.
Accordingly, unless otherwise provided, whenever any action, waiver, notice or
consent is to be provided to or by the Lender as herein specified, such action,
waiver, notice or consent shall (unless otherwise expressly specified herein)
also be provided to or by each Assignee.
(c) The Lender shall provide notice of each assignment to the Collateral
Agent, AutoBond and the Servicer; provided that failure to provide such notice
shall not affect the validity of any assignment.
(d) Notwithstanding the provisions of this Section 9.1, no assignment of
an interest in an Advance to an entity outside the United States of America
shall be effective unless the prospective Assignee thereof certifies to the
Borrower and AutoBond that payments to it in respect of the Advances will not be
subject to withholding taxes imposed by any Governmental Authority in the United
States of America or any political subdivision or taxing authority thereof or
therein or that if it is subject to such withholding taxes it will not seek
reimbursement or gross-up from the Borrower or AutoBond.
Section 9.2 Participations. (a) The Lender may sell or agree to sell (i)
without the consent of the Borrower, to any commercial lending institution
familiar with the asset-backed securities market or (ii) with the prior written
consent of the Borrower, to any other entity,
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a participation in all or any part of any Advance held by it or Advances made or
to be made by it, in which event each such participant shall be entitled to the
rights and benefits of the provisions of Sections 12.1(f) and 12.2(i) hereof
with respect to its participation in such Advance as if (and the Borrower and
AutoBond shall be directly obligated to such participant under such provisions
as if) such participant were the "Lender" for purposes of said Sections, but
shall not have any other rights or benefits under this Agreement or any Note
(the participant's rights against the Lender in respect of such participation to
be those set forth in the agreement executed by the Lender in favor of the
participant). All amounts payable by the Borrower to the Lender under this
Agreement shall be determined as if the Lender had not sold or agreed to sell
any participations in such Advance and as if the Lender were funding all of such
Advance in the same way that it is funding the Advance in which no
participations have been sold.
(b) The Lender may furnish any information concerning the Borrower,
AutoBond or any of their other Affiliates in the possession of the Lender from
time to time to assignees and participants (including prospective assignees and
participants); provided, however, that, prior to receipt of any such
information, and prior to any inspection by a Lender, other than the Initial
Lender, pursuant to Sections 12.4 or 13.4 hereof, such assignees and
participants or prospective assignees and participants, as the case may be, may
be required by the Borrower to execute a confidentiality agreement in form and
substance reasonably acceptable to the Borrower.
SECTION 10. CERTAIN COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that so long as any Advance shall remain
unpaid:
Section 10.1 Maintenance of Office. The Borrower will maintain at its
office located at its address shown at the head of this Agreement an office
where notices, presentations and demands in respect of this Agreement and the
Note may be given to and made upon it; provided, however, that it may, upon
fifteen (15) Business Days prior written notice to the Lender, move such office
to any other location within the boundaries of the continental United States of
America.
Section 10.2 Existence. The Borrower will take and fulfill, or cause to be
taken and fulfilled, all actions
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and conditions necessary to preserve and keep in full force and effect its
existence, rights and privileges as a corporation and will not liquidate or
dissolve, and it will take and fulfill, or cause to be taken and fulfilled, all
actions and conditions necessary to qualify, and to preserve and keep in full
force and effect its qualification, to do business in each jurisdiction in which
the conduct of its business or the ownership or leasing of its properties
requires such qualification.
Section 10.3 General Maintenance of Business, Etc. The Borrower will:
(a) keep proper books of record and accounts in which entries will
be made of its business transactions in accordance with and to the extent
required by generally accepted accounting principles;
(b) enforce (or cause the Servicer or the Collateral Agent, as the
case may be, to enforce) all of its rights under each of the Program
Documents to which it is a party and each other agreement entered into in
connection with the transactions contemplated hereby.
Section 10.4 Inspection. The Borrower will permit, upon reasonable notice
to it, the Lender, by its representatives, agents or attorneys: (a) to examine
all books of account, records, reports and other papers of the Borrower, (b) to
make copies and take extracts from any thereof, (c) to discuss the affairs,
finances and accounts of the Borrower with its respective officers and
independent certified public accountants (and by this provision the Borrower
hereby authorizes said accountants to discuss with the Lender the finances and
accounts of the Borrower) and (d) to visit and inspect, at reasonable times
during normal business hours, the properties of the Borrower. It is understood
and agreed by the parties hereto that all reasonable expenses in connection with
any such inspection or discussion incurred by the Lender or the Borrower, any
officers and employees thereof and the independent certified public accountants
therefor shall be expenses payable by the Person making the inspection or
discussion.
Section 10.5 Compliance with Law, etc. The Borrower will not (i) violate
any laws, ordinances, governmental rules or regulations to which it is or may
become subject, or (ii) fail to obtain or maintain any patents, trademarks,
service marks, trade names, copyrights, design patents, licenses, permits,
franchises or other
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governmental authorizations necessary to the ownership of its property or to the
conduct of its business except to the extent that any such violation or failure
could not materially and adversely affect the business, earnings, prospects,
properties or condition (financial or other) of the Borrower.
Section 10.6 Payment of Taxes and Claims. The Borrower will pay, and
discharge, promptly when due all taxes, assessments and governmental charges and
levies imposed upon it, its income or profits or any of its properties;
provided, however, that the foregoing need not be paid while the same is being
contested in good faith by appropriate proceedings diligently conducted so long
as:
(a) adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto; and
(b) the right of the Borrower to use the particular property shall
not be materially and adversely affected thereby.
Section 10.7 Limitations on Indebtedness. The Borrower will not at any
time incur, create, assume or guarantee, or otherwise become or be liable in any
manner with respect to, any Indebtedness, except (i) the Advances and (ii)
Non-recourse Indebtedness.
Section 10.8 Restricted Investments. With respect to amounts on deposit in
the Collateral Account, the Borrower will not make any Restricted Investments
except in accordance with the Program Documents.
Section 10.9 Nature of Business. The Borrower will not engage in any
business or activity (whether or not pursued for gain or other pecuniary
advantage) other than financing, purchasing and disposing of Eligible Auto Loans
and Permitted Investments.
Section 10.10 Consolidation and Merger; Sales of Properties. The Borrower
will not (a) merge into or consolidate with any other Person or permit any other
Person to merge into or consolidate with it or (b) except as set forth in
Section 7 of the Security Agreement, sell, transfer or otherwise dispose of any
of its Properties (whether now owned or hereafter acquired) except: (i) with the
consent of the Lender (or, if multiple Lenders, the Lenders in respect of a
majority in aggregate principal amount of the Advances outstanding) or (ii) for
the liquidation of Permitted
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Investments or for the purpose of purchasing Eligible Auto Loans or of paying
amounts due hereunder or in respect of the Advances.
Section 10.11 Further Assurances. The Borrower will promptly execute and
deliver all further instruments and documents and take all further action that
may be necessary in order to give effect to the provisions of the Program
Documents and the Note.
Section 10.12 Independence. Until 367 days have elapsed following payment
and satisfaction of all obligations of the Borrower hereunder and under the
Note, the Borrower shall be required to observe the applicable legal
requirements for the recognition of the Borrower as a legal entity separate and
apart from AutoBond and each other Affiliate of AutoBond, including, without
limitation, assuring that each of the following is complied with:
(a) the Borrower shall maintain separate records, books of account
and financial statements (each of which shall be sufficiently full and
complete to permit a determination of the Borrower's assets and
liabilities separate and apart from those of AutoBond and each other
Affiliate of AutoBond and to permit a determination of the obligees
thereon and the time for performance of each of the Borrower's obligations
separate and apart from those of AutoBond and each other Affiliate of
AutoBond) from those of AutoBond and each other Affiliate of AutoBond;
(b) the Borrower shall not commingle any of its assets or funds with
those of AutoBond or any of the other Affiliates of AutoBond;
(c) the Borrower shall maintain a separate board of directors
(including an "independent director" (as such term is defined in the
Borrower's Certificate of Incorporation)) and shall observe all separate
corporate formalities, and all decisions with respect to the Borrower's
business and daily operations shall be independently made by the officers
of the Borrower pursuant to resolutions of its board of directors;
(d) other than payment of dividends and return of capital, no
transactions shall be entered into between the Borrower and AutoBond or
between the Borrower and any of the other Affiliates of AutoBond except
such transactions as are contemplated by the Loan Acquisition Agreement;
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(e) except for such origination, collection and servicing functions
as AutoBond may perform on behalf of the Borrower pursuant to the Program
Documents, the Borrower shall act solely in its own name and through its
own authorized officers and agents and the Borrower will not act as agent
of AutoBond or any other person in any capacity;
(f) except for any funds received from AutoBond as a capital
contribution, the Borrower shall not accept funds from AutoBond or any of
the other Affiliates of AutoBond; and the Borrower shall not allow
AutoBond or any of the other Affiliates of AutoBond otherwise to supply
funds to, or guarantee any obligation of, the Borrower;
(g) the Borrower shall not guarantee, or otherwise become liable
with respect to, any obligation of AutoBond or any of the other Affiliates
of AutoBond; and
(h) the Borrower shall at all times hold itself out to the public
under the Borrower's own name as a legal entity separate and distinct from
AutoBond and the other Affiliates of AutoBond.
Section 10.13 Other Agreements and Parties. The Borrower will comply with
all terms of the Program Documents to which it is a party. The Borrower will not
(a) enter into any agreements other than the Program Documents to which it is a
party without the consent of the Lender (or, if multiple Lenders, the Lenders in
respect of a majority in aggregate principal amount of Advances outstanding),
such consent not to be unreasonably withheld, (b) except as otherwise expressly
set forth herein and in the Security Agreement, agree to any amendment,
supplement or modification to or waiver of the terms of the Program Documents to
which it is a party, the Program Manual or any document related thereto without
the consent of the Lender (or, if multiple Lenders, the Lenders in respect of a
majority in aggregate principal amount of Advances outstanding), such consent
not to be unreasonably withheld, (c) appoint any Successor Servicer, without the
consent of the Lender (or, if multiple Lenders, the Lenders in respect of a
majority in aggregate principal amount of the Advances outstanding), such
consent not to be unreasonably withheld or (d) consent to the appointment of any
Subservicer, without the consent of the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of the Advances
outstanding), such consent not to be
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unreasonably withheld. If notified by the Lender (or, if multiple Lenders, the
Lenders in respect of a majority in aggregate principal amount of Advances
outstanding) that the provisions of the Program Manual are inconsistent with the
customary and usual standards of consumer finance companies and such
inconsistency results in a material adverse effect on the Lender, the Borrower
will amend the provisions of the Program Manual in accordance with such notice.
Section 10.14 Investment Company Act. The Borrower will not take any
action which would require it to be registered as an "investment company" under
the Investment Company Act of 1940, as amended.
Section 10.15 Purchases of Auto Loans.
(a) The Borrower shall not purchase any Specified Sold Auto Loans except
pursuant to the Loan Acquisition Agreement in the form contemplated hereby and
entered into pursuant to, and in full compliance with, the Program Documents.
(b) The Borrower will cease purchasing Specified Sold Auto Loans from
AutoBond for financing hereunder, if the Borrower or the Initial Lender shall
have determined that any of the following shall have occurred:
(i) any Event of Default described in Section 13.1(g) through (o)
shall occur with respect to AutoBond;
(ii) there shall have occurred an Event of Purchase Termination (as
such term is defined in the Loan Acquisition Agreement) under the Loan
Acquisition Agreement;
(iii) any Advance is outstanding hereunder in excess of 120 days;
(iv) an Funding Termination Event shall have occurred hereunder;
(v) the Borrower has received written notice from the Lender (or if
multiple Lenders, the Lenders in respect of a majority in aggregate
principal amount of the Advances) that the continuation of the activities
contemplated hereby may reasonably be expected to cause the Lender or any
of its Affiliates to suffer materially adverse regulatory, accounting or
tax consequences;
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provided, that the Borrower may require that the Lender deliver an Opinion
of Counsel or an opinion of a nationally recognized independent accounting
firm supporting the position of the Lender.
(c) Notwithstanding the foregoing, the Initial Lender may, in its sole
discretion, waive any requirement that the Borrower cease purchasing Auto Loans
from any Dealer or from AutoBond as required by this Section 10.15.
(d) Upon the termination of Auto Loan purchases from any Dealer or
AutoBond, AutoBond shall deliver to the Borrower written confirmation,
acknowledged by the Initial Lender, that such termination of Auto Loan purchases
from any Dealer or from AutoBond was required by the terms of this Agreement.
Section 10.16 Liens. The Borrower will not permit any Lien to exist on any
of its Properties, whether now owned or hereafter acquired, other than Permitted
Liens.
SECTION 11. CERTAIN COVENANTS OF AUTOBOND.
AutoBond covenants and agrees that so long as any Advances shall remain
unpaid:
Section 11.1 Existence. AutoBond will take and fulfill, or cause to be
taken and fulfilled, all actions and conditions necessary to preserve and keep
in full force and effect its existence, rights and privileges as a corporation
and will not liquidate or dissolve, and it will take and fulfill, or cause to be
taken and fulfilled, all actions and conditions necessary to qualify, and to
preserve and keep in full force and effect its qualification, to do business in
each jurisdiction in which the conduct of its business or the ownership or
leasing of its properties requires such qualification.
Section 11.2 Compliance with Law, etc. AutoBond will not (a) violate any
laws, ordinances, governmental rules or regulations to which it is or may become
subject or (b) fail to obtain or maintain any patents, trademarks, service
marks, trade names, copyrights, design patents, licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its Property or
to the conduct of its business.
Section 11.3 Payment of Taxes and Claims. AutoBond will pay and discharge
promptly, as and
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when due, all taxes, assessments and governmental charges and levies imposed
upon it, its income or profits or any of its properties; provided, however, that
the foregoing need not be paid while the same is being contested in good faith
by appropriate proceedings diligently conducted so long as:
(a) adequate reserves shall have been established in accordance with
generally accepted accounting principles with respect thereto; and
(b) the right of AutoBond, as the case may be, to use the particular
property shall not be materially and adversely affected thereby.
Section 11.4 Inspection. AutoBond will permit, upon reasonable notice to
it, the Lender, by its representatives, agents or attorneys, (a) to examine all
books of account, records, reports and other papers of AutoBond relevant to its
role as Administrator, (b) to make copies and take extracts from any thereof,
(c) to discuss the affairs, finances and accounts of AutoBond with its
respective officers and independent certified public accountants (and by this
provision AutoBond hereby authorizes said accountants to discuss with the Lender
the finances and accounts of AutoBond), and (d) to visit and inspect, at
reasonable times during normal business hours, the properties of AutoBond. It is
understood and agreed by the parties hereto that all reasonable expenses in
connection with any such inspection or discussion incurred by the Lender or
AutoBond, any officers and employees thereof and the independent certified
public accountants therefor shall be expenses payable by the Person making the
inspection or discussion.
Section 11.5 Consolidation and Merger. AutoBond will not merge into or
consolidate with any other Person (or permit any other Person to merge into or
consolidate with it), other than a merger into a wholly-owned subsidiary to
effect a reincorporation, or sell, transfer or otherwise dispose of all or
substantially all of its Properties to any Person unless (a) the surviving
corporation following any merger or consolidation expressly assumes the
obligations of AutoBond hereunder and under the other Program Documents and (b)
Fitch confirms in writing to the Lender that such merger, consolidation or sale
will not result in the reduction or withdrawal of its rating of the Note below
"A"; provided, however, that AutoBond may, without such consent, conduct a
private or public offering of its shares provided that no Change of Control
occurs with respect to AutoBond
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where William O. Winsauer is no longer its chief executive officer.
Section 11.6 Further Assurances. AutoBond will promptly execute and
deliver all further instruments and documents and take all further action that
may be necessary in order to give effect to the provisions of the Program
Documents and the transactions contemplated hereby.
Section 11.7 Independence. Until 367 days have elapsed following payment
and satisfaction of all obligations of the Borrower hereunder and in respect of
the Advances, AutoBond shall be required to (and shall assure that each other
Affiliate of AutoBond shall) observe the applicable legal requirements for the
recognition of the Borrower as a legal entity separate and apart from AutoBond
and each other Affiliate of AutoBond, including, without limitation, assuring
that each of the following is complied with:
(a) AutoBond and each other Affiliate of AutoBond shall maintain
separate records and books of account (each of which shall be sufficiently
full and complete to permit a determination of the assets and liabilities
of AutoBond or such Affiliate, as the case may be, separate and apart from
those of the Borrower and to permit a determination of the obligees
thereon and the time for performance on each of the obligations of
AutoBond or such Affiliate, as the case may be, separate and apart from
those of the Borrower) from those of the Borrower;
(b) neither AutoBond nor any of its other Affiliates shall commingle
any of its assets or funds with those of the Borrower;
(c) the board of directors of AutoBond shall not dictate decisions
with respect to the Borrower's business and daily operations and AutoBond
shall maintain its own corporate formalities and shall otherwise respect
the separate corporate identity of the Borrower;
(d) other than the making of capital contributions and the
transactions contemplated by the Loan Acquisition Agreement, neither
AutoBond nor any of its other Affiliates shall enter into any transactions
with the Borrower;
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(e) neither AutoBond nor any of its other Affiliates shall accept
appointment as, or act as, an agent of the Borrower except, to the extent
AutoBond performs certain origination, servicing and collection functions
pursuant to the Loan Acquisition Agreement and will not permit the
Borrower to act on its behalf as an agent;
(f) neither AutoBond nor any of its other Affiliates shall advance
funds to the Borrower (except for the making of capital contributions);
and neither AutoBond nor any of its other Affiliates will otherwise supply
funds to, or guarantee any obligation of, the Borrower;
(g) neither AutoBond nor any of its other Affiliates shall
guarantee, or otherwise become liable with respect to, any obligation of
the Borrower;
(h) AutoBond and each of its other Affiliates shall at all times
hold itself out to the public under its respective name as a legal entity
separate and distinct from the Borrower; and
(i) all financial reports prepared by AutoBond and each of its other
Affiliates shall comply with generally accepted accounting principles.
Section 11.8 Other Agreements. AutoBond shall perform its duties and
responsibilities, as set forth in Section 5, in compliance with all Program
Documents.
SECTION 12. INFORMATION TO BE FURNISHED TO LENDER.
Section 12.1 Information to be Furnished by the Borrower.
The Borrower will deliver or cause to be delivered to the Collateral Agent
and the Lender the following:
(a) promptly, and in any event within five (5) days thereafter,
notice of the institution of any suit, action or proceeding against the
Borrower which would, in the reasonable judgment of the Borrower, have a
materially adverse effect on the business, earnings, prospects, properties
or condition (financial or other) of the Borrower;
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(b) promptly, and in any event, within ten (10) days thereafter,
notice of any change in any law of which the Borrower has knowledge and
which could, in the reasonable judgment of the Borrower, have a material
adverse effect on the business, earnings, prospects, properties or
condition (financial or other) of the Borrower; provided, however, that
the Borrower shall have no obligation to investigate on an ongoing basis
as to the existence of any such law;
(c) promptly upon, and in any event within ten (10) days after, the
receipt thereof, copies of any notice of violation, order or other
document evidencing noncompliance with any environmental law which could,
in the reasonable judgment of the Borrower, have a materially adverse
effect on the business, earnings, prospects, properties or condition
(financial or other) of the Borrower;
(d) promptly, and in any event within five (5) days, after any
Executive Officer of the Borrower shall have obtained knowledge of any
Default or Event of Default, an Officer's Certificate from the Borrower
specifying the nature and period of existence thereof, what action the
Borrower has taken or is taking or proposes to take with respect thereto,
and an estimate of the time necessary to cure such condition or event;
(e) promptly upon the release or distribution thereof, copies of all
press releases and other written statements made available generally by
the Borrower to one or more financial news services concerning material
developments in the business of the Borrower; provided, however, that the
Borrower shall not issue any press releases or other written statements
without the prior written consent of the Initial Lender;
(f) promptly upon request therefor, such other data, filings and
information as the Lender may from time to time reasonably request; and
(g) On each Payment Date, a report as to the collection and payment
activities with respect to the Specified Sold Auto Loans during the
preceding Collection Period, in the form of Exhibit I hereto.
Section 12.2 Information to be Furnished by AutoBond. AutoBond shall
deliver or cause to be delivered to the Collateral Agent and the Lender the
following:
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(a) promptly, and in any event within five (5) days thereafter,
notice of the institution of any suit, action or proceeding against
AutoBond which would, in the reasonable judgment of AutoBond, have a
materially adverse effect on the business, earnings, prospects, properties
or condition (financial or other) of AutoBond;
(b) promptly, and in any event, within ten (10) days thereafter,
notice of any change in any law of which AutoBond has knowledge which
could, in the reasonable judgment of AutoBond, have a material adverse
effect on the business, earnings, prospects, properties or condition
(financial or other) of AutoBond; provided, however, that AutoBond shall
have no obligation to investigate on an ongoing basis as to the existence
of any such law;
(c) promptly upon, and in any event within ten (10) days after, the
receipt thereof, copies of any notice of violation, order or other
document evidencing noncompliance with any environmental law which could,
in the reasonable judgment of AutoBond have a materially adverse effect on
the business, earnings, prospects, properties or condition (financial or
other) of AutoBond;
(d) promptly, and in any event within five (5) days, after any
Executive Officer of AutoBond shall have obtained knowledge of any Default
or Event of Default, an Officer's Certificate from AutoBond specifying the
nature and period of existence thereof, what action AutoBond has taken or
is taking or proposes to take with respect thereto, and an estimate of the
time necessary to cure such condition or event;
(e) promptly upon the release or distribution thereof, copies of all
press releases and other written statements made available generally by
AutoBond to one or more financial news services concerning material
developments in the business of AutoBond; provided, however, that AutoBond
shall not issue any press releases or other written statements without the
prior written consent of the Initial Lender;
(f) promptly upon the termination of funding for a Dealer pursuant
to Section 10.15, a notice of such termination;
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(g) within 45 days following the end of each calendar quarter, a
copy of its unaudited interim financial statements as of the end of such
quarter and within 120 days following the end of each calendar year a copy
of its audited consolidated financial statements certified by an
Independent Public Accountant without material qualification;
(h) promptly upon request therefor, such other data, filings and
information as the Lender may from time to time reasonably request.
SECTION 13. DEFAULTS, REMEDIES AND TERMINATION.
Section 13.1 Events of Default; Amortization Events; Acceleration of
Advances. If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
(a) (i) any payment or prepayment of principal of any Advance shall
not be made as and when the same becomes due and payable, whether at
maturity (except to the extent such failure to pay constitutes an
Amortization Event), at a date fixed for prepayment, upon acceleration or
otherwise; or (ii) any payment of interest on any Advance (or any other
amount due hereunder or under any Note) shall not be made as and when the
same becomes due and payable; or (iii) failure to make any deposit when
due under the Security Agreement or under the Servicing Agreement, or (iv)
failure of AutoBond to repurchase any Auto Loans pursuant to Section
2.3(c) hereof; or
(b) the Borrower or AutoBond shall default in the due and punctual
performance of or compliance with any covenant, condition or agreement to
be performed or observed by it under Sections 10 or 11, respectively,
hereof and any such default shall continue unremedied for a period of
twenty (20) days after an Authorized Officer of the Borrower or AutoBond
obtains knowledge thereof; or
(c) the Borrower or AutoBond shall default in the due and punctual
performance of or compliance with any other material covenant, condition
or agreement to be performed or observed by it under any provision hereof
or any other Program Document which failure would have a material adverse
effect upon the Lender and which failure shall continue unremedied for
thirty (30) days
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after an Authorized Officer of the Borrower or AutoBond obtains knowledge
thereof; or
(d) any Lien created or intended to be created by the Security
Agreement shall cease to be a valid, fully perfected and enforceable Lien
prior to the rights of all Persons other than the Lender whether or not
such Persons have notice of any such Lien and, if curable, such failure
shall continue unremedied for thirty (30) days after an Authorized Officer
of the Borrower or AutoBond obtains knowledge thereof; or
(e) any representation, warranty, certification or statement of the
Borrower or AutoBond made or contained in any Program Document or in any
agreement, instrument, certificate, statement or other writing furnished
in connection herewith or therewith or pursuant hereto or thereto, shall
prove to have been false or inaccurate in any material respect on the date
as of which such representation or warranty was made and any such breach
shall continue unremedied for a period of thirty (30) days after an
Authorized Officer of the Borrower or AutoBond obtains knowledge thereof;
or
(f) a final judgment or judgments entered by a court or courts of
competent jurisdiction for the payment of money (other than such judgments
or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $25,000 in the aggregate shall be rendered
against the Borrower and shall remain in force unpaid, unbonded,
undismissed, undischarged and unstayed on appeal for a period of more than
thirty (30) days; or
(g) the Borrower shall institute proceedings for liquidation,
readjustment, arrangement or composition (or for any related or similar
purpose) under any law relating to financially distressed debtors, their
creditors or property, or shall consent to (or fail to object to in a
timely manner) the institution of any such proceedings against the
Borrower; or
(h) the Borrower shall be insolvent (within the meaning of any
applicable law), or shall be unable, or shall admit in writing its
inability, to pay its debts as they become due, or shall make an
assignment for the benefit of creditors or enter into any arrangement for
the adjustment or composition of debts or claims; or
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(i) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order (i) for the
appointment of a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of the Borrower or of any part of
its property, or for the winding-up or liquidation of its affairs; and
such decree or order shall remain in force undischarged and unstayed for a
period of more than sixty (60) days, or (ii) for the sequestration or
attachment of any material part of the property of the Borrower without
its unconditional return to the possession of the Borrower, or its
unconditional release from such sequestration or attachment, within sixty
(60) days thereafter; or
(j) a court or other governmental authority or agency having
jurisdiction in the premises shall enter a decree or order approving or
acknowledging as properly filed, or any party commences against the
Borrower, a petition or proceedings for liquidation, rehabilitation,
readjustment or composition (or for any related or similar purpose) under
any law relating to financially distressed debtors, their creditors or
property, and any such decree or order shall remain in force undischarged
and unstayed for a period of more than sixty (60) days; or
(k) the Borrower shall take action for the purpose or with the
effect of authorizing or confirming the taking or existence of any action
or condition specified in clause (i) or (j) above; or
(l) a default by the Collateral Agent in the performance of its
duties under the Security Agreement shall have occurred and be continuing
and such event shall not have been cured or such party replaced within
twenty (20) Business Days thereafter; or
(m) an Event of Collection Agent Termination or an Event of
Servicing Termination shall have occurred under the Servicing Agreement;
or
(n) AutoBond shall at any time cease to own, directly or indirectly,
at least 100% of the outstanding shares of common stock of the Borrower;
then
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(I) upon the occurrence and continuance of any of the Events
of Default set forth in clauses (g) through (k), inclusive, of this
Section 13.1, the unpaid principal amount of the Advances shall
automatically become due and payable, together with interest accrued
thereon, without presentment, demand, protest or any notice, all of
which are expressly hereby waived;
(II) upon the occurrence and continuance of any Event of
Default set forth in clause (a) of this Section 13.1, any Lender
may, by written notice to the Borrower (with a copy to the
Collateral Agent), declare the Advances held by it to be due and
payable, whereupon the same shall mature and become due and payable,
together with interest accrued thereon and fees in respect thereof,
without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived;
(III) upon the occurrence and continuance of any of the Events
of Default set forth in clauses (a) through (n), inclusive, of this
Section 13.1, the Lender (or, if multiple Lenders, Lenders with
respect to a majority of the aggregate unpaid principal amount of
the Advances) may by written notice or notices to the Borrower (with
a copy to the Collateral Agent) declare all of the Advances to be
due and payable, whereupon the same shall mature and become due and
payable, together with interest and fees accrued thereon, without
presentment, demand, protest or any other notice, all of which are
hereby waived; and
(IV) upon the occurrence and continuance of any Event of
Default, the Initial Lender shall no longer be obligated to make
additional Advances hereunder.
Section 13.2 Default Remedies. If an Event of Default shall occur and be
continuing, the Lender may, or the Lenders in respect of a majority in aggregate
principal amount of the Advances outstanding may instruct the Collateral Agent
to, exercise any right, power or remedy permitted to it by law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or agreement contained in the Program Documents or in the Note or for
an injunction against a violation of any of the terms of the Program Documents
or such Advance or
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in aid of any exercise of any power granted to such Lender or to the Collateral
Agent in the Program Documents or in such Advance, or may proceed to enforce
payment of such Advance or to enforce any other legal or equitable right of the
Lender. No remedy herein or in the Security Agreement conferred upon the Lender
or the Collateral Agent is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law, in equity, by
statute or otherwise. No course of dealing on the part of the Lender or the
Collateral Agent, or any delay or failure on the part of the Lender or the
Collateral Agent to exercise any right or power, shall operate as a waiver of
such right or power or otherwise prejudice the rights, powers and remedies of
the Lender or the Collateral Agent or of any other Lender or the Collateral
Agent. No failure to insist upon strict compliance with any covenant, term,
condition or other provision of the Program Documents or the Note shall
constitute a waiver by the Lender or the Collateral Agent of any such covenant,
term, condition or other provision or of any Default or Event of Default in
connection therewith. To the extent effective under applicable law, the Borrower
hereby agrees to waive, and does hereby absolutely and irrevocably waive and
relinquish, the benefit and advantage of any valuation, stay, appraisement,
extension or redemption laws now existing or that may hereafter exist that, but
for this provision, might be applicable to any sale made under any judgment,
order or decree of any court, or otherwise, based on the Advances or on any
claim for interest and fees in respect of the Advances. If an Event of Default
shall occur, and be continuing, the Borrower will pay to the Lender or the
Collateral Agent, to the extent not prohibited by applicable law and not paid in
accordance with the Security Agreement, such further amount as shall be
sufficient to cover the reasonable costs and expenses of collection and of the
taking of remedial actions and the maintenance of enforcement proceedings,
including, without limitation, reasonable and necessary attorneys' fees and
disbursements.
Section 13.3 Notice of Default. If the Lender or the Collateral Agent
shall give any notice or take any other action with respect to a claimed
default, the Borrower shall forthwith give written notice thereof to the
Collateral Agent, the Lender and all Assignees describing the notice or action
and the nature of the claimed default.
Section 13.4 Annulment of Acceleration of Advances. If notice is delivered
pursuant to clause (III)
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of Section 13.1 hereof, then the Lender (or, if multiple Lenders, the Lenders
with respect to at least sixty-six and two-thirds percent (66-2/3%) of the
aggregate unpaid principal amount of the Advances) may, in respect of all of the
Advances, by written instrument filed with the Borrower (with a copy to the
Collateral Agent), rescind and annul the declaration delivered pursuant to
clause (III) of Section 13.1 and the consequences thereof or of such Event of
Default pursuant to this Agreement; provided, however, that at the time of any
such annulment and rescission:
(a) no judgment or decree shall have been entered for payment of any
monies due pursuant to the Advances or this Agreement and no action shall
have been taken pursuant to the Security Agreement which may not then be
waived, rescinded or annulled;
(b) all arrears of principal and interest upon all the Advances and
all other sums payable in respect of the Advances and to the Lender under
the Program Documents (including reasonable costs and expenses of the
Lender incurred in connection with such notice under Section 13.1 hereof
or annulment under this Section 13.4, but excluding any principal or
interest on the Advances or any fees in respect thereof that shall have
become due and payable by reason of such notice under Section 13.1 hereof
or happening of such Event of Default) shall have been duly paid; and
(c) each and every other default hereunder and Event of Default
shall have been duly waived or cured; and
provided, further, that there shall not be waived, without the consent of the
Lender, an Event of Default resulting from a violation or failure to comply with
any provision of the Security Agreement the amendment of which, under the
provisions thereof, would require the consent of the Lender to be affected
thereby; and, provided, further, that no such rescission and annulment shall
extend to or affect any subsequent default or Event of Default or impair any
right or power consequent thereon.
Section 13.5 Remedies Upon Occurrence of an Amortization Event. Upon the
occurrence and continuance of an Amortization Event, the unpaid principal amount
of the related Advance shall automatically become due and payable, together with
interest accrued thereon, without presentment, demand, protest or any notice,
all of which are expressly
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hereby waived and the Initial Lender shall no longer be obligated to make
additional Advances hereunder.
SECTION 14. INTERPRETATION OF AGREEMENT AND NOTES.
Section 14.1 Definitions. Except as the context shall otherwise require,
the following terms shall have the following meanings for all purposes of this
Agreement (the definitions to be applicable to both the singular and the plural
form of the terms defined, where either such form is used in this Agreement):
The term "Account Receivable" shall mean, with respect to any
Person, any right of such Person to the payment of money arising out of
the sale, lease or other disposition of goods or merchandise or the
rendering of services by such Person, determined in accordance with
generally accepted accounting principles.
The term "Advances" means the advances provided for by Section 1.1.
The term "Affiliate," with respect to any Person (hereinafter "such
Person"), shall mean any other Person which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under
common control with, such Person or another Affiliate of such Person. The
term "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or
otherwise.
The term "Aggregate Net Weighted Average APR" with respect to any
Collection Period shall mean the percentage derived by (a) dividing (i)
the sum of the product for each Specified Sold Auto Loan of (A) its stated
annual percentage rate, (B) its Unpaid Principal Balance and (C) the
number of days during such Collection Period that such Specified Sold Auto
Loan was outstanding, divided by the number of days in such Collection
Period, divided by (ii) the sum of the Principal Balance and (B) the
number of days during such outstanding, divided by the number of days in
such Collection Period, and (b) subtracting from such Percentage the
Monthly Servicing Fee Percentage.
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The term "Amortization Event" shall mean the failure by the Borrower
to pay any Advance on or prior to such Advance's Maturity Date.
The term "APR" shall mean the annual percentage rate of an Auto Loan
as determined according to the related contractual documents with the
Obligor thereof.
The term "Assignee" shall have the meaning set forth in Section
9.1(b).
The term "Authorized Officer" means, with respect to AutoBond or the
Borrower, any officer of AutoBond or the Borrower, as the case may be, who
is authorized to act for AutoBond or the Borrower, as the case may be, in
matters relating to transactions contemplated by this Agreement.
The term "Auto Loan" means a fixed-rate, fully amortizing,
closed-end installment loan (bearing interest calculable on a simple
interest basis or based upon the Rule of 78s, as set forth in Section 2(m)
of the Loan Acquisition Agreement) arising from the sale of a new or used
automobiles and light-duty trucks to a consumer which includes, without
limitation, (i) all security interests or liens and property subject
thereto from time to time purporting to secure payment by the obligor
thereunder, including, without limitation, AutoBond's rights under the
related dealer agreement, (ii) all guarantees, indemnities and warranties,
insurance policies, certificates of title and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of such loan, (iii) all collections and records with
respect to the foregoing and (iv) all proceeds of any of the foregoing.
The term "AutoBond" shall mean AutoBond Acceptance Corporation, a
Texas corporation.
The term "AutoBond Program Criteria" shall mean the AutoBond Program
Criteria set forth in the Program Manual.
The term "Available Facility Amount," on any date of determination,
shall mean the sum of (a) $20,000,000 minus (b) the aggregate Advances
outstanding on such day.
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The term "Board" shall mean, with respect to any Person, its board
of directors or, if it does not have a board of directors, its governing
body which performs the same duties as a board of directors.
The term "Borrowing Notice" shall have the meaning set forth in
Section 1.3 hereof.
The term "Business Day" shall mean any day other than a Saturday or
a Sunday, or another day on which commercial banks in the States of
Kentucky, Minnesota, New York or Texas (or in any other state in which the
Servicer or any Agent is located) are required, or authorized by law, to
close or, for purposes of calculating interest on the Advances, on which
commercial banks are not open for domestic and foreign exchange business
in New York, New York and London, England (as specified in writing from
time to time by the Borrower or an Agent).
The term "Capital Lease" shall mean any lease or other agreement for
the use of property which is required to be capitalized on a balance sheet
of the lessee or other user of property in accordance with generally
accepted accounting principles.
The term "Change of Control" shall mean (a) any transaction or
series of transactions by which AutoBond shall merge or consolidate into
any other Person or lease or sell substantially all of its and its
subsidiaries' assets (other than Auto Loan sales in the ordinary course of
business in connection with whole loan sales or securitizations)
substantially as an entirety to any other Person or by which any Person or
group (within the meaning of Rule 13d-5 under the Securities Exchange Act
of 1934) acquires, directly or indirectly, 51% or more of AutoBond's
outstanding voting stock (calculated on a fully-diluted basis); or (b) an
event as a result of which William O Winsauer ceases for any reason to be
AutoBond's Chairman and Chief Executive Officer, or Adrian Katz ceases for
any reason to be AutoBond's Vice Chairman and Chief Operating Officer and
such officer is not replaced within 60 days from the date of such event
with a Chairman and Chief Executive Officer or Vice Chairman and Chief
Operating Officer, as the case may be, acceptable to the Lenders holding
51% of the aggregate unpaid principal amount of Advances outstanding.
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The term "Closing Date" shall have the meaning set forth in Section
1.2 hereof.
The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute, together with the
rules and regulations thereunder.
The term "Collateral" shall have the meaning set forth in the
Security Agreement.
The term "Collateral Account" shall have the meaning set forth in
the Security Agreement.
The term "Collateral Agent" shall have the meaning set forth in
Section 1.5 hereof.
The term "Collection Period" shall mean each calendar month;
provided, however, the initial Collection Period shall be the period from
the Closing Date to May 31, 1996.
The term "Commitment" shall mean the obligation of the Initial
Lender to make Advances in an aggregate amount at any one time outstanding
up to but not exceeding $20,000,000.
The term "Dealer" shall mean each automobile dealer with whom
AutoBond has entered into a Dealer Agreement.
The term "Dealer Agreement" shall mean each agreement between
AutoBond and a Dealer, which provides for, among other things, origination
of the Auto Loans and attached as an exhibit to the AutoBond Program
Manual.
The term "Default" shall mean any event or condition that would
become an Event of Default after notice or passage of time or both.
The term "Defaulted Auto Loan" shall mean an Auto Loan which by its
terms has more than 10% of any installment of principal or interest which
is 60 or more days contractually past due.
The term "Delinquency Ratio" shall mean as of any Determination
Date, the percentage equivalent of a fraction (a) the numerator of which
equals the sum of (i) the aggregate Unpaid Principal Balance of Specified
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Sold Auto Loans which have become Defaulted Auto Loans as of the end of
the most recently ended Collection Period minus (ii) the sum of the
aggregate Unpaid Principal Balance of (A) all Specified Sold Auto Loans
against which insurance claims have been filed as of the end of the most
recently ended Collection Period and (B) Specified Sold Auto Loans for
which the related financed vehicles are subject to repossession as of the
end of the most recently ended Collection Period and which are not
included in (A), and (b) the denominator of which equals the aggregate
Unpaid Principal Balance of Specified Sold Auto Loans outstanding as of
the end of the most recently ended Collection Period minus the amount
determined pursuant to clause (ii) above.
The term "Determination Date" shall mean the 10th day of each month
(or the immediately preceding Business Days if such day is not a Business
Day).
The term "Disposition" shall mean any pooling or disposition of
Specified Sold Auto Loans by the Borrower, either (a) in
structured-finance securitization transactions, (b) pursuant to whole-loan
sales or (c) in some other form of disposition.
The term "Dollars" or "$" shall mean the lawful currency of the
United States of America, and in relation to any payment under this
Agreement, same day or immediately available funds.
The term "Eligible Auto Loan" shall mean any Auto Loan as to which
the representations and warranties set forth in Section 2.3(a) are true
and correct as of the related Closing Date.
The term "Eligible Dealer" shall mean a franchised Dealer (a) duly
licensed and authorized as a dealer in new or used Automobiles by
Governmental Authorities, (b) as to which AutoBond has performed an
investigation in accordance with the customary and usual standards of
consumer finance companies, and (c) as to which AutoBond has not received
notice from the Borrower that such Dealer has ceased to be an Eligible
Dealer in accordance with the provisions of the Loan Acquisition
Agreement; provided that any Dealer which fails to qualify as an Eligible
Dealer may be deemed an Eligible Dealer with the written consent of the
Initial Lender.
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The term "Event of Collection Agent Termination" shall have the
meaning assigned thereto in Section 3.07 of the Servicing Agreement.
The term "Event of Default" shall have the meaning assigned thereto
in Section 13.1 hereof.
The term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
The term "Executive Officer" with respect to a Person shall mean the
Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer.
The term "Fitch" shall mean Fitch Investors Service, L.P.
The term "Financing Statement" shall have the meaning set forth in
Section 3.8 hereof.
The term "Funding Termination Event" shall have occurred if Fitch
shall have indicated in writing that it has reduced or withdrawn its
rating of the Note below "A".
The term "generally accepted accounting principles" shall mean, as
of the date of any determination with respect thereto, generally accepted
accounting principles as understood and applied in the United States at
the time in question.
The term "Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
The term "Guarantee," with respect to any Person, shall mean all
obligations of such Person guaranteeing or in effect guaranteeing any
Indebtedness (including, without limitation, liability in respect of a
joint venture or a partnership), dividend or other obligation or
Investment of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including obligations incurred through an
agreement, contingent or otherwise, by such Person (a) to purchase such
Indebtedness, obligation or Investment or any property or assets
constituting security therefor, (b) to advance or supply funds (i) for the
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purchase or payment of such Indebtedness, obligation or Investment or (ii)
to maintain working capital or equity capital, or otherwise to advance or
make available funds for the purchase or payment of such Indebtedness,
obligation or Investment, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of such Indebtedness,
obligation or Investment of the ability of the primary obligor to make
payment of such Indebtedness, obligation or Investment, or (d) otherwise
to assure the owner of such Indebtedness, obligation or Investment against
loss in respect thereof.
The terms "hereof," "herein," "hereunder" and other words of similar
import shall be construed to refer to this Agreement as a whole and not to
any particular Section or other subsection.
The term "Increased Cost" shall have the meaning set forth in
Section 1.6(d) hereof.
The term "Indebtedness," with respect to any Person, shall mean all
items (other than capital stock, capital surplus, retained earnings and
deferred credits and deferred income taxes), which in accordance with
generally accepted accounting principles would be included in determining
total liabilities as shown on the liability side of a balance sheet as at
the date on which Indebtedness is to be determined. The term
"Indebtedness" shall also include, whether or not so reflected, (a)
indebtedness, obligations and liabilities secured by any Lien on property
of such Person, whether or not the indebtedness secured thereby shall have
been assumed by such Person, (b) all obligations of such Person in respect
of Capital Leases, and (c) all Guarantees.
The term "Indemnifying Party" shall have the meaning set forth in
Section 15.1 hereof.
The term "Independent Accountant" shall have the meaning set forth
in Section 1.6 hereof.
The term "Independent Public Accountant" shall mean any of (a)
Arthur Andersen & Co., (b) Deloitte & Touche, (c) Coopers & Lybrand, (d)
Ernst & Young, (e) KMPG Peat Marwick and (f) Price Waterhouse (and any
successors thereof); provided, that such firm is independent with respect
to the Borrower or AutoBond,
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as the case may be, within the meaning of the Securities Act of 1933, as
amended.
The term "Initial Closing Date" shall have the meaning set forth in
Section 1.2 hereof.
The term "Initial Lender" shall mean, subject to Section 7.3,
Peoples Security Life Insurance Company.
The term "Insurance Policies" shall mean the VSI Policy and the
Credit Endorsement issued thereunder by Interstate to AutoBond (the
benefits of which have been assigned to the Collateral Agent as security
for the Note) and naming the Collateral Agent as additional named insured.
The term "Interest Period" shall mean, with respect to any Payment
Date, the immediately preceding calendar month, or with respect to the
initial Interest Period, from and including the Closing Date upon which
such Advance was made to and including May 31, 1996.
The term "Interest Rate" shall mean, for any Interest Period, LIBOR
plus 2.60%; provided, however, that in no event shall the Interest Rate be
less than 7.60% or greater than 11%.
The term "Investment" shall mean any loan, advance, extension of
credit (except for accounts and notes receivable for merchandise sold or
services furnished in the ordinary course of business, and amounts paid in
advance on account of the purchase price of merchandise to be delivered to
the payor within one year of the date of the advance), or purchase of
stock, notes, bonds or other securities or capital contribution to any
Person, whether in cash or other property. The amount of any Investment
shall be its cost (the amount of cash or the fair market value of other
property given in exchange therefor).
The term "Lender" shall mean the Initial Lender and any Assignees
thereof.
The term "LIBOR" shall mean the per annum rate for deposits in
United States dollars for a period of one month which appears on Telerate
Page 3750 as of 11:00 a.m., London time, on the related LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750 on
such day, the rate will be determined on the basis of the rates at which
deposits in United States
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dollars are offered by the Reference Banks at approximately 11:00 a.m.,
London time, on such day to prime banks in the London interbank market for
a period of one month commencing on that day. The Collateral Agent will
request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the
quotations. If fewer than two quotations are provided as requested, the
rate for that day will be the arithmetic mean of the rates quoted by two
or more major banks in New York City, selected by the Collateral Agent,
in its sole discretion at approximately 11:00 a.m., New York City time, on
that day for loans in United States dollars to leading European banks for
a period of one month.
The term "LIBOR Determination Date" shall mean the second Business
Day prior to the commencement of each Interest Period; provided that with
respect to the first Interest Period such date shall be the second
Business Day prior to the Initial Closing Date.
The term "Lien" shall mean any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, civil
law, statute, civil code or contract, whether or not such interest shall
be recorded or perfected and whether or not such interest shall be
contingent upon the occurrence of some future event or events or the
existence of some future circumstance or circumstances, and including the
lien, privilege, security interest or other encumbrance arising from a
mortgage, deed of trust, hypothecation, cession, transfer, assignment,
pledge, adverse claim or charge, conditional sale or trust receipt, or
from a lease, consignment or bailment for security purposes. The term
"Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and
other title exceptions and encumbrances affecting property. For the
purposes of this Agreement, a Person shall be deemed to be the owner of
any property that such Person shall have acquired or shall hold subject to
a conditional sale agreement or other arrangement (including a leasing
arrangement) pursuant to which title to the property shall have been
retained by or vested in some other Person for security purposes.
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The term "Loan Acquisition Agreement" shall mean the Loan
Acquisition, Sale and Contribution Agreement dated as of May 21, 1996
between the Borrower and AutoBond pursuant to which the Borrower agrees to
acquire Eligible Auto Loans, as from time to time further amended,
supplemented or modified.
The term "Loan Acquisition Price" shall have the meaning set forth
in the Security Agreement.
The term "Loan Purchase Account" shall have the meaning set forth in
the Security Agreement.
The term "Maturity Date" in respect of any Advance shall mean the
earlier to occur of (a) the date that is 120 days after the date of such
Advance and (b) December 27, 1996 or such later date to which the Borrower
and the Lender agree.
The term "Minimum Assignment Denomination" shall mean $500,000.
The term "Monthly Servicer Fee" shall have the meaning specified in
the Security Agreement.
The term "Moody's" shall mean Moody's Investors Service, Inc.
The term "Net Loss Ratio" means, as of any Determination Date, the
percentage equivalent of a fraction (a) the numerator of which equals (i)
the Net Unrealized Amounts on Auto Loans that became subject to
repossession during the most recently ended Collection Period, plus (ii)
any adjustments (which may be positive or negative) to Net Unrealized
Amounts from a prior period and not reflected, and (b) the denominator of
which equals the average aggregate Unpaid Principal Balance of Auto Loans
outstanding during the most recently ended Collection Period.
The term "Net Payoff Balance" means, in respect of any Precomputed
Auto Loans, the net payoff less any accrued but unpaid late charges, as
determined in accordance with the worksheet attached hereto as Schedule 2.
The term "Net Principal Balance" means, with respect to any
Precomputed Auto Loan, the Net Payoff Balance as of the due date of the
last full Scheduled
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Payment, or if more recent, the due date of the last periodic payment of
principal thereon.
The term "Net Unrealized Amount" means, (a) with respect to any Auto
Loan which is more than 90 days contractually past due or where the
Financed Vehicle is otherwise subject to repossession (including voluntary
or involuntary, or upon casualty), the Unpaid Principal Balance of such
Auto Loan minus the sum of (i) any repossession proceeds allocable to
principal actually received on such Auto Loan, (ii) any insurance proceeds
allocable to principal actually received from a claim with respect to such
Auto Loan and (iii) refunds received from the cancellation of any
insurance policies or service contracts with respect to such Auto Loan,
and (b) with respect to any Auto Loan where the related Obligor is in
bankruptcy, the amount of losses allocable to principal incurred thereon.
The term "Net Weighted Average Excess Spread" with respect to any
Interest Period shall mean (a) the Aggregate Net Weighted Average APR,
minus (b) the greater of (i) LIBOR for such Interest Period plus 2.6% and
(ii) the Two Year Treasury Rate as of the first day of the interest period
plus 1.35%.
The term "Nondefaulted Auto Loan" shall mean an Auto Loan which is
not a Defaulted Auto Loan.
The term "Non-recourse Indebtedness" means Indebtedness as to which
the Borrower is obligated only to the extent of the cash flow from a
designated asset pool pledged to secure such Indebtedness.
The term "Note(s)" shall have the meaning set forth in Section
1.2(b) hereof and shall include any subdivision of the Note issued in
accordance with Section 1.2(c).
The term "Obligor" shall mean, with respect to any Auto Loan, the
Person primarily obligated to make payments in respect thereto.
The term "Officer's Certificate" (i) with respect to the Collateral
Agent, any officer within the structured capital division (or any
successor thereof) including any vice president, assistant vice president,
or any officer or assistant officer of the Collateral Agent customarily
performing functions similar to those performed by any of the
above-designated officers and
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(ii) with respect to AutoBond, the Collateral Agent, the Servicer or the
Borrower shall mean a certificate executed on behalf of such party by the
Chairman of the Board, the President or any Vice President of the relevant
entity.
The term "Payment Date" shall mean the 15th day of each month (or,
if such day is not a Business Day, the next succeeding Business Day)
commencing June 15, 1996.
The term "Permitted Investments" shall mean the following
Investments to be held in an account of the Borrower at the Collateral
Agent:
(a) certificates of deposit with final maturities of one (1) year
or less issued by banks or trust companies organized under the
laws of the United States of America or any state thereof and
having unsecured long-term debt rated "A" or better by S&P or
"A-2" or better by Moody's provided, however, that any such
certificates of deposit that are rated by both such rating
agencies shall be rated "A" or better by S&P and "A-2" or
better by Moody's;
(b) commercial paper of corporations organized under the laws of a
jurisdiction within the United States of America maturing not
more than two hundred seventy (270) days from the date of
issuance thereof and rated "A-1" or better by S&P or "P-1" or
better by Moody's without regard to maturity; provided,
however, that any such commercial paper that is rated by both
such rating agencies shall be rated "A-1" or better by S&P and
"P-1" or better by Moody's;
(c) direct obligations issued or unconditionally guaranteed by the
United States of America or any agency thereof and maturing
within one (1) year from the date of acquisition thereof;
(d) debt securities of corporations organized under the laws of a
jurisdiction within the United States of America (i) with a
maturity of one (1) year or less and rated "A" or better by
S&P or "A-2" or better by Moody's; provided, however, that any
such debt
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security that is rated by both such rating agencies shall be
rated "A" or better by S&P and "A-2" or better by Moody's; and
(e) money market funds having ratings in the highest or second
highest available rating category of S&P and Moody's at the
time of such investment which invest only in other Permitted
Investments; any such money market funds which provide for
demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Permitted Investments set forth in
this Agreement.
Any Permitted Investments may be purchased by or through the Collateral
Agent or any of its Affiliates.
The term "Permitted Liens" shall mean:
(a) Liens created under the Security Agreement;
(b) Liens securing taxes, assessments, governmental charges or
levies not yet due or the payment of which is not then required by
Section 10.6 hereof;
(c) any Lien which is a mechanics lien assessed against an
Automobile securing a Sold Auto Loan; and
(d) Liens securing Non-recourse Indebtedness.
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
estate, unincorporated organization or government (or any agency or
political subsection thereof).
The term "Precomputed Auto Loan" shall mean any Auto Loan under
which earned interest (which may be referred to in the Auto Loan as the
add-on finance charge) and principal is determined according to the sum of
periodic balances or the sum of monthly balances or the sum of the digits
or any equivalent method commonly referred to as the "Rule of 78s".
The term "Program Documents" shall mean this Agreement, the Security
Agreement, the Servicing
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Agreement, the Lockbox Agreement, the Sale Assignments, the Note and the
Loan Acquisition Agreement.
The term "Program Manual" shall mean the AutoBond Program
Administration Manual in effect as of the date hereof, as modified from
time to time.
The term "Property" shall mean any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or intangible.
The term "Purchase Price" shall have the meaning set forth in the
Loan Acquisition Agreement.
The term "Reference Banks" shall mean four major banks in the London
interbank market selected by the Collateral Agent.
The term "Repurchase Price" shall mean, with respect to any Sold
Auto Loan which AutoBond is obligated to repurchase, an amount equal to
(a) the Unpaid Principal Balance of such Sold Auto Loan as of the end of
the preceding Collection Period, plus (b) accrued and unpaid interest in
respect thereof calculated at the [related APR] from the last day to which
interest has been paid and credited to the Lockbox or Collateral Account
through the last day of such Collection Period, minus (iii) the amount of
any principal deposited in the Lockbox or the Collection Account in
respect of such Auto Loan since the end of such Collection Period.
The term "Repurchase Requirement" shall have the meaning specified
in Section 2.3 hereof.
The term "Requirement of Law" shall mean, as to any Person, any law,
treaty, rule or regulation, or determination of an arbitrator or
Governmental Authority, in each case applicable to or binding upon such
Person or to which such Person is subject, whether federal, state or local
(including, without limitation, usury laws, the federal Truth in Lending
Act and Regulation Z and Regulation B of the Board of Governors of the
Federal Reserve System).
The term "Restricted Investment" shall mean any Investment other
than a Permitted Investment.
The term "Securities" shall mean, with respect to any Person, any
shares of any class of such Person's
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capital stock, or any options or warrants to purchase its capital stock or
other security exchangeable for or convertible into its capital stock.
The term "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
The term "Security Agreement" shall have the meaning set forth in
Section 1.5 hereof.
The term "Security Interest" shall mean the security interest and
rights created under the Security Agreement in the Collateral in favor of
the Lender.
The term "Selling Dealer" shall mean with respect to each Sold Auto
Loan, the Dealer that sold such Sold Auto Loan to AutoBond.
The term "Servicer" means CSC Logic/MSA L.L.P., doing business as
"Loan Servicing Enterprises", a Texas limited liability partnership, in
its capacity as servicer under the Servicing Agreement.
The term "Servicer Report" shall have the meaning set forth in the
Servicing Agreement.
The term "Servicing Agreement" shall mean the Servicing Agreement,
dated as of May 21, 1996 among the Borrower, AutoBond, the Collateral
Agent and the Servicer.
The term "Solvent" shall mean, with respect to any Person, that:
(a) the Properties of such Person, at a fair valuation, exceed the
total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of such Person;
(b) based on current projections, which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect such Person's judgment based on present circumstances of the most
likely set of conditions and such Person's most likely course of action
for the period projected, such Person believes it has sufficient cash flow
to enable it to pay its debts as they mature; and
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(c) such Person does not have an unreasonably small capital with
which to engage in its anticipated business.
The "fair valuation" of the Properties of any Person shall be
determined on the basis of the amount which may be realized within a reasonable
time, either through collection or sale of such assets at the regular market
value, conceiving the latter as the amount which could be obtained for the
property in question within such period by a capable and diligent businessman
from an interested buyer who is willing to purchase under ordinary selling
conditions.
The term "S&P" shall mean Standard & Poor's Ratings Group.
The term "Specified Sold Auto Loan" shall mean each Sold Auto Loan
pledged by the Borrower to the Collateral Agent under the Security
Agreement as security for its obligations hereunder and under the
Security Agreement.
The term "Subsequent Closing Date" shall have the meaning set forth
in Section 1.2 hereof.
The term "Successor Servicer" shall have the meaning set forth in
the Servicing Agreement.
The term "Telerate Page 3750" shall mean the display page so
designated on the Dow Jones Telerate Service (or such other page as may replace
that page on that service for the purpose of displaying comparable rates or
prices).
The term "this Agreement" shall mean this Credit Agreement
(including the annexed Exhibits and Schedules), as it may from time to
time be amended, supplemented or modified in accordance with its terms.
The term "Unpaid Principal Balance" means, with respect to any Auto
Loan as of any Determination Date, (i) for an Auto Loan bearing interest
calculable on a simple interest basis, the unpaid principal amount for
such Auto Loan or (ii) for a Precomputed Auto Loan, the Net Principal
Balance, in each case as of the end of the most recent Collection Period;
provided that, for any Auto Loan where the Net Unrealized Amount equals
the Unpaid Principal Balance, such Unpaid Principal Balance shall
thereafter equal zero (other than for purposes of calculating the Net
Unrealized Amounts).
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The term "Unused Facility Amount" means $20,000,000 minus the
aggregate principal amount of all outstanding Advances.
The term "VSI Policy" shall mean the Vendor's Single Interest
Insurance Policy, including the Credit Endorsement, issued by Interstate
Fire & Casualty Company, insuring against risk of physical damage or other
losses on the Financed Vehicles.
Section 14.2 Directly or Indirectly. Any provision in this Agreement
referring to action to be taken by any Person, or that such Person is prohibited
from taking, shall be applicable whether such action is taken directly or
indirectly by such Person.
Section 14.3 Accounting Terms. All accounting terms used herein that are
not otherwise expressly defined shall have the respective meanings given to them
in accordance with generally accepted accounting principles at the particular
time.
Section 14.4 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
Section 14.5 Headings. The headings of the Sections and other subsections
of this Agreement have been inserted for convenience of reference only and shall
not affect the meaning of this Agreement.
Section 14.6 Independence of Covenants, etc. Each representation, covenant
or Event of Default herein shall be given independent effect so that if any
action or condition would violate any of such covenants, would breach any of
such representations or would constitute any of such Events of Default, the fact
that such action or condition would not violate or breach, any other covenant or
representation or constitute another Event of Default shall not avoid the
violation of such covenant or representation or the occurrence of such Event of
Default.
SECTION 15. INDEMNIFICATION AND FUNDING LOSSES.
Section 15.1 Indemnification. (a) The Borrower and AutoBond, jointly and
severally, agree to indemnify and hold harmless the Lender, the directors,
officers, employees and agents of the Lender and each Person who controls the
Lender within the meaning of the Securities Act or the
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Securities Exchange Act from and against any and all claims, damages, losses,
liabilities, costs or expenses (including reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which any of them may become subject to the
extent that any such claims, damages, losses, liabilities, costs or expenses are
attributable to the transactions contemplated herein, including, without
limitation, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise; provided, that the
Borrower and AutoBond shall not be liable to the Lender for any (i) losses
incurred by the Lender in its capacity as a Lender with respect to the Advances,
(ii) losses incurred by the Lender as a result of breaches by the Lender of any
of its obligations hereunder or under any of the other Program Documents, the
fraudulent actions, misrepresentations, negligence or willful misconduct of the
Lender or (iii) losses, claims, damages, liabilities and expenses arising out of
the imposition by any taxing authority of any federal income, state or local
income or franchise taxes, or any other taxes imposed on or measured by gross or
net income, gross or net receipts, capital, net worth and similar items
(including any interest, penalties or additions with respect thereto) upon the
Lender (including any liabilities, costs or expenses with respect thereto). The
foregoing is in addition to any rights (including without limitation rights to
indemnity) to which the Lender may otherwise be entitled.
(b) Promptly after receipt by the Lender of notice of the commencement of
any action, the Lender shall, if a claim in respect thereof is to be made
against the Borrower or AutoBond (each, an "Indemnifying Party") under this
Section 15.1, notify the Indemnifying Party in writing of the commencement
thereof; but the omission so to notify the Indemnifying Party will not relieve
it from any liability which it may have to the Lender except to the extent such
Indemnifying Party is prejudiced thereby. In case any action is brought against
the Lender, and it notifies the Indemnifying Party of the commencement thereof,
the Indemnifying Party will be entitled to appoint counsel satisfactory to such
Indemnifying Party (who shall not, except with the consent of the Lender, be
counsel to the Borrower or AutoBond) to represent the Lender in such action;
provided, however, that, if the defendants in any action include both the Lender
and an Indemnifying Party and the Lender shall have reasonably concluded that
there may be legal defenses available to it which are different from or
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additional to those available to the Indemnifying Party, the Lender shall have
the right to select separate counsel to defend such action on behalf of it. Upon
receipt of notice from the Indemnifying Party to the Lender of its election so
to appoint counsel to defend such action and approval by the Lender of such
counsel, the Indemnifying Party will not be liable to the Lender under this
Section 15.1 for any legal or other expenses subsequently incurred by the Lender
in connection with the defense thereof unless (i) the Lender shall have employed
separate counsel in accordance with the proviso to the next preceding sentence,
(ii) the Indemnifying Party shall not have employed counsel satisfactory to the
Lender to represent the Lender within a reasonable time after notice of
commencement of the action or (iii) the Indemnifying Party has authorized the
employment of counsel for the Lender at the expense of the Indemnifying Party;
and except that, if clause (i) or (iii) is applicable, such liability shall be
only in respect of the counsel referred to in such clause (i) or (iii).
(c) If the indemnification provided for in this Section 15.1 is
unavailable or insufficient to hold harmless the Lender under subsection (a) or
(b) above, then the Indemnifying Parties shall contribute to the amount paid or
payable by the Lender as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying
Parties on the one hand and the Lender on the other from the transactions
contemplated by this Agreement 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 Indemnifying Parties on the one hand and the
Lender on the other in connection with the actions or omissions which resulted
in such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The Lender and the Indemnifying Parties agree that it
would not be just and equitable if contributions pursuant to this subsection (c)
were to be determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in the first sentence of this subsection (c). The amount payable by the
Indemnifying Parties as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (c) shall be deemed to
include any legal or other expenses reasonably incurred by the Lender in
connection with investigating or defending any action or claim which is the
subject of this subsection (c). No
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person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(d) The obligations of the Indemnifying Parties and the Lender under this
Section 15.1 shall be in addition to any liability which each of them may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls the Lender within the meaning of the Securities
Act; and, with respect to the obligation of the Indemnifying Parties to the
Lender as indemnified party, shall extend, upon the same terms and conditions,
to each director of the Lender.
(e) The Lender agrees to notify the indemnifying party in writing of the
commencement of any action with respect to which indemnification may be owed to
it pursuant to this Section 15.1 or Article V of the Servicing Agreement after
receipt by the Lender of notice of commencement thereof, but the omission so to
notify the indemnifying party will not relieve such indemnifying party from any
liability which it may have except to the extent the indemnifying party is
prejudiced thereby. For purposes of this Section 15.1(e), the Servicer shall be
a third party beneficiary of the agreements herein contained.
(f) The agreement, indemnities and other statements of the parties hereto
in or made pursuant to this Section 15.1 will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made by
or on behalf of any other parties hereto or any of the officers, directors or
controlling persons referred to in this Section 15.1. The provisions of this
Section 15.1 shall survive the termination or cancellation of this Agreement.
Section 15.2 Indemnification with respect to the Specified Sold Auto
Loans. Without limiting any other rights that the Collateral Agent or the
Secured Parties (each an "Indemnified Party") may have hereunder or under
applicable law, AutoBond hereby agrees, jointly and severally, to pay on demand
to each Indemnified Party any and all amounts necessary to indemnify such
Indemnified Party from and against any and all claims, losses, damages and
liabilities and related costs and expenses, including taxes and reasonable
attorneys' fees and disbursements ("Indemnified Amounts") which may be imposed
on, incurred by or asserted against an Indemnified Party in any way arising out
of or resulting from:
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(a) the use by AutoBond of proceeds of any sale or in respect of any Auto
Loan;
(b) any representation or warranty made or deemed made by AutoBond (or any
of its officers) under this Agreement, or any report delivered by AutoBond
pursuant hereto or any other information delivered by AutoBond pursuant hereto,
having been incorrect in any material respect when made or deemed made or
delivered (except with respect to any representation and warranty arising under
Section 2.3(a) (other than Section 2.3(a)(xxi)(A) in respect of losses to or
damages imposed on Borrower or the Collateral Agent in excess of the Repurchase
Price of a Specified Sold Auto Loan) in respect of a Specified Sold Auto Loan,
as to which the remedies are set forth in Section 2.3(b));
(c) the failure by AutoBond to comply with any applicable law, rule or
regulation with respect to any Specified Sold Auto Loan, or the nonconformity of
any Specified Sold Auto Loan with any such applicable law, rule or regulation;
(d) the failure to vest and maintain vested in the Borrower and its
assignees, legal, equitable and marketable title to and ownership of the Auto
Loans which are, or are purported to be, Specified Sold Auto Loans, together
with all proceeds in respect thereof, free and clear of any Adverse Claim
(except as permitted hereunder) whether existing at the time of the proposed
sale of such Auto Loan or at any time thereafter and without limitation to the
remedies set forth in Section 2.3(c);
(d) the actions or inactions of AutoBond or any officer, director,
employee or agent of AutoBond; or
(e) the assessment of any tax or governmental fee or charge (and all
interest or penalties with respect thereto) as the result of the purchase or
ownership of any Auto Loan, other than taxes on or measured by the gross income
of any Person.
excluding, however, (i) recourse for any uncollectible Specified Sold Auto Loan;
provided, that the foregoing shall not be deemed to limit the Borrower's or the
Collateral Agent's rights under Sections 2.3(c), or this Section 15.2 and, with
respect to a breach in the representation and warranty set forth in Section
2.3(a)(xxi)(A), Section 9(b), and (b) Indemnified Amounts to the extent
resulting from the gross negligence or willful misconduct on the part of any
Indemnified Party. AutoBond acknowledges that the Borrower
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has assigned its rights of indemnity granted hereunder to the Collateral Agent.
AutoBond agrees that, upon such assignment, such assignee may enforce directly,
without joinder of the Borrower, the indemnities set forth in this Section 15.2.
It is understood and agreed that the indemnity obligations of AutoBond hereunder
shall survive the termination of this Agreement or of any Specified Sold Auto
Loan.
SECTION 16. MISCELLANEOUS.
Section 16.1 Notices. (a) All communications under this Agreement or the
Notes shall be in writing and shall be delivered or mailed or sent by facsimile
transmission and confirmed in writing (i) if to the Lender, to the Lender, at
such address as the Lender may have furnished to the Borrower in writing, and
(ii) if to the Borrower, at the address set forth in Section 2.2(b) or at such
other address or facsimile number as it shall have furnished in writing to the
Lender and (iii) if to AutoBond to it at the address set forth in Section 2.3(b)
or at such other address or facsimile number as it shall have furnished in
writing to the Lender.
(b) Any written communication so addressed and mailed by certified or
registered mail, return receipt requested, shall be deemed to have been given
when so mailed. All other written communications shall be deemed to have been
given upon receipt thereof.
Section 16.2 Survival. All representations, warranties and covenants made
by the Borrower herein or by the Borrower in any certificate or other instrument
delivered under or in connection with this Agreement shall be considered to have
been relied upon by the Lender and shall survive regardless of any investigation
made by the Lender or on the Lender's behalf.
Section 16.3 Successors and Assigns. This Agreement shall be binding upon
the parties hereof and their respective successors and assigns, and shall inure
to the benefit of and be enforceable by the parties hereof and their respective
successors and assigns permitted hereunder. Whether or not expressly so stated
and subject to the restrictions set forth herein, the provisions of Sections 5
through 16 of this Agreement are intended to be for the Lender's benefit and
shall be enforceable by the Lender; and, provided further, that the provisions
of Sections 7.2 and 10.1 hereof shall also be for the benefit of, and shall
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be enforceable by, any Person who shall no longer be a Lender hereunder but who
shall have incurred any expense or been subjected to any liability referred to
therein while, or on the basis of being, a Lender.
Section 16.4 Amendment and Waiver. (a) This Agreement and the Notes may be
amended or supplemented, and the observance of any term hereof or thereof may be
waived, with the written consent of the Borrower, AutoBond and (i) on or prior
to the Initial Closing Date, the Initial Lender, and (ii) after the Initial
Closing Date, the Lender (or, if multiple Lenders, Lenders with respect to at
least 66-2/3% in aggregate unpaid principal amount of the Advances; provided,
however, that no such amendment, supplement or waiver shall, without the written
consent of all Lenders, (a) change, with respect to the Advances, the amount or
time of any required prepayment or payment of principal or premium or the rate
or time of payment of interest, or change the funds in which any prepayment or
payment on the Advances is required to be made; (b) reduce the percentage of the
aggregate principal amount of Advances required for any amendment, consent or
waiver hereunder; or (c) release any material Lien of the Collateral Agent, held
for the benefit of the Lender, on any of the Collateral or affect the priority
thereof.
(b) Any amendment, supplement or waiver effected in accordance with this
Section 16.4 shall be binding upon the Lender, each Assignee and the Borrower.
(c) The Borrower will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of the
Program Documents or the Note unless the Initial Lender and the Lender
(irrespective of the amount of Advances made by it) shall be informed thereof by
the Borrower and shall be afforded the opportunity of considering the same and
shall be supplied by the Borrower with sufficient information to enable it to
make an informed decision with respect thereto. Executed or true and correct
copies of any waiver effected pursuant to the provisions of this Section 16.4
shall be delivered by the Borrower to the Lender forthwith following the date on
which the same shall have been executed and delivered by the Lender of the
requisite percentage of Advances. The Borrower will not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to the Lender as consideration for or as
an inducement to the entering into by the Lender of any waiver or amendment of
any of the terms and provisions of the Program Documents unless such
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remuneration is concurrently paid, on the same terms ratably to the Lenders with
respect to all of the Advances.
Section 16.5 Counterparts. This Agreement may be executed and delivered
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 16.6 Reproduction of Documents. This Agreement and all documents
relating hereto (other than the Note), including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b)
documents received by the Initial Lender at the closing of the Initial Lender's
making of Advances, and (c) financial statements, certificates and other
information heretofore or hereafter furnished to the Lender, may be reproduced
by the Lender by any photographic or other similar process and the Lender may
destroy any original document so reproduced. The Borrower agrees and stipulates
that, to the extent permitted by applicable law and court or agency rules, any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Lender in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall be admissible in evidence to the same
extent.
Section 16.7 Consent to Jurisdiction and Venue. The Borrower and AutoBond
each hereby irrevocably (i) agrees that any suit, action or other legal
proceeding arising out of or relating to the Program Documents or any Note may
be brought in a court of record in the State of New York or in the courts of the
United States of America located in such State, (ii) consents to the
jurisdiction of each such court in any such suit, action or proceeding, and
(iii) waives any objection which it may have to the laying of venue of any such
claim that any such suit, action or proceeding has been brought in an
inconvenient forum and covenants that it will not seek to challenge the
jurisdiction of any such court or seek to oust the jurisdiction of any such
court, whether on the basis of inconvenient forum or otherwise. The Borrower and
AutoBond each irrevocably consent to the service of any and all process in any
such suit, action or proceeding by mail copies of such process to the Borrower
at its address for notices provided in Section 16.1 hereof. The Borrower and
AutoBond each agree that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in
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other jurisdictions by suit on the judgment or in any other manner provided by
law. All mailings under this Section 16.7 shall be by registered or certified
mail, return receipt requested. Nothing in this Section 16.7 shall affect the
Lender's right to serve legal process in any other manner permitted by law or
affect the Lender's right to bring any suit, action or proceeding against the
Borrower or any of its properties in the courts of any other jurisdiction.
Section 16.8 No Petition. The Lender and each Assignee hereby covenant and
agree that, until the expiration of the later of, (a) the date which is one year
and one day after the payment in full of all outstanding Advances, and (b) the
date which is one year and one day after the payment in full of all investor
certificates or other securities outstanding and issued pursuant to any
Disposition, it will not institute against the Borrower, or join in any
institution against the Borrower of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any applicable bankruptcy or similar law in connection with any obligations
relating to the Advances or the Program Documents.
Section 16.9 Acts of Lender.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by the Lender
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by the Lender in person or by agents duly appointed in
writing; and except as herein otherwise expressly provided such action shall
become effective when such instrument or instruments is or are delivered to the
Borrower. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Agreement if made in
the manner provided in this Section 16.9.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Borrower deems
sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Lender or any Assignee shall bind the Lender and such
Assignee in respect of anything done, omitted or suffered to be done by the
Borrower in reliance thereon, whether or not notation of such action is made
upon such Note.
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Section 16.10 Confidentiality. All non-public information relating to this
Agreement, the Program Documents and the transactions contemplated thereby will
be kept confidential by AutoBond, the Borrower and the Initial Lender. The
provisions of this Section 16.10 shall not survive the termination of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have cause this Credit Agreement to
be duly executed as of the day and year first above written.
AUTOBOND FUNDING CORPORATION II
By:_______________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By:_______________________________
Name:
Title:
PEOPLES SECURITY LIFE INSURANCE
COMPANY
By:_______________________________
Name:
Title:
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EXHIBIT A
[Form of Note]
PROMISSORY NOTE
$20,000,000 May 21, 1996
New York, New York
FOR VALUE RECEIVED, AutoBond Funding Corporation II, a Delaware
corporation (the "Borrower") for value received, hereby promises to pay to
[Lender] (the "Lender") or its assigns, the principal sum of Twenty Million
Dollars ($20,000,000) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Advances made by the Lender to the Borrower under the
Credit Agreement), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Advance, in like money and funds, for the period commencing on the
date of such Advance until such Advance shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.
The date, amount, interest rate and maturity date of each Advance made by
the Lender shall be recorded by the Lender on its books and, prior to any
transfer of this Note, endorsed by the Lender on the schedule attached hereto or
any continuation thereof.
This Note is the Note referred to in the Credit Agreement (as modified and
supplemented and in effect from time to time, the "Credit Agreement") dated as
of May 21, 1996 among the Borrower, AutoBond Acceptance Co. and the Lender and
evidences Advances made by the Lender thereunder. Capitalized terms used in this
Note have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of this
Note upon the occurrence of certain events and for prepayments of Advances upon
the terms and conditions specified therein.
This Note is secured in accordance with and entitled to the benefits of
the Security Agreement. Copies of the Security Agreement may be examined at the
office of
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the Borrower maintained pursuant to Section 10.1 of the Credit Agreement.
The Borrower agrees to perform and observe duly and punctually each of the
covenants and agreements set forth in the Credit Agreement. All such covenants
and agreements are incorporated by reference in this Note, and this Note shall
be interpreted and construed as if all such covenants and agreements were set
forth in full in this Note at this place.
The Borrower hereby waives diligence, presentment and notice of any kind.
The non-exercise by the holder hereof of any right in any one instance shall not
limit the other (or further) exercise of that right in that (or any other)
circumstances.
By its holding of this Note, the Lender shall be deemed to accept the
terms of the Credit Agreement and the Security Agreement and agree to be bound
thereby.
This Note shall be governed by and construed in accordance with the law of
the State of New York.
2
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IN WITNESS WHEREOF, AutoBond Funding Corporation II has caused this Note
to be duly executed on its behalf by its officers thereunto duly authorized.
AUTOBOND FUNDING CORPORATION II
By:_______________________________
Name:
Title:
3
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SCHEDULE OF ADVANCES
The Note evidences Advances made under the within-described Credit
Agreement to the Borrower, on the dates, in the principal amounts, bearing
interest at the rates and maturing on the dates set forth below, subject to the
payments and prepayments of principal set forth below:
Principal Maturity Amount Unpaid
Date of Amount of Interest Date of Paid or Principal Notation
Advance Advance Rate Advance Prepaid amount Made By
- --------------------------------------------------------------------------------
4
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EXHIBIT B
FORM OF BORROWING NOTICE
[Borrower's Letterhead]
[Date]
[Lender]
[Address]
Attention: __________________________
In accordance with Section 1.3 of the Credit Agreement, dated as of May
21, 1996 (the "Credit Agreement"), among AutoBond Funding Corporation II (the
"Borrower"), AutoBond Acceptance Corporation and [Lender], the undersigned
hereby gives notice to the Lender that on ______________ the Borrower proposes
to borrow from the Lender $________________ in accordance with and subject to
the terms of the Credit Agreement. The Borrower hereby confirms that all
conditions to funding have been satisfied.
The Advance shall be wired to:
[insert wire instructions]
AUTOBOND FUNDING CORPORATION II
By:_______________________________
Name:
Title:
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[EXECUTION COPY]
SIDE AGREEMENT
SIDE AGREEMENT between AUTOBOND ACCEPTANCE CORPORATION ("AutoBond"),
AUTOBOND FUNDING CORPORATION II (the "Borrower"), and PEOPLES SECURITY LIFE
INSURANCE COMPANY (the "Lender"). Capitalized terms used and not defined herein
shall have the meanings specified in the Credit Agreement, dated as of May 21,
1996 (the "Credit Agreement") among the Borrower, AutoBond, as Administrator and
Peoples Security Life Insurance Company.
Notwithstanding the provisions set forth in the Credit Agreement and the
Security Agreement, in connection with the execution and delivery of the Credit
Agreement and the Security Agreement, the Borrower, AutoBond and the Lender
desire to set forth herein certain additional requirements (the "Additional
Requirements"). Such additional requirements shall be deemed to supplement the
Credit Agreement and the Security Agreement and shall be of the same force and
effect as though set forth therein.
Section 1. Additional Defined Terms. Except as the context shall otherwise
require, the following terms shall have the following meanings for all purposes
of this Side Agreement (the definitions to be applicable to both the singular
and the plural form of the terms defined, where either such form is used in this
Side Agreement):
"Borrowing Base Deficiency" means, on any date of termination the excess
of Advances outstanding on such Determination Date over the sum of (a) the
aggregate Unpaid Principal Balance of all Specified Sold Auto Loans other than
Excluded Auto Loans and (b) all amounts on deposit in the Loan Purchase Account
and Loan Revenue Account (to the extent allocable to principal).
"Excluded Auto Loan" means, on any Determination Date, any Specified Sold
Auto Loan (a) as to which a first payment default has occurred, (b) which is a
Defaulted Auto Loan, (c) as to which a claim has been filed under the VSI Policy
(d) as to which the Obligor is bankrupt, (e) as to which the related Auto has
been repossessed and (f) as to which the related Closing Date is more than 120
days prior to such date of determination.
"Net Worth" means, with respect to AutoBond, on any date of determination,
the excess of total assets over total liabilities (determined in accordance with
GAAP).
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"Post IPO Equity Value" means the value of the shareholder's equity
(determined in accordance with GAAP following the completion of the initial
public offering).
"Specified Reserve Allocation Percentage" has the meaning specified in the
Security Agreement.
Section 2. Additional Representations and Warranties. In addition to the
representations and warranties set forth in Section 2.3 of the Credit Agreement,
with respect to each Auto Loan, each of AutoBond and the Borrower represents and
warrants to the Lender, as of the Closing Date on which such Auto Loan becomes a
Specified Sold Auto Loan:
(a) the total amount financed by such Auto Loan does not exceed $40,000;
(b) such Auto Loan was not purchased by AutoBond at a discount greater
than 19%;
(c) the APR for such Auto Loan is not less than 14.5% per annum; and
(d) the original term of such Auto Loan does not exceed 60 months.
The remedy for any breach of a representation or warranty set forth in this
Section 2 shall be as set forth in Section 2.3(c) of the Credit Agreement.
Section 3. Additional Covenants. In addition to the covenants set forth in
Section 10 of the Credit Agreement with respect to the Borrower and Section 11
of the Credit Agreement with respect to AutoBond, each of the Borrower and
AutoBond hereby make the following additional covenants, which shall be
determined as of each Determination Date:
(a) no more than 10% of the aggregate Unpaid Principal Balance of the
Specified Sold Auto Loans shall represent Automobiles purchased from Dealers who
are not franchised new car Dealers; provided, however, that neither the Borrower
nor AutoBond shall be deemed to have violated this covenant if the Borrower and
AutoBond cure any violation of the immediately preceding clause within 30 days
of the earlier to occur of (i) the first Determination Date on which the
requirements specified in the immediately preceding clause was determined to
have been breached and (ii) the date on which the Borrower or AutoBond has
actual knowledge that the requirements set forth in the second preceding clause
have been breached;
2
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(b) the weighted average purchase discount with respect to all Specified
Sold Auto Loans shall not exceed 15% and the weighted average APR shall not be
less than 16% per annum; provided, however, that neither the Borrower nor
AutoBond shall be deemed to have violated this covenant if the Borrower and
AutoBond cure any violation of the immediately preceding clause within 30 days
of the earlier to occur of (i) the first Determination Date on which the
requirements specified in the immediately preceding clause was determined to
have been breached and (ii) the date on which the Borrower or AutoBond has
actual knowledge that the requirements set forth in the second preceding clause
have been breached;
(c) no more than 2% of the aggregate Unpaid Principal Balance of the
Specified Sold Auto Loans shall be in respect of Automobiles with a model year
prior to 1988; provided, however, that neither the Borrower nor AutoBond shall
be deemed to have violated this covenant if the Borrower and AutoBond cure any
violation of the immediately preceding clause within 30 days;
[(d) to their knowledge, there is no Borrowing Base Deficiency; provided,
however, that the Borrower and AutoBond shall not be required to make such
covenant during such time as an Amortization Event has occurred and is
continuing;] and
(e) to calculate the Borrowing Base and determine the existence or extent
of any Borrowing Base Deficiency on each Determination Date and to provide such
information to the Lender in the Monthly Servicer Report.
The remedy for any breach of the covenants set forth in this Section 3 shall be
as provided in Section 13.1(c) of the Credit Agreement.
Section 4. Additional Events of Default. In addition to the Events of
Default set forth in the Credit Agreement, the occurrence of the following
conditions or events shall also constitute an Event of Default:
(a) there is a Borrowing Base Deficiency that continues unremedied for a
period of 5 Business Days following [earlier to occur of actual knowledge
thereof or] the Determination Date on which such Borrowing Base Deficiency was
determined to exist; or
(b) a Change of Control has occurred; or
(c) the Net Worth of AutoBond is less than $2.5 million prior to the
initial public offering or less than 50% of Post IPO Equity Value following the
completion of the initial public offering;
upon the occurrence of any of the foregoing additional Events of Default, the
provisions set forth in Section 13 of the Credit
3
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Agreement shall apply with the same force and effect as though such additional
Events of Default were set forth therein.
Section 5. Additional Funding Termination Events. In addition to the
Funding Termination Events set forth in the Credit Agreement, the occurrence of
the following conditions or events shall also constitute a Funding Termination
Event:
(a) during such time as the Specified Reserve Allocation Percentage is
100% or
(b) during such time as a Purchase Termination Event (as such term is
defined in the Loan Acquisition Agreement) has occurred and is continuing.
Section 6. Certain Definitions. Notwithstanding the requirements set forth
in the Credit Agreement and the Security Agreement, for purposes of making any
calculations or disbursements under, determining the compliance with, or the
occurrence of an Event of Default under the provisions of the Credit Agreement
or the Security Agreement, the following terms shall have the meanings specified
herein:
"Delinquency Ratio" shall mean as of any Determination Date, the product
of (a) the percentage equivalent of a fraction (i) the numerator of which equals
the sum of (A) the aggregate Unpaid Principal Balance of Specified Sold Auto
Loans which have become Defaulted Auto Loans as of the end of the most recently
ended Collection Period minus (B) the sum of the aggregate Unpaid Principal
Balance of (1) all Specified Sold Auto Loans against which insurance claims have
been filed as of the end of the most recently ended Collection Period and (2)
Specified Sold Auto Loans for which the related financed vehicles are subject to
repossession as of the end of the most recently ended Collection Period and
which are not included in (1), and (ii) the denominator of which equals the
aggregate Unpaid Principal Balance of Specified Sold Auto Loans outstanding as
of the end of the most recently ended Collection Period minus the amount
determined pursuant to clause (B) above and (b) 12.
"Net Loss Ratio" shall mean, as of any Determination Date, the product of
(a) the percentage equivalent of a fraction (i) the numerator of which equals
(a) the Net Unrealized Amounts on Auto Loans that became subject to repossession
during the most recently ended Collection Period, plus (b) any adjustments
(which may be positive or negative) to Net Unrealized Amounts from a prior
period and not reflected, and (ii) the denominator of which equals the average
aggregate Unpaid Principal Balance of Auto Loans outstanding during the most
recently ended Collection Period and (b) 12.
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"Reserve Account Required Balance" shall mean, as of any Payment Date, the
greater of (a) $150,000 and (b) the product of (i) the Target Reserve Percentage
and (ii) the aggregate principal amount of all Advances outstanding as of such
Payment Date (after giving effect to any payments to be made on such Payment
Date, if any); provided, however, that in no event shall the Reserve Account
Required Balance be less than $250,000 during such time as any Advance is
outstanding.
"Target Reserve Percentage" shall mean 6%; provided, that if, as of a
Determination Date,
(a) the average of the Net Loss Ratios for the immediately preceding
three Collection Periods is greater than or equal to 2.75% but less than
4%, the Target Reserve Percentage shall equal 9%;
(b) the average of the Net Loss Ratios for the immediately preceding
three Collection Periods is greater than or equal to 4%, the Target
Reserve Percentage shall equal 12%;
(c) the average of the Net Loss Ratios for the immediately preceding
six Collection Periods is less than 4% but equal to or greater than 2.75%,
then the Target Reserve Percentage shall revert to 9%;
(d) the average of the Net Loss Ratios for the immediately preceding
six Collection Periods is less than 2.75%, then the Target Reserve
Percentage shall revert to 6%;
(e) the Delinquency Ratio is greater than or equal to 7% or the
average net loss per Defaulted Auto Loan is greater than or equal to
$3,000, then the Target Reserve Percentage shall equal 9%; and
(f) the average of the Delinquency Ratio over two Collection Periods
is less than 7%, then the Target Reserve Percentage shall revert to 6%;
(g) there occurs an Event of Collection Agent Termination with
respect to AutoBond under Sections 3.07(c) or (d) of the Servicing
Agreement, then the Target Reserve Percentage shall equal 10%; and
(h) if the Specified Reserve Allocation Percentage equals 100% or
during such time as a Funding Termination Event is continuing, then the
Target Reserve Percentage shall equal 100%.
5
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Section 7. Miscellaneous.
(a) Governing Law. THIS SIDE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(b) Consent to Jurisdiction and Venue. The Borrower, AutoBond and the
Lenders each hereby irrevocably (i) agrees that any suit, action or other legal
proceeding arising out of or relating to the Program Documents or this Side
Agreement may be brought in a court of record in the State of New York or in the
courts of the United States of America located in such State, (ii) consents to
the jurisdiction of each such court in any such suit, action or proceeding, and
(iii) waives any objection which it may have to the laying of venue of any such
claim that any such suit, action or proceeding has been brought in an
inconvenient forum and covenants that it will not seek to challenge the
jurisdiction of any such court or seek to oust the jurisdiction of any such
court, whether on the basis of inconvenient forum or otherwise. The Borrower,
AutoBond and the Lender each irrevocably consent to the service of any and all
process in any such suit, action or proceeding by mail copies of such process to
the addresses set forth in the Credit Agreement. The Borrower and AutoBond each
agree that a final judgment in any such action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. All mailings under this Section 7(b) shall be in
accordance with the provisions of Section 16.7 of the Credit Agreement. Nothing
in this Section 7(b) shall affect the Lender's right to serve legal process in
any other manner permitted by law or affect the Lender's right to bring any
suit, action or proceeding against the Borrower or any of its properties in the
courts of any other jurisdiction.
(c) No Petition. Each of AutoBond, the Collateral Agent, the Lender and
each Assignee hereby covenant and agree that, until the expiration of the later
of, (i) the date which is one year and one day after the payment in full of all
outstanding Advances, and (ii) the date which is one year and one day after the
payment in full of all investor certificates or other securities outstanding and
issued pursuant to any Disposition, it will not institute against the Borrower,
or join in any institution against the Borrower of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any applicable bankruptcy or similar law in connection with
any obligations relating to the Advances or the Program Documents.
(d) Counterparts. This Agreement may be executed and delivered
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
6
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IN WITNESS WHEREOF, the parties hereto have caused this Side Agreement to
be duly executed as of the day and year first above written.
AUTOBOND FUNDING CORPORATION II
By:__________________________________
Name:
Title:
AUTOBOND ACCEPTANCE CORPORATION
By:__________________________________
Name:
Title:
PEOPLES SECURITY LIFE INSURANCE COMPANY
By:__________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, AS
COLLATERAL AGENT
By:__________________________________
Name:
Title:
7
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Execution Copy
LOAN ACQUISITION,
SALE AND CONTRIBUTION AGREEMENT
Dated as of May 21, 1996
by and between
AUTOBOND ACCEPTANCE CORPORATION
and
AUTOBOND FUNDING CORPORATION II
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TABLE OF CONTENTS
Page
----
SECTION 1. Definitions; Interpretation......................... 1
SECTION 2. Sale and Disposition of Auto
Loans............................................... 9
SECTION 3. Intended Characterization; Grant
of Security Interest................................ 13
SECTION 4. Conditions Precedent to
Purchase............................................ 14
SECTION 5. Representations and Warranties
of AutoBond......................................... 14
SECTION 6. Additional Covenants of
AutoBond............................................ 21
SECTION 7. Termination......................................... 23
SECTION 8. Events of Purchase Termination...................... 23
SECTION 9. Indemnification..................................... 25
SECTION 10. Confidentiality..................................... 26
SECTION 11. No Proceedings...................................... 27
SECTION 12. Notices, Etc........................................ 27
SECTION 13. No Waiver; Remedies................................. 27
SECTION 14. Binding Effect; Assignability....................... 27
SECTION 15. Amendments; Consents and
Waivers; Entire Agreement........................... 28
SECTION 16. Severability........................................ 28
SECTION 17. GOVERNING LAW; CONSENT TO
JURISDICTION; WAIVER OF JURY
TRIAL............................................... 28
SECTION 18. Headings............................................ 29
SECTION 19. Execution in Counterparts........................... 29
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EXHIBITS
EXHIBIT A - FORM OF SALE ASSIGNMENT
EXHIBIT B - FORM OF OFFICER'S CERTIFICATE
EXHIBIT C - FORM OF OPINION
EXHIBIT D - FORM OF REPURCHASE ASSIGNMENT
EXHIBIT E - FORM OF DEALER AGREEMENT
ii
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LOAN ACQUISITION SALE AND CONTRIBUTION AGREEMENT (the "Agreement"), dated
as of May 21, 1996, by and between AutoBond Acceptance Corporation ("AutoBond"),
a Texas corporation, and its successors and permitted assigns and AutoBond
Funding Corporation II ("AutoBond Funding"), a Delaware corporation, and its
successors and assigns.
W I T N E S S E T H:
WHEREAS, AutoBond Funding has been formed for the sole purpose of
acquiring and holding Auto Loans pending transfer of such Auto Loans in one or
more Dispositions;
WHEREAS, from time to time, AutoBond intends to sell or contribute Auto
Loans to AutoBond Funding and AutoBond Funding intends to purchase and/or accept
Auto Loans from AutoBond to hold pending transfer thereof in connection with one
or more Dispositions; and
WHEREAS, subject to the terms and conditions set forth herein, AutoBond
agrees, from time to time, to sell or contribute Auto Loans to AutoBond Funding
and AutoBond Funding agrees to purchase and/or accept Auto Loans from AutoBond;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
SECTION 1. Definitions; Interpretation.
(a) In this Agreement the following capitalized terms have the respective
following meanings:
"Adverse Claim" means a claim of ownership or any lien, security
interest, title retention, trust or other charge or encumbrance, or other
type of preferential arrangement having the effect of a lien or security
interest upon or with respect to (i) any Auto Loans sold hereunder other
than in favor of Purchaser and the Trustee with respect to this Agreement
or (ii) any Financed Vehicle securing payment of any such Auto Loan other
than in favor of the Obligor, Purchaser and the Trustee.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, 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
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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.
"Amount Financed" means, with respect to any Auto Loan, the meaning
ascribed thereto in the applicable disclosure documents given to the
Obligor in satisfaction of the requirements of the Federal
Truth-in-Lending Act.
"Approval Date" means, with respect to any Auto Loan, the date on
which AutoBond makes its written credit approval with respect to the
Obligor under such Auto Loan.
"AutoBond" means AutoBond Acceptance Corporation a Texas
corporation.
"AutoBond Funding" means AutoBond Funding Corporation II, a Delaware
corporation and its successors and permitted assigns.
"AutoBond Program" means the auto loan origination program in
accordance with which certain member dealers originate auto loans in
accordance with the AutoBond Program Manual.
"AutoBond Program Manual" means the AutoBond Program Manual in
effect as of the date hereof, as modified from time to time pursuant to
Section 2(c).
"Auto Loan" means a consumer automobile loan financing the purchase
of new and used automobiles, light-duty trucks and vans, which loans are
secured by a lien and security interest in the automobile financed
thereunder in favor of the loan holder.
"Business Day" means any day other than a Saturday or a Sunday, or
another day an which commercial banks in the States of New York, Minnesota
or Texas (or in any other state in which the Servicer or AutoBond are
located) are required, or authorized by law, to close.
"Business Day Certificate" means an Officer's Certificate of
AutoBond specifying days other than Saturdays or Sundays which are not
Business Days.
"Closing Date" means May 22, 1996.
"Collateral Account" has the meaning specified in Section 2(d).
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"Collateral Agent" means each Person designated as such by AutoBond
Funding in writing to AutoBond.
"Collection Account" has the meaning specified in Section 2(d).
"Collection Agent" means AutoBond Acceptance Corporation a Texas
corporation, its permitted successors and assigns.
"Credit Agreement" means any warehouse credit agreement between
AutoBond Funding and a lender.
"Credit and Collection Policies" means written policies consistent
with the requirements of this Agreement and the Servicing Agreement, in
effect from time to time formulated by AutoBond as to the requirements of
certain servicing matters.
"Credit Endorsement" means the deficiency balance endorsement issued
by Interstate under the VSI Policy.
"Cut-Off Date" means May , 1996 with respect to the initial Sale
Date hereunder, and the last Business Day of the previous calendar month
with respect to any subsequent Sale Date hereunder.
"Dealer" means an automobile dealer who has entered into a Dealer
Agreement with AutoBond with respect to, among other things, the
origination of Auto Loans.
"Dealer Agreement" means an agreement between AutoBond and a Dealer
relating to the origination, purchase and sale of Auto Loans substantially
in the form attached to the AutoBond Program Manual.
"Debt" means for any Person, (a) indebtedness of such Person for
borrowed money or credit extended, (b) obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments, (c)
obligations of such Person to pay the deferred purchase price of property
or services, (d) obligations of such Person as lessee under leases which
have been or should be, in accordance with GAAP, recorded as capital
leases, (e) obligations secured by any lien or other charge upon property
or assets owned by such Person, even though such Person has not assumed or
become liable for the payment of such obligations, (f) obligations of such
Person under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise
to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (a) through (e)
above, and (g) liabilities in respect of unfunded vested benefits under
plans covered by ERISA. For the purposes hereof, the term "guarantee"
shall include any agreement, whether such
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agreement is on a contingency or otherwise, to purchase, repurchase or
otherwise acquire Debt of any other Person, or to purchase, sell or lease,
as lessee or lessor, property or services, in any such case primarily for
the purpose of enabling another Person to make payment of Debt, or to make
any payment (whether as an advance, capital contribution, purchase of an
equity interest or otherwise) to assure a minimum equity, asset base,
working capital or other balance sheet or financial condition, in
connection with the Debt of another Person, or to supply funds to or in
any manner invest in another Person in connection with Debt of such
Person.
"Defaulted Auto Loan" means an Auto Loan which by its terms has more
than 10% of any installment of principal or interest which is 60 or more
days contractually past due.
"Defaulted Receivable" means, as of the end of any Due Period, (a) a
Defaulted Auto Loan, (b) an Auto Loan as to which the proceeds of the sale
of the related Financed Vehicle have been received by AutoBond and (c) a
Receivable as to which AutoBond has determined (or should have determined
in accordance with the Credit and Collection Policies) that no further
proceeds other than from the VSI Policy are expected to be received or
that such Auto Loan is uncollectible and such determination was made at or
prior to the last day of such Due Period.
"Determination Date" means the 10th day of each month (or the
preceding Business Day, if such day is not a Business Day).
"Disposition" has the meaning specified in Section 2(j).
"Disposition Agreement" mens each pooling and servicing, loan sale
trust agreement or similar agreement pursuant to which a Disposition
occurs.
"Due Period" means (a) for the initial Due Period, the period from
the Closing Date through June 1, 1996 and (b) thereafter, each calendar
month.
"Eligible Dealer" means a franchised Dealer (A) duly licensed and
authorized by Governmental Authorities and the relevant manufacturers, as
applicable, as a dealer in new or used Financed Vehicles, (B) as to which
AutoBond has performed an investigation in accordance with the customary
and usual standards of sub-prime automobile finance companies and (C) as
to which AutoBond has not received notice from AutoBond Funding in
accordance with Section 2(b), prior to the related Approval Date, that
such Dealer has ceased to be an Eligible Dealer.
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"Eligible Receivable" means any Auto Loan which complies with the
representations and warranties set forth in Section 5(b).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Purchase Termination" has the meaning specified in Section
8.
"Financed Vehicles" means new and used automobiles and light-duty
trucks and vans, the purchase of which is financed by the Auto Loans.
"Financing Rate" means the applicable weighted average coupon under
a Credit Agreement or Disposition Agreement.
"Governmental Authority" means the United States of America, any
federal, state, local or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions thereof or pertaining thereto.
"Indemnified Amounts" has the meaning specified in Section 9.
"Indemnified Party" means AutoBond Funding, each holder of the
indebtedness issued by AutoBond Funding and the successors, assigns,
Affiliates, agents, officers, shareholders, directors, servants and
employees thereof.
"Loan Acquisition Price", with respect to any Auto Loan to be sold
pursuant to Section 2, has the meaning set forth in the applicable Credit
Agreement, and otherwise means an amount equal to the sum of (i) the
Amount Financed and (ii) accrued but unpaid interest on such Auto Loan as
of the related Sale Date.
"Loan Documents" means, with respect to an Auto Loan, (i) the
original retail installment contract and security agreement evidencing
such Auto Loan, (ii) the original confirmation of title, copy of the
application for title or letter of guaranty from the applicable Dealer, as
the case may be, for the related Financed Vehicle, (iii) a copy of the
credit application, (iv) the original confirmation of payment of premiums
required under the VSI Policy and (v) such other documents as may be
required under the applicable Credit Agreement or Disposition Agreement.
"Loan File" means, with respect to any Auto Loan, the original
retail installment loan contract and security agreement evidencing the
Auto Loan and originals or copies of
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such other documents and instruments relating to such Auto Loan and the
security interest on the selected Financed Vehicle as specified in the
Credit and Collection Policies.
"Lockbox" means each lockbox and related account (if any)
established in the name of a Collateral Agent or Trustee.
"Lockbox Bank" means ComerciaBank-Texas.
"Necessary Consents" means all necessary consents to the closing of
the transactions contemplated hereby, in form and substance satisfactory
to AutoBond and AutoBond Funding.
"Net Payoff Balance" means, in respect of any Precomputed
Receivables, the net payoff less any accrued but unpaid late charges.
"Net Principal Balance" means, with respect to any Precomputed
Receivable, the Net Payoff Balance as of the due date of the last full
Scheduled Payment, or if more recent, the due date of the last periodic
payment of principal thereon.
"Net Unrealized Amount" means, (a) with respect to any Auto Loan
which is more than 90 days contractually past due or where the Financed
Vehicle is otherwise subject to repossession (including voluntary or
involuntary, or upon casualty), the Unpaid Principal Balance of such Auto
Loan minus the sum of (i) any repossession proceeds allocable to principal
actually received on such Auto Loan, (ii) any insurance proceeds allocable
to principal actually received from a claim with respect to such Auto Loan
and (iii) refunds received from the cancellation of any insurance policies
or service contracts with respect to such Auto Loan, and (b) with respect
to any Auto Loan where the related Obligor is in bankruptcy, the amount of
losses allocable to principal incurred thereon.
"Obligor" means, with respect to any Auto Loan, the Person primarily
obligated to make payments in respect thereto.
"Other Disposition" has the meaning specified in Section 2(j).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability company, trust,
association, joint venture, Governmental Authority or any other entity of
whatever nature.
"Precomputed Receivable" means any Auto Loan under which earned
interest (which may be referred to in the Auto Loan as the add-on finance
charge) and principal is determined
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according to the sum of periodic balances or the sum of monthly balances
or the sum of the digits or any equivalent method commonly referred to as
the "Rule of 78s".
"Purchaser" means AutoBond Funding Corporation II, and its permitted
successors and assigns.
"Recoveries" means, for any Due Period, all amounts received during
such Due Period with respect to (a) Defaulted Receivables from any source,
including, without limitation, net proceeds from the repossession and
liquidation of Financed Vehicles, proceeds of insurance (including
insurance maintained by Obligor and the VSI Policy), and (b) the
Repurchase Price of Auto Loans repurchased by AutoBond pursuant to Section
5(d).
"Repurchase Price" means, with respect to any Sold Auto Loan which
Seller or AutoBond is obligated to repurchase, an amount equal to (i) the
Unpaid Principal Balance of such Sold Auto Loan as of the end of the
preceding Due Period plus (ii) accrued and unpaid interest in respect
thereof calculated at the Financing Rate from the last day to which
interest has been paid on such Auto Loan through the last day of such Due
Period, minus (iii) the amount of any principal paid in respect of such
Auto Loan since the end of such Due Period.
"Repurchase Requirement" has the meaning specified in Section 5(d).
"Sale" means a sale of an Auto Loan to AutoBond Funding in
accordance with Section 2.
"Sale Assignment" means, with respect to any Auto Loan sold or
contributed hereunder, the assignment substantially in the form of Exhibit
A hereto and made a part hereof.
"Sale Date" means, with respect to any Auto Loan, the date on which
such Auto Loan is sold or contributed in accordance with Section 2.
"Sales Finance Company License" means a current license issued to
AutoBond authorizing it to make, purchase, and sell Auto Loans in each
state in which such license is required.
"Scheduled Payment" means a payment due on an Auto Loan in
accordance with its terms.
"Securitization" has the meaning specified in Section 2(j).
"Securitization Trust" has the meaning specified in Section 2(j).
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"Selling Dealer" means with respect to each Sold Auto Loan, the
Dealer that sold such Sold Auto Loan to AutoBond.
"Servicer" means CSC Logic/MSA L.L.P., a Texas limited liability
partnership, doing business as Loan Servicing Enterprise, and any
successor thereto in accordance with a Servicing Agreement.
"Servicing Agreement" means any Servicing Agreement for the
servicing of Sold Auto Loans.
"Sold Auto Loan" means an Auto Loan sold to AutoBond Funding in
accordance with Section 2.
"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other
Persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Termination Date" has the meaning specified in Section 7.
"Trustee" means each trustee in respect of a Securitization Trust or
other Disposition Agreement.
"UCC" means the Uniform Commercial Code as in effect in the relevant
state.
"Unpaid Principal Balance" means, with respect to any Auto Loan as
of any date of determination, (i) for an Auto Loan bearing interest
calculable on a simple interest basis, the unpaid principal amount for
such Auto Loan or (ii) for a Precomputed Receivable, the Net Principal
Balance, in each case as of the end of the most recent specified period;
provided, that for any Auto Loan where the Net Unrealized Amount equals
the Unpaid Principal Balance, such Unpaid Principal Balance shall
thereafter equal zero (other than for purposes of calculating the
Repurchase Price).
"VSI Policy" means the Vender's single Interest Insurance Policy,
including the Credit Endorsements, issued by Interstate Fire & Casualty
Company, insuring against risk of physical damage or other losses on the
Financed Vehicles, a copy of which is attached as an Exhibit to the
Pooling Agreement.
"Whole Loan Sales" has the meaning specified in Section 2(j).
(b) The following rules apply to this Agreement:
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(i) the singular includes the plural and the plural includes the
singular;
(ii) "or" is not exclusive and "include" and "including" are not
limiting;
(iii) a reference to any agreement or other contract includes
permitted supplements and amendments;
(iv) a reference to a law includes any amendment or modification
to such law and any rules or regulations issued thereunder or any law
enacted in substitution or replacement therefor;
(v) a reference to a person includes its permitted successors and
assigns;
(vi) a reference to a Section, an Exhibit or a Schedule without
further reference is to the relevant Section, Exhibit or Schedule of this
Agreement;
(vii) any right may be exercised at any time and from time to
time; and
(viii) words such as "hereunder", "hereto", "hereof" and "wherein"
and other words of like import shall, unless the context clearly indicates
to the contrary, refer to the whole of this Agreement and not to any
particular Section, subsection or clause hereof.
SECTION 2. Sale and Disposition of Auto Loans.
(a) From time to time, AutoBond has agreed and agrees to sell or
contribute (and by execution of this Agreement and any Sale Assignment does
hereby sell or contribute) to AutoBond Funding, subject to the terms and
conditions of this Agreement, all right, title and interest of AutoBond in and
to:
(i) fixed-rate fully amortizing closed-end consumer installment
Auto Loans listed on Schedule 1 to a Sale Assignment, all principal
Payments paid in respect thereof after the related Cut-off Date and all
monies due, to become due or paid in respect thereof after the related
Sale Date and all liquidation proceeds and recoveries thereon;
(ii) all security interests and liens and property subject thereto
from time to time purporting to secure payment by Obligors under the Sold
Auto Loans, including, without limitation, the Financed Vehicles;
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(iii) all rights (but no obligations) under the Dealer Agreements
and all proceeds from recourse to Dealers relating to the Sold Auto Loans;
(iv) all guaranties, indemnities and warranties, and proceeds of
insurance policies (including the Insurance Policies), certificates of
title and other title documentation and other agreements or arrangements
of whatever character from time to time supporting or securing payment of
such Sold Auto Loans;
(v) all collections and records (including computer records) with
respect to the foregoing;
(vi) all documents relating to the Sold Auto Loans, including
those contained in the Loan Files and all Loan Documents; and
(vii) all proceeds and other benefits of any and all of the
foregoing.
Subject to the terms and conditions of this Agreement, AutoBond Funding agrees
to purchase or accept the foregoing from AutoBond. To the extent that the Loan
Acquisition Price paid to Seller for any Sold Auto Loan is less than the fair
market value of such Sold Auto Loan, the difference between such fair market
value and the Loan Acquisition Price shall be deemed to be a capital
contribution made by Seller to Purchaser on the relevant Sale Date.
(b) The parties hereto agree that the obligation to repay an Auto Loan
purchased by AutoBond Funding pursuant hereto must be secured by a Financed
Vehicle sold to an Obligor by an Eligible Dealer. An otherwise Eligible Dealer
shall cease to be an Eligible Dealer within fifteen calendar days or sooner, if
practicable, following a determination by AutoBond, or following the receipt by
AutoBond of written notice of the determination of AutoBond Funding that such
dealer has ceased to be an Eligible Dealer. Following any such determination,
AutoBond agrees that it will approve no additional Auto Loans for sale
hereunder, which are originated by such Dealer.
(c) The parties hereto agree that the AutoBond Program Manual may be
modified from time to time by AutoBond (i) in any immaterial respect, without
the consent of the parties hereto and (ii) in any material respect, with the
consent of the parties hereto, but in each case, subject to the consent of each
Trustee and each lender under a Credit Agreement.
(d) In order to offer an Auto Loan for sale by AutoBond to AutoBond
Funding, AutoBond shall deliver to the Purchaser or the relevant Collateral
Agent or Trustee, as applicable, on any Business Day each of the Loan Documents
and the originally executed Sale Assignment therefor. Upon receipt by the
applicable party of
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the complete Loan Documents and the duly executed original Sale Assignment and
subject to the terms of this Agreement, AutoBond Funding will transfer to
AutoBond an amount equal to the Loan Acquisition Price with respect to such Auto
Loan by the close of business on or before the second Business Day following the
receipt by the applicable party of such Loan Documents and Sale Assignment.
(e) Upon payment of the Loan Acquisition Price and execution of the Sale
Assignment with respect to a Sold Auto Loan, the ownership of each such Sold
Auto Loan and all collections allocable to principal thereon since the related
Cut-off Date and all other property interests or rights conveyed pursuant to and
referenced in Section 2(a) hereof, shall be vested in AutoBond Funding and
AutoBond shall not take any action inconsistent with such ownership nor claim
any ownership interest in any such Sold Auto Loan for any purpose whatsoever
other than consolidated financial and federal and state income tax reporting;
provided, that AutoBond, in its capacity as Collection Agent on behalf of the
Borrower, a Collateral Agent or a Trustee, as the case may be, will remain as
lienholder with respect to the related Financed Vehicle.
(f) On or prior to the related Sale Date, AutoBond shall indicate in its
computer files and other records that each Sold Auto Loan has been sold to
Purchaser and transferred and, if applicable, assigned to a Collateral Agent or
a Trustee. In addition, on or prior to the third Business Day after the Closing
Date, AutoBond shall file, at its own expense, financing statements in favor of
the Purchaser and the relevant Trustee or Collateral Agent, as the case may be,
as assignee with respect to the Sold Auto Loans meeting the requirements of
applicable state law in such manner and in such jurisdictions as are necessary
or appropriate to perfect the acquisition of the Auto Loans by AutoBond Funding
from AutoBond and the first priority interest of AutoBond Funding therein, and
shall deliver file-stamped copies of such financing statements to AutoBond
Funding and the relevant Trustee or the Collateral Agent, as the case may be. In
addition, each of AutoBond and Autobond Funding shall respond to any inquiries
with respect to ownership of a Sold Auto Loan by stating that such Sold Auto
Loan has been sold to AutoBond Funding and that AutoBond is not the owner of
such Sold Auto Loan and, if applicable, that such Sold Auto Loan has been
assigned to a Trustee or the Collateral Agent, as the case may be; provided,
however, that AutoBond may respond to inquiries by an Obligor by confirming its
role as Collection Agent.
(g) AutoBond at any time and from time to time shall, at its sole cost and
expense, afford AutoBond Funding, each Trustee and each Collateral Agent and
Lender, as the case may be, and their respective authorized agents and
representatives upon reasonable notice, reasonable access during regular
business hours to its records relating to its performance under and compliance
with this Agreement and will cause its personnel to assist in any examination of
such records to enable Purchaser, such Trustee or such Collateral Agent to
determine its compliance with the terms of this
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Agreement. The examination referred to in the immediately preceding sentence
will be conducted in a manner that does not unreasonably interfere with
AutoBond's normal operations or customer or employee relations.
(h) AutoBond agrees that, from time to time, at its expense, it will
promptly execute and deliver all further instruments, notices and documents, and
take all further action, that may be necessary or appropriate, as reasonably
determined by AutoBond Funding, or that AutoBond Funding may reasonably request,
in order to perfect, protect or more fully evidence the transfer of ownership of
the Sold Auto Loans to AutoBond Funding or to enable AutoBond Funding or its
assignee to exercise or enforce any of its respective rights hereunder or under
any Sale Assignment, as the case may, be or to otherwise facilitate any
Disposition. Without limiting the generality of the foregoing, AutoBond will
promptly, upon the request of AutoBond Funding, enforce the terms of each Dealer
Agreement with respect to the obligations of the respective Dealers thereunder
and will deposit any amounts recovered in respect of Sold Auto Loans pursuant to
such Dealer Agreement in the account specified by AutoBond Funding, as may be
required under the related Credit Agreement or Disposition Agreement.
(i) Any action required or permitted to be taken by AutoBond Funding in
furtherance of its obligation to purchase Auto Loans hereunder, including
enforcement of its rights and receipt of documents, may be delegated by it to
one or more agents, or assigned to an assignee pursuant to a Credit Agreement
Disposition, in each case to be designated by it in writing to AutoBond.
(j) AutoBond acknowledges that AutoBond Funding has been formed with the
intent that the Sold Auto Loans will, from time to time, be pooled and disposed
of by AutoBond Funding, either (i) in structured-finance securitization
transactions (each, a "Securitization"), (ii) pursuant to whole-loan sales
(each, a "Whole-Loan Sale") or (iii) in some other form of disposition (each, an
"Other Disposition" and, together with Securitizations and Whole-Loan Sales,
"Dispositions"). In connection with Securitizations, the Sold Auto Loans may be
transferred to one or more trusts (each, a "Securitization Trust").
(k) Each Auto Loan offered by AutoBond for sale to AutoBond Funding
pursuant hereto may include an optional credit life, accident and health
insurance policy, other cancelable insurance products or optional extended
service contract (i) approved and sponsored in accordance with and pursuant to
the AutoBond Program Manual or (ii) at the option of AutoBond approved but not
sponsored in accordance with and pursuant to the AutoBond Program Manual,
including, in either case, the criteria set forth in the AutoBond Program Manual
with respect to the financial standing of the institutions offering such
policies and/or contracts. In the event an optional credit life, accident and
health insurance policy or optional extended service contract approved but not
sponsored in
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accordance with and pursuant to the AutoBond Program Manual is canceled and a
return premium is required to be made, AutoBond will exercise its best efforts
to recover such amount from the respective Dealer, and AutoBond agrees to
promptly remit to the Collateral Agent any amount so received.
(l) Except as specifically provided for herein, the sale and the purchase
of the Auto Loans under this Agreement is without recourse to AutoBond; provided
that AutoBond shall be liable to the Purchaser for all representations,
warranties, covenants and indemnities made by them under this Agreement.
(m) Neither AutoBond Funding nor any assignee shall have any obligation or
liability with respect to any Auto Loan nor shall AutoBond Funding or any
assignee have any liability to any Obligor in respect of any Auto Loan. No such
obligation or liability is intended to be assumed by AutoBond Funding or any
assignee herewith and any such liability hereby is expressly disclaimed.
SECTION 3. Intended Characterization; Grant of Security Interest.
It is the intention of the parties hereto that each transfer of Auto Loans
to be made pursuant to the terms hereof shall constitute a sale or capital
contribution by AutoBond to AutoBond Funding and not a loan. In the event,
however, that a court of competent jurisdiction were to hold that any such
transfer constitutes a loan and not a sale or capital contribution, it is the
intention of the parties hereto that AutoBond shall be deemed to have granted to
AutoBond Funding as of the date hereof a first priority perfected security
interest in all of AutoBond's right, title and interest in, to and under each
Sold Auto Loan, and all proceeds thereof. In the event of the characterization
of any such transfer as a loan, the amount of interest payable or paid with
respect to such loan under the terms of this Agreement shall be limited to an
amount which shall not exceed the maximum nonusurious rate of interest allowed
by the applicable state law or any applicable law of the United States
permitting a higher maximum nonusurious rate that preempts such applicable state
law, which could lawfully be contracted for, charged or received (the "Highest
Lawful Rate"). In the event any payment of interest on any such loan exceeds the
Highest Lawful Rate, the parties hereto stipulate that (a) to the extent
possible given the term of such loan, such excess amount previously paid or to
be paid with respect to such loan be applied to reduce the principal balance of
such loan, and the provisions thereof immediately be deemed reformed and the
amounts thereafter collectible thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder and (b) to the extent that the reduction of the principal balance of,
and the amounts collectible under, such loan and the reformation of the
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provisions thereof described in the immediately preceding clause (a) is not
possible given the term of such loan, such excess amount will be deemed to have
been paid with respect to such loan as a result of an error and upon discovery
of such error or upon notice thereof by any party hereto such amount shall be
refunded by the recipient thereof.
SECTION 4. Conditions Precedent to Purchase.
(a) The obligation of AutoBond Funding to purchase Auto Loans pursuant to
Section 2 on the first Sale Date is subject to the fulfillment to the
satisfaction of, or waiver by, AutoBond Funding of prior to or on the Closing
Date, the condition precedent that AutoBond Funding shall have received on or
before the Closing Date such certificates and opinions as may be requested by
AutoBond Funding.
(b) Each Sale (including the first Sale pursuant hereto) shall be subject
to the further conditions precedent that on the related Sale Date, AutoBond
shall have:
(i) delivered to AutoBond Funding acknowledgment copies of proper
financing statements (Form UCC-3), if any, necessary to release all
security interests and other rights of any Person in each Auto Loan being
sold on such Sale Date previously granted by AutoBond; and
(ii) delivered to AutoBond Funding evidence (A) that AutoBond, as
collection agent and custodian on behalf of AutoBond Funding and the
Collateral Agent or on behalf of any applicable assignee, holds a first
priority perfected security interest in each Financed Vehicle securing
each Auto Loan being sold on such Sale Date or (B) of the commencement of
all necessary and appropriate actions that would result in the valid
perfection of a first priority security interest in each Financed Vehicle
securing each Auto Loan being sold on such Sale Date in favor of AutoBond
in such capacity, upon completion of processing by the applicable state
agency.
SECTION 5. Representations and Warranties of AutoBond.
(a) AutoBond represents and warrants to AutoBond Funding, as of the date
hereof (which representations and warranties shall be deemed reaffirmed on each
Sale Date as though made on such Sale Date) with respect to AutoBond as follows:
(i) AutoBond is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Texas, is duly
qualified to do business and is in good standing in every jurisdiction in
which the nature of its business requires it to be so qualified;
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(ii) AutoBond has the power and authority to own and convey all of
its properties and assets and to execute and deliver this Agreement and to
perform the transactions contemplated hereby;
(iii) the execution, delivery and performance by AutoBond of this
Agreement and the transactions contemplated hereby, (A) have been duly
authorized by all necessary corporate or other action on the part of
AutoBond, (B) do not contravene or cause AutoBond to be in default under
(1) AutoBond's articles of incorporation or by-laws, (2) any contractual
restriction with respect to any debt of AutoBond or contained in any
indenture, loan or credit agreement, lease, mortgage, security agreement,
bond, note, or other agreement or instrument binding on or affecting
AutoBond or its property or (3) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to, binding on or
affecting AutoBond or its property and (C) do not result in or require the
creation of any Adverse Claim;
(iv) this Agreement has been duly executed and delivered on behalf
of AutoBond;
(v) no consent of, or other action by, and no notice to or filing
with, any Governmental Authority or any other party, is required for the
due execution, delivery and performance by AutoBond of this Agreement or
for the perfection of or the exercise by AutoBond Funding of any of its
rights or remedies hereunder, other than the Necessary Consents, each of
which has been obtained and complete copies of which have been provided to
AutoBond Funding except that the exercise of remedies hereunder may
require notices and other actions in accordance with applicable law at the
applicable time;
(vi) this Agreement is the legal, valid and binding obligation of
AutoBond, enforceable against AutoBond in accordance with its respective
terms, except as such enforceability may be limited by applicable federal
or state insolvency, bankruptcy, reorganization or other laws relating to
or affecting the enforcement of creditor's rights and general principles
of equity; and
(vii) there is no pending or threatened action, suit or proceeding,
against or affecting AutoBond or the property of AutoBond, in any court or
tribunal, or before any arbitrator of any kind or before or by any
Governmental Authority (A) asserting the invalidity of this Agreement, (B)
seeking to prevent the sale and assignment of any Auto Loan or the
consummation of any of the transactions contemplated hereby or (C) seeking
any determination or ruling that might materially and adversely affect (1)
the performance by AutoBond of this Agreement, (2) the validity or
enforceability of this
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Agreement, (3) any Auto Loan, (4) the tax attributes of the Sales or (5)
the financial condition of AutoBond.
(b) With respect to each Auto Loan, AutoBond represents and warrants to
AutoBond Funding, as of the Sale Date on which such Auto Loan becomes a Sold
Auto Loan, that:
(i) such Auto Loan complies in full with, and has been originated
in accordance with, the AutoBond Program Criteria and the AutoBond Program
Manual;
(ii) AutoBond has conducted each of the procedures set forth in
the AutoBond Program Manual to evaluate the Obligor's application in
accordance with the Credit and Collection policies;
(iii) upon completion of processing by the applicable state agency,
such Auto Loan shall include a validly perfected first priority security
interest in the Financed Vehicle securing such Auto Loan in favor of
AutoBond or its designated assignee as secured party which security
interest is assignable and, if applicable, has been so assigned to
AutoBond or its designated assignee and such Financed Vehicle is free and
clear of any Adverse Claim and, so long as AutoBond Funding or its
assignee remains the owner of such Auto Loan, AutoBond will hold such
security interest solely as an agent of AutoBond Funding or its assignee,
will take all necessary steps to maintain such security interest and will
not transfer such security interest to any other party without the prior
written consent of AutoBond Funding or its assignee;
(iv) such Auto Loan has not been satisfied, subordinated or
rescinded; and no provision of such Auto Loan has been waived, altered or
modified in any respect, except by instruments or documents identified in
the Loan File;
(v) such Auto Loan is not subject to any claim of rescission,
set-off, recoupment, counterclaim or defense, whether arising out of
transactions concerning such Auto Loan between the Obligor and the Dealer,
the Dealer and AutoBond, or otherwise;
(vi) immediately prior to assigning such Auto Loan to AutoBond
Funding, AutoBond was the sole owner and had full right to transfer such
Auto Loan to AutoBond Funding; such Auto Loan has not been sold, assigned
or pledged by AutoBond to any other Person and AutoBond has conveyed to
AutoBond Funding good and marketable title to such Auto Loan, free and
clear of any Adverse Claim;
(vii) on the date of its transfer, such Auto Loan is not a
Defaulted Auto Loan and there is no default, breach, violation, or event
permitting acceleration under the Auto Loan, and no event has occurred
which, with notice and the
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expiration of any grace or cure period or both, would constitute a
default, breach, violation, or event permitting acceleration under such
Auto Loans; provided that, (A) with respect to any Auto Loan acquired by
the Purchaser on the Closing Date, if such Auto Loan is not 60 days or
more contractually past due and (B) with respect to any Auto Loan acquired
by the Purchaser after the Closing Date, if such Auto Loan is not more
than one payment past due, such Auto Loan shall be deemed not to be in
payment default, unless such Auto Loan is a Defaulted Receivable;;
(viii) the Loan File related to such Auto Loan contains each of the
documents required by the AutoBond Program Manual;
(ix) the down payment described in such Loan File was paid to the
related Dealer in the manner stated therein;
(x) the Financed Vehicle securing the Obligor's obligation to pay
under such Auto Loan has been delivered to and accepted by the Obligor;
(xi) such Auto Loan is denominated and payable in United States
dollars;
(xii) such Auto Loan contains enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization of the security afforded by the related collateral;
(xiii) such Auto Loan has been originated and sold in the ordinary
course of AutoBond's and the related Dealer's business, and such Auto Loan
has been entered into by the related Dealer pursuant to standard terms of
loan documentation in accordance with the AutoBond Program, copies of
which have been certified to AutoBond Funding;
(xiv) the Dealer Agreement relating to such Auto Loan is in effect,
whereby the related Dealer warrants delivery of title to such Financed
Vehicle, indemnifies AutoBond against fraud and misrepresentation by the
related Dealer and its employees and represents and warrants that such
Dealer did not accept any side notes as any part of the down-payment
portion of the related Obligor's purchase price, and AutoBond's rights
thereunder with regard to such Auto Loan, have been validly assigned to,
and are enforceable against the related Dealer by, AutoBond Funding or its
assignee, along with any other rights of recourse which AutoBond has
against the related Dealer, without prejudice to any rights (A) AutoBond
Funding may have against AutoBond and (B) AutoBond may have against the
related Dealer with regard to Auto Loans that are not Sold Auto Loans;
(xv) the related Dealer is an Eligible Dealer;
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(xvi) this Agreement and each related Sale Assignment constitutes a
valid sale, transfer, assignment set-over and conveyance to AutoBond
Funding of all right, title and interest of AutoBond and the Selling
Dealer in and to such Auto Loan now existing and hereafter created, and
upon its receipt of such Auto Loan and payment of the related Loan
Acquisition Price, AutoBond Funding will have good and marketable title to
such Auto Loan free and clear of any Adverse Claim and such Auto Loan
shall be freely transferable by AutoBond Funding without the required
consent of any party;
(xvii) such Auto Loan does not (A) contravene in any material
respect any laws, rules or regulations applicable thereto in connection
with the origination of such Auto Loan (specifically excluding laws, rules
or regulations applicable thereto in connection with post-origination
compliance, including, but not limited to, laws, rules and regulations
applicable thereto in connection with fair credit billing, fair credit
reporting and fair debt collection practices) or (B) except as required by
applicable law, impose any liability or obligation of the Dealer or
AutoBond on AutoBond Funding or its assignee with respect to such Auto
Loan;
(xviii) there are no procedures or investigations pending or, to the
best of AutoBond's knowledge, threatened before any Governmental Authority
(A) asserting the invalidity of such Auto Loan, or (B) seeking any
determination or ruling that might materially and adversely affect the
validity or enforceability of such Auto Loan;
(xix) AutoBond and, to the best of its knowledge, the Selling
Dealer, have duly fulfilled all obligations on their part to be fulfilled
under or in connection with such Auto Loan and have done nothing to impair
the rights of AutoBond Funding in such Auto Loan or the rights of AutoBond
Funding in the proceeds with respect thereto, and have paid in full all
taxes and other charges payable in connection with such Auto Loan and the
transfer of such Auto Loan to AutoBond Funding, which could impair or
become a lien prior to AutoBond Funding's interest in such Auto Loan;
(xx) the Sale Assignment has been duly executed and delivered by
AutoBond;
(xxi) the residence of the related Obligor is located within the
borders of the United States of America;
(xxii) the original of the retail installment sale contract and note
evidencing such Auto Loan has been delivered to the Collateral Agent;
(xxiii) the Obligor is not a Governmental Authority; and
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(xxiv) if required under the applicable Credit Agreement or
Disposition Agreement, such Auto Loan is covered under the VSI Policy then
in effect with respect to the Sold Auto Loans.
(c) It is understood and agreed that the representations and warranties
set forth in this Section 5 shall survive the sale or contribution of a Sold
Auto Loan to AutoBond Funding and any assignment of such Sold Auto Loan by
AutoBond Funding to any subsequent assignee and shall continue so long as any
such Sold Auto Loan shall remain outstanding until such time as such Sold Auto
Loan is repurchased pursuant to Section 5(d). AutoBond acknowledges that it has
been advised that AutoBond Funding may assign all or part of its right, title
and interest in and to each Sold Auto Loan and its right to exercise the
remedies created by this Section 5 to a subsequent assignee. AutoBond agrees
that, upon any such assignment, any subsequent assignee may enforce directly,
without joinder of AutoBond Funding (but subject to any defense that AutoBond
may have under this Agreement), the purchase obligations of AutoBond set forth
in Section 5(d) with respect to breaches of the representations and warranties
set forth in Section 5(a) and Section 5(b).
(d) Upon discovery by AutoBond Funding, any subsequent assignee or
AutoBond of (i) a breach of any of the representations and warranties in Section
5(a) or Section 5(b) which materially and adversely affects the value of a Sold
Auto Loan or the interests of AutoBond Funding or a subsequent assignee therein
or (ii) the failure of AutoBond to deliver original certificates of title in
accordance with Section 6(m), the party discovering such breach or failure to
deliver shall give prompt written notice to the other parties. If, at the time
of such discovery, (i) no loss has yet occurred with respect to such Sold Auto
Loan, (ii) such breach or failure to deliver is curable and (iii) AutoBond shall
have failed to cure such breach or failure to deliver within, in the case of a
breach, 30 days, and, in the case of a failure to deliver, seven Business Days,
after the earlier of (A) AutoBond's discovery of such breach or failure to
deliver and (B) AutoBond's receipt of written notice of such breach or failure
to deliver, then if requested in writing by notice from AutoBond Funding or any
subsequent assignee, AutoBond shall immediately repurchase such Sold Auto Loan
by remitting an amount equal to the Repurchase Price in the manner specified in
such notice; provided, however, if any such breach under Section 5(b) is due to
a breach or default by a Dealer under a Dealer Agreement, AutoBond shall have 30
days in which to cure such breach or default with respect to such Dealer, in
which case AutoBond will promptly notify the Lender. If AutoBond fails to cure
such Dealer breach or default within 30 days, then AutoBond shall be obligated
to repurchase the affected Sold Auto Loans pursuant to this Section 5(d). Any
such repurchase shall be made without recourse against, or warranty, express or
implied, of AutoBond Funding or any such assignee. Notwithstanding the
immediately preceding sentence, in connection with any such
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repurchase, AutoBond Funding shall in writing represent to AutoBond (i) the
amount of the remaining balance of the relevant Sold Auto Loan and (ii) that
AutoBond Funding has not violated in any material way any laws applicable to the
collectibility of such Sold Auto Loan. AutoBond Funding or any subsequent
assignee shall execute and deliver an assignment substantially in the form of
Exhibit D attached hereto and made a part hereof to vest ownership of such Sold
Auto Loan in AutoBond. If, at the time of the discovery of such breach or
failure to deliver, a loss has occurred with respect to such Sold Auto Loan,
then AutoBond shall pay to AutoBond Funding or any subsequent assignee an amount
equal to the amount, if any, by which the Repurchase Price exceeds the net
proceeds from such Sold Auto Loan. It is understood and agreed that the
obligation of AutoBond to repurchase any Sold Auto Loan pursuant to this Section
5(d) or to make the payment described in the immediately preceding sentence (the
"Repurchase Requirement") shall constitute the sole remedy for the breach of any
representation or warranty set forth in Section 5(b) or the failure by AutoBond
to deliver an original certificate of title in accordance with Section 6(m);
provided, that the foregoing limitation shall not be construed to limit in any
manner AutoBond Funding's rights to (a) declare the Termination Date to have
occurred to the extent that such breaches or failures to deliver also
constitute, or contribute to the determination of, an Event of Purchase
Termination, (b) indemnification to the extent available under Section 9, or (c)
offset the amount of the Repurchase Price from the Loan Acquisition Price in
connection with any other Sold Auto Loans. It is also understood and agreed that
upon the repurchase by AutoBond of a Sold Auto Loan in accordance with this
Section 5(d) and the payment by AutoBond of all monies required to be paid by it
under this Section 5(d) it is the intention of the parties hereto and AutoBond
Funding warrants that, if the seller of such Sold Auto Loan is AutoBond Funding,
AutoBond shall own all right, title and interest of AutoBond Funding in and to
such Sold Auto Loan.
(e) Subject to Section 9, with respect to any representations and
warranties contained in Section 5(b) which are made to the best of AutoBond's
knowledge, if it is discovered that any representation and warranty is
inaccurate and such inaccuracy materially and adversely affects the value of a
Sold Auto Loan or the interests of AutoBond Funding or any assignee thereof,
then notwithstanding AutoBond's lack of knowledge of the accuracy of such
representation and warranty at the time such representation or warranty was
made, such inaccuracy shall be deemed a breach of such representation or
warranty for purposes of the Repurchase Requirement described in Section 5(d).
(f) It is understood and agreed that the Repurchase Requirement shall
survive any assignment of a Sold Auto Loan by AutoBond Funding to any subsequent
assignee and shall continue so long as any such Sold Auto Loan shall remain
outstanding notwithstanding any termination of this Agreement.
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SECTION 6. Additional Covenants of AutoBond. AutoBond shall, unless
AutoBond Funding shall otherwise consent in writing:
(a) comply in all material respects with all applicable laws, rules,
regulations and orders with respect to itself, its business and
properties;
(b) preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its organization and, if
applicable, all necessary Sales Finance Company Licenses;
(c) [reserved];
(d) furnish, or cause to be furnished, to AutoBond Funding as soon
as available and in any event within 120 days after the end of each fiscal
year of AutoBond, a copy of the consolidated financial statement of
AutoBond and its consolidated subsidiaries as of the end of such year and
the related consolidated statements of income and retained earnings, and
of cash flow, of AutoBond and its consolidated Subsidiaries for such year,
in each case reported on by a firm of independent public accountants which
is a member of the American Institute of Certified Public Accountants;
(e) promptly after the occurrence thereof, deliver notice of any
pending or threatened action, suit or proceeding of a type described in
Section 5(a)(vii);
(f) as soon as possible and in any event within five days after the
occurrence of an Event of Purchase Termination as defined in Sections 8(a)
through and including 8(g) (including without limitation a material
adverse change in the financial condition of AutoBond as determined by
AutoBond Funding) or each event which, with the giving of notice or lapse
of time or both, would constitute an Event of Purchase Termination,
furnish to AutoBond Funding the statement of an officer of AutoBond
setting forth complete details of such Event of Purchase Termination or
event and the action which AutoBond has taken, is taking and proposes to
take with respect thereto;
(g) if requested by AutoBond Funding, promptly verify the accuracy
of any background information concerning AutoBond required for any
offering document with respect to the sale of securities backed by the
Sold Auto Loans, and allow such information to be published in such public
offering documents; provided, that no financial statements of AutoBond
shall be so published without AutoBond's written consent which consent
shall not be unreasonably withheld;
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(h) maintain, at its own expense, with responsible insurance
companies such insurance on such of its properties, in such amounts and
against such risks as is customarily maintained by similar businesses. No
provision of this Section 6(h) requiring insurance shall relieve AutoBond
from its duties and obligations as set forth in this Agreement. AutoBond
shall be deemed to have complied with this provision in whole or in
applicable part if one of its Affiliates has such applicable policy or
policies and, by the terms thereof, the coverage afforded thereunder
extends to AutoBond. AutoBond shall, upon the request of AutoBond Funding,
file with AutoBond Funding a list of the insurance then in effect, stating
the names of the insurance companies, the amounts of the insurance, the
dates of expiration thereof, and the properties and risks covered thereby;
(i) use reasonable efforts to promptly acquire, maintain and/or
deliver to AutoBond Funding, as the case may be, from time to time, such
other information, documents, records or reports, including tax returns
and reports, respecting the Auto Loans or the condition or operations,
financial or otherwise, of AutoBond or any of its Subsidiaries, as
AutoBond Funding may, from time to time, reasonably require including, but
not limited to, such information, documents, records or reports which
AutoBond Funding is requested or required by applicable law (including any
requirement of law arising by means of deposition, interrogatory, request
for information, subpoena, civil investigative demand or similar process
or by a regulatory body or agency or other legal entity) to provide to a
third party (including any Governmental Authority) and such information
that is desirable to obtain in connection with any Disposition including
any such information requested by any ratings agency involved in any
Disposition; provided, that appropriate confidentiality shall be
maintained by AutoBond Funding and or any third party and that the
requesting third party has an appropriate reason to obtain information
that pertains to the AutoBond Program;
(j) keep a copy of this Agreement in its official records;
(k) use its best efforts to comply with and adhere to the AutoBond
Program Manual;
(l) deliver to the Collateral Agent or, upon a Disposition, the
assignee designated by AutoBond Funding, on the earlier to occur of (i)
the seventh day following the date of the issuance by the relevant state
title registration agency of an original certificate of title for an
Financed Vehicle and (ii) the date which is the 135th day after the Sale
Date of the related Auto Loan, an original certificate of title for the
related Financed Vehicle issued by the relevant state title registration
agency; provided, that AutoBond shall
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be obligated to purchase, in accordance with Section 5(d), each Auto Loan
in connection with which an original certificate of title is not so
delivered to the Collateral Agent or such assignee; and
(m) agree to reasonable amendments to this Agreement which do not
add material responsibilities of AutoBond hereunder and which do not
diminish the material benefits of AutoBond hereunder which amendments are
necessary (i) to ensure the assignment by the rating agency rating the
securities to be issued in connection with a Disposition of a desirable
(in the sole discretion of AutoBond Funding) rating of such securities or
(ii) to prevent a review with negative implications, suspension,
downgrade, withdrawal or other impairment of the rating assigned to such
securities.
SECTION 7. Termination. This Agreement shall have an initial term of five
years, commencing on the date hereof, and shall thereafter be automatically
renewed for successive one-year periods; provided, however, that this Agreement
will terminate on the date (the "Termination Date"), if any, that is the earlier
to occur of the following events:
(a) the date an Event of Purchase Termination shall have been
declared or deemed declared in accordance with the provisions of Section
8; or
(b) at the expiration of the then current term if either party gave
notice to the other of its election not to renew this Agreement no less
than ninety days prior to the expiration of such term.
SECTION 8. Events of Purchase Termination. If any of the following events
(each, an "Event of Purchase Termination") shall occur and be continuing:
(a) AutoBond shall fail to perform or observe any material term,
covenant or agreement contained in this Agreement and such failure shall
remain unremedied for 30 days after written notice thereof shall have been
given by AutoBond Funding to AutoBond; or
(b) a default shall have occurred and be continuing under any
instrument or agreement evidencing, securing or providing for the issuance
of a material amount of Debt, which default results in the acceleration of
such Debt; or
(c) AutoBond shall generally not pay any of its respective debts as
such debts become due, or AutoBond shall admit in writing its inability to
pay its Debts generally, or shall make a general assignment for the
benefit of creditors;
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or any proceeding shall be instituted by or against AutoBond seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or any of its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a conservator,
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its
property) shall occur; or AutoBond shall take any corporate action to
authorize any of the actions set forth in this subsection; or
(d) judgments or orders of any court, arbitrator or other
Governmental Authority for the payment of money (other than such judgments
or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $50,000 in the aggregate against AutoBond
shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 30 days or more; or
(e) there is a material breach of any of the representations and
warranties of AutoBond set forth in Section 5(a); or
(f) any Governmental Authority (including the Internal Revenue
Service or the Pension Benefit Guaranty Corporation) shall file notice of
a lien with regard to the assets of AutoBond (other than a lien (i)
limited by its terms to assets other than Auto Loans and (ii) not
materially adversely affecting the financial condition of AutoBond); or
(g) this Agreement and the Sale Agreement shall for any reason cease
to evidence the transfer to AutoBond Funding of the legal, equitable and
marketable title to, and ownership of, the Auto Loans; or
(h) AutoBond Funding becomes obligated to cease purchasing Auto
Loans from AutoBond in accordance with any Credit Agreement or otherwise
pursuant to a Disposition;
then and in any such event, AutoBond Funding may, by notice to AutoBond declare
an Event of Purchase Termination to have occurred, in which case the Termination
Date shall be the date such notice is given without demand, protest or further
notice of any kind, all of which are hereby expressly waived by AutoBond;
provided, that in the event that any of the Events of Purchase Termination
described in subsections (c) or (g) of this Section 8 shall have occurred, an
Event of Purchase Termination shall be deemed to have been declared in which
case the Termination Date shall be on the date on which
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such Event of Purchase shall have occurred, without demand, protest or any
notice of any kind, all of which are hereby expressly waived by AutoBond. Upon
any such actual declaration or deemed declaration, (i) all of AutoBond's rights
under this Agreement (except its rights by virtue of AutoBond Funding not having
performed its obligations and agreements hereunder) shall terminate and (ii)
AutoBond Funding shall have, in addition to all other rights and remedies under
this Agreement, all other rights and remedies provided under the UCC and other
applicable law, which rights shall be cumulative.
SECTION 9. Indemnification. Without limiting any other rights that an
Indemnified Party may have hereunder or under applicable law, AutoBond hereby
agrees to pay on demand to each Indemnified Party any and all amounts necessary
to indemnify such Indemnified Party from and against any and all claims, losses
and liabilities and related costs and expenses, including taxes and reasonable
attorneys' fees and disbursements ("Indemnified Amounts") which may be imposed
on, incurred by or asserted against an Indemnified Party in any way arising out
of or resulting from:
(a) any representation or warranty made or deemed made by AutoBond
(or any of its officers) under this Agreement, or any report delivered by
AutoBond pursuant hereto or any other information delivered by AutoBond
pursuant hereto, having been incorrect in any material respect when made
or deemed made or delivered (except with respect to any representation and
warranty arising under Section 5(b) (other than Section 5(b)(xxi)(A) in
respect of losses to or damages imposed on AutoBond Funding or its
assignee in excess of the Repurchase Price of a Sold Auto Loan) in respect
of a Sold Auto Loan, as to which AutoBond Funding's remedies are set forth
in Section 5(d));
(b) the failure by AutoBond to comply with any term, provision or
covenant contained in this Agreement, or any agreement executed in
connection with this Agreement;
(c) the failure to vest and maintain vested in AutoBond Funding, or
to transfer to AutoBond Funding, legal, equitable and marketable title to
and ownership of the Auto Loans which are, or are purported to be, Sold
Auto Loans, together with all proceeds in respect thereof, free and clear
of any Adverse Claim (except as permitted hereunder) whether existing at
the time of the proposed sale of such Auto Loan or at any time thereafter
and without limitation to the remedies set forth in Section 5; or
(d) the actions or inactions of AutoBond or any officer, director,
employee or agent of AutoBond;
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excluding, however, (a) recourse for any uncollectible Sold Auto Loan; provided,
that the foregoing shall not be deemed to limit AutoBond Funding's rights under
Sections 5(d), 9(c), 9(d) and, with respect to a breach in the representation
and warranty set forth in Section 5(b)(xxi)(A), Section 9(a), (b) Indemnified
Amounts to the extent resulting from the negligence or willful misconduct on the
part of any Indemnified Party and (c) with respect to Sections 9(a) and 9(d)
only, (i) Indemnified Amounts to the extent resulting solely from fraud or
misrepresentation with respect to an Auto Loan on the part of an Obligor (A)
which AutoBond had no knowledge of at the time of sale of the related Financed
Vehicle or (B) with respect to which AutoBond had no knowledge of any fact which
should have led it to expect at the time of the sale of the related Financed
Vehicle that such Auto Loan would not be paid in full when due because of fraud
or misrepresentation on the part of such Obligor and (ii) Indemnified Amounts
resulting solely from the non-payment by an Obligor of the amounts due under an
Auto Loan. AutoBond acknowledges that AutoBond Funding intends to assign its
rights of indemnity granted hereunder to an assignee and upon such assignment,
such assignee shall have all rights of AutoBond Funding hereunder and may in
turn assign such rights. AutoBond agrees that, upon such assignment, such
assignee may enforce directly, without joinder of AutoBond Funding, the
indemnities set forth in this Section 9. It is understood and agreed that the
indemnity obligations of AutoBond hereunder shall survive the termination of
this Agreement or of any Sold Auto Loan.
SECTION 10. Confidentiality. Except to the extent otherwise required by
applicable law or unless AutoBond Funding shall otherwise consent in writing,
AutoBond agrees to maintain the confidentiality of the original or any copy of
all or any part of this Agreement (and all drafts hereof and documents ancillary
thereto including any letters of intent) in its communications with third
parties and otherwise and not to disclose the existence, or the terms, of this
Agreement or to deliver or otherwise make available such documents to any third
party (other than its directors, officers, employees, accountants examiners or
counsel, or as required by law). AutoBond shall not make use in any manner
whatsoever (except as required by law) of the names of any of the participants
in the AutoBond Program without the prior written consent of AutoBond Funding.
AutoBond shall not act on the behalf of, in the name of, or make agreements on
behalf of, AutoBond Funding without the express written consent of AutoBond
Funding.
SECTION 11. No Proceedings. AutoBond hereby agrees that it will not,
directly or indirectly, institute, or cause to be instituted, against AutoBond
Funding any proceeding of the type referred to in Section 8(c) so long as there
shall not have elapsed one year plus one day since the latest maturing
securities issued by AutoBond Funding or any Securitization Trust have been paid
in full in cash. The foregoing covenant shall not limit AutoBond's
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right to institute legal proceedings of a type other than that referred to in
Section 8(c) against the AutoBond Funding for any breach by AutoBond Funding of
its obligations hereunder.
SECTION 12. Notices, Etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing and mailed or
telecommunicated, or delivered as to each party hereto, at its address set forth
under its name on the signature page hereof or at such other address as shall be
designated by such party in a written notice to the other parties hereto. All
such notices and communications shall not be effective until received by the
party to whom such notice or communication is addressed.
SECTION 13. No Waiver; Remedies. No failure on the part of AutoBond,
AutoBond Funding or any assignee thereof to exercise, and no delay in
exercising, any right hereunder or under any Sale Assignment shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
other remedies provided by law.
SECTION 14. Binding Effect; Assignability. This Agreement shall be binding
upon and inure to the benefit of AutoBond, AutoBond Funding and their respective
successors and permitted assigns. Each Trustee, Collateral Agent and any other
assignee shall be an express third party beneficiary of this Agreement, entitled
to directly enforce this Agreement. AutoBond may not assign any of its rights
and obligations hereunder or any interest herein without the prior written
consent of AutoBond Funding, each Trustee, Collateral Agent and any other
assignee. AutoBond Funding may, and intends to, assign all of its rights
hereunder and AutoBond consents to any such assignment. This Agreement shall
create and constitute the continuing obligations of the parties hereto in
accordance with its terms, and shall remain in full force and effect until its
termination; provided, that the rights and remedies with respect to any breach
of any representation and warranty made by AutoBond pursuant to Section 5, the
Repurchase Requirement and the indemnification and payment provisions of Section
9 shall be continuing and shall survive any termination of this Agreement.
SECTION 15. Amendments; Consents and Waivers; Entire Agreement. No
modification, amendment or waiver of, or with respect to, any provision of this
Agreement, and all other agreements, instruments and documents delivered
thereto, nor consent to any departure by AutoBond from any of the terms or
conditions thereof shall be effective unless it shall be in writing and signed
by each of the parties hereto. Any waiver or consent
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shall be effective only in the specific instance and for the purpose for which
given. No consent to or demand by AutoBond in any case shall, in itself, entitle
it to any other consent or further notice or demand in similar or other
circumstances. This Agreement and the documents referred to herein embody the
entire agreement of AutoBond and AutoBond Funding (but not of AutoBond Funding
and any third parties) with respect to the Auto Loans and supersede all prior
agreements and understandings between such parties relating to the subject
hereof. AutoBond acknowledges that in connection with the intended assignment by
AutoBond Funding of all of its right, title and interest in and to each Sold
Auto loan to an assignee, AutoBond Funding intends to enter into certain
financing and security arrangements with such assignee pursuant to which such
assignee, subject to the terms of such arrangements, shall provide funds to
AutoBond Funding to purchase Auto Loans hereunder and pursuant to which the
ability of AutoBond Funding to perform hereunder (including its ability to
purchase Auto Loans and to render consents hereunder) shall be subject to the
consent of such assignee. Notwithstanding the above, the obligation of AutoBond
Funding to perform hereunder shall not be diminished by the existence of such
arrangements.
SECTION 16. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation, shall not in any way be
affected or impaired thereby in any other jurisdiction. Without limiting the
generality of the foregoing, in the event that a Governmental Authority
determines that AutoBond Funding may not purchase or acquire Auto Loans, the
transactions evidenced hereby shall constitute a loan and not a purchase and
sale, notwithstanding the otherwise applicable intent of the parties hereto and
AutoBond shall be deemed to have granted to AutoBond Funding as of the date of
each Sale a first priority perfected security interest in all of AutoBond's
right, title and interest in, to and under the Sold Auto Loans, and all proceeds
thereof.
SECTION 17. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
JURY TRIAL.
(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAW.
(B) AUTOBOND AND AUTOBOND FUNDING HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET
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FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. AUTOBOND AND AUTOBOND FUNDING EACH HEREBY WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF AUTOBOND OR AUTOBOND FUNDING TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY OF THEM TO BRING ANY
ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(C) AUTOBOND AND AUTOBOND FUNDING EACH HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
SECTION 18. Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
SECTION 19. Execution in Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and both of which when taken together shall
constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AUTOBOND ACCEPTANCE CORPORATION
By:______________________________
Name: William Winsauer
Title: Chief Executive Officer
Address: 301 Congress Avenue
Austin, Texas 78701
Attention: William Winsauer
Telephone number: (800) 305-4901
Telecopier number: (512) 472-1548
AUTOBOND FUNDING CORPORATION II
By:________________________________
Name: Adrian Katz
Title: Vice President
Address: 301 Congress Avenue
Austin, Texas 78701
Attention: Adrian Katz
Telephone number: (800) 305-4901
Telecopier number: (512) 472-1548
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EXHIBIT A
TO
LOAN ACQUISITION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF JUNE , 1996
BY AND BETWEEN
AUTOBOND ACCEPTANCE CORPORATION
AND
AUTOBOND FUNDING CORPORATION II
[FORM OF SALE ASSIGNMENT]
SALE ASSIGNMENT, dated as of ___________, 199_, between AUTOBOND
ACCEPTANCE CORPORATION ("Autobond") and AUTOBOND FUNDING CORPORATION II
("Funding").
1. We refer to the Loan Acquisition, Sale and Contribution Agreement
(the "Sale Agreement") dated as of June , 1996 between AutoBond and Funding. All
provisions of such Sale Agreement are incorporated herein by reference. All
capitalized terms shall have the meanings set forth in the Sale Agreement.
2 [Pursuant to the Sale Agreement, AutoBond does hereby sell,
transfer, assign, set over and convey to Funding all right, title and interest
of AutoBond in and to the Auto Loans listed on Schedule 1 hereto (each, a "Sold
Auto Loan") and Funding does hereby purchase each such Sold Auto Loan.]
3. [Pursuant to the Sale Agreement, AutoBond does hereby contribute,
transfer, assign, set over and convey to Funding, without recourse, all right,
title and interest of AutoBond in and to the Auto Loans listed on Schedule 1
hereto (each, a "Contributed Auto Loan") and Funding does hereby accept such
contribution to its stated capital.]
4. The Unpaid Principal Balance for the Sold Auto Loans sold and
purchased hereby is $________. [The Loan Acquisition Price for the Sold Auto
Loans sold and purchased hereby is $________; [representing 98% of the Unpaid
Principal Balance [plus accrued interest of $_______]]. The Loan Acquisition
Price shall be payable in full contemporaneously with the execution of this Sale
Assignment.
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IN WITNESS WHEREOF, the parties have caused this Sale Assignment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
AUTOBOND ACCEPTANCE CORPORATION AUTOBOND FUNDING CORPORATION II
By:______________________ By:______________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
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SCHEDULE 1
SOLD AUTO LOANS
Unpaid Principal Balance: $_______________________
CONTRIBUTED AUTO LOANS
Unpaid Principal Balance: $_______________________
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EXHIBIT B
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CO.
AND
AUTOBOND FUNDING CORPORATION I
[FORM OF OFFICER'S CERTIFICATE
FOR AUTOBOND]
I hereby certify that I am a duly elected [Officer] of AutoBond Acceptance
Co. ("AutoBond") with all requisite knowledge of the matters set forth below and
further certify as follows:
1. No proceedings looking toward merger, liquidation, dissolution or
bankruptcy of AutoBond are pending or contemplated.
2. There is no litigation pending, or to my knowledge, threatened,
which, if determined adversely to AutoBond, would adversely affect the
execution, delivery or enforceability of the Amended and Restated Loan
Origination, Sale and Contribution Agreement, dated as of December 15,
1995 (the "Agreement"), by and between AutoBond and AutoBond Funding
Corporation I, or the sale of the Auto Loans as provided therein.
3. With respect to the Agreement, AutoBond has complied with all the
agreements by which it is bound and has satisfied all the conditions on
its part to be performed or satisfied prior to the date hereof.
4. No Event of Purchase Termination, or other event of default in
the performance of any of AutoBond's covenants or agreements under the
Agreement has occurred and is continuing, nor has an event occurred which
with the passage of time or notice or both would become such an event of
default.
5. AutoBond is not a party to, or governed by, any contract,
indenture, mortgage, loan agreement, note, lease, deed of trust or other
instrument which restricts AutoBond's ability to act as agent in
connection with the sale of Auto Loans or consummate any of the
transactions contemplated by the Agreement.
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6. For tax, accounting, and reporting purposes, AutoBond will not
show the Sold Auto Loans as assets on its books.
7. AutoBond (a) is solvent; (b) is paying its debts as they mature;
(c) neither intends to incur, nor believes that it would incur, debts
beyond its ability to pay as they mature; and (d) has an adequate amount
of capital to conduct its business and anticipates no difficulty in
continuing to do so for the foreseeable future.
8. AutoBond has and maintains all material permits, licenses,
authorizations, registrations, approvals and consents of Governmental
Authorities necessary for (a) the activities and business of AutoBond as
currently conducted, (b) the ownership, use, operation and maintenance of
its properties, facilities and assets, and (c) the performance by AutoBond
of the Agreement.
9. The representations and warranties of AutoBond set forth in
Section 5(a) of the Agreement are true and correct on and as of the date
hereof and any other Sale Date on which this certificate is deemed to be
restated, before and after giving effect to the Sale on such date and to
the application of the proceeds therefrom, as though made on and as of
such Sale Date and the representations and warranties set forth in Section
5(b) are true and correct on and as of such Sale Date with respect to the
Sold Auto Loans.
10. The Termination Date has not occurred.
The statements listed above shall be deemed to be re-certified by me or my
successor in accordance with the last sentence of Section 4(a) of the Agreement.
All capitalized terms used herein that are not otherwise defined shall
have the respective meanings ascribed thereto in the Agreement.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the
seal of AutoBond an of this __ day of ____________, 199_.
By:_______________________________
Name:
Title:
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EXHIBIT D
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CO.
AND
AUTOBOND FUNDING CORPORATION I
[FORM OF REPURCHASE ASSIGNMENT]
REPURCHASE ASSIGNMENT (this "Purchase Assignment"), dated as of _________,
199_ between AutoBond Acceptance Co. ("AutoBond") and [AutoBond Funding
Corporation I ("AutoBond Funding")] [ASSIGNEE OF
AUTOBOND FUNDING].
We refer to the Amended and Restated Loan Origination, Sale and
Contribution Agreement (the "Agreement"), dated as of December 15, 1995, by and
between AutoBond and AutoBond Funding. All capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Agreement.
Pursuant to Section 5(d) of the Agreement, AutoBond Funding [ASSIGNEE OF
AUTOBOND FUNDING] does hereby sell, transfer, assign, set over and convey to
AutoBond, without recourse or warranty, express or implied, all right, title and
interest of AutoBond Funding [ASSIGNEE OF AUTOBOND FUNDING] in and to the Auto
Loans listed on Schedule 1 attached hereto and made a part hereof (each, a
"Repurchased Auto Loan"), in consideration for receipt of the aggregate
Repurchase Price for such Repurchased Auto Loans, and AutoBond does hereby
purchase each such Repurchased Auto Loan.
The Repurchase Price for each Repurchased Auto Loan is set forth on
Schedule 1 attached hereto and made a part hereof.
THIS PURCHASE ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAW.
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IN WITNESS WHEREOF, the parties have caused this Repurchase
Assignment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
AUTOBOND ACCEPTANCE CO.,
By:_________________________
Name:
Title:
AUTOBOND FUNDING CORPORATION I
[ASSIGNEE OF AUTOBOND FUNDING]
By:_________________________
Name:
Title:
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SCHEDULE 1 TO EXHIBIT D
TO THE LOAN ORIGINATION AGREEMENT
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EXHIBIT E
TO
AMENDED AND RESTATED LOAN ORIGINATION,
SALE AND CONTRIBUTION AGREEMENT
DATED AS OF DECEMBER 15, 1995
BY AND BETWEEN
AUTOBOND ACCEPTANCE CO.
AND
AUTOBOND FUNDING CO.
[FORM OF DEALER AGREEMENT]
AUTOBOND ACCEPTANCE CORP.
Dealer Agreement
This dealer Agreement ("Agreement") is made and entered into this _____ day of
________________________, 19__ at _________________________, Texas, by and
between , ___________,_________________ , Texas_____________
(Dealer Name) (Address)
(City) (Zip Code)
(herein called "Seller") and AutoBond Acceptance Corporation, 301
Congress Avenue, Suite 900, Austin, Texas 78701 (herein called
"Autobond").
Seller is the originator of certain automobile retail installment contracts (the
"Contracts") which Contracts arise out of Seller's sale of motor vehicles to
purchasers ("Obligors"). Seller will from time to time, sell Contracts to
AutoBond and AutoBond will from time to time, purchase Contracts from Seller.
Seller and AutoBond desire to formally set out the rights, obligations and
responsibilities of the parties with respect to the Contracts purchased by
AutoBond and therefore, the parties agree as follows:
APPLICABILITY. Unless otherwise agreed in writing, this Agreement shall cover
all purchasers of Contracts by AutoBond from Seller. Seller and AutoBond are
deemed to be independent contracting parities and this Agreement does not
establish an agency relationship between the parties.
PURCHASE PRICE OF CONTRACTS. AutoBond shall purchase the Contracts at a price
agreed upon by the Seller and AutoBond. Such price shall vary from time to time
and will be established by AutoBond and provided in writing to the Seller.
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CONSIDERATION. In consideration for the purchase of the Contracts by AutoBond,
Seller agrees to sell, assign, convey, transfer, and set over to AutoBond all of
Seller's rights, title, and interest in and to the Contracts and all related
documents, including, but not limited to, all security agreements, credit
applications, title applications, financing agreements, insurance policy
applications, and proofs of insurance (collectively "Contract Documents") and
the rights conferred thereunder. All assignments shall be made by properly
completing the assignment section of each Contract. As additional consideration
for the purchase of the Contracts, Seller agrees to pay AutoBond a
non-refundable purchase fee. Said fee will be due at the time of the assignment
of the Contracts to AutoBond.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. In consideration of
AutoBond's purchase of the contracts, Seller hereby represents, warrants and
covenants the following:
A.The Contract Documents represent a genuine obligation of the named Obligor
thereon, is valid and binding in accordance with their terms, is enforceable by
AutoBond and its assigns and is subject to no legal or equitable defenses,
setoffs, or counter claims. The Obligor of each of the contracts was of legal
age and capacity at the time of execution thereof.
B.The Contracts will have arisen out of the sale of the property described in
the Contract Documents on the terms described therein.
C.Seller complied with and the Contract Documents are in compliance with all
applicable federal and state laws, including but not limited to, consumer credit
transaction laws.
D.The contracts are not usurious under applicable laws.
E.The non-refundable purchase fee due AutoBond for each Contract sold by the
Seller to AutoBond was not included in the Obligor's purchase price of the motor
vehicle involved, and the fee was not passed on in any manner to the purchaser
of the motor vehicle.
F.Seller will deliver, or cause to be delivered to AutoBond the original motor
vehicle title issued by the applicable state authority. Seller is the sole owner
of the Contracts and has the authority to sell, transfer, and assign the same
pursuant to this Agreement. The Contract Documents, including the credit
application, represent the entire agreement between the Seller and the Obligor
with respect thereto and the Contract documents have not been modified,
superseded or waived by any act or omission by the Seller. AutoBond, as
subsequent owner of the Contracts, will have a valid first lien and security
interest in the collateral described in the Contract Documents and will be
entitled to enforce such rights to their fullest extent.
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G.Seller will obtain from the Obligor appropriate documentation to evidence the
existence of all physical damage insurance required by State law or regulation,
or required pursuant to the Contract Documents, and will furnish such
documentation to AutoBond.
H.Seller will promptly forward to AutoBond any and all communication, inquiries
or remittances relating to the Contracts and will assist AutoBond in collection
of the monies due pursuant to the Contract Documents if requested.
I.Seller will not use AutoBond's name in any advertising or promotion without
the express written consent of AutoBond.
J.Seller will not accept side notes as any part of the downpayment portion of
Obligor's purchase price. All down payments must be made in cash, cashier's
check or by money order. Seller may not make any payments for the Obligor.
K.Seller has no knowledge of any facts that would impair the validity or
enforceability of the Contracts and all statements of fact contained in the
Contract Documents are true to the best of Seller's knowledge.
L.Seller must use a vendor designated and chosen by AutoBond to supply any
credit insurance, GAP insurance, unemployment insurance or vehicle service
contracts.
M.In the event any motor vehicle sold pursuant to a Contract that AutoBond has
purchased from Seller is repossessed, or the Contract is charged-off as
uncollectible, or the Obligor files for bankruptcy, Seller will pay or cause to
be paid, to AutoBond the total of any unearned credit insurance premium, GAP
insurance premium, unemployment insurance premium and any unearned vehicle
service contract amount existing at the time of such repossession, charge-off,
or bankruptcy, provided that AutoBond shall request, in writing to the Seller,
cancellation of the insurance policy or contract corresponding to the particular
premium or amount.
ASSIGNMENT WITHOUT RECOURSE: REMEDIES FOR BREACH. Except as hereinafter
stipulated in this section, Seller's assignment of the Contracts and Contract
Documents to AutoBond is without recourse.
Upon breach of any representation, warranty, covenant or condition of this
Agreement or any of the Contracts, including, but not limited to the terms of
the sale being exactly as stated in the Contract Documents, and that the down
payment does not include any side note(s), deferred down-payment(s), or
post-dated or held check(s). Seller will, upon demand, repurchase any one or all
of the Contracts ("Designated Contracts") at a price equal to the then remaining
unpaid amounts owing by the Obligor(s)
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under the Designated Contracts, including without limitation all unpaid
principal, accrued and unpaid interest, and all other payments due and payable
under or pursuant to the Contract Documents.
In the event that Seller fails to repurchase within thirty (30) days of
AutoBond's demand any of the Contracts which AutoBond purchased pursuant to this
Agreement and AutoBond undertakes legal action to enforce Seller's repurchase
obligation hereunder. Seller shall be liable to AutoBond for all amounts owned
by Seller to AutoBond, and for all costs of such legal action, including court
costs and reasonable attorney's fees. Seller agrees to indemnify AutoBond from
and against any and all liability, loss or damage Autobond incurs as a result of
claims, demands, costs or judgments against AutoBond by reason of falsity of or
Seller's breach of any of the representations or warranties set forth in this
Agreement or the Contract Documents.
AGREEMENT SUPPLEMENTAL TO ASSIGNMENT. The terms of this Agreement are in
addition to and not in substitution or abrogation of the terms and conditions of
the form of assignment appearing as part of the Contract Documents.
WAIVER OF NOTICES. Seller hereby waives notice of any breach under any Contract
Documents or this Agreement.
BENEFITS OF ASSIGNEES. The provisions of this Agreement shall be binding on and
shall inure to the benefit of the successors, transferees and assigns of Seller
and AutoBond.
ENTIRE AGREEMENT. This document contains the entire Agreement of the parties and
cannot be modified except in a writing signed by both the Seller and AutoBond.
The parties agree to do such other things and take such other action as
reasonably necessary to carry out the intent of the parties as expressed in this
Agreement. This Agreement supersedes, amends, and restates in its entirety all
prior agreements, if any, entered into between the parties thereto. Any such
prior agreement are separately of no further force and effect, and any and all
dealings by and between the parties with regard to the subject matter hereof are
governed exclusively by the terms and conditions of this Agreement.
NOTICES. All notices provided herein shall be in writing, and may be served in
person or by mail, and shall be considered delivered, in the case of notice by
mail, on the earlier date of receipt by the addressee of three (3) business days
after posting in a correctly addressed envelope with postage prepaid.
TERMINATION. Either party, on fifteen (15) days' notice to the other party may
terminate this Agreement; however, such termination shall not affect Seller's
and AutoBond's obligations as to Contracts purchased prior to the date of
termination.
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GOVERNING LAW. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas. The obligation of the parties are
performable and venue for any legal action arising out of this Agreement shall
be in Tarrant County, Texas.
WITNESS our signatures as of this the ____ day of ________, 19__.
SELLER: PURCHASER:
AutoBond Acceptance
Corporation
By:_______________________________
By:_______________________________
Title:__________________________
Title:__________________________
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated February 15, 1996, between Auto Bond
Acceptance Co., a Texas corporation (the "Company"), and Charles A. Pond, an
individual (the "Employee");
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee for the period of time
set forth herein; and
WHEREAS, the Employee is willing to undertake the duties hereinafter set
forth and to be subject to the restrictions hereinafter specified in exchange
for the substantial inducements and incentives herein set forth;
NOW, THEREFORE, the Company and the Employee agree as follows:
1. Term. The Company hereby retains the Employee as President of the
Company for a three-year term commencing on the date hereof and continuing until
the third anniversary of the date hereof (such period being hereinafter
sometimes called the "term of this Agreement"). The Employee accepts such
employment and agrees to perform the services specified herein, all upon the
terms and conditions hereinafter stated.
2. Duties as Employee. The Employee shall serve the Company in the
capacity of President and shall report to, and be subject to the general
direction and control of, the Board of Directors of the Company (the "Board")
and the Chief Executive Officer ("CEO") of the Company. The Employee shall
perform the executive, management and administrative duties of the President of
the Company and such other executive duties as are from time to time assigned to
him by the Board of Directors or the CEO and as are not inconsistent with the
provisions hereof.
3. Time and Availability. The Employee shall devote his full business time
and attention to the business of the Company, and, except as may be specifically
permitted by the Company, shall not be engaged in any other business activity
during the term of this Agreement. The foregoing shall not be construed as
preventing the Employee from making passive investments in other businesses or
enterprises, provided, however, that such investments do not require services on
the part of the Employee which would in any way impair the performance of his
duties under this Agreement.
4. Compensation. As compensation for the services the Employee will
provide to the Company hereunder and for the agreements of the Employee set
forth herein, the Company shall pay to the Employee a salary of $15,000 (the
"Salary") per full calendar
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month of service completed. From time to time during the term of this Agreement,
the Employee's salary may be increased by, and at the sole discretion of, the
Board, in which case the amount of such increased salary shall thereafter be
deemed to be the amount of salary contracted for in this Agreement. In addition
to the Salary payable to the Employee hereunder, in the event the Company
successfully completes an initial public offering of its Common Stock prior to
February 28, 1997, the Company shall pay the Employee a bonus of $90,000. The
Employee shall also be entitled to receive a performance bonus calculated as
follows:
In the event the Company meets 90% of the sales target (the "Sales Target") and
90% of the income target (the "Income Target") set forth on Exhibit A hereto,
the Employee shall become eligible for a performance bonus. Providing the
eligibility requirements of the previous sentence are met, the Company shall pay
the Employee a performance bonus equal to (i) $4,500 for each 10% increase in
the Company's sales over the Sales Target (up to a maximum of $45,000) and (ii)
$4,500 for each 10% increase in the Company's income over the Income Target (up
to a maximum of $45,000).
In addition, the Board may grant the Employee additional compensation in the
form of bonuses or stock options or such other consideration as may be
determined from time to time in the sole discretion of the Board. Following the
Company's initial public offering, the Company intends to establish a stock
grant and/or stock option plan for the benefit of its senior management. The
Employee shall be entitled, as a senior officer of the Company, to participate
in any such program, with the level of his participation to be determined by the
Board. The Salary set forth herein shall be payable in monthly or semi-monthly
installments in accordance with the payroll policies of the Company in effect
from time to time during the term of this Agreement.
5. Benefits. During the term of this Agreement, the Employee shall be
entitled to participate in all employee benefit plans and arrangements in the
same manner as other executive officers of the Company.
6. Expenses. During the term of this Agreement, the Company shall pay or
reimburse the Employee, upon submission of an appropriate statement by him
documenting such expenses as required by the Internal Revenue Code, for all
out-of-pocket expenses for entertainment, travel, meals, hotel accommodations
and the like incurred by him in the interest of the business of the Company and
in accordance with such procedures established by the Board. In addition, the
Company shall pay (a) all pre-approved out-of-pocket
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expenses incurred for the packing and shipping of household goods and personal
belongings, including two automobiles, by the Employee and his family in
relocating to the Austin, Texas area and (b) one-half of the Employee's initial
fee at a country club of his choice in Austin, Texas.
7. Termination.
(a) Death. If the Employee should die during the term of this
Agreement, the Company shall have no further obligation hereunder to the
Employee, his spouse or his estate except to pay to the Employee's spouse
if she should survive him, or to the Employee's estate if his spouse shall
not survive him, the Salary accrued through the end of the month in which
the Employee's death occurred. All such payments to the Employee's spouse
or estate shall be made in the same manner and at the same times as the
Salary would have been paid to the Employee had he not died.
(b) Disability. If during the term of this Agreement, the Employee
shall be prevented from performing his duties hereunder by reason of
disability, and such disability shall continue for a period of six months,
then the Company, upon 30 days' prior written notice to the Employee, may
terminate this Agreement at any time after the expiration of such
six-month period. For purposes of this Agreement, the Employee shall be
deemed to have become disabled when the Board, upon the advice of a
licensed physician (mutually approved by the Company and the Employee or
the representative of the Employee in the event of his inability to
approve), shall have determined that the Employee has become physically or
mentally incapable (excluding infrequent and temporary absences due to
ordinary illness) of performing his duties under this Agreement. If the
Company terminates this Agreement, then the Company shall have no further
obligation to the Employee except to pay to the Employee, or in the event
of his subsequent death, to his spouse if she should survive him or to his
estate if his spouse shall not survive him, the Salary accrued through the
end of the month in which the Employee's death occurred. All such payments
to the Employee or his spouse or estate shall be made in the same manner
and at the same times as the Salary would have been paid to the Employee
had he not become disabled.
(c) Termination by Employee. If the Employee voluntarily
terminates this Agreement, then the Company shall have no further
obligation to the Employee except to pay to the
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Employee the Salary accrued through the date on which the Employee
terminated this Agreement. Such payment to the Employee shall be made in
the same manner and at the same times as the Salary would have been paid
to the Employee had he not terminated this Agreement.
(d) Discharge for Cause. Notwithstanding any other provision of this
Agreement, if prior to the expiration of the term of this Agreement the
Employee shall be discharged by the Company for cause, then this Agreement
shall automatically terminate (except for the provisions of Sections 8, 9
and 11 which shall continue in effect), and upon such termination, the
Company shall have no further obligation to the Employee except that the
Company shall pay to the Employee an amount equal to the Employee's base
salary accrued to the date of such termination. For purposes of this
Agreement, a discharge for cause shall mean a discharge resulting from a
good faith determination by the Company (after the Employee has been given
notice of such intended termination and, if the reasons for such
termination can be cured, a period of 10 days to cure such reasons) that
the Employee (i) has been convicted of a crime involving fraud, theft or
embezzlement or of any other crime involving moral turpitude, (ii) has
failed or refused to follow reasonable policies or directives established
by the Company, (iii) has persistently failed to attend to his duties
hereunder, (iv) has committed acts amounting to gross negligence or
willful misconduct to the substantial detriment of the Company, or (v) has
breached any material term or provision of this Agreement. Such payment to
the Employee shall be made in the same manner and at the same times as the
Salary would have been paid to the Employee had this Agreement not been
terminated.
(e) Termination. If the Employee's employment with the Company shall
terminate prior to the first anniversary of the date of this Agreement for
any reason other than termination by the Employee pursuant to Section 7(c)
or termination by the Company for cause pursuant to Section 7(d), the
Company shall have no further obligation hereunder to the Employee, his
spouse or his estate except to pay to the Employee, his spouse if she
should survive him, or to his estate if his spouse shall not survive him,
his Salary for the remainder of the first year of this Agreement. All such
payments to the Employee, his spouse or estate shall be made in the same
manner and at the same times as the Salary would have been paid to the
Employee had his employment not been terminated.
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8. Confidentiality.
(a) Acknowledgment. The Employee agrees and acknowledges that in the
course of rendering services to the Company and its Clients (as defined below)
he will have access to and will become acquainted with confidential information
about the professional, business and financial affairs of the Company, the
Company's direct or indirect subsidiaries (for purpose of Sections 8 and 9
herein, the term Company shall include any of the Company's direct or indirect
subsidiaries), the Company's strategy and procedures and the Company's Clients,
and may in the future contribute to such information. As used in this Agreement,
the term "Clients" refers to any entity in the sub-prime automobile financing or
refinancing business with which the Company conducts business. The Employee
further recognizes that he is employed as a key employee, that the Company is
engaged in a highly competitive business, and that the success of the Company in
the marketplace depends upon its good will and reputation for providing
exemplary services to its Clients by developing, innovative, aggressive,
cutting-edge and/or novel methods of financing or refinancing the purchase of
automobiles in the sub-prime market, and arranging financing for companies that
are in the business of financing the purchase of automobiles in the sub-prime
market. The Employee recognizes that in order to guard the legitimate interests
of the Company it is necessary for the Company to protect all such confidential
information, good will and reputation.
(b) Proprietary Information. In the course of his service to the
Company, the Employee may have access to and may help create confidential
information, including, but not limited to: the identity of proposed
transactions or the parties thereto, the status of negotiations concerning
proposed transactions, forecasts, budgets, pricing information, Company
developed methods of operation, risk management strategies and procedures,
Client lists, lists of contact persons at Clients, specialized know-how
developed by the Company, business documents or information, marketing data,
trade secrets, personnel roster, including the identity, qualifications and/or
salary scale of any consultant or other Company employee, and other information
generated by the Company or arising in connection with the Company's business
the disclosure of which would give an advantage to the Company's competitors or
Clients. Such information shall hereinafter be called "Proprietary Information"
and shall include any and all items enumerated in the preceding sentence which
come within the scope of the business activities of the Company as to which the
Employee has had or may have access, whether previously existing, now existing
or arising hereafter, whether or not conceived or developed by others or by
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the Employee alone or with others during the period of his service to the
Company, and whether or not conceived or developed during regular working hours.
"Proprietary Information" shall not include (a) any information which is in the
public domain during the period of service by the Employee, provided such
information is not in the public domain as a consequence of disclosure by the
Employee in violation of this Agreement or by any other person who was
contractually obligated not to disclose such information and (b) any information
not considered confidential information by similar enterprises operating in the
sub-prime automobile finance industry.
(c) Fiduciary Obligations. The Employee agrees and acknowledges that
Proprietary Information belongs solely to the Company and is of critical
importance to the Company and that a use or disclosure of the Proprietary
Information in violation of this Section 8 may seriously and irreparably impair
and damage the Company's businesses. The Employee therefore agrees, while he is
an employee of the Company and at all times thereafter, (a) to keep all
Proprietary Information in a fiduciary capacity for the sole benefit of the
Company and (b) not to use the Proprietary Information for the benefit of the
Employee or any other person or entity.
(d) Non-Disclosure. The Employee shall not disclose, directly or
indirectly (except as required by law), any Proprietary Information to any
person other than (a) the Company, (b) employees of the Company that the
Employee reasonably believes have been authorized to receive such information,
(c) such other persons to whom the Employee has been instructed to make
disclosure by the Board, or (d) the Employee's counsel so long as such counsel
agrees to keep all Proprietary Information confidential (in the case of clause
(b) only to the extent required in the course of the Employee's service to the
Company). At the termination of employment hereunder, the Employee shall deliver
to the Company all notes, letters, documents and records which may contain
Proprietary Information which are then in his possession or control and shall
not retain or use any copies or summaries thereof.
9. Non-Competition and Non-Solicitation.
(a) Non-Competition Covenant.
The Employee acknowledges and agrees that (a) in order for the
Company to further ensure that the Proprietary Information will be used solely
for the benefit of the Company and not for the benefit of the Employee or any
other person or entity and (b) in consideration of the Company entering into
this Agreement, the
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Employee has agreed not to compete with the Company to the extent provided in
this Section. The Employee covenants and agrees that during the Restricted
Covenant Period (as that term is defined below), the Employee shall not, whether
for his own account or for any other person or organization other than the
Company, (a) manage, operate, control, assist (directly or indirectly), or
participate in the management, operation or control of, (b) serve as a director,
officer, partner, manager, employee or consultant of, or own more than five
percent of the outstanding voting securities of, or (c) lease property to any
enterprise which, within the Restricted Area (as that term is defined below),
carries on the businesses of financing or refinancing the purchase of
automobiles in the sub-prime market or arranging financing for companies that
are in the business of financing the purchase of automobiles in the sub-prime
market. The Employee further agrees that, during the Restrictive Covenant Period
and within the Restricted Area, he shall not knowingly call upon, solicit,
divert, attempt to solicit or divert, or conduct or carry on any business with
any of the former Clients, current Clients or potential Clients of the Company
known to the Employee (including for this purpose only those former Clients who
were Clients during the last twelve (12) months of his employment with the
Company), without in each case obtaining the prior written consent of the
Company.
(b) Non-Solicitation of Employees. The Employee further agrees that
during the period commencing on the date hereof and continuing until the second
anniversary of the termination of the Employee's employment by the Company, he
will not directly or indirectly, solicit the employment or engagement as a
consultant of any person who was an employee of or a consultant to the Company
at any time during the last twelve months of the Employee's employment with the
Company, or hire such employee or engage as a consultant any such person, unless
in each case the Employee obtains the prior written consent of the Company.
(c) Definitions. For the purposes of Section 9.1, the term
"Restricted Covenant Period" shall mean the period commencing on the date hereof
and terminating on the date 24 months after the Employee's employment with the
Company ends. For the purposes of this Section 9, the term "Restricted Area"
shall mean the territory within a 40-mile radius of any automobile dealership
with which the Company has done business during the term of this Agreement.
(d) No Conflicting Agreement. The Employee represents and warrants
to the Company that he is not bound by the provisions of any agreement with a
current or former employer which would prohibit or limit the Employee's
ability to render services to the
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Company as herein provided. The Employee further represents to the Company that
in the course of rendering services hereunder he will not divulge to the Company
any proprietary information of any other party to whom the Employee owes an
obligation of non-disclosure.
10. Vacations. The Employee shall be entitled each year to a vacation of
four weeks, during which time his compensation shall be paid in full. Each
vacation shall be taken during a period of time to be mutually agreed upon by
the parties.
11. Intellectual Property. The Employee hereby agrees that any and all
copyrights, patents, trademarks, patent or trademark applications, copyrights,
franchises, licenses, permits, rights (including, without limitation, rights to
software and rights to trade secrets and proprietary information, processes and
know-how) and other authorizations (collectively, the "Rights") which he
develops either alone or in collaboration with employees of the Company during
the term of this Agreement shall belong exclusively to the Company and, if
requested, he will execute any deeds, bills of sale, assignments, assurances, or
any other actions or things necessary or desirable to vest, perfect, or confirm
of record or otherwise in the Company its right, title, or interest in, to, or
under any of the Rights.
12. Notices. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, if addressed to the
respective parties as follows:
If to Employee: 2600 Lake Austin Blvd. #5105
Austin, Texas 78703
If to the Company: Auto Bond Acceptance Co.
301 Congress Avenue, 9th Floor
Austin, Texas 78701
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
13. Specific Performance. The Employee acknowledges that a remedy at law
for any breach or attempted breach of Section 8, 9 or 11 of this Agreement will
be inadequate, agrees that the Company shall be entitled to specific performance
and injunctive and other equitable relief in case of any such breach or
attempted breach, and further agrees to waive any requirement for the securing
or
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posting of any bond in connection with the obtaining of any such injunctive or
any other equitable relief.
14. Severability. In case any term, phrase, clause, paragraph, section,
restriction, covenant or agreement contained in this Agreement shall be held to
be invalid or unenforceable, the same shall be deemed, and it is hereby agreed
that the same are meant to be several, and shall not defeat or impair the
remaining provisions hereof.
15. Waiver. The waiver by the Company of a breach of any provision of this
Agreement by the Employee shall not operate or be construed as a waiver of any
subsequent or continuing breach of this Agreement by the Employee.
16. Assignment. This Agreement may not be assigned by the Employee.
Neither the Employee nor his spouse or estate shall have any right to commute,
encumber or dispose of any right to receive payments hereunder, it being agreed
that such payments and the right thereto are nonassignable and nontransferable.
17. Binding Effect. Subject to the provisions of Section 16, this
Agreement shall be binding upon and inure to the benefit of the parties hereto,
the Employee's heirs and personal representatives, and the successors and
assigns of the Company.
18. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the matters covered
hereby.
19. Amendment. This Agreement may be amended only by an instrument in
writing executed by the parties hereto.
20. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the law of the State of Texas.
21. Survival. The provisions of this Sections 8, 9 and 11 shall survive
until the termination of this Agreement, regardless of the fact that the Company
will no longer be obligated to continue to make payments to the Employee
hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY:
AUTO BOND ACCEPTANCE CO.
By /s/ WILLIAM O. WINSAUER
-------------------------------
WILLIAM O. WINSAUER, Chief
Executive Officer
THE EMPLOYEE:
/s/ CHARLES A. POND
__________________________________
CHARLES A. POND
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Exhibit A: Sales and Income Targets
Charles A. Pond Employment Agreement
Acquisition Volume Net Income
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1996
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Q1 $18.0 million $0.9 million
Q2 $22.5 million $1.2 million
Q3 $26.7 million $1.8 million
Q4 $39.6 million $3.2 million
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AUTOBOND ACCEPTANCE CORPORATION
DEALER AGREEMENT
This dealer Agreement ("Agreement") is made and entered into this 9th day of
November, 1994 at Houston, Texas, by and between:
Charlie Thomas Ford, Inc., 7200 Gulffrun, Houston, Texas 77017
(Dealership Name) (Address) (City) (Zip Code)
(herein called "Seller")
and AutoBond Acceptance Corporation, 301 Congress Avenue, Suite 900, Austin,
Texas 78701 (herein called "Autobond").
Seller is the originator of certain automobile retail installment contracts (the
"Contracts") which Contracts arise out of Seller's sale of motor vehicles to
purchasers ("Obligors"). Seller will from time to time, sell Contracts to
AutoBond and AutoBond will from time to time, purchase Contracts from Seller.
Seller and AutoBond desire to formally set out the rights, obligations and
responsibilities of the parties with respect to the Contracts purchased by
AutoBond and therefore, the parties agree as follows:
APPLICABILITY. Unless otherwise agreed in writing, this Agreement shall cover
all purchases of Contracts by AutoBond from Seller. Seller and AutoBond are
deemed to be independent contracting parties and this Agreement does not
establish an agency relationship between the parties.
PURCHASE PRICE OF CONTRACTS. AutoBond shall purchase the Contracts at a price
agreed upon by the Seller and AutoBond. Such price shall vary from time to time
and will be established by AutoBond and provided in writing to the Seller.
CONSIDERATION. In consideration for the purchase of the Contracts by AutoBond,
Seller agrees to sell, assign, convey, transfer, and set over to AutoBond all of
Seller's rights, title, and interest in and to the Contracts and all related
documents, including, but not limited to, all security agreements, credit
applications, title applications, financing agreements, insurance policy
applications, and proofs of insurance (collectively "Contract Documents") and
the rights conferred thereunder. All assignments shall be made by properly
completing the assignment section of each Contract. As additional consideration
for the purchase of the Contracts, Seller agrees to pay AutoBond a
non-refundable purchase fee. Said fee will be due at the time of the assignment
of the Contracts to AutoBond.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. In consideration of
AutoBond's purchase of the Contracts, Seller hereby represents, warrants and
covenants the following:
A. The Contract Documents represent a genuine obligation of the named Obligor
thereon, is valid and binding in accordance with their terms, is
enforceable by AutoBond and its assigns and is subject to no legal or
equitable defenses, setoffs, or counter claims. The Obligor of each of the
Contracts was of legal age and capacity at the time of execution thereof.
B. The Contracts will have arisen out of the sale of the property described in
the Contract Documents on the terms described therein.
C. Seller complied with and the Contract Documents are in compliance with all
applicable federal and state laws, including but not limited to, consumer
credit transaction laws.
D. The contracts are not usurious under applicable laws.
E. The non-refundable purchase fee due AutoBond for each Contract sold by the
Seller to AutoBond was not included in the Obligor's purchase price of the
motor vehicle involved, and the fee was not passed on in any manner to the
purchaser of the motor vehicle.
F. Seller will deliver, or cause to be delivered to AutoBond the original
motor vehicle title issued by the applicable state authority. Seller is the
sole owner of the Contracts and has the authority to sell, transfer, and
assign the same pursuant to this Agreement. The Contract Documents,
including the credit application, represent the entire agreement between
the Seller and the Obligor with respect thereto and the Contract Documents
have not been modified, superseded or waived by any act or omission by the
Seller. AutoBond, as subsequent owner of the Contracts, will have a valid
first lien and security interest in the collateral described in the
Contract Documents and will be entitled to enforce such rights to their
fullest extent.
G. Seller will obtain from the Obligor appropriate documentation to
evidence the existence of all physical damage insurance required by State
law or regulation, or required pursuant to the Contract Documents, and will
furnish such documentation to AutoBond.
H. Seller will promptly forward to AutoBond any and all communication,
inquiries or remittances relating to the Contracts and will assist AutoBond
in collection of the monies due pursuant to the Contract Documents if
requested.
I. Seller will not use AutoBond's name in any advertising or promotion without
the express written consent of AutoBond.
J. Seller will not accept side notes as any part of the down-payment portion
of Obligor's purchase price. All down payments must be made in cash,
cashier's check or by money order. Seller may not make any payments for the
Obligor.
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K. Seller has no knowledge of any facts that would impair the validity or
enforceability of the Contracts and all statements of fact contained in the
Contract Documents are true to the best of Seller's knowledge.
L. Seller must use a vendor designated and chosen by AutoBond to supply any
credit insurance, GAP insurance, unemployment insurance or vehicle service
contracts.
M. In the event any motor vehicle sold pursuant to a Contract that AutoBond
has purchased from Seller is repossessed, or the Contract is charged-off as
uncollectible, or the Obligor files for bankruptcy, Seller will pay or
cause to be paid, to AutoBond the total of any unearned credit insurance
premium, GAP insurance premium, unemployment insurance premium and any
unearned vehicle service contract amount existing at the time of such
repossession, charge-off, or bankruptcy, provided that AutoBond shall
request, in writing to the Seller, cancellation of the insurance policy or
contract corresponding to the particular premium or amount.
ASSIGNMENT WITHOUT RECOURSE; REMEDIES FOR BREACH. Except as hereinafter
stipulated in this section, Seller's assignment of the Contracts and Contract
Documents to AutoBond is without recourse.
Upon breach of any representation, warranty, covenant or condition of this
Agreement or any of the Contracts, including, but not limited to the terms of
the sale being exactly as stated in the Contract Documents, and that the down
payment does not include any side note(s), deferred down-payment(s), or
post-dated or held check(s). Seller will, upon demand, repurchase any one or all
of the Contracts ("Designated Contracts") at a price equal to the then remaining
unpaid amounts owing by the Obligor(s) under the Designated Contracts, including
without limitation all unpaid principal, accrued and unpaid interest, and all
other payments due and payable under or pursuant to the Contract Documents.
In the event that Seller fails to repurchase within thirty (30) days of
AutoBond's demand any of the Contracts which AutoBond purchased pursuant to this
Agreement and AutoBond undertakes legal action to enforce Seller's repurchase
obligation hereunder. Seller shall be liable to AutoBond for all amounts owned
by Seller to AutoBond, and for all costs of such legal action, including court
costs and reasonable attorney's fees. Seller agrees to indemnify AutoBond from
and against any and all liability, loss or damage Autobond incurs as a result of
claims, demands, costs or judgments against AutoBond by reason of falsity of or
Seller's breach of any of the representations or warranties set forth in this
Agreement or the Contract Documents.
AGREEMENT SUPPLEMENTAL TO ASSIGNMENT. The terms of this Agreement are in
addition to and not in substitution or abrogation of the terms and conditions of
the form of assignment appearing as part of the Contract Documents.
WAIVER OF NOTICES. Seller hereby waives notice of any breach under any Contract
Documents or this Agreement.
BENEFITS OF ASSIGNEES. The provisions of this Agreement shall be binding on and
shall inure to the benefit of the successors, transferees and assigns of Seller
and AutoBond.
ENTIRE AGREEMENT. This document contains the entire Agreement of the parties and
cannot be modified except in a writing signed by both the Seller and AutoBond.
The parties agree to do such other things and take such other action as
reasonably necessary to carry out the intent of the parties as expressed in this
Agreement. This Agreement supersedes, amends, and restates in its entirety all
prior agreements, if any, entered into between the parties thereto. Any such
prior agreements are separately of no further force and effect, and any and all
dealings by and between the parties with regard to the subject matter hereof are
governed exclusively by the terms and conditions of this Agreement.
NOTICES. All notices provided herein shall be in writing, and may be served in
person or by mail, and shall be considered delivered, in the case of notice by
mail, on the earlier date of receipt by the addressee of three (3) business days
after posting in a correctly addressed envelope with postage prepaid.
TERMINATION. Either party, on fifteen (15) days' notice to the other party may
terminate this Agreement; however, such termination shall not affect Seller's
and AutoBond's obligations as to Contracts purchased prior to the date of
termination.
GOVERNING LAW. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas. The obligation of the parties are
performable and venue for any legal action arising out of this Agreement shall
be in Tarrant County, Texas.
WITNESS our signatures as of this the 9th day of November, 1994.
SELLER: PURCHASER:
Charlie Thomas Ford, Inc. AutoBond Acceptance Corporation
By:/s/ Jeff Heath By:/s/ William O. Winsauer
Title: CFO/Secretary Title: President
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Amendment
No. 2 to Form S-1 (File No. 333-05359) of our report dated May 1, 1996,
on our audits of the consolidated financial statements and financial statement
schedule of AutoBond Acceptance Corporation. We also consent to the reference to
our firm under the caption 'Experts.'
COOPERS & LYBRAND L.L.P.
Austin, Texas
September 17, 1996
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EXHIBIT 23.3
CONSENTS OF DIRECTOR DESIGNEES
September 17, 1996
Board of Directors
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Dear Sirs:
Each of the undersigned hereby consents to being named as a Director
Designee in the Registration Statement on Form S-1 of AutoBond Acceptance
Corporation.
Very truly yours,
Robert Kapito
Manuel A. Gonzalez
Stuart A. Jones
Thomas I. Blinten
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