<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1996
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
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. STEVEN R. FINLEY, ESQ.
DEWEY BALLANTINE GIBSON, DUNN & CRUTCHER LLP
1301 AVENUE OF THE AMERICAS 200 PARK AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10166
(212) 259-8000 (212) 351-4000
</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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE OFFERING
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1)
<S> <C> <C> <C>
Common Stock, no par value............................ 2,271,250 $13.00 $29,526,250
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTRATION
TO BE REGISTERED FEE
<S> <C>
Common Stock, no par value............................ $10,182
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
------------------------
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>
SUBJECT TO COMPLETION, DATED JUNE 6, 1996
1,975,000 SHARES
AUTOBOND ACCEPTANCE CORPORATION
COMMON STOCK
------------------------------
Of the shares of common stock, no par value (the 'Common Stock'), offered
hereby, 1,750,000 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 trading 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.'
SEE 'RISK FACTORS' ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
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) See 'Underwriting' for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering estimated at $ payable
by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 296,250 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 Oppenheimer &
Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
------------------------
OPPENHEIMER & CO., INC. RAUSCHER PIERCE REFSNES, INC.
The date of this Prospectus is , 1996
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.
<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 shading of those states where the Company
currently operates 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 acquiring, securitizing and servicing retail
installment contracts ('finance contracts') originated by automobile dealers in
connection with the sale of used and, to a lesser extent, new vehicles to
consumers with limited access to traditional sources of credit ('sub-prime
consumers').
The Company was formed by William O. Winsauer and his brother, John S.
Winsauer, to capitalize on William O. Winsauer's expertise in the securitization
of sub-prime finance contracts which he developed as the founder of AutoBond,
Inc. ('ABI'). From 1989 to 1994, ABI structured 20 investment-grade rated
securitizations of sub-prime consumer automobile finance contract portfolios,
aggregating approximately $190 million in principal amount, originated and
underwritten by third party intermediaries. The Company acquires finance
contracts directly from 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
developed the necessary expertise 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, with expertise in the operation of
automobile dealerships, underwriting and acquiring consumer finance contracts,
investment banking and securitizations and collections. The Company's credit
underwriters average thirteen years of experience in the auto finance industry,
and its sales representatives and collection professionals average ten and seven
years of industry experience, respectively.
The Company commenced operations in August 1994 and through March 31, 1996
had acquired 4,171 finance contracts with an aggregate initial principal balance
of $49.9 million, of which $42.8 million have been securitized in two
investment-grade rated transactions. In the quarter ended March 31, 1996, the
Company underwrote and acquired 1,310 finance contracts with an aggregate
initial principal balance of $15.5 million. At March 31, 1996, the Company had
340 dealer relationships in eleven 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 $1.1 million for the three months ended March 31,
1996, compared to a loss of $150,086 for the three months ended March 31, 1995.
The Company markets a single finance contract acquisition program to its
dealers which adheres to consistent underwriting guidelines involving the
purchase of primarily late-model used vehicles. Through March 31, 1996, the
finance contracts acquired by the Company had, upon acquisition, an average
initial principal balance of $11,955, a weighted average annual percentage rate
('APR') of 19.4%, a weighted average finance contract acquisition discount of
8.6% and a weighted average maturity of 53.1 months.
The Company's growth strategy anticipates the acquisition of an increasing
volume 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; and (iii) penetrating
new markets that meet the Company's economic, demographic and business criteria.
3
<PAGE>
<PAGE>
To sustain its growth, the Company will continue to pursue a business
strategy based on the following principles:
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.
EFFICIENT FUNDING STRATEGIES -- Through an investment-grade rated 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.
TARGETED MARKET AND PRODUCT FOCUS -- The Company targets the sub-prime auto
finance market because it believes that sub-prime finance presents greater
opportunities than does prime lending. 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. In addition, the Company
concentrates on acquiring finance contracts from dealerships franchised by
major automobile manufacturers.
UNIFORM UNDERWRITING CRITERIA -- To manage the risk of delinquency or
defaults associated with sub-prime consumers, the Company has developed
underwriting criteria which are consistently applied in evaluating credit
applications. This evaluation process is conducted on a centralized basis
utilizing experienced personnel.
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.
INTENSIVE COLLECTION MANAGEMENT -- The Company believes that intensive
collection efforts are essential to ensure the performance of sub-prime
finance contracts. The Company's collections managers contact delinquent
accounts frequently, beginning on the fifth day of delinquency, and
initiate repossession of financed vehicles no later than the 90th day of
delinquency. As of March 31, 1996, a total of 59, or 1.5%, of the Company's
finance contracts outstanding were between 60 and 90 days past due. Since
inception through March 31, 1996, the Company repossessed approximately
4.2% of its financed vehicles.
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
underwriting and collections operations and eliminates the expenses
associated with full-service branch or regional offices.
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.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company............................ 1,750,000 shares
Common Stock offered by the Selling
Shareholders....................... 225,000 shares
Total Common Stock offered(1)... 1,975,000 shares
Common Stock to be outstanding after
the Offering(1)(2)................. 7,456,311 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 296,250 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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- ---------------------------------------
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 $ 229 $ 212
Servicing fee income......................... 0 0 0 171
Gain on sale of finance contracts............ 0 4,656 0 3,143
Net income (loss) before income taxes........ (545) 1,072 (150) 1,631
Net income (loss)............................ (545) 873 (150) 1,071
Net income (loss) per share.................. (0.11) 0.17 (0.03) 0.19
Weighted average shares outstanding.......... 5,118,753 5,190,159 5,118,753 5,691,495
PORTFOLIO DATA:
Number of finance contracts acquired......... 202 2,659 522 1,310
Principal balance of finance contracts
acquired................................... $ 2,464 $ 31,915 $ 6,310 $ 15,487
Principal balance of finance contracts
securitized................................ $ 0 $ 26,261 $ 0 $ 16,563
Average initial finance contract principal
balance.................................... $ 12.2 $ 12.0 $ 12.1 $ 11.8
Weighted average initial contractual term
(months)................................... 54.3 53.3 53.2 52.6
Weighted average APR of finance contracts.... 19.1% 19.3% 19.2% 19.7%
Weighted average finance contract acquisition
discount................................... 8.6% 8.8% 8.8% 8.6%
Number of finance contracts outstanding (end
of period)................................. 197 2,774 710 4,042
Principal balance of finance contracts
outstanding (end of period)................ $ 2,459 $ 31,311 $ 8,540 $ 44,732
OPERATING DATA:
Number of enrolled dealers (end of period)... 50 280 91 340
Number of states served (end of period)...... 2 7 4 11
Operating expenses as a percentage of average
net finance contracts(2)(3)................ 25.0% 10.8% 7.1% 3.9%
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a
percentage of principal balance of finance
contracts (end of period).................. 0.30% 2.30% 1.45% 2.29%
Net charge-offs as a percentage of average
finance contract balances(2)(3)(4)......... 0.00% 0.52% 0.04% 0.92%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
ACTUAL AS ADJUSTED(5)
-------------------- --------------------
<S> <C> <C>
BALANCE SHEET DATA:
Finance contracts held for sale, net......... $ 2,764 $ 2,764
Excess servicing receivable, net............. 5,953 5,953
Total assets................................. 13,081 31,213
Total debt................................... 5,177 4,529
Shareholders' equity......................... 4,052 23,043
</TABLE>
- ------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Averages are based on daily balances.
(3) Quarterly figures are annualized.
(4) 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.
(5) As adjusted to give effect to (i) estimated net proceeds of the Offering of
$18.8 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 sub-prime
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 sub-prime 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
8
<PAGE>
<PAGE>
pursuant to the Credit Endorsement with respect to unpaid amounts under the
related finance contract, 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. 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 excess servicing receivables 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 value of the
excess servicing receivables by making a charge to the provision for credit
losses. 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 -- 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 sub-prime 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
<PAGE>
<PAGE>
DEFAULTS ON CONTRACTS; PREPAYMENTS
The Company is engaged in acquiring automobile finance contracts entered
into by dealers with sub-prime 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 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.
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
10
<PAGE>
<PAGE>
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 March 31, 1996, one dealer accounted for 9.8% (13.4% for the first
quarter of 1996) of the finance contracts acquired by the Company, and a group
of six dealerships with substantial common ownership (including such dealer)
accounted for 13.5% (16.6% for the first quarter of 1996) of the finance
contracts acquired by the Company during the period. See 'Business -- Dealer
Network.'
11
<PAGE>
<PAGE>
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
As of March 31, 1996, approximately 91.9% 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 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).
See 'Business -- Funding/Securitization of Finance Contracts' and
'Management -- Employment Agreements.'
12
<PAGE>
<PAGE>
CONTROL BY CERTAIN SHAREHOLDERS
Upon completion of the Offering, William O. Winsauer, John S. Winsauer and
Adrian Katz will beneficially own an aggregate of approximately 73.3% of the
outstanding shares of Common Stock (70.5% if the Underwriters' over-allotment
option is exercised in full). Accordingly, such persons, if they were to act in
concert, 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.'
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 March 31, 1996 (as adjusted to give effect to the Offering) of
$0.70 per share, resulting in immediate dilution to new investors in the amount
of $8.95 per share. See 'Dilution.'
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 7,456,311 shares
of Common Stock outstanding (7,752,561 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 75,000 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 Oppenheimer & Co., 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.'
13
<PAGE>
<PAGE>
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 $18.8 million (approximately $22.1
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 approximately $4.2 million of the advances outstanding
under the Revolving Credit Facilities, which currently bear interest at a
blended rate of 8.0375% 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 to be received
by them from the Offering for the repayment in full of the outstanding balance,
plus accrued interest, of the Working Capital Facility currently guaranteed by
the Company and for the repayment of certain other indebtedness to the Company.
See 'Certain Transactions' and Note 10 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.
14
<PAGE>
<PAGE>
DILUTION
At March 31, 1996, the Company had an aggregate of 5,687,500 shares of
Common Stock outstanding with a net tangible book value of $3,990,829 million or
$0.70 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 March 31, 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 March 31, 1996 would have been $22,770,829 million or
$3.05 per share. This represents an immediate increase in net tangible book
value of $2.35 per share to existing shareholders and an immediate dilution in
net tangible book value of $8.95 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)............................ $0.70
Increase per share attributable to new investors.................................... 2.35
-----
Net tangible book value per share after the Offering..................................... 3.05
------
Dilution per share to new investors...................................................... $ 8.95
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 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 76.47% $ 2,913,603 12.18% $ 0.51
New investors.................................... 1,750,000 23.53 21,000,000 87.82 12.00
--------- ------- ----------- -------
Total....................................... 7,437,500 100.00% $23,913,603 100.00%
--------- ------- ----------- -------
--------- ------- ----------- -------
</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 May 31, 1996, 595,000 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.
15
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<PAGE>
CAPITALIZATION
The following table sets forth information regarding the short-term debt
and capitalization of the Company as of March 31, 1996 (i) on an actual basis
and (ii) on an as adjusted basis to give effect to the sale of 1,750,000 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>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Short-term Debt:
Revolving credit agreements.......................................................... $ 348 $ 0
Subordinated debt.................................................................... 300 0
------ -----------
Total short-term debt................................................................ $ 648 $ 0
------ -----------
------ -----------
Long-term Debt -- Notes payable........................................................... $4,529 $ 4,529
------ -----------
Shareholders' Equity:
Common Stock, no par value, 25,000,000 shares authorized; 7,437,500 shares issued and
outstanding, actual; and 7,437,500 shares issued and outstanding, as adjusted(1).... $ 1 $ 1
Additional paid-in capital........................................................... 2,912 21,692
Retained earnings.................................................................... 1,400 1,400
Deferred compensation................................................................ (50) (50)
Loans to shareholders................................................................ (211) 0
------ -----------
Total shareholders' equity...................................................... 4,052 23,043
------ -----------
Total short-term debt and capitalization........................................ $9,229 $27,572
------ -----------
------ -----------
</TABLE>
- ------------
(1) Excludes (i) 595,000 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.'
16
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<PAGE>
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 three months ended March 31,
1995 and March 31, 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 three months ended
March 31, 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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- ----------------------------------------
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 $ 229 $ 212
Servicing fee income........................................ 0 0 0 171
Gain on sale of finance contracts........................... 0 4,656 0 3,143
------ ------- ------- ----------
Total revenues......................................... 19 5,437 229 3,526
------ ------- ------- ----------
Provision for credit losses................................. 45 619 25 456
Salaries and benefits....................................... 225 1,320 188 789
General and administrative.................................. 245 1,463 84 287
Other operating expenses.................................... 48 963 82 362
------ ------- ------- ----------
Total expenses......................................... 564 4,365 379 1,895
------ ------- ------- ----------
Net income (loss) before income taxes....................... (545) 1,072 (150) 1,631
Provision for income taxes.................................. 0 199 0 560
------ ------- ------- ----------
Net income (loss)........................................... (545) 873 (150) 1,071
Net income (loss) per share................................. $(0.11) $ 0.17 $(0.03) $ 0.19
Weighted average shares outstanding......................... 5,118,753 5,190,159 5,118,753 5,691,495
PORTFOLIO DATA:
Number of finance contracts acquired........................ 202 2,659 522 1,310
Principal balance of finance contracts acquired............. $2,464 $31,915 $6,310 $ 15,487
Principal balance of finance contracts securitized.......... $ 0 $26,261 $ 0 $ 16,563
Average initial finance contract principal balance.......... $ 12.2 $ 12.0 $ 12.1 $ 11.8
Weighted average initial contractual term (months).......... 54.3 53.3 53.2 52.6
Weighted average APR of finance contracts................... 19.1% 19.3% 19.2% 19.7%
Weighted average finance contract acquisition discount...... 8.6% 8.8% 8.8% 8.6%
Number of finance contracts outstanding (end of period)..... 197 2,774 710 4,042
Principal balance of finance contracts (end of period)...... $2,459 $31,311 $8,540 $ 44,732
OPERATING DATA:
Number of enrolled dealers (end of period).................. 50 280 91 340
Number of states served (end of period)..................... 2 7 4 11
Operating expenses as a percentage of average net finance
contracts(2)(3)........................................... 25.0% 10.8% 7.1% 3.9%
</TABLE>
(table continued on next page)
17
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<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- ----------------------------------------
1994(1) 1995 1995 1996
------ ------- ------------------ ------------------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSET QUALITY DATA:
Delinquencies 60+ days past due as a percentage of principal
balance of finance contract portfolio (end of period)..... 0.30% 2.30% 1.45% 2.29%
Net charge-offs as a percentage of average finance contract
balances(2)(3)(4)......................................... 0.00% 0.52% 0.04% 0.92%
------ ------- ------- ----------
------ ------- ------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- MARCH 31,
1994 1995 1996
------------------ ------------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 0 $ 93 $ 670
Cash held in escrow................ 0 1,323 1,496
Finance contracts held for sale,
net.............................. 2,361 4,029 2,764
Excess servicing receivable, net... 0 3,681 5,953
Total assets.................. 2,500 11,065 13,081
Revolving credit agreement......... 2,055 1,150 348
Subordinated debt.................. 0 0 300
Total debt.................... 2,055 4,886 5,177
Shareholders' equity............... (109) 3,026 4,052
</TABLE>
- ------------
(1) The Company was incorporated on June 15, 1993 and commenced operations in
August 1994.
(2) Averages are based on daily balances.
(3) Quarterly figures are annualized.
(4) 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.
18
<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 three months ended
March 31, 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 sub-prime 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 excess
servicing receivable plus the difference between the net proceeds from the
securitization and the cost (including the cost of VSI Policy premiums) to the
Company of the finance contracts sold. The excess servicing receivable
represents the estimated present value of excess spread cash flows from a
securitization trust as reduced by the allowance for estimated credit losses.
Excess spread cash flows represent the difference between the weighted average
contract rate earned and the rate paid on certificates issued to the 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, and servicing and other
costs. The Company periodically values 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. 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. The discount rate utilized in determining the
excess servicing receivable and gain on sale of finance contracts is based on
the Company's estimate of the yield that a third party purchaser of similar
financial instruments would demand. The Company has also based these assumptions
on the performance characteristics of the more seasoned ABI portfolio and of the
Company's finance contract portfolio to date. The Company determines a credit
loss provision relative to each securitized portfolio based on estimated default
rates, collateral sale proceeds and insurance reimbursements. If actual
experience differs from these assumptions, additional gains or losses to the
Company would result. Moreover, if the Company were 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.
19
<PAGE>
<PAGE>
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 MARCH 31, 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
---------- -----------
Total............................... $ 42,824 $42,824
---------- -----------
---------- -----------
</TABLE>
- ------------
(1) Refers only to balances on Class A investor certificates.
(2) Indicates ratings by Fitch Investors Service L.P. and Moody's Investors
Service, 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); (ii) excess spread cash
flows, 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 servicing
fee income, 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 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 investments in ABI-sponsored
securitizations. It is anticipated that ABI will wind down as the outstanding
principal of such investments is retired.
20
<PAGE>
<PAGE>
FINANCE CONTRACT ACQUISITION ACTIVITY
The following table sets forth information about the Company's finance
contract acquisition activity.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM MARCH 31,
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 2,659 522 1,310
Principal balance of finance contracts............... $ 2,464 $31,915 $6,310 $15,487
Number of active dealerships(1)...................... 50 222 75 148
Number of enrolled dealerships....................... 50 280 91 340
</TABLE>
- ------------
(1) Dealers who have sold at least one finance contract to the Company during
the period.
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 three-month periods ended March 31,
1995 and 1996 may not be meaningful as there were no securitization transactions
during the first quarter 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.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Total Revenues
Total revenues increased $3.3 million to $3.5 million for the three months
ended March 31, 1996 from $229,000 for the comparable period ended March 31,
1995.
Net Interest Income. Net interest income decreased $17,643 to $211,609 for
the three months ended March 31, 1996 from $229,252 for the three months ended
March 31, 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 $5.2 million to $9.9 million for the three months ended March 31,
1996, from $4.7 million for the three-month period ended March 31, 1995. The
average APR of outstanding finance contracts was 19.7% at March 31, 1996,
compared with 19.2% at March 31, 1995.
Gain on Sale of Finance Contracts. For the three months ended March 31,
1996, gain on sale of finance contracts amounted to $3.1 million. For the three
months ended March 31, 1996, the Company completed a securitization of
approximately $16.6 million in principal amount of finance contracts and the
gain on sale of finance contracts accounted for 89.2% of total revenues. For the
three months ended March 31, 1995, there were no securitization transactions.
Servicing Fee Income. The Company reports servicing fee income only with
respect to finance contracts that are transferred to a securitization trust. In
the three months ended March 31, 1996, servicing fee income was $170,924, of
which $53,000 was collection agent fees and $117,924 arose from the amortization
of the excess servicing receivable. The Company had completed no securitizations
as of March 31, 1995 and therefore reported no servicing fee income for such
period.
Total Expenses
Total expenses of the Company increased $1.5 million to $1.9 million for
the three months ended March 31, 1996 from $379,338 for the three months ended
March 31, 1995. Although operating expenses increased during the three months
ended March 31, 1996, the Company's finance contract portfolio grew
21
<PAGE>
<PAGE>
at a faster rate than the rate of increase in operating expenses. As a result,
operating expenses as a percentage of average finance receivables decreased to
20.5% in the three months ended March 31, 1996 from 32.4% in the three months
ended March 31, 1995.
Provision for Credit Losses. The provision for credit losses recognized on
finance contracts purchased and securitized or held for future securitizations
increased $431,498 to $456,498 for the three months ended March 31, 1996 from
$25,000 for the three months ended March 31, 1995. The increase was due
primarily to a significant increase in 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 $601,329 to $789,219
for the three months ended March 31, 1996 from $187,890 for the three months
ended March 31, 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 $202,982 to $286,848 for the three months ended March 31, 1996 from
$83,866 for the three months ended March 31, 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 being a public
company.
Other Operating Expenses. Other operating expenses (consisting principally
of servicing fees, credit bureau reports and insurance) increased $279,588 to
$362,170 for the three months ended March 31, 1996 from $82,582 for the three
months ended March 31, 1995. This increase was due to increased finance contract
acquisition volume.
Net Income
In the three months ended March 31, 1996, net income increased to $1.1
million from a loss of $150,086 for the three months ended March 31, 1995. The
increase was primarily attributable to the securitization transaction completed
in the first quarter of 1996, while there was no securitization transaction
during the first quarter 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 $5.4 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; so 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 $4.7 million, or 85.6% 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.
22
<PAGE>
<PAGE>
Total Expenses
Total expenses of the Company increased $3.8 million to $4.4 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,
operating expenses as a percentage of average finance receivables decreased to
32.2% in the year ended December 31, 1995 from 65.7% in the five months ended
December 31, 1994.
Provision for Credit Losses. Provision for credit losses increased $574,100
to $619,100 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.
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 $5.5 million to $2.8 million at March
31, 1996, from $8.3 million at March 31, 1995; and increased $1.6 million to
$4.0 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 and March 1996 securitizations were $525,220 and
$331,000, 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:
23
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
INCEPTION YEAR ENDED MARCH 31,
THROUGH DECEMBER 31, DECEMBER 31, ------------------------------------------
1994 1995 1995 1996
-------------------- ------------ ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance...................... $0 $ 0 $ 0 $ 3,681
Additions.............................. 0 3,681 0 2,668
Amortization........................... 0 0 0 396
-- ------------ ----- -------
Ending balance......................... $0 $3,681 $ 0 $ 5,953
-- ------------ ----- -------
-- ------------ ----- -------
</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 March 31, 1995
and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ---------------------------------
1994 1995 1995 1996
-------------- ---------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal balance of finance contracts
outstanding............................. $2,459 $31,311 $8,540 $44,732
Delinquent finance contracts(1):
31-59 days past due.................. 59 2.40% 1,392 4.44% 361 4.23% 1,915 4.28%
60-89 days past due.................. 7 0.28 458 1.46 102 1.19 759 1.70
90 days past due and over............ 0 0.00 238 0.76 21 0.25 264 0.59
------ ---- ------- ----- ------ ---- ------- ----
Total........................... $ 66 2.68% $ 2,088 6.67% $ 484 5.67% $ 2,938 6.57%
------ ---- ------- ----- ------ ---- ------- ----
------ ---- ------- ----- ------ ---- ------- ----
</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 and for contracts securitized. See Notes 1, 3 and 4 to Notes to
Consolidated Financial Statements. The Company reports a provision for credit
losses on finance contracts held for sale and included in each securitization
trust based on various assumptions. 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 Company reports any remaining deficiency as a net charge-off against the
allowance for credit losses.
24
<PAGE>
<PAGE>
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.
The following table summarizes the Company's credit loss experience from
inception through March 31, 1996.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 1, 1994 (INCEPTION)
THROUGH MARCH 31, 1996
--------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cumulative initial finance contract principal balances acquired........................ $ 49,866
Gross charge-offs...................................................................... 2,067
Recoveries(1).......................................................................... (1,914)
----------
Net charge-offs(1)..................................................................... $ 153
----------
----------
Gross charge-offs as a percentage of cumulative initial finance contract principal
balances acquired.................................................................... 4.31%
Recoveries as a percentage of gross charge-offs(1)..................................... 92.60%
Net charge-offs as a percentage of cumulative initial finance contract principal
balances acquired(1)................................................................. 0.31%
</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 March 31, 1996. In
this table, all finance contracts have been segregated by month of acquisition.
All repossessions have been segregated by the month 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 month. Annualized repossessions equals an annual equivalent of
the cumulative repossession ratio for each segregated month. This table provides
information regarding the Company's repossession experience over time. For
example, recently acquired finance contracts demonstrate very few repossessions.
After approximately one year of seasoning, frequency of repossessions appear to
reach a plateau. Based on industry statistics and the performance experience of
the ABI-sponsored securitizations, the Company believes that finance contracts
seasoned in excess of approximately 18 months will start to demonstrate
declining repossession frequency.
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
REPOSSESSION FREQUENCY
YEAR AND MONTH OF REPOSSESSIONS BY ------------------------------
ACQUISITION MONTH ACQUIRED CUMULATIVE(1) ANNUALIZED(2) CONTRACTS ACQUIRED
- -------------------------------------------- ---------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
1994
August................................. 0 0.00% 0.00% 1
September.............................. 1 12.50 7.50 8
October................................ 5 16.13 10.75 31
November............................... 3 4.92 3.47 61
December............................... 8 7.92 5.94 101
1995
January................................ 15 11.90% 9.52% 126
February............................... 17 8.99 7.71 189
March.................................. 23 11.11 10.26 207
April.................................. 16 10.13 10.13 158
May.................................... 13 6.77 7.39 192
June................................... 17 9.94 11.93 171
July................................... 6 5.61 7.48 107
August................................. 10 4.13 6.20 242
September.............................. 13 4.92 8.44 264
October................................ 8 2.90 5.80 276
November............................... 9 2.58 6.19 349
December............................... 6 1.59 4.76 378
1996
January................................ 2 0.50% 1.99% 403
February............................... 0 0.00 0.00 430
March.................................. 0 0.00 0.00 477
</TABLE>
- ------------
(1) For each month, 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 December 1994, eight repossessions
divided by 101 contracts acquired, divided by 16 months outstanding times
twelve equals an annualized repossession frequency of 5.94%).
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.
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FROM
AUGUST 1, 1994
(INCEPTION) TO
MARCH 31, 1996(1)
-----------------
<S> <C>
Number of finance contracts acquired........................................................... 4,171
Number of finance contracts repossessed........................................................ 175
Repossessed units disposed of............................................................. 61
Repossessed units in inventory awaiting disposition....................................... 111
Cumulative gross charge-offs(1)................................................................ $ 708,888
Costs of repossession(1)....................................................................... 11,193
Proceeds from auction, physical damage insurance and refunds(1)................................ (562,498)
-----------------
Net loss.................................................................................. 157,583
Deficiency insurance settlement received(1)............................................... (104,383)
-----------------
Net charge-offs(1)............................................................................. $ 53,200
-----------------
-----------------
Net charge-off per unit disposed............................................................... $872
Recoveries as a percentage of cumulative gross charge-offs..................................... 94.1%
</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 March 31, 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 three months ended March 31, 1996,
$31.2 million and $15.2 million, respectively, was used by the Company to
purchase finance contracts, $2.9 million and $271,687, respectively, was
received as payments on finance contracts, and $27.4 million and $16.6 million,
respectively, was received from sales of finance contracts, primarily through
securitizations. The Company used $525,220 and $331,000 to fund cash reserve
accounts for the securitizations completed in the year ended December 31, 1995
and the three months ended March 31, 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 $802,535 for the three months ended March
31, 1996) and net proceeds from borrowings against excess spread cash flows
($2.7 million for the year ended December 31, 1995 and $2.1 million for the
three months ended March 31, 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 March 31, 1996, the Company had approximately $348,000 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
27
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<PAGE>
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 March 31, 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 March 31, 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 (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 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 and March 1996, the Company
securitized approximately $26.2 million and $16.6 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 March 31, 1996, the Company held
excess servicing receivables of $6.0 million, net of allowance for credit
losses, a portion of which had been pledged to secure notes payable of $4.5
million.
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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.
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 1996. The Company has no specific plans or arrangements for
additional equity financings. The Company believes it will be able to obtain
additional funding through an 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. 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.'
29
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BUSINESS
GENERAL
AutoBond Acceptance Corporation (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, to a lesser extent, new vehicles to sub-prime consumers.
The Company was formed by William O. Winsauer and his brother, John S.
Winsauer, to capitalize on William O. Winsauer's expertise in the securitization
of sub-prime finance contracts which he developed as the founder of ABI. From
1989 to 1994, ABI structured 20 investment-grade rated securitizations of
sub-prime consumer automobile finance contract portfolios, aggregating
approximately $190.0 million in principal amount, originated and underwritten by
third party intermediaries. The Company acquires finance contracts directly from
automobile dealers, makes credit decisions using its own underwriting guidelines
and credit personnel, and performs the collection function for the finance
contracts using its own Collections Department. The Company developed the
necessary expertise 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, with expertise in the operation of automobile
dealerships, underwriting and acquiring consumer finance contracts, investment
banking and securitizations, and collections. The Company's credit underwriters
average thirteen years of experience in the auto finance industry, and its sales
representatives and collection professionals average ten and seven years,
respectively, of industry experience.
The Company commenced operations in August 1994 and through March 31, 1996
had acquired 4,171 finance contracts with an aggregate initial principal balance
of $49.9 million, of which $42.8 million have been securitized in two
investment-grade rated transactions. In the quarter ended March 31, 1996, the
Company underwrote and acquired 1,310 finance contracts with an aggregate
initial principal balance of $15.5 million. At March 31, 1996, the Company had
340 dealer relationships in eleven 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 to December 31, 1994. The Company
earned net income of $1.1 million for the three months ended March 31, 1996
compared to a loss of $150,086 for the three months ended March 31, 1995.
The Company markets a single finance contract acquisition program to its
dealers which adheres to consistent underwriting guidelines involving the
purchase of primarily late-model used vehicles. Through March 31, 1996, the
finance contracts acquired by the Company had, upon acquisition, an average
initial principal balance of $11,955, a weighted average APR of 19.4%, a
weighted average finance contract acquisition discount of 8.6% and a weighted
average maturity of 53.1 months.
GROWTH AND BUSINESS STRATEGY
The Company's growth strategy anticipates the acquisition of an increasing
volume 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 and geographic scope within existing markets;
and (iii) penetrating markets in the midwest and mid-Atlantic regions and other
new markets that meet the Company's economic, demographic and business criteria.
To sustain its growth, the Company will continue to pursue a business
strategy based on the following principles:
EXPERIENCED MANAGEMENT TEAM -- The Company actively recruits and retains
experienced management 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.
EFFICIENT FUNDING STRATEGIES -- Through an investment-grade rated
warehouse facility and a quarterly securitization program, the Company
increases its liquidity, redeploys its capital and reduces its exposure to
interest rate fluctuations. This practice requires the Company to monitor
and report on the performance of its portfolios of finance contracts on a
monthly basis. The
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Company has also developed the ability to borrow funds on a non-recourse
basis, collateralized by its interest in excess spread cash flows from its
securitization trusts.
TARGETED MARKET AND PRODUCT FOCUS -- The Company targets the sub-prime
auto finance market because it believes that sub-prime finance presents
greater opportunities than does prime lending. 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. In addition, the
Company concentrates on acquiring finance contracts from dealerships
franchised by major automobile manufacturers.
UNIFORM UNDERWRITING CRITERIA -- To manage the higher risk of delinquency
or default associated with sub-prime consumers, the Company has developed
uniform underwriting criteria that are consistently applied in evaluating
credit applications. This evaluation process is conducted on a centralized
basis utilizing experienced personnel.
LIMITED LOSS EXPOSURE -- In addition to stringent underwriting guidelines,
the Company obtains a VSI Policy, including Credit Endorsement, for each
finance contract it funds. The VSI Policy protects the Company's economic
interest in the financed vehicle against damage and fraud. In the event a
sub-prime consumer defaults and the underlying vehicle is repossessed and
sold, 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 vehicle. In addition, the Company will
not acquire finance contracts where the amount financed exceeds a certain
percentage of the vehicle's value, and the Company applies a
non-refundable contract acquisition discount when acquiring finance
contracts.
INTENSIVE COLLECTION MANAGEMENT -- The Company believes that intensive
collection efforts are essential to ensure the performance of sub-prime
finance contracts. The Company's collections managers contact delinquent
accounts frequently, beginning on the fifth day of delinquency, and
initiate repossession of financed vehicles no later than the 90th day of
delinquency. As of March 31, 1996, a total of 59, or 1.5%, of the
Company's finance contracts outstanding were between 60 and 90 days past
due. Since inception through March 31, 1996, the Company has repossessed
approximately 4.2% of its financed vehicles.
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 underwriting and collections operations and eliminates the expenses
associated with full-service branch or regional offices.
BORROWER CHARACTERISTICS
Borrowers under finance contracts in the Company's finance contract
portfolio are generally sub-prime consumers. Sub-prime 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 March 31, 1996, the Company acquired 4,171 finance
contracts with an aggregate initial principal balance of $49.9 million. Of the
finance contracts acquired, approximately 8.2% have related to the sale of new
automobiles and approximately 91.8% 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 $11,955; a weighted
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average APR of 19.4%; a weighted average finance contract acquisition discount
of 8.6%; and a weighted average contractual maturity of 53.1 months. As of March
31, 1996, the finance contracts in the finance contract portfolio had a weighted
average remaining maturity of 48.4 months. Since inception, the Company's
cumulative net charge-offs have been $152,600 or 0.3% 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 sub-prime 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
geographic location, financial strength, experience and integrity of management,
stability of ownership, quality of used car inventory, participation in
sub-prime 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 May 1, 1996, the
Company was licensed or qualified to do business in 12 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
----------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------------
1994 1995 1995 1996
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Number of active dealers during
period(1)............................. 50 222 75 148
Total number of dealers subject to
dealer agreements(2).................. 50 280 91 340
Number of active states(3).............. 2 7 3 9
Number of finance contracts acquired
during period......................... 202 2,659 522 1,310
Aggregate principal balance of finance
contracts acquired during period
(dollars in thousands)................ $ 2,464 $ 31,915 $ 6,310 $ 15,487
</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 acquired finance contracts
during the related period.
Location of Dealers. Approximately 62.7% of the Company's dealer network
consists of dealers located in Texas, where the Company has operated since 1994.
During the three months ended March 31, 1996, the Company acquired finance
contracts from dealers in eleven 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 March 31, 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 three
months ended March 31, 1996:
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<TABLE>
<CAPTION>
FINANCE CONTRACTS ACQUIRED
----------------------------------
NUMBER OF YEAR ENDED THREE MONTHS
DEALERS AT DECEMBER 31, ENDED
MARCH 31, 1996 1995 MARCH 31, 1996
DATE BUSINESS --------------- --------------- ---------------
STATES COMMENCED NUMBER % NUMBER % NUMBER %
- ----------------------------------- -------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Texas.............................. September 1994 213 62.7% 2,425 91.2% 1,208 92.2%
Oklahoma........................... November 1994 48 14.1 94 3.5 3 0.2
Connecticut........................ January 1995 12 3.5 63 2.4 0 0.0
New Mexico......................... May 1995 15 4.4 44 1.7 35 2.7
Utah............................... June 1995 10 2.9 18 0.7 0 0.0
Georgia............................ October 1995 24 7.1 10 0.4 24 1.8
Arizona............................ November 1995 9 2.6 5 0.2 9 0.7
Missouri........................... January 1996 1 0.3 0 0.0 1 0.1
Colorado........................... January 1996 5 1.5 0 0.0 22 1.7
Maryland........................... February 1996 2 0.6 0 0.0 7 0.5
Ohio............................... March 1996 1 0.3 0 0.0 1 0.1
------ ----- ------ ----- ------ -----
Total......................... 340 100.0% 2,659 100.0% 1,310 100.0%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
</TABLE>
DEALER SOLICITATION
Marketing Representatives. As of March 31, 1996, the Company utilized nine
marketing representatives, seven of which were individuals employed by the
Company and two 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 majority of marketing representatives are full-time employees who
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 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
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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 also added
marketing professionals in additional states, including Colorado, Maryland,
Florida and Ohio. The Company intends to develop significant 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 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.
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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 limits 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>
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 sub-prime consumer
typically meets with the dealership's F&I manager to discuss options for
financing the purchase of the vehicle. If the sub-prime 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 three months ended March 31, 1996, 12,550 credit applications were
submitted to the Company. Of these 12,550 applications, as of March 31, 1996,
approximately 36% were approved and 10% were acquired by the Company. 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
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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.
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
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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 sub-prime 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
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 15 people full-time, including eight
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 March 31, 1996, there were 505 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 a senior collector who handles those accounts until
resolved. To facilitate collections from borrowers, the Company has increased
its utilization of Western Union's 'Quick
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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.'
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
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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.
'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 March 31, 1996, the Company had approximately $348,000 outstanding under
the $10.0 million Sentry Facility, which expires on July 31, 1998. The proceeds
from borrowings under the Sentry Facility
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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 March 31, 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.
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 March 31, 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 two securitizations involving approximately $42.8 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.
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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 March 31, 1996,
the Company held excess servicing receivables of $6.0 million, a portion of
which had been pledged to secure notes payable of $4.5 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 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.
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COMPETITION
The sub-prime 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 sub-prime 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 sub-prime 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 sub-prime 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 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 March 31, 1996, the
Company's business operations were conducted with dealers located in eleven
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.
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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
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 March 31, 1996, the Company employed 60 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)....................... 33 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)
</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.
The number of Directors on the Board will be fixed at seven, and the
Company intends to designate the sixth and seventh Directors prior to
consummation 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
sub-prime finance contracts since 1989. Mr. Winsauer was the founder of ABI in
1989 and has been the President and sole shareholder of that company since its
founding. ABI has no material current operations other than to manage its
investments in ABI-sponsored securitizations. 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 sub-prime automobile finance
contracts, $190 million of which were sponsored by ABI. Mr. Winsauer was among
the first individuals to be involved in the structuring and marketing of
securitization transactions involving sub-prime 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. From 1989 through 1994, Mr. Katz was employed by
Prudential Securities Incorporated (a
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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 February 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 1990 to 1992.
Between 1991 and 1992, in his position 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 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. 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 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.
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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 sub-prime 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.
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.
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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).
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
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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 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
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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 595,000 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 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
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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, except that shareholder approval is required for certain
amendments to the extent necessary for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended.
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 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
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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 ($1,999,000 at March 31, 1996), along with 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 March 31,
1996, the outstanding amounts of these loans increased to $185,359 and $25,909,
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 10 to Notes to Consolidated Financial Statements.
The Company had net advances outstanding to ABI of $141,090 as of March 31,
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.
52
<PAGE>
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of March 31, 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 3,668,063 49.32%
301 Congress Avenue
Austin, Texas 78701
John S. Winsauer ................................ 1,279,688 22.50 54,000 1,225,688 16.48
301 Congress Avenue
Austin, Texas 78701
Adrian Katz ..................................... 568,750 10.00 0 568,750 7.65
301 Congress Avenue
Austin, Texas 78701
Total (all officers and directors as a
group).................................... 5,687,500 100.00% 225,000 5,462,501 73.45%
</TABLE>
53
<PAGE>
<PAGE>
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 4, 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 4, 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
54
<PAGE>
<PAGE>
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.
55
<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.
56
<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 7,456,311 shares
of Common Stock outstanding (7,752,561 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 75,000 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 (74,563 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 Oppenheimer & Co., 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.
57
<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 underwriters named below (the 'Underwriters'), for whom Oppenheimer & Co.,
Inc. ('Oppenheimer') and Rauscher Pierce Refsnes, Inc. are acting as
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>
Oppenheimer & Co., Inc.................................................
Rauscher Pierce Refsnes, Inc...........................................
---------
Total............................................................. 1,975,000
---------
---------
</TABLE>
The Underwriters are committed to purchase and pay for all such shares if
any are purchased.
The Underwriters 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.
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 among 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 296,250
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 Oppenheimer,
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
several 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.
58
<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 Gibson, Dunn & Crutcher LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company at and for the years
ended December 31, 1994 and 1995 appearing in this Prospectus and Registration
Statement have been audited by Coopers & Lybrand L.L.P., independent auditors,
as set forth in their report thereon appearing elsewhere in this Prospectus and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such 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.
59
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<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 March 31, 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 Three-Month Periods Ended March 31, 1995 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 Three-Month Period Ended March 31, 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 Three-Month Periods Ended March 31, 1995 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,
------------------------- MARCH 31,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 92,660 $ 670,003
Restricted cash...................................................... $ 138,176 360,266 271,162
Cash held in escrow.................................................. 1,322,571 1,496,048
Finance contracts held for sale, net................................. 2,361,479 4,028,567 2,763,655
Excess servicing receivable, net..................................... 3,681,028 5,952,621
Debt issuance cost................................................... 700,000 644,000
Trust receivable..................................................... 525,220 856,220
Prepaid expenses and other assets.................................... 354,208 427,155
---------- ----------- -----------
Total assets............................................... $2,499,655 $11,064,520 $13,080,864
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit agreement...................................... $2,054,776 $ 1,150,421 $ 347,886
Note payable.................................................... 2,674,597 4,529,510
Repurchase agreement............................................ 1,061,392
Subordinated debt............................................... 300,000
Accounts payable and accrued liabilities........................ 25,636 1,836,082 1,833,010
Book overdraft.................................................. 23,314 861,063 1,118,269
Payable to affiliate............................................ 504,534 255,597 141,090
Deferred income taxes payable................................... 199,000 759,000
---------- ----------- -----------
Total liabilities.......................................... $2,608,260 $ 8,038,152 $ 9,028,765
---------- ----------- -----------
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) (49,774)
Loans to shareholders........................................... (16,000) (153,359) (211,269)
Retained earnings (accumulated deficit)......................... (544,605) 328,882 1,399,539
---------- ----------- -----------
Total shareholders' equity (deficit)....................... (108,605) 3,026,368 4,052,099
---------- ----------- -----------
Total liabilities and shareholders' equity................. $2,499,655 $11,064,520 $13,080,864
---------- ----------- -----------
---------- ----------- -----------
</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 THREE MONTHS ENDED MARCH
(INCEPTION) YEAR ENDED 31,
THROUGH DECEMBER DECEMBER 31, ------------------------
31, 1994 1995 1995 1996
---------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Interest income................................. $ 38,197 $ 2,880,961 $ 353,973 $ 804,632
Interest expense................................ (19,196) (2,099,867 ) (124,721) (593,023)
---------------- ------------ ---------- ----------
Net interest income........................ 19,001 781,094 229,252 211,609
Gain on sale of finance contracts............... 4,656,350 3,142,859
Servicing fee income............................ 170,924
---------------- ------------ ---------- ----------
Total revenues........................ 19,001 5,437,444 229,252 3,525,392
---------------- ------------ ---------- ----------
Expenses:
Provision for credit losses..................... 45,000 619,100 25,000 456,498
Salaries and benefits........................... 225,351 1,320,100 187,890 789,219
General and administrative...................... 244,974 1,462,740 83,866 286,848
Other operating expenses........................ 48,281 963,017 82,582 362,170
---------------- ------------ ---------- ----------
Total expenses........................ 563,606 4,364,957 379,338 1,894,735
---------------- ------------ ---------- ----------
Income (loss) before income taxes.................... (544,605) 1,072,487 (150,086) 1,630,657
Provision for income taxes........................... 199,000 560,000
---------------- ------------ ---------- ----------
Net income (loss).................................... $ (544,605) $ 873,487 $ (150,086) $1,070,657
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
Net income (loss) per share.......................... $ (0.11) $ 0.17 $ (0.03) $ 0.19
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
Weighted average shares outstanding.................. 5,118,753 5,190,159 5,118,753 5,691,495
---------------- ------------ ---------- ----------
---------------- ------------ ---------- ----------
</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 LOANS TO RETAINED
SHARES AMOUNT CAPITAL COMPENSATION SHAREHOLDERS EARNINGS
--------- ------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Capital contributions at inception... 5,118,753 $1,000 $ 451,000
Loans to shareholders................ $ (16,000)
Net loss............................. $ (544,605)
--------- ------ ---------- ------------ ------------ ----------
Balance, December 31, 1994........... 5,118,753 1,000 451,000 (16,000) (544,605)
Capital contributions................ 2,323,103
Loans to shareholders................ (137,359)
Deferred compensation per employee
contract........................... 138,500 $ (138,500)
Amortization of deferred
compensation....................... 75,742
Net income........................... 873,487
--------- ------ ---------- ------------ ------------ ----------
Balance, December 31, 1995........... 5,118,753 1,000 2,912,603 (62,758) (153,359) 328,882
Stock issued per employee contract... 568,747
Loans to shareholders................ (57,910)
Amortization of deferred
compensation....................... 12,984
Net income........................... 1,070,657
--------- ------ ---------- ------------ ------------ ----------
Balance, March 31, 1996
(unaudited)........................ 5,687,500 $1,000 $2,912,603 $ (49,774) $ (211,269) $1,399,539
--------- ------ ---------- ------------ ------------ ----------
--------- ------ ---------- ------------ ------------ ----------
<CAPTION>
TOTAL
----------
<S> <C>
Capital contributions at inception... $ 452,000
Loans to shareholders................ (16,000)
Net loss............................. (544,605)
----------
Balance, December 31, 1994........... (108,605)
Capital contributions................ 2,323,103
Loans to shareholders................ (137,359)
Deferred compensation per employee
contract...........................
Amortization of deferred
compensation....................... 75,742
Net income........................... 873,487
----------
Balance, December 31, 1995........... 3,026,368
Stock issued per employee contract...
Loans to shareholders................ (57,910)
Amortization of deferred
compensation....................... 12,984
Net income........................... 1,070,657
----------
Balance, March 31, 1996
(unaudited)........................ $4,052,099
----------
----------
</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 THREE MONTHS ENDED MARCH
(INCEPTION) YEAR ENDED 31,
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 $ (150,086) $ 1,070,657
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of finance contract acquisition
discount and insurance......................... (4,513) (795,579) (4,694) (397,195)
Amortization of deferred compensation............ 75,742 12,984
Provision for credit losses...................... 45,000 619,100 25,000 456,498
Deferred income taxes............................ 199,000 560,000
Amortization of excess servicing receivable...... 395,689
Amortization of debt issuance cost............... 56,000
Changes in operating assets and liabilities:
Restricted cash.............................. (138,176) (222,090) (369,485) 89,104
Cash held in escrow.......................... (1,322,571) (173,477)
Prepaid expenses and other assets............ (354,208) (72,947)
Excess servicing receivable.................. (4,251,426) (3,121,211)
Accounts payable and accrued liabilities..... 25,636 1,110,446 11,431 (3,072)
Payable to affiliate......................... 504,534 (248,937) (488,417) (114,507)
Purchases of finance contracts....................... (2,453,604) (31,200,131) (6,179,297) (15,175,515)
Repayments of finance contracts...................... 51,638 2,880,377 239,910 271,687
Sales of finance contracts........................... 27,399,543 16,563,366
----------------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities..................................... (2,514,090) (5,237,247) (6,915,638) 418,061
----------------- ------------ ----------- ------------
Cash flows from investing activities:
Advances to AutoBond Receivables Trusts.............. (525,220) (331,000)
Loans to shareholders................................ (16,000) (137,359) (57,910)
----------------- ------------ ----------- ------------
Net cash used in investing activities................ (16,000) (662,579) (388,910)
----------------- ------------ ----------- ------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
agreements......................................... 2,054,776 (904,355) 6,140,004 (802,535)
Proceeds from borrowings under repurchase
agreement.......................................... 1,061,392
Repayments of borrowings under repurchase
agreement.......................................... (1,061,392)
Proceeds from notes payable.......................... 2,674,597 2,059,214
Payments on notes payable............................ (204,301)
Proceeds from subordinated debt borrowings........... 300,000
Shareholder contributions............................ 452,000 2,323,103 717,966
Increase in book overdraft........................... 23,314 837,749 57,668 257,206
----------------- ------------ ----------- ------------
Net cash provided by financing activities........ 2,530,090 5,992,486 6,915,638 548,192
----------------- ------------ ----------- ------------
Net increase in cash and cash equivalents................ 0 92,660 0 577,343
Cash and cash equivalents at beginning of period......... 0 0 0 92,660
----------------- ------------ ----------- ------------
Cash and cash equivalents at end of period............... $ 0 $ 92,660 $ 0 $ 670,003
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 19,196 $ 2,099,867 $ 124,721 $ 537,023
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Cash paid for income taxes........................... $ 0 $ 0 $ 0 $ 0
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
Non-cash financing activity:
Accrual of debt issuance cost........................ $ 0 $ 700,000 $ 0 $ 0
----------------- ------------ ----------- ------------
----------------- ------------ ----------- ------------
</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 three-month periods ended March 31, 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 necessary to present the unaudited results of operations for the
three-month periods ended March 31, 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 and March 1996 securitization transactions resulted in initial
cash reserves of $525,000 and $331,000, 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 estimated based on the
characteristics of the Finance Contracts held for sale and prevailing market
prices.
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 credit losses charged against income. Actual losses or recoveries
on Finance Contracts are charged against or increase the allowance,
respectively. Finance Contracts held for sale include automobiles that have been
and are expected to be repossessed by the Company. Charge-offs against the
allowance for credit losses are recorded upon receipt of proceeds from the sale
of the underlying collateral and from the insurance companies.
EXCESS SERVICING RECEIVABLE
Excess servicing receivable includes the estimated present value of future
net cash flows from securitized receivables over the amounts due to other
investors 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 Statement of Financial Accounting
Standards ('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 does not retain any residual interest in securitized or
sold Finance Contracts. The Company 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 present value 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, 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 plus the difference between net proceeds
received on the transaction date and the net carrying value of Finance Contracts
held for sale.
Allowance for credit losses on the excess servicing receivable is based
upon the Company's historical default rate, the liquidation value of the
underlying collateral in the existing portfolio, estimates of repossession
expenses and any recoveries expected from insurance proceeds. The carrying value
of the excess servicing receivable is amortized over the estimated lives of the
finance contracts and is reviewed periodically 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 to the excess servicing receivable is reflected
as a reduction of current
F-8
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period earnings. There were no material adjustments to the carrying value of the
excess servicing receivable during 1995. Adjustments due to modification of
future estimates are determined on a disaggregated basis according to each asset
securitization transaction.
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 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.
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 effective yield method. Subsequent to December 31, 1995, the Company uses
the simple interest method to determine interest income on Finance Contracts
acquired.
CONCENTRATION OF CREDIT RISK
The Company acquires Finance Contracts from a network of automobile dealers
located in 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 three months ended March 31, 1996, the Company had a significant
concentration of Finance Contracts with borrowers in Texas, which approximated
94%, 91% and 92% respectively, of total Finance Contracts.
F-9
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('FAS 123'). FAS 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 FAS
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,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Principal balance of Finance Contracts held for sale.......... $2,459,424 $3,539,193 $2,220,199
Automobile inventory.......................................... 673,748 696,340
Prepaid insurance............................................. 156,095 260,155 154,854
Contract acquisition discounts................................ (209,040) (350,827) (211,498)
Allowance for credit losses................................... (45,000) (93,702) (96,240)
---------- ---------- ----------
$2,361,479 $4,028,567 $2,763,655
---------- ---------- ----------
---------- ---------- ----------
</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 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
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. Such Transferor's Interest included in the excess servicing
receivable is based on a 15% discount rate of the estimated remaining net cash
flows.
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 repurchase the Finance Contracts from the Trust at a price equal to
the remaining principal plus accrued interest.
On March 29, 1996, the Company completed its second securitization
transaction through the sale of certain Finance Contracts to AutoBond Receivable
Trust 1996-A. The Finance Contracts were sold at the outstanding principal
balance of $16.6 million.
F-10
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The excess servicing receivable is comprised of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Class B Certificates.......... $ 2,834,502 $ 4,498,027
Transferor's Interest......... 1,416,924 2,466,506
Allowance for credit losses... (570,398) (1,011,912)
----------------- -----------------
$ 3,681,028 $ 5,952,621
----------------- -----------------
----------------- -----------------
</TABLE>
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 contingent upon the successful securitization
of Finance Contracts, 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 FAS 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 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
F-11
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 AutoBond Receivable Trust 1995-A (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 Certificate
(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 principal and
interest payments required to be made to the Class B Certificate holder 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 Certificate 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.
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%. 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
F-12
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has no provision in 1994. The reconciliation between the provision for income
taxes for 1994 and 1995 and the amounts that would result from applying the
Federal statutory rate is as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Federal tax at statutory rate of 34%.......................................... $(185,000) $ 365,000
Nondeductible expenses........................................................ 2,000 17,000
Change in valuation allowance................................................. 183,000 (183,000)
--------- ---------
Provision for income taxes............................................... $ -- $ 199,000
--------- ---------
--------- ---------
</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 as of December 31, 1994 and 1995 are as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for credit losses....................................................... $ 15,000 $ 226,000
Other............................................................................. -- 116,000
Net operating loss................................................................ 168,000 1,042,000
--------- ----------
Gross deferred tax assets......................................................... 183,000 1,384,000
--------- ----------
Deferred Tax Liability --
Gain on securitizations........................................................... -- 1,583,000
--------- ----------
Net temporary differences.............................................................. 183,000 (199,000)
Valuation allowance.................................................................... (183,000) --
--------- ----------
Net deferred tax liability................................................... $ 0 $ 199,000
--------- ----------
--------- ----------
</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 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 THREE MONTHS
(INCEPTION) YEAR ENDED ENDED
THROUGH DECEMBER 31, MARCH 31,
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 (13,985)
Effect of shares issuable to warrant holder.................... 17,980
------------------ ------------ ------------
Shares used in computing primary earnings per shares........... 5,118,753 5,190,159 5,691,495
------------------ ------------ ------------
------------------ ------------ ------------
</TABLE>
F-13
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 an
affiliated company. Each entity is allocated expenses based on the estimated
utilization of resources including employees, office space, equipment rentals
and other miscellaneous expenses. Total expenses allocated to the Company from
the affiliate 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, the Company has paid no compensation to its Chief
Executive Officer ('CEO') during any of the periods presented herein; however,
management expects to commence compensation payments to the CEO during 1996 (See
Note 13).
The Company has advanced approximately $153,000 to two shareholders as of
December 31, 1995 and $211,269 as of March 31, 1996. The advances are
non-interest bearing amounts which have no repayment terms and have been shown
as a reduction of shareholders' equity.
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) 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. The 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
F-14
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expense of $75,742 and $12,984 for the year ended December 31, 1995 and the
three-month period ended March 31, 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 officer 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 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 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
F-15
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 prepaid 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 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.
F-16
<PAGE>
<PAGE>
AUTOBOND ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS SERVICING RECEIVABLE
The carrying amount is accounted for on a historical cost basis which, due
to the nature of this financial instrument and the recent securitization
transaction date, 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................................... 4,028,567 4,213,000
Excess servicing receivable....................................... 3,681,028 3,681,028
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-17
<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
June 6, 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 $619,000 $ -- $ 664,100
</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................................................................................................... 14
Dividend Policy................................................................................................... 14
Dilution.......................................................................................................... 15
Capitalization.................................................................................................... 16
Selected Consolidated Financial and Operating Data................................................................ 17
Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 19
Business.......................................................................................................... 30
Management........................................................................................................ 44
Certain Transactions.............................................................................................. 52
Principal and Selling Shareholders................................................................................ 53
Description of Capital Stock...................................................................................... 54
Shares Eligible for Future Sale................................................................................... 57
Underwriting...................................................................................................... 58
Legal Matters..................................................................................................... 59
Experts........................................................................................................... 59
Change in Accountants............................................................................................. 59
Additional Information............................................................................................ 59
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.
1,975,000 SHARES
[LOGO]
AUTOBOND ACCEPTANCE
CORPORATION
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
OPPENHEIMER & CO., INC.
RAUSCHER PIERCE REFSNES, INC.
, 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 and March 1996, the Company's two securitization
subsidiaries issued approximately $26.2 million and $16.6 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
and March 1996 securitizations have final maturity dates of April 15 and July
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 both 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>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* -- Underwriting Agreement
3.1 -- Restated Articles of Incorporation of the Company
3.2 -- Amended and Restated Bylaws of the Company
5.1* -- Opinion of Dewey Ballantine
10.1*`D' -- Pooling and Trust Agreement dated as of December 15, 1995 among AutoBond Funding
Corporation 1995, the Company and Norwest Bank Minnesota, National Association
10.2 -- Servicing Agreement dated as of December 15, 1995 among AutoBond Funding Corporation
1995, CSC Logic/MSA L.L.P., doing business as 'Loan Servicing Enterprise,' the Company
and Norwest Bank Minnesota, National Association
10.3*`D' -- Loan Sale and Contribution Agreement dated as of December 15, 1995 among the Company,
AutoBond Funding Corporation I and AutoBond Funding Corporation 1995
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------- ------------------------------------------------------------------------------------------- ------------
<C> <S> <C>
10.4*`D' -- 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
10.5*`D' -- Pooling and Trust Agreement dated as of March 28, 1996 among AutoBond Funding
Corporation 1996-A, the Company and Norwest Bank Minnesota, National Association
10.6 -- Servicing Agreement dated as of March 28, 1996 among AutoBond Funding Corporation
1996-A, CSC Logic/MSA L.L.P., doing business as 'Loan Servicing Enterprise', the Company
and Norwest Bank Minnesota, National Association
10.7*`D' -- Loan Sale and Contribution Agreement dated as of March 28, 1996 among the Company,
AutoBond Funding Corporation I and AutoBond Funding Corporation 1996-A
10.8 -- 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
10.9*`D' -- Security Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II, the
Company and Norwest Bank Minnesota, National Association
10.10*`D' -- Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond Funding
Corporation II, the Company and Peoples Life Insurance Company
10.11*`D' -- Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and between
the Company and AutoBond Funding Corporation II
10.12 -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31, 1995
between Sentry Financial Corporation and the Company
10.13*`D' -- Pledge Agreement and Non-Recourse Note dated April 8, 1996
10.14*`D' -- Pledge Agreement and Non-Recourse Note dated March 28, 1996
10.15 -- Management Administration and Services Agreement dated as of January 1, 1996 between the
Company and AutoBond, Inc.
10.16 -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.17 -- Employment Agreement dated February 15, 1996 between Charles A. Pond and the Company
10.18 -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and the
Company
10.19 -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by
Interstate Fire & Casualty Company
10.20 -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
16.1 -- Change in certifying accountant's letter
21.1 -- 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 -- Power of Attorney (included on signature page of Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
`D' Confidential treatment requested
(b) Financial Statements
II-3
<PAGE>
<PAGE>
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-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Austin, State of Texas,
on June 6, 1996.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ WILLIAM O. WINSAUER
...................................
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William O. Winsauer and Adrian Katz and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
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 June 6, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------------------------------------------
<C> <S>
/S/ WILLIAM O. WINSAUER Chairman of the Board, Chief Executive Officer and Director
......................................... (Principal Executive Officer)
WILLIAM O. WINSAUER
/S/ ADRIAN KATZ Vice Chairman of the Board, Chief Operating Officer and Director
.........................................
ADRIAN KATZ
/S/ JOHN S. WINSAUER Vice President and Director
.........................................
JOHN S. WINSAUER
/S/ WILLIAM J. STAHL Chief Financial Officer (Principal Financial and Accounting Officer)
.........................................
WILLIAM J. STAHL
</TABLE>
II-5
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
-------- -------------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* -- Underwriting Agreement
3.1 -- Restated Articles of Incorporation of the Company
3.2 -- Amended and Restated Bylaws of the Company
5.1* -- Opinion of Dewey Ballantine
10.1*`D' -- Pooling and Trust Agreement dated as of December 15, 1995 among AutoBond Funding
Corporation 1995, the Company and Norwest Bank Minnesota, National Association
10.2 -- Servicing Agreement dated as of December 15, 1995 among AutoBond Funding
Corporation 1995, CSC Logic/MSA L.L.P., doing business as 'Loan Servicing
Enterprise,' the Company and Norwest Bank Minnesota, National Association
10.3*`D' -- Loan Sale and Contribution Agreement dated as of December 15, 1995 among the
Company, AutoBond Funding Corporation I and AutoBond Funding Corporation 1995
10.4*`D' -- 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
10.5*`D' -- Pooling and Trust Agreement dated as of March 28, 1996 among AutoBond Funding
Corporation 1996-A, the Company and Norwest Bank Minnesota, National Association
10.6 -- Servicing Agreement dated as of March 28, 1996 among AutoBond Funding Corporation
1996-A, CSC Logic/MSA L.L.P., doing business as 'Loan Servicing Enterprise', the
Company and Norwest Bank Minnesota, National Association
10.7*`D' -- Loan Sale and Contribution Agreement dated as of March 28, 1996 among the Company,
AutoBond Funding Corporation I and AutoBond Funding Corporation 1996-A
10.8 -- 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
10.9*`D' -- Security Agreement dated as of May 21, 1996 among AutoBond Funding Corporation II,
the Company and Norwest Bank Minnesota, National Association
10.10*`D' -- Credit Agreement and Side Agreement, dated as of May 21, 1996 among AutoBond
Funding Corporation II, the Company and Peoples Life Insurance Company
10.11*`D' -- Loan Acquisition Sale and Contribution Agreement dated as of May 21, 1996 by and
between the Company and AutoBond Funding Corporation II
10.12 -- Second Amended and Restated Secured Revolving Credit Agreement dated as of July 31,
1995 between Sentry Financial Corporation and the Company
10.13*`D' -- Pledge Agreement and Non-Recourse Note dated April 8, 1996
10.14*`D' -- Pledge Agreement and Non-Recourse Note dated March 28, 1996
10.15 -- Management Administration and Services Agreement dated as of January 1, 1996
between the Company and AutoBond, Inc.
10.16 -- Employment Agreement dated November 15, 1995 between Adrian Katz and the Company
10.17 -- Employment Agreement dated February 15, 1996 between Charles A. Pond and the
Company
10.18 -- Employment Agreement effective as of May 1, 1996 between William O. Winsauer and
the Company
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
-------- -------------------------------------------------------------------------------------- ------------
<S> <C> <C>
10.19 -- Vender's Comprehensive Single Interest Insurance Policy and Endorsements, issued by
Interstate Fire & Casualty Company
10.20 -- Warrant to Purchase Common Stock of the Company dated March 12, 1996
16.1 -- Change in certifying accountant's letter
21.1 -- 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 -- Power of Attorney (included on signature page of Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
`D' Confidential treatment requested.
STATEMENT OF DIFFERENCES
The dagger footnote shall be expressed as..............................`D'
<PAGE>
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
AUTOBOND ACCEPTANCE CORPORATION
ARTICLE ONE
AutoBond Acceptance Corporation (the "Corporation"), pursuant to the
provisions of Article 4.07 of the Texas Business Corporation Act (the "Act"),
hereby adopts restated articles of incorporation which accurately copy the
articles of incorporation and all amendments thereto that are in effect to date
and as further amended by such restated articles of incorporation as hereinafter
set forth and which contain no other change in any provision thereof.
ARTICLE TWO
The articles of incorporation of the Corporation are amended by the
restated articles of incorporation as follows:
FIRST: Article I is hereby amended to read in its entirety as follows:
ARTICLE I
Name
The name of the Corporation is AutoBond Acceptance Corporation.
SECOND: Article II is hereby amended by adding the following caption
preceding the text of Article II:
Duration
THIRD: Article III is hereby amended by adding the following caption
preceding the text of Article III:
Purpose
Article III is hereby further amended by adding to the end of the first
and only sentence of Article III the following terms:
(the "Act")
FOURTH: Article IV is hereby amended to read in its entirety as follows:
<PAGE>
<PAGE>
ARTICLE IV
Authorized Shares
Section 1. The aggregate number of shares which the Corporation will have
authority to issue is 30,000,000 of which 25,000,000 will be shares of common
stock, no par value per share ("Common Stock"), and 5,000,000 will be shares of
preferred stock, no par value per share ("Preferred Stock").
Section 2. The board of directors shall have authority to establish series
of Preferred Stock. Shares of Preferred Stock may be issued from time to time in
one or more series, each of which is to have a distinctive serial designation as
determined in the resolution or resolutions of the board of directors providing
for the issuance of such Preferred Stock from time to time.
Section 3. Each series of Preferred Stock:
(a) may have such number of shares;
(b) may have such voting powers, full or limited, or may be without
voting powers;
(c) may be subject to redemption at such time or times and at such
price;
(d) may be entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, from such date
or dates, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or series
of stock;
(e) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation;
(f) may be made convertible into, or exchangeable for, shares of any
other class or classes, or of any other series of the same or any other
class or classes, of stock of the Corporation at such price or prices or
at such rates of exchange, and with such adjustments;
(g) may be entitled to the benefit of a sinking fund or purchase
fund to be applied to the purchase or redemption of shares of such series
in such amount or amounts;
- 2 -
<PAGE>
<PAGE>
(h) may be entitled to the benefit of conditions and restrictions
upon the creation of indebtedness of the Corporation or any subsidiary,
upon the issuance of any additional stock (including additional shares of
such series or of any other series) and upon the payment of dividends or
the making of other distributions on, and the purchase, redemption or
other acquisition of any class of stock by the Corporation; and
(i) may have such other relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof;
as in such instance is stated in the resolution or resolutions of the board of
directors providing for the issuance of such Preferred Stock. Except where
otherwise set forth in such resolution or resolutions, the number of shares
comprising such series may be increased or decreased (but not below the number
of shares then outstanding) from time to time by like action of the board of
directors.
Section 4. Shares of any series of Preferred Stock which have been
redeemed (whether through the operation of a sinking fund or otherwise) or
purchased by the Corporation, or which, if convertible or exchangeable, have
been converted into or exchanged for shares of stock of any other class or
classes will have the status of authorized and unissued shares of Preferred
Stock and may be reissued as a part of the series of which they were originally
a part or may be reclassified and reissued as part of a new series of Preferred
Stock created by resolution or resolutions of the board of directors or as part
of any other series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the board of directors providing for the issuance of any series of Preferred
Stock and to any filing required by law.
Section 5. (a) Except as otherwise provided by law or by the resolutions
of the board of directors providing for the issuance of any series of Preferred
Stock, Common Stock will have the exclusive right to vote for the election of
directors and for all other purposes. Each holder of Common Stock will be
entitled to one vote for each share held. The right of cumulative voting is
hereby specifically denied.
(b) Except as otherwise provided by law or by the resolutions of the
board of directors providing for the issuance of any series of Preferred Stock,
the right of class voting is denied.
- 3 -
<PAGE>
<PAGE>
(c) Subject to all of the rights of Preferred Stock or any series
thereof, the holders of Common Stock will be entitled to receive, when, as and
if declared by the board of directors, out of funds legally available therefor,
dividends payable in cash, in stock or otherwise.
(d) Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, and after the holders of
Preferred Stock of each series have been paid in full the amounts to which they
respectively are entitled or a sum sufficient for such payment in full has been
set aside, the remaining net assets of the Corporation will be distributed pro
rata to the holders of Common Stock in accordance with their respective rights
and interests to the exclusion of the holders of Preferred Stock.
FIFTH: Article V is hereby amended by adding the following caption
preceding the text of Article V:
Restriction on Commencement of Business
SIXTH: Article VI is hereby amended to read in its entirety as follows:
ARTICLE VI
Provisions for Regulation of the
Internal Affairs of the Corporation
Provisions for the regulation of the internal affairs of the Corporation
will include the following, but such enumeration is not in limitation of the
power of the shareholders or the Board of Directors to formulate in the Bylaws,
by resolution, or any other proper manner any other lawful provision not
inconsistent with law or these articles:
Section 1. Bylaws. The Board of Directors from time to time may alter,
amend or repeal the Bylaws or adopt new Bylaws; but the shareholders from time
to time may alter, amend or repeal any Bylaws adopted by the Board of Directors
or may adopt new Bylaws.
Section 2. Denial of Preemptive Rights. The shareholders of the
Corporation will not have the 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.
- 4 -
<PAGE>
<PAGE>
Section 3. Voting Requirements for Certain Corporate Actions. With respect
to any action which may be taken by the shareholders where the Act requires
greater than a majority vote, such action shall require only the concurrence of
a majority of the shares entitled to vote.
Section 4. Consents in Lieu of Meetings. Any action required by the Act to
be taken or which may be taken at any annual or special meeting of shareholders
may be taken without a meeting, without prior notice and without a vote, if a
consent (or consents) in writing, setting forth the action to be taken, is
signed by the holders or holder of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted. In order to be effective, such consent or consents shall comply with all
requirements of the Act.
Section 5. Limitation of Liability of Directors. No director of the
Corporation shall be liable to the Corporation or its shareholders for monetary
damages for an act or omission in such director's capacity as a director except
for (i) a breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) an act or omission not in good faith that constitutes a
breach of duty to the Corporation or an act or omission involving intentional
misconduct or a knowing violation of the law, (iii) a transaction from which the
director received an improper benefit (whether or not the benefit resulted from
an action taken within the scope of the director's office), or (iv) an act or
omission for which the liability of the director is expressly provided by
applicable statute.
SEVENTH: Article VII is hereby amended to read in its entirety as follows:
ARTICLE VII
Registered Office and Registered Agent
The street address of its registered office is 301 Congress Avenue, 9th
Floor, Austin, Texas 78701 and the name of its registered agent at that address
is William O. Winsauer.
EIGHTH: Article VIII is hereby amended to read in its entirety as follows:
- 5 -
<PAGE>
<PAGE>
ARTICLE VIII
Board of Directors
Section 1. Board of Directors. The Board of Directors consists of 3
members. The names and addresses of the persons who presently serve as directors
of the Corporation, and will serve as such until the next annual meeting of
shareholders, or until their successors are elected and qualified, are:
Name Address
---- -------
William O. Winsauer 301 Congress Avenue
9th Floor
Austin, Texas 78701
John S. Winsauer 301 Congress Avenue
9th Floor
Austin, Texas 78701
Adrian Katz 301 Congress Avenue
9th Floor
Austin, Texas 78701
Section 2. Number and Qualification. The number and qualifications of
directors constituting the Board of Directors of the Corporation will be fixed
or determined in the manner provided in the Bylaws of the Corporation. The
number of directors may be increased or decreased from time to time in the
manner set forth in the Bylaws of the Corporation.
NINTH: Article IX is hereby amended to read in its entirety as follows:
ARTICLE IX
Indemnification
The Corporation shall indemnify, and advance expenses to, its current or
former directors, officers, employees and agents or any person who served or is
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise to the full extent permitted by the Act. Such indemnification shall
not be deemed exclusive of any other rights to which such person may be
entitled, under any bylaws, agreements, vote of shareholders or disinterested
directors, or otherwise.
- 6 -
<PAGE>
<PAGE>
TENTH: Articles X and XI are hereby deleted.
END OF AMENDMENTS
ARTICLE THREE
Each such amendment made by the restated articles of incorporation has
been effected in conformity with the provisions of the Act and such restated
articles of incorporation and each such amendment made by the restated articles
of incorporation were duly adopted by the shareholders of the Corporation on the
30th day of May, 1996.
ARTICLE FOUR
The number of shares outstanding was 7,407.4074, and the number of shares
entitled to vote on the restated articles of incorporation as so amended was
7,407.4074. All of the shareholders have signed a written consent to the
adoption of such restated articles of incorporation as so amended pursuant to
Article 9.10 and any written notice required by Article 9.10 has been given.
ARTICLE FIVE
The manner in which any exchange, reclassification or cancellation of
issued shares shall be effected is as follows:
Each share of Common Stock issued and outstanding immediately prior to the
effectiveness (the "Effective Time") of the restated articles of incorporation
("Old Common Stock"), by virtue of the effectiveness of the restated articles of
incorporation and without any action on the part of the holder thereof, shall be
converted into the right to receive 767.8125 shares of Common Stock authorized
by the restated articles of incorporation following the Effective Time ("New
Common Stock"). No fractional shares of New Common Stock shall be issued.
Instead of any fractional shares of New Common Stock which would otherwise be
issuable, the Corporation shall issue the next higher whole number of shares.
For purposes of determining the number of shares to be issued pursuant to the
terms hereof, any shares of Old Common Stock held by one person in multiple
accounts shall be aggregated. Promptly after the Effective Time, the Corporation
shall give notice to each person who was a holder of Old Common Stock
immediately prior to the Effective Time, instructions for use in effecting the
surrender of the certificates which immediately prior to the Effective Time
- 7 -
<PAGE>
<PAGE>
represented any of such Old Common Stock. Upon surrender to the Corporation of
such certificates in accordance with such instructions, the Corporation shall
deliver to the persons entitled thereto certificates in the name of such persons
representing shares of New Common Stock to which such persons are entitled.
ARTICLE SIX
The amendment to the restated articles of incorporation effects no change
in the amount of stated capital of the Corporation.
ARTICLE SEVEN
The articles of incorporation and all amendments and supplements thereto
are hereby superseded by the following restated articles of incorporation which
accurately copy the entire text thereof and as amended as above set forth:
ARTICLE I
Name
The name of the Corporation is AutoBond Acceptance Corporation.
ARTICLE II
Duration
The period of its duration is perpetual.
ARTICLE III
Purpose
The purpose for which the Corporation is organized is the transaction of
any and all lawful business for which a corporation may be incorporated under
the Texas Business Corporation Act (the "Act").
ARTICLE IV
Authorized Shares
Section 1. The aggregate number of shares which the Corporation will have
authority to issue is 30,000,000 of which 25,000,000 will be shares of common
stock, no par value per share ("Common
- 8 -
<PAGE>
<PAGE>
Stock"), and 5,000,000 will be shares of preferred stock, no par value per share
("Preferred Stock").
Section 2. The board of directors shall have authority to establish series
of Preferred Stock. Shares of Preferred Stock may be issued from time to time in
one or more series, each of which is to have a distinctive serial designation as
determined in the resolution or resolutions of the board of directors providing
for the issuance of such Preferred Stock from time to time.
Section 3. Each series of Preferred Stock:
(a) may have such number of shares;
(b) may have such voting powers, full or limited, or may be without
voting powers;
(c) may be subject to redemption at such time or times and at such
price;
(d) may be entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, from such date
or dates, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or series
of stock;
(e) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation;
(f) may be made convertible into, or exchangeable for, shares of any
other class or classes, or of any other series of the same or any other
class or classes, of stock of the Corporation at such price or prices or
at such rates of exchange, and with such adjustments;
(g) may be entitled to the benefit of a sinking fund or purchase
fund to be applied to the purchase or redemption of shares of such series
in such amount or amounts;
(h) may be entitled to the benefit of conditions and restrictions
upon the creation of indebtedness of the Corporation or any subsidiary,
upon the issuance of any additional stock (including additional shares of
such series or of any other series) and upon the payment of dividends or
the making of other distributions on, and the purchase, redemption or
other acquisition of any class of stock by the Corporation; and
- 9 -
<PAGE>
<PAGE>
(i) may have such other relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof;
as in such instance is stated in the resolution or resolutions of the board of
directors providing for the issuance of such Preferred Stock. Except where
otherwise set forth in such resolution or resolutions, the number of shares
comprising such series may be increased or decreased (but not below the number
of shares then outstanding) from time to time by like action of the board of
directors.
Section 4. Shares of any series of Preferred Stock which have been
redeemed (whether through the operation of a sinking fund or otherwise) or
purchased by the Corporation, or which, if convertible or exchangeable, have
been converted into or exchanged for shares of stock of any other class or
classes will have the status of authorized and unissued shares of Preferred
Stock and may be reissued as a part of the series of which they were originally
a part or may be reclassified and reissued as part of a new series of Preferred
Stock created by resolution or resolutions of the board of directors or as part
of any other series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the board of directors providing for the issuance of any series of Preferred
Stock and to any filing required by law.
Section 5. (a) Except as otherwise provided by law or by the resolutions
of the board of directors providing for the issuance of any series of Preferred
Stock, Common Stock will have the exclusive right to vote for the election of
directors and for all other purposes. Each holder of Common Stock will be
entitled to one vote for each share held. The right of cumulative voting is
hereby specifically denied.
(b) Except as otherwise provided by law or by the resolutions of the
board of directors providing for the issuance of any series of Preferred Stock,
the right of class voting is denied.
(c) Subject to all of the rights of Preferred Stock or any series
thereof, the holders of Common Stock will be entitled to receive, when, as and
if declared by the board of directors, out of funds legally available therefor,
dividends payable in cash, in stock or otherwise.
(d) Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, and after the holders of
Preferred Stock of each series have been paid in full
- 10 -
<PAGE>
<PAGE>
the amounts to which they respectively are entitled or a sum sufficient for such
payment in full has been set aside, the remaining net assets of the Corporation
will be distributed pro rata to the holders of Common Stock in accordance with
their respective rights and interests to the exclusion of the holders of
Preferred Stock.
ARTICLE V
Restriction on Commencement of Business
The Corporation will not commence business until it has received
consideration of the value of One Thousand Dollars ($1,000.00), consisting of
money, labor done or property actually received, for the issuance of its shares.
ARTICLE VI
Provisions for Regulation of the
Internal Affairs of the Corporation
Provisions for the regulation of the internal affairs of the Corporation
will include the following, but such enumeration is not in limitation of the
power of the shareholders or the Board of Directors to formulate in the Bylaws,
by resolution, or any other proper manner any other lawful provision not
inconsistent with law or these articles:
Section 1. Bylaws. The Board of Directors from time to time may alter,
amend or repeal the Bylaws or adopt new Bylaws; but the shareholders from time
to time may alter, amend or repeal any Bylaws adopted by the Board of Directors
or may adopt new Bylaws.
Section 2. Denial of Preemptive Rights. The shareholders of the
Corporation will not have the 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.
Section 3. Voting Requirements for Certain Corporate Actions. With respect
to any action which may be taken by the shareholders where the Act requires
greater than a majority vote, such action shall require only the concurrence of
a majority of the shares entitled to vote.
Section 4. Consents in Lieu of Meetings. Any action required by the Act to
be taken or which may be taken at any annual or special meeting of shareholders
may be taken without a meeting, without prior notice and without a vote, if a
consent (or consents)
- 11 -
<PAGE>
<PAGE>
in writing, setting forth the action to be taken, is signed by the holders or
holder of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted. In order to be effective,
such consent or consents shall comply with all requirements of the Act.
Section 5. Limitation of Liability of Directors. No director of the
Corporation shall be liable to the Corporation or its shareholders for monetary
damages for an act or omission in such director's capacity as a director except
for (i) a breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) an act or omission not in good faith that constitutes a
breach of duty to the Corporation or an act or omission involving intentional
misconduct or a knowing violation of the law, (iii) a transaction from which the
director received an improper benefit (whether or not the benefit resulted from
an action taken within the scope of the director's office), or (iv) an act or
omission for which the liability of the director is expressly provided by
applicable statute.
ARTICLE VII
Registered Office and Registered Agent
The street address of its registered office is 301 Congress Avenue, 9th
Floor, Austin, Texas 78701 and the name of its registered agent at that address
is William O. Winsauer.
ARTICLE VIII
Board of Directors
Section 1. Board of Directors. The Board of Directors consists of 3
members. The names and addresses of the persons who presently serve as directors
of the Corporation, and will serve as such until the next annual meeting of
shareholders, or until their successors are elected and qualified, are:
Name Address
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William O. Winsauer 301 Congress Avenue
9th Floor
Austin, Texas 78701
John S. Winsauer 301 Congress Avenue
9th Floor
Austin, Texas 78701
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Adrian Katz 301 Congress Avenue
9th Floor
Austin, Texas 78701
Section 2. Number and Qualification. The number and qualifications of
directors constituting the Board of Directors of the Corporation will be fixed
or determined in the manner provided in the Bylaws of the Corporation. The
number of directors may be increased or decreased from time to time in the
manner set forth in the Bylaws of the Corporation.
ARTICLE IX
Indemnification
The Corporation shall indemnify, and advance expenses to, its current or
former directors, officers, employees and agents or any person who served or is
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise to the full extent permitted by the Act. Such indemnification shall
not be deemed exclusive of any other rights to which such person may be
entitled, under any bylaws, agreements, vote of shareholders or disinterested
directors, or otherwise.
In order to evidence the foregoing, the undersigned has executed these
restated articles of incorporation on this 31st day of May, 1996.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ WILLIAM O. WINSAUER
____________________________
William O. Winsauer, Chief
Executive Officer
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AMENDED AND RESTATED BYLAWS OF
AUTOBOND ACCEPTANCE CORPORATION
(the "Company")
ARTICLE I
Offices
Section 1.1. Offices. The principal business office of the Company shall
be 301 Congress Avenue, 9th Floor, Austin, Texas 78701. The Company may have
such other business offices within or without the State of Texas as the board of
directors may from time to time establish.
ARTICLE II
Capital Stock
Section 2.1. Certificate Representing Shares. Shares of the capital stock
of the Company shall be represented by certificates in such form or forms as the
board of directors may approve, provided that such form or forms shall comply
with all applicable requirements of law or of the articles of incorporation.
Such certificates shall be signed by the chief executive officer, president or a
vice president, and by the secretary or an assistant secretary, of the Company
and may be sealed with the seal of the Company or imprinted or otherwise marked
with a facsimile of such seal. The signature of any or all of the foregoing
officers of the Company may be represented by a printed facsimile thereof. If
any officer whose signature, or a facsimile thereof, shall have been set upon
any certificate shall cease, prior to the issuance of such certificate, to
occupy the position in right of which his signature, or facsimile thereof, was
so set upon such certificate, the Company may nevertheless adopt and issue such
certificate with the same effect as if such officer occupied such position as of
such date of issuance; and issuance and delivery of such certificate by the
Company shall constitute adoption thereof by the Company. The certificates shall
be consecutively numbered, and as they are issued, a record of such issuance
shall be entered in the books of the Company.
Section 2.2. Stock Certificate Book and Shareholders of Record. The
secretary of the Company shall maintain, among other records, a stock
certificate book, the stubs which shall set forth the names and addresses of the
holders of all issued shares of the Company, the number of shares held by each,
the number of certificates representing such shares, the date of issue of such
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certificates, and whether or not such shares originate from original issue or
from transfer. The names and addresses of shareholders as they appear on the
stock certificate book shall be the official list of shareholders of record of
the Company for all purposes. The Company shall be entitled to treat the holder
of record of any shares as the owner thereof for all purposes, and shall not be
bound to recognize any equitable or other claim to, or interest in, such shares
or any rights deriving from such shares on the part of any other person,
including, but without limitation, a purchaser, assignee, or transferee, unless
and until such other person becomes the holder of record of such shares, whether
or not the Company shall have either actual or constructive notice of the
interest of such other person.
Section 2.3. Shareholder's Change of Name or Address. Each shareholder
shall promptly notify the secretary of the Company, at its principal business
office, by written notice sent by certified mail, return receipt requested, of
any change in name or address of the shareholder from that as it appears upon
the official list of shareholders of record of the Company. The secretary of the
Company shall then enter such changes into all affected Company records,
including, but not limited to, the official list of shareholders of record.
Section 2.4. Transfer of Stock. The shares represented by any certificate
of the Company are transferable only on the books of the Company by the holder
of record thereof or by his duly authorized attorney or legal representative
upon surrender of the certificate for such shares, properly endorsed or
assigned. The board of directors may make such rules and regulations concerning
the issue, transfer, registration and replacement of certificates as they deem
desirable or necessary.
Section 2.5. Transfer Agent and Registrar. The board of directors may
appoint one or more transfer agents or registrars of the shares, or both, and
may require all share certificates to bear the signature of a transfer agent or
registrar, or both.
Section 2.6. Lost, Stolen or Destroyed Certificates. The Company may issue
a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
board of directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as the board may
direct, in order to indemnify the Company
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and its transfer agents and registrars, if any, against any claim that may be
made on account of the alleged loss, theft or destruction of such certificate.
Section 2.7. Fractional Shares. Only whole shares of the stock of the
Company shall be issued. In case of any transaction by reason of which a
fractional share might otherwise be issued, the directors, or the officers in
the exercise of powers delegated by the directors, shall take such measures
consistent with the law, the articles of incorporation and these bylaws,
including (for example, and not by way of limitation) the payment in cash of an
amount equal to the fair value of any fractional share, as they may deem proper
to avoid the issuance of any fractional share.
ARTICLE III
The Shareholders
Section 3.1. Annual Meeting. Commencing in the calendar year 1997, the
annual meeting of the shareholders, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at the principal office of the Company, at 10:00 a.m. local time,
on the second Tuesday in May of each year unless such day is a legal holiday, in
which case such meeting shall be held at such hour on the first day thereafter
which is not a legal holiday; or at such other place and time as may be
designated by the board of directors. Failure to hold any annual meeting or
meetings shall not work a forfeiture or dissolution of the Company.
Section 3.2. Special Meetings. Except as otherwise provided by law or by
the articles of incorporation, special meetings of the shareholders may be
called by the chairman of the board of directors, the chief executive officer,
any one of the directors, or the holders of at least ten percent of all the
shares having voting power at such meeting, and shall be held at the principal
office of the Company or at such other place, and at such time, as may be stated
in the notice calling such meeting. The record date for determining shareholders
entitled to call a special meeting is the date on which the first shareholder
signs the notice of that meeting. Business transacted at any special meeting of
shareholders shall be limited to the purpose stated in the notice of such
meeting given in accordance with the terms of Section 3.3.
Section 3.3. Notice of Meetings - Waiver. Written or printed notice of
each meeting of shareholders, stating the place,
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day and hour of any meeting and, in case of a special shareholders' meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of such meeting, either
personally or by mail, by or at the direction of the chief executive officer,
the secretary, or the persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the Company, with
postage thereon prepaid. Such further or earlier notice shall be given as may be
required by law. The signing by a shareholder of a written waiver of notice of
any shareholders' meeting, whether before or after the time stated in such
waiver, shall be equivalent to the receiving by him of all notice required to be
given with respect to such meeting. Attendance by a shareholder, whether in
person or by proxy, at a shareholders' meeting shall constitute a waiver of
notice of such meeting. No notice of any adjournment of any meeting shall be
required.
Section 3.4. Discharge of Notice Requirement. The notice provided for in
Section 3.3. of these bylaws is not required to be given to any shareholder if
either notice of two consecutive annual meetings and all notices of meetings
held during the period between such annual meetings or all payments (but in no
event less than two payments) of distributions or interest on securities, during
a 12-month period, have been sent by first class mail, to such shareholder,
addressed to the address as shown on the records of the Company and have been
returned undeliverable. Any action or meeting taken or held without notice to
such a shareholder shall have the same force and effect as if the notice had
been duly given and any articles or document filed with the Secretary of State
pursuant to action taken may state that notice was duly given to all persons to
whom notice was required to be given. The requirement that notice be given to
such a shareholder shall be reinstated if such shareholder delivers to the
Company a written notice setting forth his then current address.
Section 3.5. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of, or to vote at, any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive a distribution by the Company (other than a distribution involving a
purchase or redemption by the Company of any of its own shares) or a share
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the Company may provide that the stock
transfer books shall be closed
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for a stated period in no case to exceed sixty days. If the stock transfer books
shall be closed for the purpose of determining shareholders entitled to notice
of or to vote at a meeting of shareholders, such books shall be closed for at
least the ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the board of directors may fix in advance a date as the
record date for any such determination of shareholders, such date in no case to
be more than sixty days nor, in the case of a meeting of shareholders, less than
ten days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive a distribution (other than a distribution involving a
purchase or redemption by the corporation of any of its own shares) or a share
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the board of directors declaring such distribution or share
dividend is adopted, as the case may be, shall be the record date of such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made, as provided in this Section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of stock transfer books and the
stated period of closing has expired.
Section 3.6. Distributions and Share Ownership as of Record Date.
Distributions of cash, tangible property or intangible property made or payable
by the Company, whether in liquidation or from earnings, profits, assets or
capital, including all distributions that were payable but not paid to the
registered owner of the shares, his heirs, successors or assigns but that are
now being held in suspense by the Company or that were paid or delivered by it
into an escrow account or to a trustee or custodian, shall be payable by the
Company, escrow agent, trustee or custodian to the person registered as owner of
the shares in the Company's stock transfer books as of the record date
determined for that distribution, as provided in Section 3.5. of these bylaws,
his heirs, successors or assigns. The person in whose name the shares are or
were registered in the stock transfer books of the Company as of the record date
shall be deemed to be the owner of the shares registered in his name at that
time.
Section 3.7. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Company shall make, at least ten days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting
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or any adjournment thereof, arranged in alphabetical order, with the address of
and the number of shares held by each, which list, for a period of ten days
prior to such meeting, shall be kept on file at the registered office of the
Company and shall be subject to lawful inspection by any shareholder at any time
during the usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting. Failure to comply with
this Section shall not affect the validity of any action taken at such meeting.
Section 3.8. Quorum and Officers. Except as otherwise provided by law, by
the articles of incorporation or by these bylaws, the holders of a majority of
the shares entitled to vote and represented in person or by proxy shall
constitute a quorum at a meeting of shareholders, but the shareholders present
at any meeting, although representing less than a quorum, may from time to time
adjourn the meeting to some other day and hour, without notice other than
announcement at the meeting. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law. The chairman of
the board shall preside at, and the secretary shall keep the records of, each
meeting of shareholders, and in the absence of either such officer, his duties
shall be performed by any other officer authorized by these bylaws or any person
appointed by resolution duly adopted at the meeting.
Section 3.9. Voting at Meetings. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders
except to the extent that the articles of incorporation or the laws of the State
of Texas provide otherwise.
Section 3.10. Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized
attorney-in-fact. No proxy shall be valid after eleven (11) months from the date
of its execution unless otherwise provided in the proxy. A proxy shall be
revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
Section 3.11. Balloting. Upon the demand of any shareholder, the vote
upon any question before the meeting shall be by ballot. At each meeting
inspectors of election may be appointed by
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the presiding officer of the meeting, and at any meeting for the election of
directors, inspectors shall be so appointed on the demand of any shareholder
present or represented by proxy and entitled to vote in such election of
directors. No director or candidate for the office of director shall be
appointed as such inspector. The number of votes cast by shares in the election
of directors shall be recorded in the minutes.
Section 3.12. Voting Rights, Prohibition of Cumulative Voting for
Directors. Each outstanding share of common stock shall be entitled to one (1)
vote upon each matter submitted to a vote at a meeting of shareholders. No
shareholder shall have the right to cumulate his votes for the election of
directors but each share shall be entitled to one vote in the election of each
director. In the case of any contested election for any directorship, the
candidate for such position receiving a plurality of the votes cast in such
election shall be elected to such position.
Section 3.13. Record of Shareholders. The Company shall keep at its
principal business office, or the office of its transfer agents or registrars, a
record of its shareholders, giving the names and addresses of all shareholders
and the number and class of the shares held by each.
Section 3.14. Action Without Meeting. Unless otherwise permitted by the
articles of incorporation of the Company, any action required by statute to be
taken at a meeting of the shareholders of the Company, or any action which may
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof and
such consent shall have the same force and effect as a unanimous vote of the
shareholders. Any such signed consent, or a signed copy thereof, shall be placed
in the minute book of the Company. All notices with respect to such consent
required by the applicable statute shall be sent by the Company in a timely
manner.
ARTICLE IV
The Board of Directors
Section 4.1. Number, Qualifications and Term. The business and affairs of
the Company shall be managed and controlled by the board of directors; and,
subject to any restrictions imposed by law, by the articles of incorporation, or
by these bylaws, the board of directors may exercise all the powers of the
Company. The
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board of directors shall consist of 3 members. Such number may be increased or
decreased by amendment of these bylaws, provided that no decrease shall effect a
shortening of the term of any incumbent director. Directors need not be
residents of Texas or shareholders of the Company absent provision to the
contrary in the articles of incorporation or laws of the State of Texas. Except
as otherwise provided in Section 4.3. of these bylaws, each position on the
board of directors shall be filled by election at the annual meeting of
shareholders. Any such election shall be conducted in accordance with Section
3.9. of these bylaws. Each person elected a director shall hold office, unless
removed in accordance with Section 4.2. of these bylaws, until the next annual
meeting of the shareholders and until his successor shall have been duly elected
and qualified.
Section 4.2. Removal. Any director or the entire board of directors may be
removed from office, with or without cause, at any special meeting of
shareholders by the affirmative vote of a majority of the shares of the
shareholders present in person or by proxy and entitled to vote at such meeting,
if notice of the intention to act upon such matter shall have been given in the
notice calling such meeting. If the notice calling such meeting shall have so
provided, the vacancy caused by such removal may be filled at such meeting by
the affirmative vote of a majority in number of the shares of the shareholders
present in person or by proxy and entitled to vote.
Section 4.3. Vacancies. Any vacancy occurring in the board of directors
may be filled by the vote of a majority of the remaining directors, even if such
remaining directors comprise less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any position on the board of directors to be filled
by reason of an increase in the number of directors shall be filled by the vote
of a majority of the directors, election at an annual meeting of the
shareholders, or at a special meeting of shareholders duly called for such
purpose, provided that the board of directors may fill no more than two such
directorships during the period between any two successive annual meetings of
shareholders.
Section 4.4. Regular Meetings. Regular meetings of the board of directors
shall be held immediately following each annual meeting of shareholders, at the
place of such meeting, and at such other times and places as the board of
directors shall determine. No notice of any kind of such regular meetings needs
to be given to either old or new members of the board of directors.
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Section 4.5. Special Meetings. Special meetings of the board of directors
shall be held at any time by call of the chairman of the board, the chief
executive officer, the secretary or any two directors. The secretary shall give
notice of each special meeting to each director at his usual business or
residence address by mail at least three days before the meeting or in person or
by telegraph or telephone at least one day before such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid. Except as otherwise provided by law, by the
articles of incorporation, or by these bylaws, such notice need not specify the
business to be transacted at, or the purpose of, such meeting. No notice shall
be necessary for any adjournment of any meeting. The signing of a written waiver
of notice of any special meeting by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be equivalent to
the receiving of such notice. Attendance of a director at a meeting shall also
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express and announced purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
Section 4.6. Quorum. A majority of the number of directors fixed by these
bylaws shall constitute a quorum for the transaction of business and the act of
not less than a majority of such quorum of the directors shall be required in
order to constitute the act of the board of directors, unless the act of a
greater number shall be required by law, by the articles of incorporation or by
these bylaws.
Section 4.7. Procedure at Meetings. The board of directors, at each
regular meeting held immediately following the annual meeting of shareholders,
shall appoint one of their number as chairman of the board of directors. Failure
to designate a chairman of the board shall be deemed a designation of the chief
executive officer to perform the functions of the chairman of the board. The
chairman of the board shall preside at meetings of the board. In his absence at
any meeting, any officer authorized by these bylaws or any member of the board
selected by the members present shall preside. The secretary of the Company
shall act as secretary at all meetings of the board. In his absence, the
presiding officer of the meeting may designate any person to act as secretary.
At meetings of the board of directors, the business shall be transacted in such
order as the board may from time to time determine.
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Section 4.8. Presumption of Assent. Any director of the Company who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 4.9. Action Without a Meeting. Any action required by statute to
be taken at a meeting of the directors of the Company, or which may be taken at
such meeting, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by each director entitled to vote at
such meeting, and such consent shall have the same force and effect as a
unanimous vote of the directors. Such signed consent, or a signed copy thereof,
shall be placed in the minute book of the Company.
Section 4.10. Compensation. Directors as such shall not receive any stated
salary for their service, but by resolution of the board of directors, a fixed
sum and reimbursement for reasonable expenses of attendance, if any, may be
allowed for attendance at each regular or special meeting of the board of
directors or at any meeting of the executive committee of directors, if any, to
which such director may be elected in accordance with the following Section
4.11; but nothing herein shall preclude any director from serving the Company in
any other capacity or receiving compensation therefor.
Section 4.11. Executive Committee. The board of directors, by resolution
adopted by a majority of the full board of directors, may designate an executive
committee, which committee shall consist of two or more of the directors of the
Company. Such executive committee may exercise such authority of the board of
directors in the business and affairs of the Company as the board of directors
may, by resolution duly adopted, delegate to it except as prohibited by law. The
designation of such committee and the delegation thereto of authority shall not
operate to relieve the board of directors, or any member thereof, of any
responsibility imposed upon it or him by law. Any member of the executive
committee may be removed by the board of directors. The executive committee
shall keep regular minutes of its proceedings and report the same to the board
of directors when required. The minutes of
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the proceedings of the executive committee shall be placed in the minute book of
the Company. Members of the executive committee shall receive such compensation
as may be approved by the board of directors and will be reimbursed for
reasonable expenses actually incurred by reason of membership on the executive
committee.
Section 4.12. Other Committees. The board of directors, by resolution
adopted by a majority of the full board of directors, may appoint one or more
committees of two or more directors each. Such committees may exercise such
authority of the board of directors in the business and affairs of the Company
as the board of directors may, by resolution duly adopted, delegate, except as
prohibited by law. The designation of any committee and the delegation thereto
of authority shall not operate to relieve the board of directors, or any member
thereof, of any responsibility imposed on it or him by law. Any member of a
committee may be removed at any time by the board of directors. Members of any
such committees shall receive such compensation as may be approved by the board
of directors and will be reimbursed for reasonable expenses actually incurred by
reason of membership on a committee.
ARTICLE V
Officers
Section 5.1. Number. The officers of the Company shall consist of a
chairman of the board, vice chairman of the board, chief executive officer,
president, chief operating officer, one or more vice presidents, a secretary and
a treasurer; and, in addition, such other officers and assistant officers and
agents as may be deemed necessary or desirable. Officers shall be elected or
appointed by the board of directors. Any two or more offices may be held by the
same person. In its discretion, the board of directors may leave unfilled any
office except those of president and secretary.
Section 5.2. Election; Term; Qualification. Officers shall be chosen by
the board of directors annually at the meeting of the board of directors
following the annual shareholders' meeting. Each officer shall hold office until
his successor has been chosen and qualified, or until his death, resignation, or
removal.
Section 5.3. Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the Company will be served thereby, but such
removal shall be without
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prejudice to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create any contract
rights.
Section 5.4. Vacancies. Any vacancy in any office for any cause may be
filled by the board of directors at any meeting.
Section 5.5. Duties. The officers of the Company shall have such powers
and duties, except as modified by the board of directors, as generally pertain
to their offices, respectively, as well as such powers and duties as from time
to time shall be conferred by the board of directors and by these bylaws.
Section 5.6. Chairman of the Board. The board of directors may select from
among its members a chairman of the board who may, if so elected, preside at all
meetings of the board of directors and approve the minutes of all proceedings
thereat, and he shall be available to consult with and advise the officers of
the Company with respect to the conduct of the business and affairs of the
Company and shall have such other powers and duties as designated in accordance
with these bylaws and as from time to time may be assigned to him by the board
of directors.
Section 5.7. Vice Chairman of the Board. The vice chairman of the board
shall perform such duties and have such powers as may from time to time be
assigned to him by the board of directors or chairman of the board.
Section 5.8. Chief Executive Officer. The chief executive officer shall
have general direction of the affairs of the Company and general supervision
over its several officers, subject however, to the control of the board of
directors. He shall at each annual meeting, and from time to time, report to the
shareholders and to the board of directors all matters within his knowledge
which, in his opinion, the interest of the Company may require to be brought to
the notice of such persons. He shall preside at all meetings of the
shareholders, shall sign and execute in the name of the Company (i) all
contracts or other instruments authorized by the board of directors, and (ii)
all contracts or instruments in the usual and regular course of business,
pursuant to Section 6.2 hereof, except in cases when the signing and execution
thereof shall be expressly delegated or permitted by the board or by these
bylaws to some other officer or agent of the Company; and, in general, shall
perform all duties incident to the office of chief executive officer, and such
other duties as from time to time may be assigned to him by the board of
directors or as are prescribed by these bylaws. The chief executive officer may
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sign, with the secretary or an assistant secretary, any or all certificates of
stock of the Company.
Section 5.9. President. At the request of the chief executive officer, or
in his absence or disability, the president shall perform the duties of the
chief executive officer, and, when so acting, shall have all the powers of, and
be subject to all restrictions upon, the chief executive officer. Any action
taken by the president in the performance of the duties of the chief executive
officer shall be conclusive evidence of the absence or inability to act of the
chief executive officer at the time such action was taken. The president shall
perform such other duties as may, from time to time, be assigned to him by the
board of directors or the chief executive officer. The president may sign, with
the secretary or an assistant secretary, any or all certificates of stock of the
Company.
Section 5.10. Chief Operating Officer. The chief operating officer shall
perform such duties and have such powers as may from time to time be assigned to
him by the board of directors or the chief executive officer.
Section 5.11. The Vice Presidents. At the request of the president, or in
his absence or disability, the vice presidents, in the order of their election,
shall perform the duties of the president, and, when so acting, shall have all
the powers of, and be subject to all restrictions upon, the president. Any
action taken by a vice president in the performance of the duties of the
president shall be conclusive evidence of the absence or inability to act of the
president at the time such action was taken. The vice presidents shall perform
such other duties as may, from time to time, be assigned to them by the board of
directors or the president. A vice president may sign, with the secretary or an
assistant secretary, certificates of stock of the Company.
Section 5.12. Secretary. The secretary shall keep the minutes of all
meetings of the shareholders, of the board of directors, and of the executive
committee, if any, of the board of directors, in one or more books provided for
such purpose and shall see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law. He shall be custodian of
the corporate records and of the seal (if any) of the Company and see, if the
Company has a seal, that the seal of the Company is affixed to all documents the
execution of which on behalf of the Company under its seal is duly authorized;
shall have general charge of the stock certificate books, transfer books and
stock ledgers, and such other books and papers of the Company as
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the board of directors may direct, all of which shall, at all reasonable times,
be open to the examination of any director, upon application at the office of
the Company during business hours; and in general shall perform all duties and
exercise all powers incident to the office of the secretary and such other
duties and powers as the board of directors or the chief executive officer from
time to time may assign to or confer on him.
Section 5.13. Treasurer. The treasurer shall keep complete and accurate
records of account, showing at all times the financial condition of the Company.
He shall be the legal custodian of all money, notes, securities and other
valuables which may from time to time come into the possession of the Company.
He shall furnish at meetings of the board of directors, or whenever requested, a
statement of the financial condition of the Company, and shall perform such
other duties as these bylaws may require or the board of directors may
prescribe.
Section 5.14. Assistant Officers. Any assistant secretary or assistant
treasurer appointed by the board of directors shall have power to perform, and
shall perform, all duties incumbent upon the secretary or treasurer of the
Company, respectively, subject to the general direction of such respective
officers, and shall perform such other duties as these bylaws may require or the
board of directors may prescribe.
Section 5.15. Salaries. The salaries or other compensation of the officers
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a director of the Company.
Section 5.16. Bonds of Officers. The board of directors may secure the
fidelity of any officer of the Company by bond or otherwise, on such terms and
with such surety or sureties, conditions, penalties or securities as shall be
deemed proper by the board of directors.
Section 5.17. Delegation. The board of directors may delegate temporarily
the powers and duties of any officer of the Company, in case of his absence or
for any other reason, to any other officer, and may authorize the delegation by
any officer of the Company of any of his powers and duties to any agent or
employee, subject to the general supervision of such officer.
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ARTICLE VI
Miscellaneous
Section 6.1. Distributions. Distributions, subject to the provisions of
the articles of incorporation and to limitations set forth by law, if any, may
be declared by the board of directors at any regular or special meeting.
Distributions may be in the form of a dividend, including a share dividend, a
purchase or redemption by the Company, directly or indirectly, of any of its own
shares or a payment by the Company in liquidation of all or a portion of its
assets. A distribution may not be made if it would render the Company insolvent
or if it exceeds the surplus of the Company, except as otherwise allowed by law.
Subject to limitations upon the authority of the board of directors
imposed by law or by the articles of incorporation, the declaration of and
provision for payment of dividends shall be at the discretion of the board of
directors.
Section 6.2. Contracts. The chief executive officer shall have the power
and authority to execute, on behalf of the Company, contracts or instruments in
the usual and regular course of business, and in addition the board of directors
may authorize any officer or officers, agent or agents, of the Company to enter
into any contract or execute and deliver any instrument in the name of and on
behalf of the Company, and such authority may be general or confined to specific
instances. Unless so authorized by the board of directors or by these bylaws, no
officer, agent or employee shall have any power or authority to bind the Company
by any contract or engagement, or to pledge its credit or to render it
pecuniarily liable for any purpose or in any amount.
Section 6.3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by such officers or employees of the Company
as shall from time to time be authorized pursuant to these bylaws or by
resolution of the board of directors.
Section 6.4. Depositories. All funds of the Company shall be deposited
from time to time to the credit of the Company in such banks or other
depositories as the board of directors may from time to time designate, and upon
such terms and conditions as shall be fixed by the board of directors. The board
of directors may from time to time authorize the opening and maintaining within
any such depository as it may designate, of general and special
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accounts, and may make such special rules and regulations with respect thereto
as it may deem expedient.
Section 6.5. Endorsement of Stock Certificates. Subject to the specific
directions of the board of directors, any share or shares of stock issued by any
corporation and owned by the Company, including reacquired shares of the
Company's own stock, may, for sale or transfer, be endorsed in the name of the
Company by the chief executive officer, president or any vice president; and
such endorsement may be attested or witnessed by the secretary or any assistant
secretary either with or without the affixing thereto of the corporate seal.
Section 6.6. Corporate Seal. The corporate seal, if any, shall be in such
form as the board of directors shall approve, and such seal, or a facsimile
thereof, may be impressed on, affixed to, or in any manner reproduced upon,
instruments of any nature required to be executed by officers of the Company.
Section 6.7. Fiscal Year. The fiscal year of the Company shall begin and
end on such dates as the board of directors at any time shall determine.
Section 6.8. Books and Records. The Company shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and board of directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 6.9. Resignations. Any director or officer may resign at any time.
Such resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time is specified, at the time of its receipt by
the chief executive officer or secretary. The acceptance of a resignation shall
not be necessary to make it effective, unless expressly so provided in the
resignation.
Section 6.10. Indemnification of Officers and Directors. The Corporation
shall indemnify, and advance expenses to, its current or former directors,
officers, employees and agents or any person who served or is serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise to the full
extent permitted by the laws of the State of Texas.
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Such indemnification shall not be deemed exclusive of any other rights to which
such person may be entitled, under any bylaws, agreements, vote of shareholders
or disinterested directors, or otherwise.
Section 6.11. Indemnity Insurance. The Company may purchase and maintain
insurance or another arrangement on behalf of a person who is or was a director,
officer, employee or agent of the Company or who is or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such capacity or arising out of his status as such a
person, whether or not the Company would have the power to indemnify him against
that liability under these bylaws or the laws of the State of Texas. If the
insurance or other arrangement is with a person or entity that is not regularly
engaged in the business of providing insurance coverage, the insurance or
arrangement may provide for payment of a liability with respect to which the
Company would not have the power to indemnify the person only if the
shareholders of the Company approve the inclusion of coverage for the additional
liability.
Section 6.12. Meetings by Telephone. Subject to the provisions required or
permitted by these bylaws or the laws of the State of Texas for notice of
meetings, shareholders, members of the board of directors, or members of any
committee designated by the board of directors may participate in and hold any
meeting required or permitted under these bylaws by telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this Section
shall constitute presence in person at such a meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE VII
Amendments
Section 7.1. Amendments. These bylaws may be altered, amended, or
repealed, or new bylaws may be adopted, by a majority of the board of directors
at any duly held meeting of directors, provided that notice of such proposed
action shall have been
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contained in the notice of any such meeting, unless the articles of
incorporation or the laws of the State of Texas reserve the power exclusively to
the shareholders in whole or in part, or the shareholders in amending, repealing
or adopting a particular bylaw expressly provide that the board of directors may
not amend or repeal that bylaw. Unless the articles of incorporation or a bylaw
adopted by the shareholders provides otherwise as to all or some portion of the
Company's bylaws, the holders of a majority of the shares represented at any
duly held meeting of the shareholders, provided that notice of such proposed
action shall have been contained in the notice of any such meeting, may amend,
repeal or adopt the Company's bylaws.
Certificate by Secretary
The undersigned, being the secretary of AutoBond Acceptance Corporation,
hereby certifies that the foregoing code of bylaws was duly adopted by the
directors of said corporation effective on May 30, 1996.
In Witness Whereof, I have signed this certification on this the ___ day
of __________, 1996.
/s/ JOHN S. WINSAUER
_______________________________
Name: John S. Winsauer
Title: Secretary
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Execution Copy
================================================================================
SERVICING AGREEMENT
among
AUTOBOND FUNDING CORPORATION 1995,
as Transferor
CSC LOGIC/MSA L.L.P.,
doing business as "Loan Servicing Enterprise",
as Servicer
AUTOBOND ACCEPTANCE CO.,
as Collection Agent
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
Dated as of December 15, 1995
================================================================================
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; RULES OF INTERPRETATION............... 2
SECTION 1.01. Defined Terms................................ 2
SECTION 1.02. Rules of Interpretation...................... 11
ARTICLE II SERVICING OF TRUST ASSETS.......................... 12
SECTION 2.01. Appointment of Servicer...................... 12
SECTION 2.02. Subservicing Agreements Between
Servicer and Subservicer.................. 13
SECTION 2.03. Representations and Warranties of
the Servicer.............................. 14
SECTION 2.04. Duties and Responsibilities of the
Servicer.................................. 16
SECTION 2.05. Fidelity Bond, Errors and Omissions
Insurance; Contingent Disaster
Relief Protection........................... 19
SECTION 2.06. Inspection................................... 21
SECTION 2.07. Possession and Payment of
Receivables............................... 22
SECTION 2.08. Monthly Servicing Fee; Servicing
Expenses.................................. 22
SECTION 2.09. Collection Agent To Maintain
Computer Link............................. 24
SECTION 2.10. Resignation or Termination of
Servicer.................................. 24
SECTION 2.11. Change in Business of the Servicer........... 25
SECTION 2.12. Events of Servicing Termination.............. 25
SECTION 2.13. Appointment of the Successor
Servicer.................................. 27
SECTION 2.14. Effect of Service Transfer................... 29
SECTION 2.15. Annual Reports; Statements as to
Compliance................................ 30
SECTION 2.16. Annual Independent Public
Accountants' Servicing Report............. 31
SECTION 2.17. Servicer Reports............................. 31
SECTION 2.18. Confidentiality.............................. 32
SECTION 2.19. Delivery of Documents........................ 32
SECTION 2.20. Standard of Care............................. 33
ARTICLE III COLLECTION AGENT................................... 34
SECTION 3.01. Appointment of Collection Agent.............. 34
SECTION 3.02. Representations and Warranties of
the Collection Agent...................... 35
SECTION 3.03. Duties and Responsibilities of the
Collection Agent.......................... 37
SECTION 3.04. Possession of Receivables.................... 38
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Page
SECTION 3.05. Collection Agent Fee; Collection
Agent Expenses............................ 38
SECTION 3.06. Collection Agent Not to Resign;
Termination of Collection Agent
Without Cause............................. 39
SECTION 3.07. Events of Administrator
Termination............................... 40
SECTION 3.08. Repossession and Disposal.................... 42
SECTION 3.09. Standard of Care............................. 44
ARTICLE IV LIMITATION ON LIABILITY; INDEMNITIES............... 44
SECTION 4.01. Liabilities of Obligors...................... 44
SECTION 4.02. Limitation on Liability of the
Trustee and the Servicer.................. 44
SECTION 4.03. Indemnities of the Servicer and the
Collection Agent.......................... 45
ARTICLE V MISCELLANEOUS...................................... 46
SECTION 5.01. Beneficiaries................................ 46
SECTION 5.02. Amendment.................................... 47
SECTION 5.03. Notices...................................... 47
SECTION 5.04. Severability of Provisions................... 48
SECTION 5.05. GOVERNING LAW; CONSENT TO
JURISDICTION; WAIVER OF JURY
TRIAL..................................... 49
SECTION 5.06. Counterparts................................. 49
SECTION 5.07. No Proceedings............................... 49
SECTION 5.08. Further Assurance............................ 49
SECTION 5.09. Term of Agreement............................ 50
EXHIBITS
EXHIBIT A - FORM OF TRUST RECEIPT
EXHIBIT B - FORM OF MONTHLY SERVICER REPORT
EXHIBIT C - FORM OF OPINION OF COUNSEL TO SERVICER
EXHIBIT D - AUTOBOND PROGRAM MANUAL
<PAGE>
<PAGE>
SERVICING AGREEMENT, dated as of December 15, 1995 this "Agreement"),
among AUTOBOND FUNDING CORPORATION 1995 (the "Transferor"), a Delaware
corporation, CSC LOGIC/MSA L.L.P., a Texas limited liability partnership doing
business as "Loan Servicing Enterprise," in its capacity as servicer (the
"Servicer"), AUTOBOND ACCEPTANCE CO., a Texas corporation, individually
("AutoBond") and as collection agent (the "Collection Agent") and as
Administrator, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national
banking association, as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, from time to time, the Transferor has purchased and will purchase
from time to time, pursuant to the loan sale and contribution agreement dated of
even date herewith (the "Sale Agreement"), by and among the Transferor, AutoBond
and AutoBond Funding Corporation I certain Auto Loans (as defined herein) for
conveyance to the Trustee pursuant to the Pooling and Trust Agreement (as
defined herein) to the Trustee, on behalf of AutoBond Receivables Trust 1995-A
(the "Trust") and simultaneously therewith will assign such Receivables to the
Trustee pursuant to the Pooling and Trust Agreement;
WHEREAS, the Trustee has been appointed to hold the Auto Loans conveyed to
it pursuant to the Pooling and Trust Agreement in trust for the benefit of the
Certificateholders (as defined herein) and to make certain payments with respect
thereto;
WHEREAS, the Transferor and the Trustee desire that a servicer be
appointed to perform certain servicing and insurance tracking functions in
respect of the Auto Loans to be conveyed by the Transferor pursuant to the
Pooling and Trust Agreement;
WHEREAS, CSC Logic/MSA L.L.P. has been requested and is willing to act as
the Servicer hereunder;
WHEREAS, the Transferor, the Trustee and the Servicer desire that AutoBond
act as Collection Agent hereunder and AutoBond has agreed to so act; and
WHEREAS, the rights and benefits of the Transferor hereunder (but not the
obligations) have been assigned to the Trustee on behalf of the Trust.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other valuable consideration, the
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receipt and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.01. Defined Terms. As used herein, the following terms shall
have the following meanings:
"Administrator" means AutoBond, in its capacity as Administrator under the
Pooling and Trust Agreement and as Collection Agent hereunder and under
the Pooling and Trust Agreement.
"Adverse Claim" means any 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 or purpose of creating
a lien or interest, other than the security interest created in favor of
the Trustee and the Certificateholders under the Pooling and Trust
Agreement.
"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 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.
"Agreement" means this Servicing Agreement, as amended or supplemented
from time to time in accordance with the terms hereof, including all
exhibits and schedules hereto.
"Assignment" means, collectively, with respect to any Receivable, the
related Sale Assignment and Transfer Assignment.
"AutoBond" means AutoBond Acceptance Co., a Texas corporation.
"AutoBond Program Manual" means the AutoBond Program Manual attached
hereto as Exhibit D, in effect as of the date hereof, as modified from
time to time.
"Auto Loan" means a fixed-rate, closed-end consumer installment automobile
loan which finances the purchase
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of a new or used automobile, light-duty truck or van, which loan is
secured by a lien and security interest in such financed vehicle in favor
of the loan holder.
"Business Day" means any day other than a Saturday or a Sunday, or another
day on which (i) commercial banks in the City of New York, the City of
Minneapolis, Minnesota or in Texas (or in any other state in which the
principal place of business of the Servicer, the Trustee or AutoBond is
located) are required, or authorized by law, to close or (ii) the
Servicer's offices in the state of Texas are closed.
"Certificateholder" means any of the registered holders of the Class A
Certificates or the Class B Certificate issued pursuant to the Pooling and
Trust Agreement, and, in the place and stead of the holder of any Class B
Certificate, any pledgee of such Class B Certificates to the extent set
forth in Section 6.05 thereof.
"Closing Date" means December 29, 1995.
"Collection Account" means the segregated trust account in the name of the
Trustee, established and maintained pursuant to Section 7.02 of the
Pooling and Trust Agreement.
"Collection Agent" means AutoBond Acceptance Co., a Texas corporation, its
permitted successors and assigns, in its capacity as Collection Agent or
Administrator under the Pooling and Trust Agreement.
"Credit Endorsement" means the deficiency balance endorsement issued
pursuant to the VSI Policy.
"Cut-Off Date" means December 15, 1995, with respect to Receivables
transferred to the Trust on the Closing Date, and with respect to
subsequent Transfers, the last Business Day of the calendar month
preceding such Transfer Date.
"Dealer" means an automobile dealer who has entered into a Dealer
Agreement with AutoBond.
"Dealer Agreement" means each agreement between AutoBond and a Dealer,
which provides for, among other things, origination of the Receivables.
"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
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price of property or services, (d) obligations of such Person as lessee
under leases which have been or should be, in accordance with generally
accepted accounting principles, 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 and the regulations promulgated thereunder. 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 Collection Agent
or (c) a Receivable as to which the Collection Agent has determined (or,
so long as AutoBond is acting as Collection Agent, 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.
"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 amount of Auto Loans which have
become Defaulted Auto Loans as of the end of the most recently
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ended calendar month minus (ii) the sum of the aggregate Unpaid Principal
Balance of (A) all Auto Loans against which insurance claims have been
filed as of the end of the most recently ended calendar month and (B) Auto
Loans for which the related Financed Vehicles are subject to repossession
as of the end of the most recently ended calendar month and which are not
included in (A), and (b) the denominator of which equals the aggregate
Unpaid Principal Balance of Auto Loans outstanding as of the end of the
most recently ended calendar month, minus the amount determined pursuant
to clause (ii) above.
"Determination Date" means the 10th day of each month (or the next
preceding Business Day, if such day is not a Business Day).
"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.
"Electronic Ledger" means the electronic master record of the Receivables
maintained by the Servicer.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Administrator Termination" has the meaning specified in Section
3.07.
"Event of Servicing Termination" has the meaning specified in Section
2.12.
"Financed Vehicles" means new and used automobiles and light-duty trucks
and vans, the purchase of which the Obligors financed by the Auto Loans.
"Fitch" means Fitch Investors Service, L.P., its permitted successors and
assigns.
"Governmental Authority" means the United States of America, any state,
local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
thereof or pertaining thereto.
"Independent Public Accountant" means any of (a) Arthur Andersen & Co.,
(b) Deloitte & Touche, (c) Coopers & Lybrand, (d) Ernst & Young, (e) KPMG
Peat Marwick and (f) Price Waterhouse (and any successors thereof);
provided, that such firm is independent with respect to the Servicer, the
Administrator, or any Subservicer, as the case may be, within the meaning
of the Securities Act of 1933, as amended.
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"Insurance Policies" means the VSI Policy and the Credit Endorsement
issued thereunder by Interstate Fire & Casualty Company (the benefits of
which have been assigned to the Trust as security and naming the Trustee
on behalf of the Trust as additional named insured).
"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 or 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 AutoBond Credit and Collection Policies.
"Lockbox" means the segregated lockbox and account established in the name
of the Trustee on behalf of the Trust for the sole purpose of receiving
collections on the Receivables, pursuant to the Corporate Cash Management
Services Agreement, dated December 28, 1995, between Comerica Bank - Texas
and the Trustee.
"Monthly Administrator Fee" means, so long as AutoBond is acting as
Administrator under the Pooling and Trust Agreement and as Collection
Agent hereunder, the sum of (a) a fee, payable monthly, equal to the
product of (i) $7.00 and (ii) the total number of Auto Loans subject to
the Trust at any time during each such month and (b) Reimbursable
Administrator Expenses (as defined in the Pooling and Trust Agreement).
"Monthly Servicing Fee" shall mean, payable as of the Closing Date, the
Servicer Closing Fee, and thereafter 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 Auto Loans purchased by the Trust during the
immediately preceding Due Period and (b) a servicing fee, payable monthly,
equal to the product of (i) $7.50 and (ii) the total number of Auto Loans
subject to the Trust at any time during such month.
"Moody's" means Moody's Investors Service, Inc., its permitted successors
and assigns.
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"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 hereto as Schedule 1.
"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 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 Receivable, the Person primarily
obligated to make payments in respect thereto.
"Officer's Certificate" means, with respect to any Person, a certificate
signed by the chairman of the board, vice chairman of the board, the
president, a vice president, the treasurer, the secretary or the manager
or any other duly authorized officer of such Person acceptable to the
Transferor and the Trustee.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel to the Servicer, the Collection Agent or the Transferor) which
opinion is acceptable to the Trustee.
"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 Trust.
"Origination Agreement" means the Amended and Restated Loan Origination,
Sale and Purchase Agreement, dated as of December 15, 1995, between
AutoBond and AutoBond Funding Corporation I.
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"Payment Date" means, initially, January 16, 1996 and thereafter the 15th
day of each month, or the next succeeding Business Day if such day is not
a Business Day.
"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 and Trust Agreement" means the Pooling and Trust Agreement dated
as of December 15, 1995 among the Transferor, AutoBond and the Trustee, as
amended or supplemented from time to time in accordance with the terms
thereof.
"Post-Sale Adjustment" has the meaning specified in Section 3.08(c).
"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".
"Quarterly Payment Date" means, initially, January 16, 1996 and
thereafter, each third Payment Date, and including the Maturity Date.
"Quarterly Period" means the period beginning on the first day of the
month immediately following the end of a Quarterly Period to and including
the last day of the third month following such prior Quarterly Period
(except that the Quarterly Period immediately following the initial
Cut-Off Date shall be the period of time from December 15, 1995 until
December 31, 1995).
"Rating Agency" means any nationally recognized statistical organization
rating the Class A Certificates and/or the Class B Certificates, at the
request of the Transferor; as of the date hereof, Fitch and Moody's with
respect to the Class A Certificates and Fitch with respect to the Class B
Certificates.
"Rating Agency Condition" means, with respect to any proposed action, the
condition that the taking of such action shall not result in a withdrawal
or downgrade by any Rating Agency of the then-current rating on the Class
A Certificates.
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"Receivable" means a fixed rate fully amortizing closed-end consumer
installment Auto Loan (upon which interest is calculated based upon either
a simple interest basis or the Rule of 78s) arising from the sale of a
Financed Vehicle and assigned to the Trust by the Transferor, and
includes, without limitation, (a) the related Assignment, (b) 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, the rights of AutoBond Funding Corporation I under the
Origination Agreement and Transferor's rights under the Sale Agreement,
(c) all guarantees, indemnities and warranties, proceeds of insurance
policies (including the Insurance Policies), certificates of title or
other title documentation and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Auto
Loan, (d) all collections and all related Loan Documents, Loan Files and
records with respect to the foregoing, and (e) all proceeds and benefits
of any of the foregoing.
"Records" means all documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, punch
cards, data processing software and related property and rights) prepared
and maintained by the Collection Agent, the Servicer or by or on behalf of
the Transferor with respect to Receivables and the related Obligors.
"Responsible Officer" means, with respect to any Person, any Vice
President, any Assistant Vice President, any Assistant Secretary, any
Assistant Treasurer or any other officer of such Person customarily
performing functions similar to those performed by any of the
above-designated officers and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
"Sale Agreement" has the meaning specified in recitals to this Agreement.
"Sale Assignment" means the assignment substantially in the form attached
as Exhibit A to the Sale Agreement pursuant to which a Receivable was
purchased by the Transferor.
"Scheduled Payment" means a payment due on a Receivable in accordance with
its terms.
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"Service Transfer" has the meaning specified in Section 2.12.
"Servicer" has the meaning specified in the first paragraph of this
Agreement.
"Servicer Closing Fee" means a one-time fee, payable on the Closing Date,
in the amount of $10,000.
"Servicer Duties" has the meaning specified in Section 2.04(a).
"Servicer Report" has the meaning specified in Section 2.17.
"Servicing Officer" means any officer or employee of the Servicer involved
in, or responsible for, the administration and servicing of Receivables
whose name appears on a list of servicing officers attached to Officer's
Certificates furnished to the Collection Agent, the Transferor and the
Trustee by the Servicer, as such list may be amended from time to time by
the party furnishing any such Officer's Certificate.
"Subservicer" means any Person with whom the Servicer enters into a
Subservicing Agreement.
"Subservicing Agreement" means any written contract between the Servicer
and any Subservicer, relating to the Servicer Duties, in such form as has
been approved by the Transferor and the Collection Agent hereunder.
"Successor Servicer" has the meaning specified in Section 2.13(a).
"Transferor" means AutoBond Funding Corporation 1995, a Delaware
corporation.
"Transfer Assignment" means the instrument of transfer substantially in
the form of Exhibit B to the Pooling and Trust Agreement.
"Transfer Date" means the Closing Date, and each subsequent date on which
a transfer is made to the Trust under the Pooling and Trust Agreement.
"Trust" means the "AutoBond Receivables Trust 1995-A" created under the
Pooling and Trust Agreement.
"Trustee" has the meaning specified in the first paragraph of this
Agreement.
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"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 as of the end
of the most recent Due 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 certain amounts and ratios hereunder and under the Pooling
Agreement).
"VSI Policy" means the Vendor's Single Interest Insurance Policy
(including all endorsements thereto), issued by Interstate Fire & Casualty
Company, insuring against risk of physical damage and other losses on the
Financed Vehicles, a copy of which is attached as an exhibit to the
Pooling and Trust Agreement.
SECTION 1.02. Rules of Interpretation. The following rules apply to this
Agreement:
(a) the singular includes the plural and the plural includes the
singular;
(b) "or" is not exclusive and "include" and "including" are not
limiting;
(c) a reference to any agreement or other contract includes
permitted supplements and amendments;
(d) 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;
(e) a reference to a person includes its permitted successors and
assigns;
(f) a reference to an Article, a Section, an Exhibit or a Schedule
without further reference is to the relevant Article, Section, Exhibit or
Schedule of this Agreement;
(g) any right may be exercised at any time and from time to time;
(h) the headings of the Articles and the Sections are for
convenience and shall not affect the meaning of this Agreement;
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(i) words such as "hereunder", "hereto", "hereof" and "herein" 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 Article, Section, subsection or clause hereof; and
(j) capitalized terms used but not defined herein shall have the
respective meanings assigned thereto in the Pooling and Trust Agreement.
ARTICLE II
SERVICING OF TRUST ASSETS
SECTION 2.01. Appointment of Servicer. The Trustee and the Transferor
hereby appoint the Servicer, and the Servicer accepts such appointment, to
perform its obligations pursuant to this Agreement on behalf of and for the
benefit of the Trust and the Certificateholders in accordance with the terms of
this Agreement, the respective Receivables, the VSI Policy and applicable law
and, to the extent consistent with such terms, in the same manner in which, and
with the same care, skill, prudence and diligence with which, it services and
administers Receivables of similar credit quality for other portfolios, if any,
giving due consideration to customary and usual standards of practice of prudent
institutional automobile loan servicers and, in each case, taking into account
its other obligations hereunder, but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
Affiliate of the Servicer or any Subservicer may have with the
related Obligor; or
(ii) the ownership, or servicing for others, by the Servicer or
any Subservicer, of any other automobile loans or property.
In the event that the Servicer believes that it is unable to comply with the
requirements of this Section 2.01 with respect to any particular Receivable as a
result of one or more of the factors described in clauses (i) and (ii) of this
Section 2.01, it may enter into a Subservicing Agreement pursuant to Section
2.02 pursuant to which a Subservicer shall perform its duties with respect to
any such Receivable. In such event, so long as such Subservicer performs such
duties on behalf of the Servicer in accordance with the requirements of this
Agreement, including this Section 2.01, then the Servicer shall be deemed to be
in compliance therewith. Notwithstanding the above, the Servicer must obtain the
written consent of the Collection Agent and the Trustee, and must give written
notice to each Rating Agency, prior to any
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such Subservicing Agreement. In the event that the Trustee and Collection Agent
do not consent to such a Subservicing Agreement proposed by the Servicer, the
Collection Agent and the Trustee shall have the right to remove the Servicer as
the servicer with respect to such Receivable and to appoint a Successor Servicer
with respect to such Receivable pursuant to Section 2.13.
SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer.
(a) Upon the prior written consent of the Trustee and Collection Agent,
the Servicer may enter into Subservicing Agreements with a Subservicer for the
performance of all or a part of the Servicer Duties with respect to any
Receivable. References in this Agreement to actions taken or to be taken by the
Servicer in performance of the Servicer Duties include actions taken or to be
taken by a Subservicer on behalf of the Servicer. Each Subservicing Agreement
will be upon such terms and conditions as are not inconsistent with this
Agreement. The Servicer shall provide written notice to the Collection Agent and
the Trustee promptly upon the appointment of any Subservicer. For purposes of
this Agreement, the receipt by a Subservicer of any amount with respect to a
Receivable (other than amounts representing servicing compensation) shall be
treated as the receipt by the Servicer of such amount.
(b) Upon the prior written consent of the Transferor, the Trustee and
Collection Agent, the Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement.
(c) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer or a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain directly obligated and directly liable to the
Transferor and the Trustee for the servicing and administering of the
Receivables in accordance with the provisions of this Agreement without
diminution of such obligation or liability (including its indemnity obligations
under Section 4.03) by virtue of such Subservicing Agreements or arrangements or
by virtue of indemnification from the Subservicer or the Servicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Receivables. The Servicer shall be entitled
to enter into any agreement with a Subservicer for indemnification of the
Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
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(d) Any Subservicing Agreement that may be entered into pursuant to this
Agreement and any other transaction or services relating to the Receivables
involving a Subservicer in its capacity as such that is consented to by the
Transferor and the Collection Agent shall be deemed to be between the
Subservicer and the Servicer alone and the Transferor, the Collection Agent and
the Trustee shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer.
(e) If the Servicer shall for any reason no longer be the Servicer
hereunder (including by reason of any Event of Servicing Termination), the
Servicer, upon prior written consent of the Trustee, Transferor and the
Collection Agent, shall thereupon terminate each Subservicing Agreement that may
have been entered into, and neither the Transferor, the Collection Agent, the
Trustee nor the Successor Servicer shall be deemed to have assumed any liability
or obligation thereunder, the Servicer's interest therein or to have replaced
the Servicer as a party to any such Subservicing Agreement.
SECTION 2.03. Representations and Warranties of the Servicer. The Servicer
represents and warrants to the Transferor, the Collection Agent, the Trustee and
the Certificateholders, as follows, as of the date hereof (which representations
and warranties shall be deemed repeated on each Transfer Date and on each date
on which a Servicer Report is due to be delivered hereunder as though made on
and as of such date):
(i) It is a limited liability partnership duly organized,
validly existing and in good standing under the laws of the State of Texas
and 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; it or a Subservicer is or will be in compliance with the laws
of each state to the extent necessary to perform its obligations under
this Agreement; and it or a Subservicer has obtained all necessary
licenses with respect to it or such Subservicer required by law to enable
it to perform its duties herein;
(ii) It has the power and authority to execute,deliver and
perform this Agreement and the transactions contemplated hereby;
(iii) The execution and delivery by it and the performance by it
or a Subservicer of this Agreement, and the execution and delivery by it
and the performance by it or a Subservicer of all other agreements,
instruments and documents which may be delivered by it pursuant
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hereto, and the transactions contemplated hereby, (i) have been duly
authorized by all necessary partnership or other action, on the part of
it, (ii) do not contravene or cause it to be in default under (A) its
organizational documents, (B) any contractual restriction with respect to
any Debt of it or contained in any indenture, loan or credit agreement,
lease, mortgage, security agreement, bond, note, or other material
agreement or instrument binding it or its property or (C) any law, rule,
regulation, order, writ, judgment, award, injunction or decree applicable
to or binding it or its property, and (iii) do not result in or require
the creation of any Adverse Claim upon or with respect to any of its
properties;
(iv) This Agreement has been duly executed and delivered on
behalf of it;
(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 it (either directly or
through a Subservicer) of this Agreement or any other agreement, document
or instrument to be delivered by it hereunder;
(vi) This Agreement is its legal, valid and binding obligation
enforceable against it in accordance with its terms;
(vii) There is no pending or threatened action, suit or
proceeding, nor any injunction, writ, restraining order or other order of
a material nature against or affecting it, its officers or directors, or
its property, in any court or tribunal, or before any arbitrator of any
kind or before or by any Governmental Authority (i) asserting the
invalidity of this Agreement or any document to be delivered by it
hereunder or (ii) seeking any determination or ruling that would
reasonably be expected to materially and adversely affect (A) the
performance by it of its obligations under this Agreement, or (B) the
validity or enforceability of this Agreement or any document to be
delivered by it hereunder or (iii) which is inconsistent with the due
consummation by it of the transactions contemplated by this Agreement;
(viii) Its facilities, plant, personnel, records and products
are adequate for the performance of its duties hereunder;
(ix) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or
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governmental agency, which would reasonably be expected to have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the Servicer or its properties
or would reasonably be expected to have consequences that would materially
and adversely affect its performance hereunder;
(x) No certificate of an officer, statement furnished in
writing, report or electronic medium delivered pursuant to the terms
hereof by the Servicer contains any untrue statement of a material fact or
omits to state any material fact to make the certificate, statement or
report not misleading;
(xi) The transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer; and
(xii) The Financed Vehicle securing each Receivable shall not be
released by the Servicer or a Subservicer in whole or in part from the
security interest granted by the Obligor, except as contemplated herein.
It is understood and agreed that the representations and warranties set forth in
this Section 2.03 shall survive the execution of this Agreement. Upon discovery
by either Transferor, Collection Agent, the Trustee or the Servicer of a breach
of any of the foregoing representations and warranties, the party discovering
such breach shall give proper written notice to the other parties hereto.
SECTION 2.04. Duties and Responsibilities of the Servicer.
(a) The Servicer shall manage, administer, monitor and service the
Receivables, including providing data management, payment processing and
customer service; provided that, prior to a resignation or termination of the
Collection Agent pursuant to Section 3.06 or 3.07, the Servicer will not act as
Collection Agent. In performing its duties hereunder, the Servicer shall have
full power and authority to do or cause to be done any and all things in
connection with such servicing and administration which it may deem necessary or
desirable, within the terms of this Agreement (the "Servicer Duties"). Prior to
a resignation or termination of the Collection Agent pursuant to Section 3.06 or
3.07, the Servicer will provide the following services (together with other
activities not inconsistent with the description below and implicitly necessary
to accomplish the usual and customary activities, other than collections, of an
automobile loan servicer):
(i) Boarding Functions:
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(1) Review for receipt of copies of Loan Files;
(2) Input of new Receivable information into loan accounting
system; and
(3) Preparation and mailing of welcome letters.
(ii) File Maintenance/Document Control Functions:
(1) Retention of copies of the Loan Files;
(2) Tracking of customer collision insurance on Financed
Vehicles and reporting to Collection Agent exposed Financed
Vehicles; and
(3) Determination of Receivables being satisfied in full.
(iii) Customer Service Functions:
(1) Preparation and transmittal of monthly
billing statements to Obligors;
(2) Response to Obligor inquiries;
(3) Research regarding billing statements and
Obligor inquiries;
(4) Maintenance of Obligor information; and
(5) Preparation and mailing of delinquency
notices.
(iv) Payment Processing Functions:
(1) Coordination of lockbox procedures;
(2) Recording of loan payment information; and
(3) Referral to Collection Agent of instances of non-sufficient
funds.
(v) Reporting Functions:
(1) Preparation and delivery of Servicer's
Report.
(vi) Data Processing Functions:
(1) Entry of data;
(2) Operation of data center;
(3) Operation of telecommunications; and
(4) Operation and maintenance of collection
system.
Notwithstanding the foregoing, to the extent that any of the duties set
forth above are assigned to the Collection Agent pursuant to Article III hereof,
the Servicer shall have no liability for such duty so long as the Collection
Agent continues to act in such capacity hereunder. Upon a resignation or
termination of the Collection Agent pursuant to Section 3.06 or 3.07, all such
duties shall revert to the Servicer.
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(b) The Servicer may not sue to enforce or collect upon a Receivable in
its own name, or as agent for the Trust without the prior written consent of the
Trustee.
(c) In accordance with the standard of care in Section 2.01 the Servicer
may agree to grant to the Obligor on any Receivable any rebate, refund or
adjustment that the Servicer in good faith believes is required under the
Receivable or applicable law in connection with a prepayment in full of the
Receivable, and, pursuant to written instructions from the Collection Agent and
the Servicer, the Trustee shall remit the amount of any such rebate, refund or
adjustment to the applicable Obligors from the Collection Account. The Servicer
may not permit any rescission or cancellation of any Receivable nor may it take
any action with respect to any Receivable or Sale Assignment which would
invalidate the coverage afforded by the VSI Policy to such Receivable or the
related Financed Vehicle, or would impair the rights of the Trustee therein or
in the proceeds thereof. The Collection Agent shall not consent to any amendment
to the VSI Policy, which amendment would affect the duties and obligations of
the Servicer hereunder, without the prior consent of the Servicer (which shall
not be unreasonably withheld).
(d) The Collection Agent (and in the case of item (i) only, the Servicer)
shall not advise the Trustee that the Financed Vehicle securing a Receivable
should be released by the Trustee from the security interest granted in
connection with such Receivable in whole or in part, except:
(i) when such Receivable has been paid in full;
(ii) immediately upon any exchange or substitution of such Financed
Vehicle by the Dealer or manufacturer thereof in settlement of claims as
to defects, breach of warranties, insurance and similar matters, with a
Financed Vehicle of equal or greater collateral value as of the date of
such exchange in the reasonable judgment of the Servicer (subject to all
the terms hereof including the recordation of the lien thereon and the
requirements of the Insurance Policies); or
(iii) in connection with a repossession of a Financed Vehicle; or
(iv) when all Insurance Proceeds with respect to such Financed
Vehicle have been received by the Trustee on behalf of the Trust.
The Servicer shall not extend or otherwise amend the terms of any Receivable,
except in accordance herewith.
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(e) The Servicer shall hold in trust for the benefit of the Trust and
shall forward to the Collection Account, the Trustee or the Lockbox, as
applicable, no later than the next Business Day following receipt thereof any
payment or deposit with respect to any Receivable received by the Servicer. The
Servicer shall not assert any right of setoff or any lien with respect to such
payment or deposit.
(f) The Servicer agrees to monitor and track each Financed Vehicle for
maintenance of required physical damage insurance in the manner required by the
VSI Policy and to notify the Collection Agent and the Trustee, as soon as
practicable but not later than 30 days after becoming initially aware, of
circumstances that would lead a reasonable person to believe that the insurance
on any Financed Vehicle is not being or will not be maintained in accordance
with applicable law and the terms of the applicable retail installment sales
contract.
(g) Except as expressly provided herein, the Servicer shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Receivable (or any right to income in
respect thereof), or any account in which any payments with respect to any
Receivable are deposited, or assign any right to receive income in respect of
any Receivable.
(h) The Servicer, the Transferor and the Collection Agent shall each
instruct each Obligor by written notice that all payments on Receivables shall
be mailed to the Lockbox, and, so long as AutoBond is serving as the Collection
Agent hereunder, that such payments shall be made payable to the order of
"AutoBond Acceptance Co.", in its capacity as Collection Agent.
(i) To the extent any duty or obligation of the Servicer set forth herein
is assigned to the Collection Agent pursuant to Article III hereof, the Servicer
shall have no liability for such duty or obligation so long as the Collection
Agent continues to act in such capacity hereunder. Upon a resignation or
termination of the Collection Agent pursuant to Section 3.06 or 3.07, all such
duties shall revert to the Trustee.
SECTION 2.05. Fidelity Bond, Errors and Omissions Insurance; Contingent
Disaster Relief Protection.
(a) The Servicer shall maintain, at its own expense, a blanket fidelity
bond and an errors and omissions insurance policy, with broad coverage with
responsible companies on all officers, employees or other Persons acting on
behalf of the Servicer in any capacity with regard to the Receivables to handle
funds, money, documents and papers relating to the
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Receivables. Any such fidelity bond and errors and omissions insurance shall
protect and insure the Servicer against losses, including forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such Persons and
shall be maintained in a form that would meet the requirements of prudent
institutional auto loan servicers and, in the case of the fidelity coverage in
the amount of $100,000 and in the amount of $1,000,000 in the case of Errors and
Omissions Coverage. No provision of this Section 2.05(a) requiring such fidelity
bond and errors and omissions insurance shall diminish or relieve the Servicer
from its duties and obligations as set forth in this Agreement. The Servicer
shall be deemed to have complied with this provision with respect to itself if
one of its respective Affiliates has such fidelity bond and errors and omissions
policy coverage and, by the terms of such fidelity bond and errors and omissions
policy, the coverage afforded thereunder extends to the Servicer. The Servicer
shall cause each and every Subservicer for it to maintain a policy of insurance
covering errors and omissions and a fidelity bond which would meet such
requirements. Upon request of the Transferor or the Trustee, the Servicer shall
cause to be delivered to the Trustee a certification evidencing coverage under
such fidelity bond and insurance policy. The Trustee shall have no obligation to
request any such certification or upon receipt of any such certification or of
any notice provided for in this Section 2.05(a), to approve, consent to, or
determine its compliance with, the requirements of this Section 2.05(a). Upon
receipt of any such certification or notice, the Trustee's sole responsibility
shall be to deliver copies thereof to the Certificateholders. Any such fidelity
bond or insurance policy shall (i) not be cancelled without the Servicer giving
prior written notice to the Collection Agent and the Trustee (who shall promptly
forward a copy of such notice to each Rating Agency) immediately following the
giving or receipt of such notice as is required or allowed under the terms of
such fidelity bond or insurance policy, as the case may be and (ii) not be
modified in a materially adverse manner without ten days' prior written notice
by the Servicer to the Transferor, the Collection Agent and the Trustee (who
shall promptly forward a copy of such notice to each Rating Agency).
(b) The Servicer currently maintains, at its own expense, a computer
disaster recovery plan and computer disaster recovery procedures in forms
consistent with industry standards of prudent institutional receivables
servicers and shall continue to maintain, at its own expense, such a plan and
such procedures as are consistent with such standards and shall not modify amend
or revoke such procedures without giving prior written notice thereof to each
Rating Agency and the Trustee. No provision of this Section 2.05(b) requiring
such a plan and such procedures shall diminish or relieve the Servicer from its
duties and obligations as set forth in this
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Agreement. The Servicer shall be deemed to have complied with this provision if
one of its respective Affiliates has such a plan and such procedures which also
affords protection to the Servicer. Upon request of the Transferor, the
Collection Agent or the Trustee, the Servicer shall cause to be delivered to the
Transferor, the Collection Agent or the Trustee, as the case may be, a
certification as to the existence of such a plan and such procedures. The
Trustee shall have no obligation upon receipt of any such certification or of
any notice provided for in this Section 2.05(b), to approve, consent to, or
determine its compliance with, the requirements of this Section 2.05(b).
SECTION 2.06. Inspection.
(a) At all times during the term hereof, the Servicer shall afford the
Transferor, the Collection Agent, the Trustee, the Rating Agencies, and, so long
as it is a Certificateholder, the initial Class A Certificateholder, and, so
long as it is a pledgee of the Class B Certificates, Fidelity Funding of
California, Inc., together with each of their authorized agents (including
auditors), upon reasonable notice, reasonable access (subject to the security
rules and regulations of the Servicer) during normal business hours to its
records relating to the Receivables and will cause its personnel to assist in
any examination of such records by any of such Persons; provided, that the
foregoing shall not require any of such Persons to conduct any inspection. The
examination referred to in this Section 2.06(a) will be conducted in a manner
which does not unreasonably interfere with the Servicer's normal operations or
customer or employee relations or require the Servicer to disclose or expose
confidential information related to its services hereunder or to its other
clients. Without otherwise limiting the scope of the examination, the
Transferor, the Collection Agent, the Trustee and the Rating Agencies may, using
generally accepted auditing standards, verify the status of each Receivable and
review the copies of the Loan Files, Electronic Ledger and records relating
thereto for conformity to reports prepared pursuant to Section 2.17 and
compliance with the standards represented or required to exist as to each
Receivable in this Agreement. Nothing in this section shall affect the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the obligors, and failure of the Servicer to provide
access to information a result of such obligation shall not constitute a breach
of this Section 2.06.
(b) All information obtained by the Transferor, the Collection Agent and
the Trustee or their respective agents regarding the Obligors and the
Receivables, whether upon exercise of their respective rights under this Section
2.06 or otherwise, shall be maintained by the Transferor, the
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Collection Agent and the Trustee and their respective agents in confidence and
shall not be disclosed to any other Person other than the Certificateholders,
except as otherwise required by applicable law or regulation.
SECTION 2.07. Possession and Payment of Receivables.
The Servicer shall determine when a Receivable has been paid in full. The
Servicer shall notify the Trustee and the Collection Agent in writing within
five (5) Business Days as to each Receivable in connection with which such a
determination has been made. If the Servicer requires possession of any Loan
File or any documents related thereto in order to perform its duties or
obligations hereunder, prior to taking possession of any such Receivable or
documents, the Servicer shall deliver to the Trustee a trust receipt
substantially in the form attached hereto as Exhibit A. The Servicer agrees to
promptly return any such Receivable and documents, possession of which the
Servicer takes in accordance with this Section 2.07, after its need for
possession thereof ceases.
SECTION 2.08. Monthly Servicing Fee; Servicing Expenses.
(a) On each Payment Date the Servicer shall be entitled to receive by wire
transfer of immediately available funds to an account designated in writing by
the Servicer to the Trustee from the funds on deposit in the Collection Account
an amount equal to the Monthly Servicing Fee as of such Payment Date. The
Servicer acknowledges and agrees that, so long as no Amortization Event under
the Pooling and Trust Agreement has occurred and is continuing, its right to
receive on any Payment Date the Monthly Servicing Fee is subordinate to the
right of payment on such day of any or all of the following amounts that are
payable on such date pursuant to Section 7.04(a) of the Pooling and Trust
Agreement:
(i) the payment or allocation to the Class A Certificateholders
of the Class A Interest due on such Payment Date.
(b) (i) The Servicer shall be required to pay for all expenses incurred by
it in connection with its activities hereunder (including any payments to
accountants, counsel, Subservicers, or any other Person) out of the compensation
retained by or paid to it pursuant to Section 2.08(a) above, and shall not be
entitled to any extra payment or reimbursement therefor; provided, however, that
the Servicer shall be entitled to reimbursement by wire transfer of immediately
available funds to an account designated in writing by the Servicer to the
Trustee for the amount of any other expenses incurred with the prior written
consent of the Collection Agent and the Trustee. No later than ten Business Days
prior to each Payment Date, the Servicer shall provide
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the Transferor and the Collection Agent with a list of items eligible for
reimbursement pursuant to the immediately preceding sentence, in such reasonable
detail as the Transferor and the Collection Agent may request, together with its
certification by a Servicing Officer that all such items are eligible for
reimbursement hereunder.
(ii) During such time as the Servicer is performing the duties of
the Collection Agent under this Servicing Agreement, the Servicer shall be
reimbursed by the Trust for the following out of pocket costs and expenses
incurred in connection with the performance of such duties as Collection Agent
hereunder including:
(A) Any reasonable compensation paid to outside legal counsel
retained at Transferor's direction to protect the interests of
Transferor and the Trust;
(B) Any reasonable compensation paid to professional
accountants retained at Transferor's direction to review the assets
administered under this Servicing Agreement;
(C) Any insurance, title, title transfer or other such fees
arising from or related to any Receivables administered under the
Servicing Agreement; and
(D) Expenses for special forms and materials, freight, tapes,
communications, lock-box charges and other expenses approved by
Transferor for the benefit of the Trust.
Any reimbursement to the Servicer for fees or costs pursuant to this Section
2.08(b) shall be limited to the extent of the funds available for reimbursement
of Servicer and Administrator fees and expenses under the Pooling and Trust
Agreement.
(c) The Servicer acknowledges and agrees that if an Amortization Event
under the Pooling and Trust Agreement shall have occurred and be continuing, the
Servicer's right to receive any fees, costs and expenses owing to the Servicer
under this Agreement shall be subordinate to the right of payment of the
following amounts:
(i) the payment or alloation to the Class A Certificateholders
of the Class A Interest due on such Payment Date; and
(ii) all fees, costs and expenses owing to the Trustee.
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(d) Each of Transferor, the Collection Agent and the Trustee covenants and
agrees that upon a Responsible Officer obtaining actual knowledge of the
occurrence of an Amortization Event under the Pooling and Trust Agreement, it
shall promptly give notice thereof to the Servicer; provided, that the Trustee
shall have no duty to inquire or to investigate the occurrence of such
Amortization Event.
(e) Each of the Transferor, the Collection Agent and the Trustee agrees
that, without the written consent of the Servicer, it will not amend the Pooling
and Trust Agreement (i) to change the source of the payment of the Monthly
Servicing Fee and to the extent the Servicer has assumed the Collection Agent's
duties, rights and obligations hereunder, the Monthly Administrator Fee, (ii) if
such amendment would further subordinate the payment to the Servicer of the
Monthly Servicing Fee, to change the priority of payment of the Monthly
Servicing Fee, or (iii) to materially change the rights, duties and obligations
under this Agreement of the Servicer, whether as Servicer hereunder or as
Collection Agent, to the extent the Servicer has assumed the rights, duties and
obligations of the Collection Agent hereunder.
SECTION 2.09. Collection Agent To Maintain Computer Link. Without
limitation of its obligations in respect of the other provisions of this
Agreement, and in addition to the duties of the Servicer, the Collection Agent
has supported and will continue to support non-dedicated dial-up capability with
the Servicer. Notwithstanding any provision of the Agreement to the contrary,
the Collection Agent shall have no duty or obligation with respect to the
information provided via the computer link described in the preceding sentence.
SECTION 2.10. Resignation or Termination of Servicer.
(a) The Servicer may resign from the obligations and duties hereby imposed
on it upon its determination that (a) the performance of its duties hereunder
has become impermissible under applicable law and (b) there is no reasonable
action which the Servicer could take to make the performance of its duties
hereunder permissible under applicable law. Any such determination permitting
the resignation of the Servicer shall be evidenced as to clause (a) above by an
Opinion of Counsel to such effect delivered to the Transferor, the Collection
Agent and the Trustee before any such resignation and as to clause (b) by an
Officer's Certificate to such effect delivered to the Transferor, the Collection
Agent and the Trustee before any such resignation. The action referred to in the
first clause (b) of this Section 2.10(a) will not be considered reasonable if it
requires the payment of extraordinary fees or costs for which the Servicer is
not eligible for reimbursement under Section 2.08.
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Promptly upon any such resignation, the Trustee shall notify each Rating Agency.
(b) The Collection Agent or the Trustee may, upon 30 days' prior written
notice to the Servicer, terminate the Servicer as Servicer hereunder and as
Collection Agent, if the Servicer is then Collection Agent hereunder, without
cause; provided, that such termination shall not be effective unless (i) a
Successor Servicer shall have been appointed pursuant to Section 2.13 or (ii)
the Trustee has agreed to become Successor Servicer, and (iii) Servicer shall
have received the $25,000 termination fee payable pursuant to Section 2.13(c).
(c) The Servicer may resign as Servicer hereunder, effective upon 180
days' notice to the Transferor, the Trustee and the Collection Agent; provided,
however that such resignation may be effective earlier if a Successor Servicer
is appointed in accordance with Section 2.13 prior to the expiration of such 180
day period; and provided, further, in the event no successor is appointed on or
before the expiration of such 180-day period, then the Trustee shall assume the
duties of the Servicer as Successor Servicer hereunder.
SECTION 2.11. Change in Business of the Servicer. The Transferor,
Collection Agent and Trustee entered into this Agreement with the Servicer in
reliance upon its ability to perform the servicing duties, if necessary, without
any delegation thereof; the adequacy of its plant, personnel, records and
procedures; its integrity, reputation and financial standing and the continuance
of each of the foregoing.
SECTION 2.12. Events of Servicing Termination. If any of the following
events (each, an "Event of Servicing Termination") shall occur and be
continuing:
(a) Any failure by the Servicer to forward to the Trustee, the
Collection Account or the Lockbox, as applicable, any payment or partial
payment or deposit identified with respect to any Receivable received by
the Servicer and the continuance of such failure for a period of two
Business Days after the date upon which such payment or deposit is
received by the Servicer; or
(b) Failure on the part of the Servicer to observe or perform any
term, covenant or agreement in this Agreement, including the Servicer
Duties (other than the agreement to deliver the Servicer Report pursuant
to Section 2.17), which failure continues unremedied for 10 Business Days
after discovery by the Servicer or the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to
the
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Servicer by the Transferor, the Collection Agent or by the Trustee; or
(c) Any proceeding shall be instituted against the Servicer (or, if
the Servicer is actively contesting the merits thereof, such proceeding is
not dismissed within 60 days) 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 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
(d) The commencement by the Servicer of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Servicer in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Servicer or of any substantial
part of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its Debts generally as they become due, or the taking of corporate action
by the Servicer in furtherance of any such action; or
(e) The Servicer shall fail to deliver a report at the time, in the
form and containing the information expressly required by this Agreement,
and the continuance of such failure for a period of 5 Business Days after
the date upon which written notice of such failure shall have been given
to the Servicer by the Transferor, the Collection Agent or by the Trustee;
or
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(f) There is a breach of any of the representations and warranties of
the Servicer set forth in Section 2.03 which breach shall be in the
opinion of the Collection Agent or the Trustee reasonably expected to have
a material adverse effect on the Transferor or the Trust at the time when
the notice referred to in this clause (f) shall be given to the Servicer
and such breach shall not have been cured within 10 Business Days or such
longer period as may be agreed to by the Collection Agent and the Trustee
after receipt of written notice thereof by the Servicer, or
(g) Any Rating Agency determines that having the Servicer act as
servicer hereunder will prevent such Rating Agency from issuing or
maintaining a rating of at least "A3" (or its equivalent) on the Class A
Certificates and "PDR-3" from Fitch on the Class B Certificates or will
result in a review with negative implications, suspension, downgrade,
withdrawal or other impairment of such rating;
then, and in any such event, either the Collection Agent or the Trustee, may by
delivery to the Servicer (and to the Trustee or the Collection Agent, as
applicable) of a written notice specifying the occurrence of any of the
foregoing events terminate the servicing and custodial responsibilities of the
Servicer hereunder, without demand, protest or further notice of any kind, all
of which are hereby waived by the Servicer (such termination and any termination
of the Servicer pursuant to Section 2.10 hereby called a "Service Transfer");
provided, that in the event any of the events described in subsections (c) or
(d) of this Section 2.12 shall have occurred, termination of the duties and
responsibilities of the Servicer shall automatically occur, without, demand,
protest, or further notice of any kind, all of which are expressly waived by the
Servicer. Notwithstanding the above, and subject to the right of the Collection
Agent and the Trustee to terminate the Servicer pursuant to Section 2.10(b), if
the Transferor, the Collection Agent or the Trustee notifies the Servicer, prior
to the occurrence of an Event of Servicer Termination, under Section 2.12(g),
that circumstances exist that would with the passage of time result in the
occurrence of an Event of Servicing Termination described in Section 2.12(g),
each party hereto will negotiate in good faith with the other parties hereto to
prevent the occurrence of such an Event of Servicing Termination; provided,
however, that such Event of Servicing Termination shall nevertheless occur upon
expiration of 30 days following the date of such notice unless the existing
circumstances leading to such Event of Servicing Termination have been cured to
the satisfaction of all parties hereto.
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SECTION 2.13. Appointment of the Successor Servicer.
(a) Upon the effectiveness of termination of the Servicer's
responsibilities under this Agreement pursuant to Section 2.10 or Section 2.12,
the Trustee shall immediately succeed to the duties of the Servicer (including
the duties of Collection Agent if at the time of termination the Servicer is
also the Collection Agent) as a successor Servicer (the "Successor Servicer"),
unless and until another Successor Servicer has been appointed by the Collection
Agent (which may be the Trustee or the Collection Agent). The Collection Agent
shall give the Trustee and the Rating Agencies not less than 30 days' prior
written notice of its intent to appoint a Successor Servicer pursuant to this
Section 2.13(a). Such appointment shall become effective following the
expiration of such 30-day period (or such shorter period agreed to by the
Collection Agent, the Trustee and the Rating Agencies) on a date to be specified
by the Collection Agent; provided, that, on or before such effective date, the
Trustee and the Collection Agent shall have received written confirmation from
each Rating Agency that the Rating Agency Condition has been satisfied and the
Trustee shall have consented in writing to the appointment of such party as
Successor Servicer. Such Successor Servicer shall succeed to all rights and
assume all of the responsibilities, duties and liabilities of the Servicer under
this Agreement; provided, that such Successor Servicer shall have no
responsibility for any actions of the Servicer prior to the date of the
appointment of such Successor Servicer as Servicer. Such Successor Servicer
shall be authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do any and all acts or things necessary or appropriate to
effect the purposes of such notice of termination and to perform the duties of
the Servicer hereunder (including its duties as Successor Servicer hereunder but
excluding its duty to indemnify pursuant to Sections 4.03(a) and (b)). The
standard of care, representations and warranties, covenants, liabilities, rights
of indemnification, and all other rights and obligations of the Trustee under
this Agreement and the Pooling and Trust Agreement shall also be applicable to
the Trustee in its capacity as successor servicer hereunder. The Trustee shall
have the right to appoint as its agent a third party to perform the duties and
obligations of the Trustee as successor servicer hereunder. The appointment of
any such person shall require the prior written approval of the Collection
Agent, which will not be unreasonably withheld and shall not become effective
until prior written notice has been delivered to each Rating Agency. The Trustee
shall not be responsible for compensating the Transferor for any increase in the
Monthly Servicing Fee associated with a Successor Servicer.
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(b) Any Successor Servicer appointed by the Collection Agent hereunder
shall be entitled to reasonable compensation (including the estimated
termination costs of such servicing and a reasonable profit) which shall be
determined by the Collection Agent; provided, however, that the Trustee, when
acting as successor servicer hereunder, shall receive compensation that is no
less than was being received by the Servicer at the time of its termination. Any
Successor Servicer appointed by a court of competent jurisdiction or any agent
of the Trustee as Successor Servicer upon becoming the Successor Servicer
pursuant to Section 2.13 (a), shall be entitled to compensation (including the
estimated costs of servicing and a reasonable profit) equal to the prevailing
market rate for such services, which compensation, however, shall not be greater
than the compensation currently received by the Servicer hereunder as the
Monthly Servicing Fee. Any excess payable to the Successor Servicer over and
above such current servicer compensation will be paid by the Collection Agent.
(c) The outgoing Servicer, the Collection Agent, the Trustee and the
Successor Servicer shall take such action, consistent with this Agreement and
the Pooling and Trust Agreement, that shall be reasonably necessary to
effectuate any such succession, including, without limitation, (i) the express
assumption by such Successor Servicer of the duties and obligations of the
outgoing Servicer hereunder (except as to the Trustee as the Successor Servicer,
the Servicer's indemnification obligation under Section 4.03(a) and (b) shall
not apply), (ii) notifying Obligors in writing of the existence of the Successor
Servicer, and (iii) providing such Successor Servicer with all Records
maintained or held by the outgoing servicer as Servicer hereunder, including all
paper files and all electronic files, at no charge. In the event the Servicer is
terminated without cause pursuant to Section 2.10(b), it shall be entitled to
receive an additional one-time termination fee in the amount of $25,000, but no
other additional or extra compensation beyond that which would be otherwise due
to it under this Agreement to and including the date on which the Servicer is so
terminated. Such Termination Fee shall be payable from the Collection Agent's
own funds and such termination of the Servicer shall not be effective unless and
until such termination fee is paid in full to the Servicer.
(d) Upon appointment, any Successor Servicer shall be successor in all
respects to the outgoing Servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all responsibilities,
duties and liabilities relating thereto placed upon the Servicer by the terms
and provisions hereof (subject to the same limitations as are contained in this
Section 2.13 with respect to a succession to the outgoing Servicer by the
Trustee).
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SECTION 2.14. Effect of Service Transfer.
(a) Prior to any Service Transfer, the outgoing Servicer shall notify (or,
to the extent that the Servicer provided such notice pursuant to Section
2.13(c), confirm the notice to) Obligors of the existence of the Successor
Servicer. The Servicer shall be entitled to receive from the Collection Agent,
as extra compensation for such Services, a fee equal to $.60 for each such
notice given.
(b) After any Service Transfer, the outgoing Servicer shall have no
further obligations with respect to the management, servicing, custody or
monitoring of the collection of the Receivables and the Successor Servicer shall
have all of such obligations.
(c) A Service Transfer shall not affect the rights and duties of the
parties hereunder (including, but not limited to, the obligations and
indemnities of the outgoing Servicer pursuant to Article IV) other than those
relating to the management, servicing, custody or monitoring of the collection
of the Receivables by the Successor Servicer.
SECTION 2.15. Annual Reports; Statements as to Compliance.
(a) On or before ninety (90) days after the end of each fiscal year of the
Servicer, the Servicer shall deliver to the Transferor and the Trustee (who
shall promptly forward a copy to each Certificateholder and each Rating Agency),
a copy of the financial statements of Computer Sciences Corporation and Mitchell
Sweet & Associates, Inc. (or the Successor Servicer) containing a report of a
firm of Independent Public Accountants to the effect that such firm has examined
certain books and records of Computer Sciences Corporation and Mitchell Sweet
Associates, Inc. (or the Successor Servicer) and that, on the basis of such
examination conducted substantially in compliance with generally accepted audit
standards such financial statements accurately reflect the financial condition
of Computer Sciences Corporation and Mitchell Sweet & Associates, Inc. (or the
Successor Servicer).
(b) The Servicer shall deliver to the Collection Agent and the Trustee
(who shall promptly forward a copy to each Certificateholder and each Rating
Agency) by the fifth Business Day of each month an Officer's Certificate
stating, as to each signer thereof, that (a) a review of the activities of the
Servicer (and each Subservicer) during the preceding calendar month 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, each of
the Servicer and any Subservicer has fulfilled all its respective obligations
under this Agreement throughout such month, or, if
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there has been an Event of Servicing Termination or if an event has occurred
that with notice or lapse of time or both would become an Event of Servicing
Termination, specifying each such Event of Servicing Termination or event known
to such officer and nature and status thereof, and remedies therefor being
pursued. Notwithstanding the obligation to deliver such certificates, the
Servicer shall promptly (but in any event within five Business Days) notify the
Transferor, the Rating Agencies, the Collection Agent and the Trustee upon
receiving actual knowledge of any event which constitutes an Event of Servicing
Termination or would constitute an Event of Servicing Termination but for the
requirement that notice be given or time elapse or both.
SECTION 2.16. Annual Independent Public Accountants' Servicing Report. On
or before ninety (90) days after the end of its fiscal year, the Servicer shall
cause a firm of Independent Public Accountants to furnish a statement to the
Trustee (who shall promptly forward a copy to the Collection Agent, the
Certificateholders and each Rating Agency), to the effect that such firm has
examined certain documents and records relating to the servicing of the
Receivables and the reporting requirements with respect thereto (including the
activities of the Collection Agent) and that, on the basis of such examination,
such servicing and reporting requirements have been conducted in compliance with
this Agreement (and, in the case of the Collection Agent, the Pooling
Agreement), except for (i) such exceptions as such firm shall believe to be
immaterial, and (ii) such other exceptions as shall be set forth in such
statement. The cost to Servicer of such accountant's statements shall be limited
to 2% of the revenue payable to the Servicer under this Agreement for the fiscal
year in question, and any excess shall be paid by the Collection Agent.
SECTION 2.17. Servicer Reports.
(a) The Servicer shall furnish by close of business on each Determination
Date (or the next succeeding Business Day if such day is not a Business Day), to
the Collection Agent and the Trustee (who shall promptly forward a copy to each
Certificateholder and each of the Rating Agencies), an Officer's Certificate,
substantially in the form attached hereto as Exhibit B (the "Servicer Report"),
which Servicer Report shall contain all information necessary for the Trustee to
make the distributions from, and transfers among, the accounts required by the
Pooling and Trust Agreement or in such other form as is mutually acceptable to
the Servicer, the Collection Agent and the Trustee. In addition, the Servicer
and/or the Collection Agent shall provide the Trustee with such additional
written information and certifications as the Trustee may request in order for
the Trustee to make the distributions from, and transfers among, the various
accounts
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required by this Agreement and the Pooling and Trust Agreement on a daily, or
other, basis. Each of the parties hereto shall provide to the Rating Agencies
such additional information as they may reasonably request in order to assist
such Rating Agencies in their ongoing monitoring and assessment of the
performance of the Receivables. To the extent such information is not currently
provided in the form of Servicer Report, then the Servicer shall develop and
provide such information at its customary hourly rate and cost, which shall be
paid to Servicer as part of its compensation hereunder.
(b) The Servicer Report shall include a certification (i) that the
information contained in such certificate is accurate, (ii) that no Event of
Servicing Termination, or event that with notice or lapse of time or both would
become an Event of Servicing Termination, has occurred, or if an Event of
Servicing Termination or such event has occurred and is continuing, specifying
the Event of Servicing Termination or such event and its status and (iii) that
the representations and warranties of the Servicer contained in Section 2.03 of
this Agreement are true and correct as though made on and as of the date of such
certificate.
SECTION 2.18. Confidentiality. Each of the Transferor, Collection Agent
and the Trustee acknowledges the proprietary nature of certain of the software,
software procedures, software development tools, know-how, methodologies,
processes and technologies of the Servicer ("Confidential Material") and agrees
(i) that it shall use the same means as it uses to protect its own confidential
information, but in no event less than reasonable means, to avoid disclosure, by
it or its agents or employees, to any third party of any confidential or
proprietary information of the Servicer identified as such by the Servicer to
it, except to the extent that any such person may be required to disclose any
such information (x) by law or any legal process or proceeding, including,
without limitation, in connection with an examination or audit by any
governmental regulatory agency, in which case such person shall give notice of
such event to the Servicer or (y) in connection with its duties and obligations
hereunder and under the other transaction documents, and (ii) that all such
confidential or proprietary software, software procedures, software development
tools, know-how, methodologies, process and technologies that are based upon
trade secrets or proprietary information of the Servicer identified as such by
the Servicer to it shall be and remain the property of the Servicer and that
each of the Transferor, the Collection Agent and the Trustee will have no
ownership interest therein or ownership claim thereto. Each of Transferor,
Trustee and Collection Agent shall confine the knowledge and use of the
Confidential material only to its employees who require such knowledge and use
in the ordinary course and scope of their employment. Upon any expiration or
termination of this
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Agreement, each of Transferor, Trustee and Collection Agent shall promptly
return to the Servicer all property or information which is covered by this
section.
SECTION 2.19. Delivery of Documents.
(a) On the date hereof the Servicer shall have delivered to the
Transferor, the Collection Agent and the Trustee the following, in form and
substance satisfactory to the Transferor:
(i) the organizational documents of the Servicer and; a
certificate of existence, dated no more than ten days prior to such date,
from the Secretary of State of Texas and, if applicable, a good standing
certificate from each state in which the Servicer is required to qualify
to do business;
(ii) a certificate of the managing partner of the Servicer (on
which certificate such party may conclusively rely until such time as it
shall receive from the Servicer a revised certificate meeting the
requirements of this subsection) certifying as of such date: (A) the names
and true signatures of the officers authorized on its behalf to sign this
Agreement, (B) a copy of the Servicer's organizational documents and (C) a
copy of the resolutions of the management committee of the Servicer
approving this Agreement and the transactions contemplated hereby;
(iii) an Officer's Certificate from the Servicer certifying that
(A) the representations and warranties of the Servicer contained in
Section 2.03 of this Agreement are true and correct as though made on and
as of such date and (B) no Event of Servicing Termination, or event that
with notice or lapse of time or both would become an Event of Servicing
Termination, has occurred; and
(iv) the opinion of the Servicer's counsel dated such date in the
form of Exhibit C.
(b) On or prior to March 31 in each calendar year, beginning in 1996, the
Servicer shall deliver to the Collection Agent and the Trustee (who shall
promptly forward a copy to each of the Certificateholders and each Rating
Agency) an Officer's Certificate from the Servicer dated such date certifying to
the items listed in Section 2.19(a) (i) -(iii).
SECTION 2.20. Standard of Care. In performing its duties and obligations
hereunder and in administering, tracking and enforcing the insurance policies
maintained by obligors relating to the Receivables pursuant to this
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Servicing Agreement, the Servicer will comply with all applicable state and
federal laws and will exercise that degree of skill and care consistent with the
highest degree of skill and care that the Servicer exercises with respect to
similar motor vehicle retail installment sales contracts or loans owned and/or
serviced by the Servicer, and will apply in performing such duties and
obligations, those standards, policies and procedures consistent with the best
standards, policies and procedures the Servicer applies with respect to similar
motor vehicle retail installment contracts or loans owned or serviced by it;
provided, however, that notwithstanding the foregoing, the Servicer shall not,
except pursuant to a judicial order from a court of competent jurisdiction, or
as otherwise required by applicable law or regulation, release or waive the
right to collect the unpaid balance on any Receivable. In performing its duties
and obligations hereunder, the Servicer shall comply with the VSI Policy and all
applicable federal and state laws and regulations, shall maintain all state and
federal licenses and franchises necessary for it to perform its servicing
responsibilities hereunder, and shall not impair the rights of the Transferor or
the Trust in the Receivables.
ARTICLE III
COLLECTION AGENT
SECTION 3.01. Appointment of Collection Agent. (a) AutoBond agrees to act
as the Collection Agent under this Agreement. (b) The Collection Agent shall
perform its obligations pursuant to this Agreement on behalf of and for the
benefit of the Transferor, the Trustee and the Certificateholders in accordance
with the terms of this Agreement, the respective Receivables, the VSI Policy and
applicable law and, to the extent consistent with such terms, in the same manner
in which, and at least with the same care, skill, prudence and diligence with
which, it services and administers Receivables of similar credit quality for
other portfolios, if any, giving due consideration to customary and usual
standards of practice of prudent institutional automobile loan collection agents
and, in each case, taking into account its other obligations hereunder, but
without regard to:
(i) any relationship that the Collection Agent or any Affiliate
of the Collection Agent may have with the related Obligor;
(ii) the Collection Agent's right to receive compensation for
its services hereunder or with respect to any particular transaction; or
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(iii) the ownership, or servicing for others, by the Collection
Agent, of any other automobile loans or property.
In furtherance of the servicing standard set forth above in this Section
3.01(b), and in accordance with the provisions of the AutoBond Program Manual
and subject to any express limitations set forth in this Agreement (and the
subrogation rights of any insurance company issuing the Insurance Policy), the
Collection Agent shall also seek to maximize the timely and complete recovery of
principal and interest on Receivables; provided, however, that nothing herein
contained shall be construed as an express or implied guarantee by the
Collection Agent of the collectibility of the Receivables.
SECTION 3.02. Representations and Warranties of the Collection Agent. The
Collection Agent represents and warrants to the Transferor, the Servicer, the
Trustee and the Certificateholders, as follows, as of the date hereof (which
representations and warranties shall be deemed repeated on each Transfer Date
and on each date during the term hereof as though made on and as of such date):
(i) It is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas and 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; it will be in
compliance with the laws of each state to the extent necessary to perform
its obligations under this Agreement; and it has obtained all necessary
licenses with respect to it required by law to enable it to perform its
duties herein;
(ii) It has the corporate power and authority to execute, deliver
and perform this Agreement and the Pooling and Trust Agreement and the
transactions contemplated hereby and thereby;
(iii) The execution and delivery by it and the performance by it
of this Agreement and the Pooling and Trust Agreement, and the execution
and delivery by it and the performance by it of all other agreements,
instruments and documents which may be delivered by it pursuant hereto and
thereto, and the transactions contemplated hereby and thereby, (i) have
been duly authorized by all necessary corporate or other action, on the
part of it, (ii) do not contravene or cause it to be in default under (A)
its articles of incorporation, (B) any contractual restriction with
respect to any Debt of it or contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other
material agreement or instrument binding
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it or its property or (C) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to or binding it or its
property, and (iii) do not result in or require the creation of any
Adverse Claim upon or with respect to any of its properties;
(iv) Each of this Agreement and the Pooling and Trust Agreement
has been duly executed and delivered on behalf of it;
(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 it of this Agreement, the
Pooling and Trust Agreement or any other agreement, document or instrument
to be delivered by it hereunder or thereunder;
(vi) Each of this Agreement and the Pooling and Trust Agreement
is its legal, valid and binding obligation enforceable against it in
accordance with its terms;
(vii) There is no pending or threatened action, suit or
proceeding, nor any injunction, writ, restraining order or other order of
a material nature against or affecting it, its officers or directors, or
its property, 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 or the Pooling and Trust Agreement, or any
document to be delivered by it hereunder or thereunder or (B) seeking any
determination or ruling that would reasonably be expected to materially
and adversely affect (I) the performance by it of its obligations under
this Agreement or the Pooling and Trust Agreement, or the interests of the
Certificateholders, or (II) the validity or enforceability of this
Agreement or the Pooling and Trust Agreement, or any document to be
delivered by it hereunder or thereunder (C) which is inconsistent with the
due consummation by it of the transactions contemplated by this Agreement
and the Pooling and Trust Agreement;
(viii) Its facilities, plant, personnel, records and products are
adequate for the performance of its duties hereunder and under the Pooling
and Trust Agreement;
(ix) The Collection Agent is not in default with respect to any
order or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, and there exists no
other event or circumstance, which default, event or circumstance would
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reasonably be expected to have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations of
the Collection Agent or its properties or would reasonably be expected to
have consequences that would materially and adversely affect its
performance hereunder or under the Pooling and Trust Agreement or the
interests of the Certificateholders;
(x) Each certificate and each statement furnished in writing,
report or electronic medium delivered pursuant to the terms hereof or
under the Pooling and Trust Agreement by the Collection Agent is accurate
and complete with respect to the information purported to be set forth
therein;
(xi) The practices used by the Collection Agent to monitor
collections with respect to the Receivables and repossess and dispose of
the Financed Vehicles related to the Receivables have been, and will be,
in all material respects, legal, proper and in conformity with the
requirements of the VSI Policy procedures and as set forth with respect to
the Collection Agent in the AutoBond Program Manual;
(xii) The transactions contemplated by this Agreement and the
Pooling and Trust Agreement are in the ordinary course of business of the
Collection Agent; and
(xiii) The Financed Vehicle securing each Receivable shall not be
released by the Collection Agent in whole or in part from the security
interest granted by the Obligor, except as contemplated herein.
It is understood and agreed that the representations and warranties set forth in
this Section 3.02 shall survive the execution of this Agreement.
SECTION 3.03. Duties and Responsibilities of the Collection Agent.
(a) Until such time as the Collection Agent resigns or is removed, the
Collection Agent shall remain the prior lienholder of record with respect to
each Financed Vehicle relating to the Receivables held by the Trust; provided
that the Collection Agent shall remain the prior lienholder acting only as an
agent of the Trustee. Upon any resignation or removal of the Collection Agent in
accordance with Section 3.06 or 3.07, the Collection Agent shall, at its sole
expense, promptly take all action necessary for the Trustee to become the
lienholder in respect of each Financed Vehicle relating to the Receivables held
by the Trust. In the event the Servicer assumes the duties of the Collection
Agent hereunder, the Servicer may request from, and rely on, direction from the
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Trustee as to the appropriateness of instituting any litigation necessary in
order to protect the Trust's interest in the Receivables.
(b) The duties and responsibilities of the Collection Agent shall consist
of (i) receiving and administering collections on the Receivables, (ii)
arranging for and administering repossessions of the Financed Vehicles related
to the Receivables, (iii) disposing of each Financed Vehicle related to a
Receivable whether following repossession or otherwise and (iv) filing of
insurance claims and performing the duties of the named insured under the VSI
Policy with respect to each Receivable affected by a repossession or otherwise.
Notwithstanding any other provision in this Agreement, Collection Agent shall
administer collections on Receivables at all times in such a manner that each
Receivable shall remain eligible for coverage under the Insurance Policies. The
Collection Agent, on behalf of the Trustee (and any named insured under the
Insurance Policies), shall take such reasonable action as shall be necessary to
permit recovery on each Receivable under the Insurance Policies.
(c) The Collection Agent shall hold in trust for the benefit of the Trust
and shall forward to the Collection Account, the Trustee or the Lockbox Account,
as applicable, immediately upon receipt thereof any payment or partial payment
or deposit with respect to any Receivable received by the Collection Agent. The
Collection Agent shall not assert any right of set-off or any lien with respect
to such payment or deposit.
(d) Except as expressly provided herein in connection with its duty to
effect liquidations and repossessions, the Collection Agent shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Receivable (or any right to income in
respect thereof), or any account in which any payments with respect to any
Receivable are deposited, or assign any right to receive income in respect of
any Receivable.
(e) The Collection Agent shall promptly notify the Trustee following its
becoming aware that any Financed Vehicle is no longer eligible for coverage
under the Insurance Policies, or following its receipt of notice from Interstate
that it has rejected a claim submitted by the Collection Agent with respect to
any Financed Vehicle.
SECTION 3.04. Possession of Receivables. If the Collection Agent requires
possession of any Receivable or any documents related thereto in order to
perform its duties or obligations hereunder, prior to taking possession of any
such Receivable or documents, the Collection Agent shall deliver to
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the Trustee a trust receipt substantially in the form attached hereto as Exhibit
A. The Collection Agent agrees to promptly return any such Receivable and
documents, possession of which the Collection Agent takes in accordance with
this Section 3.04, after its need for possession thereof ceases.
SECTION 3.05. Collection Agent Fee; Collection Agent Expenses.
(a) On each Payment Date the Collection Agent shall be entitled to receive
by wire transfer of immediately available funds to an account designated in
writing by the Collection Agent to the Trustee from the funds on deposit in the
Collection Account an amount equal to the Monthly Administrator Fee as of such
Distribution Date.
(b) The Collection Agent shall be reimbursed by the Transferor for all
expenses incurred by it in connection with its activities hereunder (including
any payments to accountants, counsel, or any other Person), in accordance with
the Pooling and Trust Agreement, and only to the extent of funds available
therefor, and subject to the priorities set forth, under the Pooling and Trust
Agreement; provided, further, that in the event the Servicer has assumed the
obligations of the Collection Agent, its right to reimbursement under this
Section is further limited to the extent stated in Section 2.08(b).
SECTION 3.06. Collection Agent Not to Resign.
(a) The Collection Agent shall not resign from the obligations and duties
hereby imposed on it except upon its determination that (a) the performance of
its duties hereunder has become impermissible under applicable law and (b) there
is no reasonable action which the Collection Agent could take to make the
performance of its duties hereunder permissible under applicable law. Any such
determination permitting the resignation of the Collection Agent shall be
evidenced as to clause (a) above by an Opinion of Counsel to such effect
delivered to the Transferor, the Servicer and the Trustee before any such
resignation and as to clause (b) by an Officer's Certificate to such effect
delivered to the Transferor, the Servicer and the Trustee before any such
resignation. The action referred to in the first clause (b) of this Section 3.06
will not be considered reasonable if it requires the payment of extraordinary
fees or costs for which the Collection Agent is not eligible for reimbursement
under Section 3.05.
(b) Upon any resignation or termination of the Collection Agent pursuant
to this Section 3.06 or Section 3.07, the Servicer shall become liable for all
duties and obligations assigned herein to the Collection Agent from the
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date the Servicer succeeds to the duties of the Collection Agent. Upon an
assumption by the Servicer of the duties of the Collection Agent, the Servicer
shall be entitled to receive the Monthly Administrator Fee, without any
corresponding Obligation to assume the duties of the Administrator under the
Pooling and Trust Agreement (which duties and fees shall hereafter not be
affected by any modification not consented to in writing by the Servicer). Upon
such an assumption, the Servicer is authorized to accept and rely on all of the
accounting, records and work of the prior Collection Agent without any audit or
other examination thereof, and the Servicer shall have no duty, responsibility,
obligation or liability (collectively, "Liability") for the acts or omissions of
the prior Collection Agent. If any error, inaccuracy or omission (collectively,
"Errors") exists in any information received from the prior Collection Agent and
such Errors should cause or materially contribute to the Servicer making, or
continuing to make, any Errors (collectively, "Continuing Errors"), the Servicer
shall have no liability for such Continuing Errors. In the event the Servicer
becomes aware of Errors or Continuing Errors, which in the opinion of the
Servicer impair its ability to perform its services hereunder, the Servicer may
with prior written notice to the Transferor and the Trustee, undertake such data
or records reconstruction as it deems appropriate to correct such Errors and
Continuing Errors and to prevent future Continuing Errors, and the Servicer's
reasonable expenses incurred in connection therewith shall be deemed expenses
owing to the Servicer hereunder for purposes of the Pooling and Trust Agreement.
SECTION 3.07. Events of Administrator Termination. If any of the following
events (each, an "Event of Administrator Termination") shall occur and be
continuing:
(a) Any failure by the Collection Agent to forward to the Collection
Account, the Trustee or the Lockbox Account, as applicable, any payment or
partial payment or deposit with respect to any Receivable received by the
Collection Agent and the continuance of such failure for a period of two
(2) Business Days after the date upon which such payment or deposit is
received by the Collection Agent; or
(b) Failure on the part of the Collection Agent to observe or
perform any term, covenant or agreement in this Agreement or as
Administrator under the Pooling and Trust Agreement or any Related
Document, which failure continues unremedied for 10 Business Days after
the earlier of the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Collection Agent by
the Transferor, the Servicer or the Trustee or the date on which a
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Responsible Officer of the Collection Agent becomes aware of such failure;
or
(c) Any proceeding shall be instituted against the Collection Agent
or the Transferor (or, if the Collection Agent or the Transferor is
actively contesting the merits thereof, such proceeding is not dismissed
within 60 days) 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
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
(d) The commencement by the Collection Agent or the Transferor of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect of
the Collection Agent or the Transferor in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Collection Agent or the Transferor or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its Debts generally as they become due, or the taking of
corporate action by the Collection Agent or the Transferor in furtherance
of any such action; or
(e) There is a breach in any material respect of any of the
representations and warranties of the Collection Agent under Section 3.02
hereof or of the Administrator under the Sale Agreement or any other
Related Document; or
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(f) The Delinquency Ratio for any calendar month shall exceed 9.5%;
or
(g) There shall have been any material adverse change in the
consolidated financial condition or operations of the Collection Agent
since December 31, 1994, or there shall have occurred any event which
materially adversely affects the collectibility of any material amount of
the Receivables, or there shall have occurred any other event which
materially adversely affects the ability of the Collection Agent to
collect any material amount of the Receivables or the ability of the
Collection Agent to perform in all material respects its obligations under
this Agreement and the Related Documents or the Collection Agent shall be
replaced as collection agent or servicer (or the equivalent) for cause in
respect of any securitization; or
(h) Any Rating Agency determines that having the Collection Agent
act hereunder will prevent such Rating Agency from issuing or maintaining
a rating on the Class A Certificates of not less than "A" in the case of
Fitch, and, in the case of Moody's, not less than "A3," and a rating on
the Class B Certificates of not less than "PDR-3" from Fitch, or will
result in a review with negative implications, suspension, downgrade,
withdrawal or other impairment of such rating;
then, and in any such event, the Trustee may, by delivery to the Collection
Agent of a written notice specifying the occurrence of any of the foregoing
events, terminate the responsibilities of the Collection Agent hereunder,
without demand, protest or further notice of any kind, all of which are hereby
waived by the Collection Agent; provided, that in the event any of the events
described in subsections (c) or (d) of this Section 3.07 shall have occurred,
termination of the duties and responsibilities of the Collection Agent shall
automatically occur, without, demand, protest, or further notice of any kind,
all of which are expressly waived by the Collection Agent. Upon any termination
of the Collection Agent pursuant to this Section 3.07, the Servicer shall become
liable for all duties and obligations assigned herein to the Collection Agent.
SECTION 3.08. Repossession and Disposal.
(a) The Collection Agent agrees to use its best efforts to arrange with a
third party for the repossession or other conversion of ownership of any
Financed Vehicle by a professional repossession service in the manner required
by the VSI Policy within 90 days after the related Auto Loan becoming past due
and agrees not to discriminate among Financed Vehicles in its performance of its
duties hereunder
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based on its right, if any, to receive bonus or increased compensation with
respect to the repossession and disposal of certain Financed Vehicles, and
otherwise in accordance with the AutoBond Program Manual, in order to maximize
collections.
(b) If requested by the Transferor, the Servicer or the Trustee, the
Collection Agent is authorized and empowered by the Transferor, the Servicer and
the Trustee to execute and deliver, on behalf of itself, the Transferor, the
Servicer or the Trustee, as the case may be, any and all instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to the Financed Vehicles related to
the Receivables, all in accordance with the standard of care set forth in
Section 3.09. Without limiting the generality of the foregoing, the Transferor,
the Servicer and the Trustee shall, upon the receipt of a written request of the
Collection Agent, execute and deliver to the Collection Agent any limited powers
of attorney and other documents prepared by the Collection Agent and reasonably
necessary or appropriate (as certified in such written request) to enable the
Collection Agent to carry out its duties hereunder (including, without
limitation, matters relating to the certificates of title with respect to the
Financed Vehicles), and neither the Transferor, the Servicer nor the Trustee
shall be held responsible for any negligence by the Collection Agent in its use
of such limited powers of attorney.
(c) The Collection Agent shall forward the proceeds of any disposition of
a Financed Vehicle related to a Receivable upon receipt thereof to the
Collection Account. If subsequent to the disposal of a Financed Vehicle related
to a Receivable in accordance herewith and, as required by this Agreement, with
the AutoBond Program Manual, the transaction disposing of such Financed Vehicle
is rescinded or adjusted, through arbitration or otherwise, due to any condition
affecting such Financed Vehicle, then the Collection Agent shall be entitled to
reimbursement from the Collection Account (out of available funds) for any
amount which the Collection Agent pays in connection with such rescission or
adjustment which amount shall be the "Post-Sale Adjustment".
(d) The Collection Agent represents and warrants to the Transferor, the
Servicer, the Trustee and the Certificateholders and shall be deemed to
continuously represent and warrant to the Transferor, the Servicer and the
Trustee, with respect to each Financed Vehicle assigned to the Collection Agent
pursuant hereto and, as required by this Agreement, to the AutoBond Program
Manual, that the Collection Agent will comply in all material respects with the
VSI Policy, all applicable federal, state and local regulations pertaining to
its services hereunder, including disclosure requirements, required to be
complied with in conjunction with
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such services. The Collection Agent shall defend, indemnify and hold the
Transferor, the Servicer, and the Certificateholders and the Trustee harmless
from and against any claim, suit, loss, cost or liability, direct or indirect,
including reasonable attorney's fees, arising out of any breach of any
representation or warranty made by the Collection Agent in the immediately
preceding sentence.
(e) Except as expressly provided herein, in the Pooling Agreement and in
the AutoBond Program Manual, the Collection Agent shall not sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create any Adverse
Claim upon or with respect to, any Financed Vehicle related to any Receivable
(or any right to income in respect thereof), or assign any right to receive
income in respect of any such Financed Vehicle.
SECTION 3.09. Standard of Care. In performing its duties and obligations
hereunder and in administering and enforcing the Insurance Policies relating to
the Receivables pursuant to this Servicing Agreement, the Collection Agent will
comply with all applicable state and federal laws and will exercise that degree
of skill and care consistent with the highest degree of skill and care that the
Collection Agent exercises with respect to similar motor vehicle retail
installment sales contracts or loans owned and/or serviced by the Collection
Agent and will apply in performing such duties and obligations, those standards,
policies and procedures consistent with the best standards, policies and
procedures the Collection Agent applies with respect to similar motor vehicle
retail installment contracts or loans owned or serviced by it. In performing its
duties and obligations hereunder, the Collection Agent shall comply with the VSI
Policy, all applicable federal and state laws and regulations, shall maintain
all state and federal licenses and franchises necessary for it to perform its
servicing responsibilities hereunder, and shall not impair the right of the
Transferor or the Trust in the Receivables.
ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES
SECTION 4.01. Liabilities of Obligors. No obligation or liability of any
Obligor under any of the Receivables is intended to be assumed by the
Transferor, the Servicer, the Collection Agent, the Trustee, the Trust or any
Certificateholder under or as a result of this Agreement and the transactions
contemplated hereby and, to the maximum extent permitted and valid under
mandatory provisions of law, the Transferor, the Servicer, the Collection Agent
and the
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Trustee, the Trust or any Certificateholder expressly disclaim such assumption.
SECTION 4.02. Limitation on Liability of the Trustee and the Servicer.
(a) The Trustee and the Servicer shall each have no liability in
connection with this Agreement except to the extent of the obligations
specifically imposed by this Agreement, it being understood that no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or shall otherwise exist against the Trustee or the
Servicer.
(b) None of the Trustee or the Servicer nor any of the directors,
officers, employees or agents thereof shall be under any liability to the
Transferor, to each other or to any other Person for any action taken, or for
refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Servicer, the Trustee or any such Person against any
breach of warranties or representations made herein or against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations or duties hereunder. The Servicer, the Trustee and any director,
officer, employee or agent thereof may rely in good faith on any document of any
kind which, prima facie, is properly executed and submitted by any appropriate
Person respecting any matters arising hereunder.
(c) Except to the extent resulting from the Servicer's willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of its obligation or duties hereunder, the Servicer
shall not be liable to any party indemnified under this Agreement, for any
liability, cost, expenses or financial loss which may arise as a result of the
economic performance of the Receivables or other Trust Assets.
SECTION 4.03. Indemnities of the Servicer and the Collection Agent.
(a) The Servicer agrees to indemnify the Transferor, the Trustee, the
Trust, the Certificateholders and the Collection Agent, and any of their
respective directors, officers, employees or agents from, and hold each of them
harmless against, any and all losses, liabilities, damages (other than
incidental or indirect damages), claims or expenses (including reasonable
attorneys' fees and expenses) proximately caused by the Servicer's acts or
omissions in violation of this Agreement, except to the extent the Transferor's,
the
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Trustee's, the Collection Agent's or the directors, officers, employees or
agents thereof, as the case may be, own bad faith, willful misconduct or
negligence contributes to the loss, liability, damage, claim or expense.
(b) The Servicer agrees to indemnify the Transferor, the Trustee, the
Trust, the Certificateholders and the Collection Agent and any of their
respective directors, officers, employees or agents from, and hold each of them
harmless against, any and all losses, liabilities, damages, claims or expenses
(including reasonable attorneys' fees and expenses) arising as a result of the
use, ownership or operation by the Servicer or any agent thereof of any Financed
Vehicle.
(c) The Collection Agent agrees to indemnify the Transferor, the Trustee,
the Trust, the Certificateholders and the Servicer, and any of their respective
directors, officers, employees or agents from, and hold each of them harmless
against, any and all losses, liabilities, damages, claims or expenses (including
reasonable attorneys' fees and expenses) arising as a result of the Collection
Agent's acts or omissions in violation of this Agreement, or arising as a result
of or incurred in connection with, the acceptance or performance by such parties
of the duties contained in this Agreement, except to the extent the
Transferor's, the Trustee's, the Servicer's, or the directors, officers,
employees or agents thereof, as the case may be, own bad faith, willful
misconduct or negligence contributes to the loss, liability, damage, claim or
expense; provided that in the event the Servicer were to succeed to the rights,
duties and obligations of the Collection Agent hereunder, for purposes of the
indemnity to be provided hereunder by the Servicer as Collection Agent the term
"damages" shall exclude incidental and indirect damages and the phrase "arising
as a result of the Collection Agent's acts" shall be replaced with the phrase
"proximately caused by the Collection Agent's acts."
(d) Each of the Servicer, the Collection Agent, the Transferor and the
Trustee agrees to promptly notify the indemnifying party hereunder in writing of
the commencement of any action with respect to which indemnification may be owed
to it pursuant to this Section 4.03 promptly after receipt by such party of
notice of commencement thereof, but the omission so to notify such indemnifying
party hereunder will not relieve the indemnifying party from any liability which
it may have hereunder except to the extent the indemnifying party is prejudiced
thereby.
(e) This Section 4.03 shall survive the termination of this Agreement and
the resignation or removal of the Servicer or the Collection Agent. This
Agreement shall also survive
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the resignation or removal of the Trustee in respect of rights accrued to it
prior to such resignation or removal.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Beneficiaries. This Agreement will inure to the benefit of
and be binding upon the parties hereto, the Certificateholders and their
respective successors and permitted assigns. The Certificateholders are intended
as, and shall be, third party beneficiaries of this Agreement. No other Person
will have any right or obligation hereunder. Neither the Servicer, the Trustee
or the Collection Agent may assign any of its respective rights and obligations
hereunder or any interest herein, other than as provided in Section 10.09 of the
Pooling and Trust Agreement with respect to the Trustee, without the prior
written consent of the Transferor, the Trustee and the Collection Agent.
SECTION 5.02. Amendment. This Agreement may be amended from time to time
by the parties hereto only by a written instrument executed by all such parties,
and provided, further, that notice of any such amendment and a copy thereof
shall be given in writing promptly after the execution thereof to each of the
Rating Agencies and the Trustee.
SECTION 5.03. Notices. Unless otherwise expressly specified or permitted
by the terms hereof, notices and other communications required or permitted to
be given or made under the terms hereof shall be in writing. Any such
communication or notice shall be deemed to have been duly made or given (i) when
delivered personally, (ii) in the case of mail delivery, upon receipt, refusal
of delivery or return for failure of the intended recipient to retrieve such
communication or (iii) in the case of transmission by facsimile, upon telephone
and return facsimile confirmation and, in each case, if addressed to the
intended recipient as follows (subject to the next sentence of this Section
5.03):
If to the Transferor:
AutoBond Funding Corporation 1995
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
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If to the Servicer:
Loan Servicing Enterprise
9330 LBJ Freeway, Suite 500
Dallas, Texas 75243-3429
Attention: Managing Partner
Facsimile Number: (214) 783-3561
Telephone Number: (214) 783-3532
If to the Collection Agent:
AutoBond Acceptance Co.
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
William T. Milbauer
Facsimile Number: (612) 667-9825
Telephone Number: (612) 667-6878
If to the Rating Agencies:
Fitch Investors Service
One State Street Plaza
New York, NY 10004
Attention: Structured Finance Department
Facsimile Number: (212) 480-4438
Telephone Number: (212) 908-0502
Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Attention: ABS Monitoring Dept.
Facsimile Number: (212) 553-7820
Telephone Number: (212) 553-0300
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Each party hereto may from time to time designate by notice in writing to the
other parties hereto a different address for communications and notices.
SECTION 5.04. Severability of Provisions. If any one or more of the
covenants, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, provisions or terms shall be
deemed severable from the remaining covenants, provisions or terms of this
Agreement, and shall in no way affect the validity or enforceability of the
other provisions of this Agreement.
SECTION 5.05. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
NEW YORK.
(b) THE TRANSFEROR, THE SERVICER, THE COLLECTION AGENT AND THE TRUSTEE
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. THE TRANSFEROR, THE SERVICER AND THE TRUSTEE EACH
HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO
VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION SHALL AFFECT
THE RIGHT OF THE PARTIES HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY OF THEN TO BRING ANY ACTION OR
PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE TRANSFEROR, THE SERVICER, THE COLLECTION AGENT AND THE TRUSTEE
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 5.06. Counterparts. This Agreement may be executed in counterparts
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
SECTION 5.07. No Proceedings. Each of the Servicer and the Collection
Agent and the Trustee hereby agrees that it will not, directly or indirectly,
institute, or cause to be instituted, against the Transferor or the Trust any
proceeding of the type described in connection with the Servicer in Section
2.12(c) so long as there shall not have elapsed one year plus one day since the
Certificates issued by the Trust have been paid in full in cash. The foregoing
covenant shall
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not limit the right of the Servicer, the Trustee or the Collection Agent, as the
case may be, to institute legal proceedings of a type other than those described
in connection with the Servicer in Section 2.12(c) against the Transferor for
any breach by the Transferor of its obligations hereunder.
SECTION 5.08. Further Assurance. The Servicer and the Collection Agent
shall cause to be promptly and duly taken, executed, acknowledged and delivered
all such further acts, documents and assurances as the Transferor or the Trustee
from time to time may reasonably request in order to carry out more effectively
the intent and purposes of this Agreement and the transactions contemplated
hereby.
SECTION 5.09. Term of Agreement. The term of this Agreement shall begin on
the Closing Date and shall continue until the earlier of the day after the date
on which the Certificateholders have been paid in full under the Pooling and
Trust Agreement and April 15, 2002. The Trustee shall deliver to the Servicer a
copy of notice to be delivered to the Certificateholders regarding payment in
full of the Class A Certificates pursuant to Section 11.01(d) of the Pooling and
Trust Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Servicing
Agreement to be executed by their respective officers thereunto duly authorized
this 15th day of December, 1995.
AUTOBOND FUNDING CORPORATION 1995,
as Transferor
By: /s/ WILLIAM O. WINSAUER
-------------------------------------
Name: William O. Winsauer
Title: President
CSC LOGIC/MSA L.L.P., as Servicer
By: /s/ JOHN F. KILGORE
-------------------------------------
Name: John F. Kilgore
Title: Managing Partner
AUTOBOND ACCEPTANCE CO., as Collection
Agent
By: /s/ ADRIAN KATZ
-------------------------------------
Name: Adrian Katz
Title: Vice Chairman
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By: /s/ WILLIAM T. MILBAUER
-------------------------------------
Name: William T. Milbauer
Title: Vice President
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EXECUTION COPY
================================================================================
SERVICING AGREEMENT
among
AUTOBOND FUNDING CORPORATION 1996-A,
as Transferor
CSC LOGIC/MSA L.L.P.,
doing business as "Loan Servicing Enterprise",
as Servicer
AUTOBOND ACCEPTANCE CO.,
as Collection Agent
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
Dated as of March 28, 1996
================================================================================
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TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS; RULES OF INTERPRETATION............... 2
SECTION 1.01. Defined Terms................................ 2
SECTION 1.02. Rules of Interpretation...................... 11
ARTICLE II SERVICING OF TRUST ASSETS.......................... 12
SECTION 2.01. Appointment of Servicer...................... 12
SECTION 2.02. Subservicing Agreements Between
Servicer and Subservicer..................... 13
SECTION 2.03. Representations and Warranties of
the Servicer................................. 14
SECTION 2.04. Duties and Responsibilities of the
Servicer..................................... 17
SECTION 2.05. Fidelity Bond, Errors and Omissions
Insurance; Contingent Disaster Relief
Protection................................... 20
SECTION 2.06. Inspection................................... 21
SECTION 2.07. Possession and Payment of
Receivables.................................. 22
SECTION 2.08. Monthly Servicing Fee; Servicing
Expenses..................................... 22
SECTION 2.09. Collection Agent To Maintain
Computer Link................................ 25
SECTION 2.10. Resignation or Termination of
Servicer..................................... 25
SECTION 2.11. Change in Business of the Servicer........... 26
SECTION 2.12. Events of Servicing Termination.............. 26
SECTION 2.13. Appointment of the Successor
Servicer..................................... 28
SECTION 2.14. Effect of Service Transfer................... 30
SECTION 2.15. Annual Reports; Statements as to
Compliance................................... 31
SECTION 2.16. Annual Independent Public
Accountants' Servicing Report................ 31
SECTION 2.17. Servicer Reports............................. 32
SECTION 2.18. Confidentiality.............................. 33
SECTION 2.19. Delivery of Documents........................ 33
SECTION 2.20. Standard of Care............................. 34
ARTICLE III COLLECTION AGENT................................... 35
SECTION 3.01. Appointment of Collection Agent.............. 35
SECTION 3.02. Representations and Warranties of
the Collection Agent......................... 35
SECTION 3.03. Duties and Responsibilities of the
Collection Agent............................. 38
SECTION 3.04. Possession of Receivables.................... 39
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Page
----
SECTION 3.05. Collection Agent Fee; Collection
Agent Expenses............................... 39
SECTION 3.06. Collection Agent Not to Resign............... 40
SECTION 3.07. Events of Administrator
Termination.................................. 41
SECTION 3.08. Repossession and Disposal.................... 43
SECTION 3.09. Standard of Care............................. 45
ARTICLE IV LIMITATION ON LIABILITY; INDEMNITIES............... 45
SECTION 4.01. Liabilities of Obligors...................... 45
SECTION 4.02. Limitation on Liability of the
Trustee and the Servicer..................... 45
SECTION 4.03. Indemnities of the Servicer and the
Collection Agent............................. 46
ARTICLE V MISCELLANEOUS...................................... 47
SECTION 5.01. Beneficiaries................................ 47
SECTION 5.02. Amendment.................................... 48
SECTION 5.03. Notices...................................... 48
SECTION 5.04. Severability of Provisions................... 49
SECTION 5.05. Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial........... 50
SECTION 5.06. Counterparts................................. 50
SECTION 5.07. No Proceedings............................... 50
SECTION 5.08. Further Assurance............................ 50
SECTION 5.09. Term of Agreement............................ 51
EXHIBITS
EXHIBIT A - FORM OF TRUST RECEIPT
EXHIBIT B - FORM OF MONTHLY SERVICER REPORT
EXHIBIT C - FORM OF OPINION OF COUNSEL TO SERVICER
EXHIBIT D - AUTOBOND PROGRAM MANUAL
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SERVICING AGREEMENT, dated as of March 28, 1996 (this "Agreement"), among
AUTOBOND FUNDING CORPORATION 1996-A (the "Transferor"), a Delaware corporation,
CSC LOGIC/MSA L.L.P., a Texas limited liability partnership doing business as
"Loan Servicing Enterprise," in its capacity as servicer (the "Servicer"),
AUTOBOND ACCEPTANCE CO., a Texas corporation, individually ("AutoBond") and as
collection agent (the "Collection Agent") and as Administrator, and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as trustee (the
"Trustee").
W I T N E S S E T H:
WHEREAS, from time to time, the Transferor has purchased and will purchase
from time to time, pursuant to the loan sale and contribution agreement dated of
even date herewith (the "Sale Agreement"), by and among the Transferor, AutoBond
and AutoBond Funding Corporation I certain Auto Loans (as defined herein) for
conveyance to the Trustee pursuant to the Pooling and Trust Agreement (as
defined herein) to the Trustee, on behalf of AutoBond Receivables Trust 1996-A
(the "Trust") and simultaneously therewith will assign such Receivables to the
Trustee pursuant to the Pooling and Trust Agreement;
WHEREAS, the Trustee has been appointed to hold the Auto Loans conveyed to
it pursuant to the Pooling and Trust Agreement in trust for the benefit of the
Certificateholders (as defined herein) and to make certain payments with respect
thereto;
WHEREAS, the Transferor and the Trustee desire that a servicer be
appointed to perform certain servicing and insurance tracking functions in
respect of the Auto Loans to be conveyed by the Transferor pursuant to the
Pooling and Trust Agreement;
WHEREAS, CSC Logic/MSA L.L.P. has been requested and is willing to act as
the Servicer hereunder;
WHEREAS, the Transferor, the Trustee and the Servicer desire that AutoBond
act as Collection Agent hereunder and AutoBond has agreed to so act; and
WHEREAS, the rights and benefits of the Transferor hereunder (but not the
obligations) have been assigned to the Trustee on behalf of the Trust.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other valuable consideration, the
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receipt and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.01. Defined Terms. As used herein, the following terms shall
have the following meanings:
"Administrator" means AutoBond (and any permitted successor to such
functions), in its capacity as Administrator under the Pooling and Trust
Agreement and as Collection Agent hereunder and under the Pooling and
Trust Agreement.
"Adverse Claim" means any 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 or purpose of creating
a lien or interest, other than the security interest created in favor of
the Trustee and the Certificateholders under the Pooling and Trust
Agreement.
"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 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.
"Agreement" means this Servicing Agreement, as amended or supplemented
from time to time in accordance with the terms hereof, including all
exhibits and schedules hereto.
"Assignment" means, collectively, with respect to any Receivable, the
related Sale Assignment and Transfer Assignment.
"AutoBond" means AutoBond Acceptance Co., a Texas corporation.
"AutoBond Program Manual" means the AutoBond Program Manual attached
hereto as Exhibit D, in effect as of the date hereof, as modified from
time to time.
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"Auto Loan" means a fixed-rate, closed-end consumer installment automobile
loan which finances the purchase of a new or used automobile, light-duty
truck or van, which loan is secured by a lien and security interest in
such financed vehicle in favor of the loan holder.
"Business Day" means any day other than a Saturday or a Sunday, or another
day on which (i) commercial banks in the City of New York, the City of
Minneapolis, Minnesota or in Texas (or in any other city or state in which
the principal place of business of the Servicer, the Trustee or AutoBond
is located as specified in writing by AutoBond to each of the parties
hereto) are required, or authorized by law, to close or (ii) the
Servicer's offices in the state of Texas are closed.
"Certificateholder" means any of the registered holders of the Class A
Certificates or the Class B Certificate issued pursuant to the Pooling and
Trust Agreement, and, in the place and stead of the holder of any Class B
Certificate, any pledgee of such Class B Certificates to the extent set
forth in Section 6.05 thereof.
"Closing Date" means March 29, 1996.
"Collection Account" means the segregated trust account in the name of the
Trustee, established and maintained pursuant to Section 7.02 of the
Pooling and Trust Agreement.
"Collection Agent" means AutoBond Acceptance Co., a Texas corporation, its
permitted successors and assigns, in its capacity as Collection Agent or
Administrator under the Pooling and Trust Agreement.
"Credit Endorsement" means the deficiency balance endorsement issued
pursuant to the VSI Policy.
"Cut-Off Date" means March 27, 1996, with respect to Receivables
transferred to the Trust on the Closing Date, and with respect to
subsequent Transfers, the last Business Day of the calendar month
preceding such Transfer Date.
"Dealer" means an automobile dealer who has entered into a Dealer
Agreement with AutoBond.
"Dealer Agreement" means each agreement between AutoBond and a Dealer,
which provides for, among other things, origination of the Receivables.
"Debt" means for any Person, (a) indebtedness of such Person for borrowed
money or credit extended, (b)
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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
generally accepted accounting principles, 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 and the regulations promulgated thereunder. 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 Collection Agent
or (c) a Receivable as to which the Collection Agent has determined (or,
so long as AutoBond is acting as Collection Agent, 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.
"Delinquency Ratio" means, as of any Determination Date, the percentage
equivalent of a fraction (a) the numerator
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of which equals the sum of (i) the aggregate Unpaid Principal Balance
amount of Auto Loans which have become Defaulted Auto Loans as of the end
of the most recently ended Due Period minus (ii) the sum of the aggregate
Unpaid Principal Balance of (A) all Auto Loans against which insurance
claims have been filed as of the end of the most recently ended Due Period
and (B) Auto Loans for which the related Financed Vehicles are subject to
repossession as of the end of the most recently ended Due Periods and
which are not included in (A), and (b) the denominator of which equals the
aggregate Unpaid Principal Balance of Auto Loans outstanding as of the end
of the most recently ended Due Period, minus the amount determined
pursuant to clause (ii) above.
"Determination Date" means the 10th day of each month (or the next
preceding Business Day, if such day is not a Business Day).
"Due Period" means (a) for the initial Due Period, (i) with respect to
amounts allocable to interest, the period from the Closing Date through
March 31, 1996 and (ii) with respect to amounts allocable to principal,
the period from the close of business on the Cut-off Date through March
31, 1996 and (b) thereafter, each calendar month.
"Electronic Ledger" means the electronic master record of the Receivables
maintained by the Servicer.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Administrator Termination" has the meaning specified in Section
3.07.
"Event of Servicing Termination" has the meaning specified in Section
2.12.
"Financed Vehicles" means new and used automobiles and light-duty trucks
and vans, the purchase of which the Obligors financed by the Auto Loans.
"Fitch" means Fitch Investors Service, L.P., its permitted successors and
assigns.
"Governmental Authority" means the United States of America, any state,
local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
thereof or pertaining thereto.
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"Independent Public Accountant" means any of (a) Arthur Andersen & Co.,
(b) Deloitte & Touche, (c) Coopers & Lybrand, (d) Ernst & Young, (e) KPMG
Peat Marwick and (f) Price Waterhouse (and any successors thereof);
provided, that such firm is independent with respect to the Transferor,
the Servicer, the Administrator, or any Subservicer, as the case may be,
within the meaning of the Securities Act of 1933, as amended.
"Insurance Policies" means the VSI Policy and the Credit Endorsement
issued thereunder by Interstate Fire & Casualty Company (the benefits of
which have been assigned to the Trust as security and naming the Trustee
on behalf of the Trust as additional named insured).
"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 or 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 AutoBond Credit and Collection Policies.
"Lockbox" means the segregated lockbox and account established in the name
of the Trustee on behalf of the Trust for the sole purpose of receiving
collections on the Receivables, pursuant to the Corporate Cash Management
Services Agreement, dated March 28, 1996, between Comerica Bank - Texas
and the Trustee.
"Monthly Administrator Fee" means, so long as AutoBond is acting as
Administrator under the Pooling and Trust Agreement and as Collection
Agent hereunder, the sum of (a) a fee, payable monthly, equal to the
product of (i) $7.00 and (ii) the total number of Auto Loans subject to
the Trust at any time during each such month and (b) Reimbursable
Administrator Expenses (as defined in the Pooling and Trust Agreement).
"Monthly Servicing Fee" shall mean, payable as of the Closing Date, the
Servicer Closing Fee, and thereafter as of any Payment Date, the sum of
(a) an initial booking fee equal to the product of (i) $10 and (ii) the
number
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of additional Auto Loans purchased by the Trust during the immediately
preceding Due Period and (b) a servicing fee, payable monthly, equal to
the product of (i) $8.00 and (ii) the total number of Auto Loans subject
to the Trust at any time during such month.
"Moody's" means Moody's Investors Service, Inc., its permitted successors
and assigns.
"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 and
Trust 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.
"Net Unrealized Amount" means, (a) with respect to any Auto Loan 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 Receivable, the Person primarily
obligated to make payments in respect thereto.
"Officer's Certificate" means, with respect to any Person, a certificate
signed by the chairman of the board, vice chairman of the board, the
president, a vice president, the treasurer, the secretary or the manager
or any other duly authorized officer of such Person acceptable to the
Transferor and the Trustee.
"Opinion of Counsel" means a written opinion of counsel (who may be
counsel to the Servicer, the Collection Agent or the Transferor) which
opinion is acceptable to the Trustee.
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"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 Trust.
"Origination Agreement" means the Amended and Restated Loan Origination,
Sale and Purchase Agreement, dated as of December 15, 1995, between
AutoBond and AutoBond Funding Corporation I.
"Payment Date" means, initially, April 15, 1996 and thereafter the 15th
day of each month, or the next succeeding Business Day if such day is not
a Business Day.
"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 and Trust Agreement" means the Pooling and Trust Agreement dated
as of March 28, 1996 among the Transferor, AutoBond and the Trustee, as
amended or supplemented from time to time in accordance with the terms
thereof.
"Post-Sale Adjustment" has the meaning specified in Section 3.08(c).
"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".
"Quarterly Payment Date" means, initially, April 15, 1996 and thereafter,
each third Payment Date, and including the Maturity Date.
"Quarterly Period" means the period beginning on the first day of the
month immediately following the end of a Quarterly Period to and including
the last day of the third month following such prior Quarterly Period
(except that the Quarterly Period immediately following the initial
Cut-Off Date shall be (i) with respect to amounts allocable to interest
the period of time from the Closing Date through March 31, 1996 and (ii)
with respect to amounts allocable to principal, the period of time from
the Cut-Off Date through March 31, 1996).
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"Rating Agency" means any nationally recognized statistical ratings
organization rating the Class A Certificates and/or the Class B
Certificates, at the request of the Transferor; as of the date hereof,
Fitch and Moody's with respect to the Class A Certificates and Fitch with
respect to the Class B Certificates.
"Rating Agency Condition" means, with respect to any proposed action, the
condition that the taking of such action shall not result in a withdrawal
or downgrade by any Rating Agency of the then-current rating on the Class
A Certificates.
"Receivable" means a fixed rate fully amortizing closed-end consumer
installment Auto Loan (upon which interest is calculated based upon either
a simple interest basis or the Rule of 78s) arising from the sale of a
Financed Vehicle and assigned to the Trust by the Transferor, and
includes, without limitation, (a) the related Assignment, (b) 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, the rights of AutoBond Funding Corporation I under the
Origination Agreement and Transferor's rights under the Sale Agreement,
(c) all guarantees, indemnities and warranties, proceeds of insurance
policies (including the Insurance Policies), certificates of title or
other title documentation and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Auto
Loan, (d) all collections and all related Loan Documents, Loan Files and
records with respect to the foregoing, and (e) all proceeds and benefits
of any of the foregoing.
"Records" means all documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, punch
cards, data processing software and related property and rights) prepared
and maintained by the Collection Agent, the Servicer or by or on behalf of
the Transferor with respect to Receivables and the related Obligors.
"Responsible Officer" means, with respect to any Person, any Vice
President, any Assistant Vice President, any Assistant Secretary, any
Assistant Treasurer or any other officer of such Person customarily
performing functions similar to those performed by any of the
above-designated officers and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
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"Sale Agreement" has the meaning specified in recitals to this Agreement.
"Sale Assignment" means the assignment substantially in the form attached
as Exhibit A to the Sale Agreement pursuant to which a Receivable was
purchased by the Transferor.
"Scheduled Payment" means a payment due on an Auto Loan in accordance with
its terms.
"Service Transfer" has the meaning specified in Section 2.12.
"Servicer" has the meaning specified in the first paragraph of this
Agreement.
"Servicer Closing Fee" means a one-time fee, payable on the Closing Date,
in the amount of $10,000.
"Servicer Duties" has the meaning specified in Section 2.04(a).
"Servicer Report" has the meaning specified in Section 2.17.
"Servicing Officer" means any officer or employee of the Servicer involved
in, or responsible for, the administration and servicing of Receivables
whose name appears on a list of servicing officers attached to Officer's
Certificates furnished to the Collection Agent, the Transferor and the
Trustee by the Servicer, as such list may be amended from time to time by
the party furnishing any such Officer's Certificate.
"Subservicer" means any Person with whom the Servicer enters into a
Subservicing Agreement.
"Subservicing Agreement" means any written contract between the Servicer
and any Subservicer, relating to the Servicer Duties, in such form as has
been approved by the Transferor, the Trustee and the Collection Agent
hereunder.
"Successor Servicer" has the meaning specified in Section 2.13(a).
"Transferor" means AutoBond Funding Corporation 1996-A, a Delaware
corporation.
"Transfer Assignment" means the certificate of assignment by the
Transferor to the Trustee substantially in the form of Exhibit B to the
Pooling and Trust Agreement.
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"Transfer Date" means the Closing Date, and each subsequent date on which
a transfer is made to the Trust under the Pooling and Trust Agreement.
"Trust" means the "AutoBond Receivables Trust 1996-A" created under the
Pooling and Trust Agreement.
"Trustee" has the meaning specified in the first paragraph of this
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 as of the end
of the most recent Due 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 certain amounts and ratios hereunder and under the Pooling and
Trust Agreement).
"VSI Policy" means the Vendor's Single Interest Insurance Policy
(including the Credit Endorsement), issued by Interstate Fire & Casualty
Company, insuring against risk of physical damage and other losses on the
Financed Vehicles, a copy of which is attached as an exhibit to the
Pooling and Trust Agreement.
SECTION 1.02. Rules of Interpretation. The following rules apply to this
Agreement:
(a) the singular includes the plural and the plural includes the
singular;
(b) "or" is not exclusive and "include" and "including" are not
limiting;
(c) a reference to any agreement or other contract includes
permitted supplements and amendments;
(d) 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;
(e) a reference to a person includes its permitted successors and
assigns;
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(f) a reference to an Article, a Section, an Exhibit or a Schedule
without further reference is to the relevant Article, Section, Exhibit or
Schedule of this Agreement;
(g) any right may be exercised at any time and from time to time;
(h) the headings of the Articles and the Sections are for
convenience and shall not affect the meaning of this Agreement;
(i) words such as "hereunder", "hereto", "hereof" and "herein" 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 Article, Section, subsection or clause hereof; and
(j) capitalized terms used but not defined herein shall have the
respective meanings assigned thereto in the Pooling and Trust Agreement.
ARTICLE II
SERVICING OF TRUST ASSETS
SECTION 2.01. Appointment of Servicer. The Trustee and the Transferor
hereby appoint the Servicer, and the Servicer accepts such appointment, to
perform its obligations pursuant to this Agreement on behalf of and for the
benefit of the Trust and the Certificateholders in accordance with the terms of
this Agreement, the respective Receivables, the VSI Policy and applicable law
and, to the extent consistent with such terms, in the same manner in which, and
with the same care, skill, prudence and diligence with which, it services and
administers Receivables of similar credit quality for other portfolios, if any,
giving due consideration to customary and usual standards of practice of prudent
institutional automobile loan servicers and, in each case, taking into account
its other obligations hereunder, but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
Affiliate of the Servicer or any Subservicer may have with the related
Obligor; or
(ii) the ownership, or servicing for others, by the Servicer or any
Subservicer, of any other automobile loans or property.
In the event that the Servicer believes that it is unable to comply with the
requirements of this Section 2.01 with respect
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to any particular Receivable as a result of one or more of the factors described
in clauses (i) and (ii) of this Section 2.01, it may enter into a Subservicing
Agreement pursuant to Section 2.02 pursuant to which a Subservicer shall perform
its duties with respect to any such Receivable. In such event, so long as such
Subservicer performs such duties on behalf of the Servicer in accordance with
the requirements of this Agreement, including this Section 2.01, then the
Servicer shall be deemed to be in compliance therewith. Notwithstanding the
above, the Servicer must obtain the written consent of the Collection Agent and
the Trustee, and must give written notice to each Rating Agency, prior to any
such Subservicing Agreement. In the event that the Trustee and Collection Agent
do not consent to such a Subservicing Agreement proposed by the Servicer, the
Collection Agent and the Trustee shall have the right to remove the Servicer as
the servicer with respect to such Receivable and to appoint a Successor Servicer
with respect to such Receivable pursuant to Section 2.13.
SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer.
(a) Upon the prior written consent of the Trustee and Collection Agent,
the Servicer may enter into Subservicing Agreements with a Subservicer for the
performance of all or a part of the Servicer Duties with respect to any
Receivable. References in this Agreement to actions taken or to be taken by the
Servicer in performance of the Servicer Duties include actions taken or to be
taken by a Subservicer on behalf of the Servicer. Each Subservicing Agreement
will be upon such terms and conditions as are not inconsistent with this
Agreement. The Servicer shall provide written notice to the Collection Agent,
each Rating Agency and the Trustee promptly upon the appointment of any
Subservicer. For purposes of this Agreement, the receipt by a Subservicer of any
amount with respect to a Receivable (other than amounts representing servicing
compensation) shall be treated as the receipt by the Servicer of such amount.
(b) Upon the prior written consent of the Transferor, the Trustee and
Collection Agent, the Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement.
(c) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer or a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain directly obligated and directly liable to the
Transferor and the Trustee for the servicing and
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administering of the Receivables in accordance with the provisions of this
Agreement without diminution of such obligation or liability (including its
indemnity obligations under Section 4.03) by virtue of such Subservicing
Agreements or arrangements or by virtue of indemnification from the Subservicer
or the Servicer and to the same extent and under the same terms and conditions
as if the Servicer alone were servicing and administering the Receivables. The
Servicer shall be entitled to enter into any agreement with a Subservicer for
indemnification of the Servicer and nothing contained in this Agreement shall be
deemed to limit or modify such indemnification.
(d) Any Subservicing Agreement that may be entered into pursuant to this
Agreement and any other transaction or services relating to the Receivables
involving a Subservicer in its capacity as such that is consented to by the
Transferor and the Collection Agent shall be deemed to be between the
Subservicer and the Servicer alone and the Transferor, the Collection Agent and
the Trustee shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the Subservicer.
(e) If the Servicer shall for any reason no longer be the Servicer
hereunder (including by reason of any Event of Servicing Termination), the
Servicer, upon prior written consent of the Trustee, Transferor and the
Collection Agent, shall thereupon terminate each Subservicing Agreement that may
have been entered into, and neither the Transferor, the Collection Agent, the
Trustee nor the Successor Servicer shall be deemed to have assumed any liability
or obligation thereunder, the Servicer's interest therein or to have replaced
the Servicer as a party to any such Subservicing Agreement.
SECTION 2.03. Representations and Warranties of the Servicer. The Servicer
represents and warrants to the Transferor, the Collection Agent, the Trustee and
the Certificateholders, as follows, as of the date hereof (which representations
and warranties shall be deemed repeated on each Transfer Date and on each date
on which a Servicer Report is due to be delivered hereunder as though made on
and as of such date):
(i) It is a limited liability partnership duly organized, validly
existing and in good standing under the laws of the State of Texas and 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; it or a Subservicer is or will be in compliance with the laws
of each state to the extent necessary to perform its obligations under
this Agreement; and it or a Subservicer has obtained all
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necessary licenses with respect to it or such Subservicer required by law
to enable it to perform its duties herein;
(ii) It has the power and authority to execute, deliver and perform
this Agreement and the transactions contemplated hereby;
(iii) The execution and delivery by it and the performance by it or
a Subservicer of this Agreement, and the execution and delivery by it and
the performance by it or a Subservicer of all other agreements,
instruments and documents which may be delivered by it pursuant hereto,
and the transactions contemplated hereby, (i) have been duly authorized by
all necessary partnership or other action, on the part of it, (ii) do not
contravene or cause it to be in default under (A) its organizational
documents, (B) any contractual restriction with respect to any Debt of it
or contained in any indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note, or other material agreement or instrument
binding it or its property or (C) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to or binding it or its
property, and (iii) do not result in or require the creation of any
Adverse Claim upon or with respect to any of its properties;
(iv) This Agreement has been duly executed and delivered on behalf
of it;
(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 it (either directly or through
a Subservicer) of this Agreement or any other agreement, document or
instrument to be delivered by it hereunder;
(vi) This Agreement is its legal, valid and binding obligation
enforceable against it in accordance with its terms;
(vii) There is no pending or threatened action, suit or proceeding,
nor any injunction, writ, restraining order or other order of a material
nature against or affecting it, its officers or directors, or its
property, in any court or tribunal, or before any arbitrator of any kind
or before or by any Governmental Authority (i) asserting the invalidity of
this Agreement or any document to be delivered by it hereunder or (ii)
seeking any determination or ruling that would reasonably be expected to
materially and adversely affect (A) the
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performance by it of its obligations under this Agreement, or (B) the
validity or enforceability of this Agreement or any document to be
delivered by it hereunder or (iii) which is inconsistent with the due
consummation by it of the transactions contemplated by this Agreement;
(viii) Its facilities, plant, personnel, records and products are
adequate for the performance of its duties hereunder;
(ix) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which would reasonably be
expected to have consequences that would materially and adversely affect
the condition (financial or otherwise) or operations of the Servicer or
its properties or would reasonably be expected to have consequences that
would materially and adversely affect its performance hereunder;
(x) No certificate of an officer, statement furnished in writing,
report or electronic medium delivered pursuant to the terms hereof by the
Servicer contains any untrue statement of a material fact or omits to
state any material fact to make the certificate, statement or report not
misleading;
(xi) The transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer; and
(xii) The Financed Vehicle securing each Receivable shall not be
released by the Servicer or a Subservicer in whole or in part from the
security interest granted by the Obligor, except as contemplated herein.
It is understood and agreed that the representations and warranties set forth in
this Section 2.03 shall survive the execution of this Agreement. Upon discovery
by either Transferor, Collection Agent, the Trustee or the Servicer of a breach
of any of the foregoing representations and warranties, the party discovering
such breach shall give proper written notice to the other parties hereto;
provided, that the Trustee shall have no duty or responsibility to inquire,
investigate, determine or obtain actual knowledge of facts or events
constituting a breach of any such representations or warranties.
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SECTION 2.04. Duties and Responsibilities of the Servicer.
(a) The Servicer shall manage, administer, monitor and service the
Receivables, including providing data management, payment processing and
customer service; provided that, prior to a resignation or termination of the
Collection Agent pursuant to Section 3.06 or 3.07, the Servicer will not act as
Collection Agent. In performing its duties hereunder, the Servicer shall have
full power and authority to do or cause to be done any and all things in
connection with such servicing and administration which it may deem necessary or
desirable, within the terms of this Agreement (the "Servicer Duties"). Prior to
a resignation or termination of the Collection Agent pursuant to Section 3.06 or
3.07, the Servicer will provide the following services (together with other
activities not inconsistent with the description below and implicitly necessary
to accomplish the usual and customary activities, other than collections, of an
automobile loan servicer):
(i) Boarding Functions:
(1) Review for receipt of copies of Loan Files;
(2) Input of new Receivable information into
loan accounting system; and
(3) Preparation and mailing of welcome letters.
(ii) File Maintenance/Document Control Functions:
(1) Retention of copies of the Loan Files;
(2) Tracking of customer collision insurance on
Financed Vehicles and reporting to
Collection Agent exposed Financed Vehicles;
and
(3) Determination of Receivables being satisfied
in full.
(iii) Customer Service Functions:
(1) Preparation and transmittal of monthly
billing statements to Obligors;
(2) Response to Obligor inquiries;
(3) Research regarding billing statements and
Obligor inquiries;
(4) Maintenance of Obligor information; and
(5) Preparation and mailing of delinquency
notices.
(iv) Payment Processing Functions:
(1) Coordination of lockbox procedures;
(2) Recording of loan payment information; and
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(3) Referral to Collection Agent of instances of
non-sufficient funds.
(v) Reporting Functions:
(1) Preparation and delivery of Servicer's
Report.
(vi) Data Processing Functions:
(1) Entry of data;
(2) Operation of data center;
(3) Operation of telecommunications; and
(4) Operation and maintenance of collection
system.
Notwithstanding the foregoing, to the extent that any of the duties set
forth above are assigned to the Collection Agent pursuant to Article III hereof,
the Servicer shall have no liability for such duty so long as the Collection
Agent continues to act in such capacity hereunder. Upon a resignation or
termination of the Collection Agent pursuant to Section 3.06 or 3.07, all such
duties shall revert to the Servicer.
(b) The Servicer may not sue to enforce or collect upon a Receivable in
its own name, or as agent for the Trust without the prior written consent of the
Trustee.
(c) In accordance with the standard of care in Section 2.01 the Servicer
may agree to grant to the Obligor on any Receivable any rebate, refund or
adjustment that the Servicer in good faith believes is required under the
Receivable or applicable law in connection with a prepayment in full of the
Receivable, and, pursuant to written instructions from the Collection Agent and
the Servicer, the Trustee shall remit the amount of any such rebate, refund or
adjustment to the applicable Obligors from the Collection Account. The Servicer
may not permit any rescission or cancellation of any Receivable nor may it take
any action with respect to any Receivable or Sale Assignment which would
invalidate the coverage afforded by the VSI Policy to such Receivable or the
related Financed Vehicle, or would impair the rights of the Trustee therein or
in the proceeds thereof. The Collection Agent shall not consent to any amendment
to the VSI Policy, which amendment would affect the duties and obligations of
the Servicer hereunder, without the prior consent of the Servicer (which shall
not be unreasonably withheld).
(d) The Collection Agent (and in the case of item (i) only, the Servicer)
shall not advise the Trustee that the Financed Vehicle securing a Receivable
should be released by
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the Trustee from the security interest granted in connection with such
Receivable in whole or in part, except:
(i) when such Receivable has been paid in full;
(ii) immediately upon any exchange or substitution of such Financed
Vehicle by the Dealer or manufacturer thereof in settlement of claims as
to defects, breach of warranties, insurance and similar matters, with a
Financed Vehicle of equal or greater collateral value as of the date of
such exchange in the reasonable judgment of the Servicer (subject to all
the terms hereof including the recordation of the lien thereon and the
requirements of the Insurance Policies); or
(iii) in connection with a repossession of a Financed Vehicle; or
(iv) when all Insurance Proceeds with respect to such Financed
Vehicle have been received by the Trustee on behalf of the Trust.
The Servicer shall not extend or otherwise amend the terms of any Receivable,
except in accordance herewith.
(e) The Servicer shall hold in trust for the benefit of the Trust and
shall forward to the Collection Account, the Trustee or the Lockbox, as
applicable, no later than the next Business Day following receipt thereof any
payment or deposit with respect to any Receivable received by the Servicer. The
Servicer shall not assert any right of setoff or any lien with respect to such
payment or deposit.
(f) The Servicer agrees to monitor and track each Financed Vehicle for
maintenance of required physical damage insurance in the manner required by the
VSI Policy and to notify the Collection Agent and the Trustee, as soon as
practicable but not later than 30 days after becoming initially aware, of
circumstances that would lead a reasonable person to believe that the insurance
on any Financed Vehicle is not being or will not be maintained in accordance
with applicable law and the terms of the applicable retail installment sales
contract.
(g) Except as expressly provided herein, the Servicer shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Receivable (or any right to income in
respect thereof), or any account in which any payments with respect to any
Receivable are deposited, or assign any right to receive income in respect of
any Receivable.
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(h) The Servicer, the Transferor and the Collection Agent shall each
instruct each Obligor by written notice that all payments on Receivables shall
be mailed to the Lockbox, and, so long as AutoBond is serving as the Collection
Agent hereunder, that such payments shall be made payable to the order of
"AutoBond Acceptance Co.", in its capacity as Collection Agent.
(i) To the extent any duty or obligation of the Servicer set forth herein
is assigned to the Collection Agent pursuant to Article III hereof, the Servicer
shall have no liability for such duty or obligation so long as the Collection
Agent continues to act in such capacity hereunder. Upon a resignation or
termination of the Collection Agent pursuant to Section 3.06 or 3.07, all such
duties shall revert to the Trustee.
SECTION 2.05. Fidelity Bond, Errors and Omissions Insurance; Contingent
Disaster Relief Protection.
(a) The Servicer shall maintain, at its own expense, a blanket fidelity
bond and an errors and omissions insurance policy, with broad coverage with
responsible companies on all officers, employees or other Persons acting on
behalf of the Servicer in any capacity with regard to the Receivables to handle
funds, money, documents and papers relating to the Receivables. Any such
fidelity bond and errors and omissions insurance shall protect and insure the
Servicer against losses, including forgery, theft, embezzlement, fraud, errors
and omissions and negligent acts of such Persons and shall be maintained in a
form that would meet the requirements of prudent institutional auto loan
servicers and, in the case of the fidelity coverage in the amount of $100,000
and in the amount of $1,000,000 in the case of Errors and Omissions Coverage. No
provision of this Section 2.05(a) requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The Servicer shall be deemed to have
complied with this provision with respect to itself if one of its respective
Affiliates has such fidelity bond and errors and omissions policy coverage and,
by the terms of such fidelity bond and errors and omissions policy, the coverage
afforded thereunder extends to the Servicer. The Servicer shall cause each and
every Subservicer for it to maintain a policy of insurance covering errors and
omissions and a fidelity bond which would meet such requirements. Upon request
of the Transferor or the Trustee, the Servicer shall cause to be delivered to
the Trustee a certification evidencing coverage under such fidelity bond and
insurance policy. The Trustee shall have no obligation to request any such
certification or upon receipt of any such certification or of any notice
provided for in this Section 2.05(a), to approve, consent to, or determine its
compliance
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with, the requirements of this Section 2.05(a). Upon receipt of any such
certification or notice, the Trustee's sole responsibility shall be to deliver
copies thereof to the Certificateholders. Any such fidelity bond or insurance
policy shall (i) not be cancelled without the Servicer giving prior written
notice to the Collection Agent and the Trustee (who shall promptly forward a
copy of such notice to each Rating Agency) immediately following the giving or
receipt of such notice as is required or allowed under the terms of such
fidelity bond or insurance policy, as the case may be and (ii) not be modified
in a materially adverse manner without ten days' prior written notice by the
Servicer to the Transferor, the Collection Agent and the Trustee (who shall
promptly forward a copy of such notice to each Rating Agency).
(b) The Servicer currently maintains, at its own expense, a computer
disaster recovery plan and computer disaster recovery procedures in forms
consistent with industry standards of prudent institutional receivables
servicers and shall continue to maintain, at its own expense, such a plan and
such procedures as are consistent with such standards and shall not modify amend
or revoke such procedures without giving prior written notice thereof to each
Rating Agency and the Trustee. No provision of this Section 2.05(b) requiring
such a plan and such procedures shall diminish or relieve the Servicer from its
duties and obligations as set forth in this Agreement. The Servicer shall be
deemed to have complied with this provision if one of its respective Affiliates
has such a plan and such procedures which also affords protection to the
Servicer. Upon request of the Transferor, the Collection Agent or the Trustee,
the Servicer shall cause to be delivered to the Transferor, the Collection Agent
or the Trustee, as the case may be, a certification as to the existence of such
a plan and such procedures. The Trustee shall have no obligation upon receipt of
any such certification or of any notice provided for in this Section 2.05(b), to
approve, consent to, or determine its compliance with, the requirements of this
Section 2.05(b).
SECTION 2.06. Inspection.
(a) At all times during the term hereof, the Servicer shall afford the
Transferor, the Collection Agent, the Trustee, the Rating Agencies, and, so long
as it is a Certificateholder, each Class A Certificateholder owning a Class A
Certificate evidencing at least 25% of the unpaid principal amount of the Class
A Certificates, and, so long as it is a pledgee of the Class B Certificates,
such Class B pledgee, together with each of their authorized agents (including
auditors), upon reasonable notice, reasonable access (subject to the security
rules and regulations of the Servicer) during normal business hours to its
records relating to the Receivables and will cause its personnel to assist in
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any examination of such records by any of such Persons; provided, that the
foregoing shall not require any of such Persons to conduct any inspection. The
examination referred to in this Section 2.06(a) will be conducted in a manner
which does not unreasonably interfere with the Servicer's normal operations or
customer or employee relations or require the Servicer to disclose or expose
confidential information related to its services hereunder or to its other
clients. Without otherwise limiting the scope of the examination, the
Transferor, the Collection Agent, the Trustee and the Rating Agencies may, using
generally accepted auditing standards, verify the status of each Receivable and
review the copies of the Loan Files, Electronic Ledger and records relating
thereto for conformity to reports prepared pursuant to Section 2.17 and
compliance with the standards represented or required to exist as to each
Receivable in this Agreement. Nothing in this section shall affect the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the obligors, and failure of the Servicer to provide
access to information a result of such obligation shall not constitute a breach
of this Section 2.06.
(b) All information obtained by the Transferor, the Collection Agent and
the Trustee or their respective agents regarding the Obligors and the
Receivables, whether upon exercise of their respective rights under this Section
2.06 or otherwise, shall be maintained by the Transferor, the Collection Agent
and the Trustee and their respective agents in confidence and shall not be
disclosed to any other Person other than the Certificateholders, except as
otherwise required by applicable law or regulation.
SECTION 2.07. Possession and Payment of Receivables. The Servicer shall
determine when a Receivable has been paid in full. The Servicer shall notify the
Trustee and the Collection Agent in writing within five (5) Business Days as to
each Receivable in connection with which such a determination has been made. If
the Servicer requires possession of any Loan File or any documents related
thereto in order to perform its duties or obligations hereunder, prior to taking
possession of any such Receivable or documents, the Servicer shall deliver to
the Trustee a trust receipt substantially in the form attached hereto as Exhibit
A. The Servicer agrees to promptly return any such Receivable and documents,
possession of which the Servicer takes in accordance with this Section 2.07,
after its need for possession thereof ceases.
SECTION 2.08. Monthly Servicing Fee; Servicing Expenses.
(a) On each Payment Date the Servicer shall be entitled to receive by wire
transfer of immediately available funds to an account designated in writing by
the Servicer to the
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Trustee from the funds on deposit in the Collection Account an amount equal to
the Monthly Servicing Fee as of such Payment Date. The Servicer acknowledges and
agrees that, so long as no Amortization Event under the Pooling and Trust
Agreement has occurred and is continuing, its right to receive on any Payment
Date the Monthly Servicing Fee is subordinate to the right of payment on such
day of any or all of the following amounts that are payable on such date
pursuant to Section 7.04(a) of the Pooling and Trust Agreement:
(i) the payment or allocation to the Class A Certificateholders of
the Class A Interest due on such Payment Date.
(b) (i) The Servicer shall be required to pay for all expenses incurred by
it in connection with its activities hereunder (including any payments to
accountants, counsel, Subservicers, or any other Person) out of the compensation
retained by or paid to it pursuant to Section 2.08(a) above, and shall not be
entitled to any extra payment or reimbursement therefor; provided, however, that
the Servicer shall be entitled to reimbursement by wire transfer of immediately
available funds to an account designated in writing by the Servicer to the
Trustee for the amount of any other expenses incurred with the prior written
consent of the Collection Agent and the Trustee. No later than ten Business Days
prior to each Payment Date, the Servicer shall provide the Transferor and the
Collection Agent with a list of items eligible for reimbursement pursuant to the
immediately preceding sentence, which items may include, with respect to the
Servicer, expenses for special forms and materials, freight, tapes,
communications, lock-box charges and other expenses approved by Transferor for
the benefit of the Trust, in such reasonable detail as the Transferor and the
Collection Agent may request, together with its certification by a Servicing
Officer that all such items are eligible for reimbursement hereunder.
(ii) During such time as the Servicer is performing the duties of the
Collection Agent under this Servicing Agreement, the Servicer shall be
reimbursed by the Trust for the following out of pocket costs and expenses
incurred in connection with the performance of such duties as Collection Agent
hereunder including:
(A) any reasonable compensation paid to outside legal counsel
retained at Transferor's direction to protect the interests of Transferor
and the Trust;
(B) any reasonable compensation paid to professional accountants
retained at Transferor's
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direction to review the assets administered under this Servicing
Agreement;
(C) any insurance, title, title transfer or other such fees arising
from or related to any Receivables administered under the Servicing
Agreement; and
(D) expenses for special forms and materials, freight, tapes,
communications, lock-box charges and other expenses approved by Transferor
for the benefit of the Trust.
Any reimbursement to the Servicer for fees or costs pursuant to this Section
2.08(b) shall be limited to the extent of the funds available for reimbursement
of Servicer and Administrator fees and expenses under the Pooling and Trust
Agreement.
(c) The Servicer acknowledges and agrees that if an Amortization Event
under the Pooling and Trust Agreement shall have occurred and be continuing, the
Servicer's right to receive any fees, costs and expenses owing to the Servicer
under this Agreement shall be subordinate to the right of payment of the
following amounts:
(i) the payment or allocation to the Class A Certificateholders of
the Class A Interest due on such Payment Date; and
(ii) all fees, costs and expenses owing to the Trustee.
(d) Each of Transferor, the Collection Agent and the Trustee covenants and
agrees that upon a Responsible Officer obtaining actual knowledge of the
occurrence of an Amortization Event under the Pooling and Trust Agreement, it
shall promptly give notice thereof to the Servicer; provided, that the Trustee
shall have no duty to inquire or to investigate the occurrence of such
Amortization Event.
(e) Each of the Transferor, the Collection Agent and the Trustee agrees
that, without the written consent of the Servicer, it will not amend the Pooling
and Trust Agreement (i) to change the source of the payment of the Monthly
Servicing Fee and to the extent the Servicer has assumed the Collection Agent's
duties, rights and obligations hereunder, the Monthly Administrator Fee, (ii) if
such amendment would further subordinate the payment to the Servicer of the
Monthly Servicing Fee, to change the priority of payment of the Monthly
Servicing Fee, or (iii) to materially change the rights, duties and obligations
under this Agreement of the Servicer, whether as Servicer hereunder or as
Collection
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Agent, to the extent the Servicer has assumed the rights, duties and obligations
of the Collection Agent hereunder.
SECTION 2.09. Collection Agent To Maintain Computer Link. Without
limitation of its obligations in respect of the other provisions of this
Agreement, and in addition to the duties of the Servicer, the Collection Agent
has supported and will continue to support non-dedicated dial-up capability with
the Servicer. Notwithstanding any provision of the Agreement to the contrary,
the Collection Agent shall have no duty or obligation with respect to the
information provided via the computer link described in the preceding sentence.
SECTION 2.10. Resignation or Termination of Servicer.
(a) The Servicer may resign from the obligations and duties hereby imposed
on it upon its determination that (a) the performance of its duties hereunder
has become impermissible under applicable law and (b) there is no reasonable
action which the Servicer could take to make the performance of its duties
hereunder permissible under applicable law. Any such determination permitting
the resignation of the Servicer shall be evidenced as to clause (a) above by an
Opinion of Counsel to such effect delivered to the Transferor, the Collection
Agent and the Trustee before any such resignation and as to clause (b) by an
Officer's Certificate to such effect delivered to the Transferor, the Collection
Agent and the Trustee before any such resignation. The action referred to in the
first clause (b) of this Section 2.10(a) will not be considered reasonable if it
requires the payment of extraordinary fees or costs for which the Servicer is
not eligible for reimbursement under Section 2.08. Promptly upon any such
resignation, the Trustee shall notify each Rating Agency.
(b) The Collection Agent or the Trustee may, upon 30 days' prior written
notice to the Servicer, terminate the Servicer as Servicer hereunder and as
Collection Agent, if the Servicer is then Collection Agent hereunder, without
cause; provided, that such termination shall not be effective unless (i) a
Successor Servicer shall have been appointed pursuant to Section 2.13 or (ii)
the Trustee has agreed to become Successor Servicer in accordance with Section
2.13, and (iii) Servicer shall have received the $25,000 termination fee payable
pursuant to Section 2.13(c).
(c) The Servicer may resign as Servicer hereunder, effective upon 180
days' notice to the Transferor, the Trustee and the Collection Agent; provided,
however that such resignation may be effective earlier if a Successor Servicer
is appointed in accordance with Section 2.13 prior to the expiration of such 180
day period; and provided, further, in the event no successor is appointed on or
before the
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expiration of such 180-day period, then the Trustee shall assume the duties of
the Servicer as Successor Servicer hereunder.
SECTION 2.11. Change in Business of the Servicer. The Transferor,
Collection Agent and Trustee entered into this Agreement with the Servicer in
reliance upon its ability to perform the servicing duties, if necessary, without
any delegation thereof; the adequacy of its plant, personnel, records and
procedures; its integrity, reputation and financial standing and the continuance
of each of the foregoing.
SECTION 2.12. Events of Servicing Termination. If any of the following
events (each, an "Event of Servicing Termination") shall occur and be
continuing:
(a) Any failure by the Servicer to forward to the Trustee, the
Collection Account or the Lockbox, as applicable, any payment or partial
payment or deposit identified with respect to any Receivable received by
the Servicer and the continuance of such failure for a period of two
Business Days after the date upon which such payment or deposit is
received by the Servicer; or
(b) Failure on the part of the Servicer to observe or perform any
term, covenant or agreement in this Agreement, including the Servicer
Duties (other than the agreement to deliver the Servicer Report pursuant
to Section 2.17), which failure continues unremedied for 10 Business Days
after discovery by the Servicer or the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to
the Servicer by the Transferor, the Collection Agent or by the Trustee; or
(c) Any proceeding shall be instituted against the Servicer (or, if
the Servicer is actively contesting the merits thereof, such proceeding is
not dismissed within 60 days) 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 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
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(d) The commencement by the Servicer of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Servicer in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Servicer or of any substantial
part of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its Debts generally as they become due, or the taking of corporate action
by the Servicer in furtherance of any such action; or
(e) The Servicer shall fail to deliver a report at the time, in the
form and containing the information expressly required by this Agreement,
and the continuance of such failure for a period of 5 Business Days after
the date upon which written notice of such failure shall have been given
to the Servicer by the Transferor, the Collection Agent or by the Trustee;
or
(f) There is a breach of any of the representations and warranties
of the Servicer set forth in Section 2.03 which breach shall be in the
opinion of the Collection Agent or the Trustee reasonably expected to have
a material adverse effect on the Transferor or the Trust at the time when
the notice referred to in this clause (f) shall be given to the Servicer
and such breach shall not have been cured within 10 Business Days or such
longer period as may be agreed to by the Collection Agent and the Trustee
after receipt of written notice thereof by the Servicer, or
(g) Any Rating Agency determines that having the Servicer act as
servicer hereunder will prevent such Rating Agency from issuing or
maintaining ratings of at least "A3" by Moody's and at least "A" from
Fitch on the Class A Certificates and at least "PDR-3" from Fitch on the
Class B Certificates or will result in a review with negative
implications, suspension, downgrade, withdrawal or other impairment of any
such ratings;
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then, and in any such event, either the Collection Agent or the Trustee may, by
delivery to the Servicer (and to the Trustee or the Collection Agent, as
applicable) of a written notice specifying the occurrence of any of the
foregoing events, terminate the servicing and custodial responsibilities of the
Servicer hereunder, without demand, protest or further notice of any kind, all
of which are hereby waived by the Servicer (such termination and any termination
of the Servicer pursuant to Section 2.10 hereby called a "Service Transfer");
provided, that in the event any of the events described in subsections (c) or
(d) of this Section 2.12 shall have occurred, termination of the duties and
responsibilities of the Servicer shall automatically occur, without, demand,
protest, or further notice of any kind, all of which are expressly waived by the
Servicer. Notwithstanding the above, and subject to the right of the Collection
Agent and the Trustee to terminate the Servicer pursuant to Section 2.10(b), if
the Transferor, the Collection Agent or the Trustee notifies the Servicer, prior
to the occurrence of an Event of Servicer Termination, under Section 2.12(g),
that circumstances exist that would with the passage of time result in the
occurrence of an Event of Servicing Termination described in Section 2.12(g),
each party hereto will negotiate in good faith with the other parties hereto to
prevent the occurrence of such an Event of Servicing Termination; provided,
however, that such Event of Servicing Termination shall nevertheless occur upon
expiration of 30 days following the date of such notice unless the existing
circumstances leading to such Event of Servicing Termination have been cured to
the satisfaction of all parties hereto.
SECTION 2.13. Appointment of the Successor Servicer.
(a) Upon the effectiveness of termination of the Servicer's
responsibilities under this Agreement pursuant to Section 2.10 or Section 2.12,
the Trustee shall immediately succeed to the duties of the Servicer (including
the duties of Collection Agent if at the time of termination the Servicer is
also the Collection Agent) as a successor Servicer (the "Successor Servicer"),
unless and until another Successor Servicer has been appointed by the Collection
Agent (which may be the Trustee or the Collection Agent). The Collection Agent
shall give the Trustee and the Rating Agencies not less than 30 days' prior
written notice of its intent to appoint a Successor Servicer pursuant to this
Section 2.13(a). Such appointment shall become effective following the
expiration of such 30-day period (or such shorter period agreed to by the
Collection Agent, the Trustee and the Rating Agencies) on a date to be specified
by the Collection Agent; provided, that, on or before such effective date, the
Trustee and the Collection Agent shall have received written confirmation from
each Rating Agency that the Rating Agency Condition has been satisfied and the
Trustee shall have consented in writing to
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the appointment of such party as Successor Servicer. Such Successor Servicer
shall succeed to all rights and assume all of the responsibilities, duties and
liabilities of the Servicer under this Agreement; provided, that such Successor
Servicer shall have no responsibility for any actions of the Servicer prior to
the date of the appointment of such Successor Servicer as Servicer. Such
Successor Servicer shall be authorized and empowered to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do any and all acts or things necessary or
appropriate to effect the purposes of such notice of termination and to perform
the duties of the Servicer hereunder (including its duties as Successor Servicer
hereunder but excluding its duty to indemnify pursuant to Sections 4.03(a) and
(b)). The standard of care, representations and warranties, covenants,
liabilities, rights of indemnification, and all other rights and obligations of
the Trustee under this Agreement and the Pooling and Trust Agreement shall also
be applicable to the Trustee in its capacity as successor servicer hereunder.
The Trustee shall have the right to appoint as its agent a third party to
perform the duties and obligations of the Trustee as successor servicer
hereunder. The appointment of any such person shall require the prior written
approval of the Collection Agent, which will not be unreasonably withheld and
shall not become effective until prior written notice has been delivered to each
Rating Agency. The Trustee shall not be responsible for compensating the
Transferor for any increase in the Monthly Servicing Fee associated with a
Successor Servicer.
(b) Any Successor Servicer appointed by the Collection Agent hereunder
shall be entitled to reasonable compensation (including the estimated
termination costs of such servicing and a reasonable profit) which shall be
determined by the Collection Agent; provided, however, that the Trustee, when
acting as successor servicer hereunder, shall receive compensation that is no
less than was being received by the Servicer at the time of its termination. Any
Successor Servicer appointed by a court of competent jurisdiction or any agent
of the Trustee as Successor Servicer upon becoming the Successor Servicer
pursuant to Section 2.13 (a), shall be entitled to compensation (including the
estimated costs of servicing and a reasonable profit) equal to the prevailing
market rate for such services, which compensation, however, shall not be greater
than the compensation currently received by the Servicer hereunder as the
Monthly Servicing Fee. Any excess payable to the Successor Servicer over and
above such current servicer compensation will be paid by the Collection Agent.
(c) The outgoing Servicer, the Collection Agent, the Trustee and the
Successor Servicer shall take such action, consistent with this Agreement and
the Pooling and Trust
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Agreement, that shall be reasonably necessary to effectuate any such succession,
including, without limitation, (i) the express assumption by such Successor
Servicer of the duties and obligations of the outgoing Servicer hereunder
(except as to the Trustee as the Successor Servicer, the Servicer's
indemnification obligation under Section 4.03(a) and (b) shall not apply), (ii)
notifying Obligors in writing of the existence of the Successor Servicer, and
(iii) providing such Successor Servicer with all Records maintained or held by
the outgoing servicer as Servicer hereunder, including all paper files and all
electronic files, at no charge. In the event the Servicer is terminated without
cause pursuant to Section 2.10(b), it shall be entitled to receive an additional
one-time termination fee in the amount of $25,000, but no other additional or
extra compensation beyond that which would be otherwise due to it under this
Agreement to and including the date on which the Servicer is so terminated. Such
Termination Fee shall be payable from the Collection Agent's own funds and such
termination of the Servicer shall not be effective unless and until such
termination fee is paid in full to the Servicer.
(d) Upon appointment, any Successor Servicer shall be successor in all
respects to the outgoing Servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all responsibilities,
duties and liabilities relating thereto placed upon the Servicer by the terms
and provisions hereof (subject to the same limitations as are contained in this
Section 2.13 with respect to a succession to the outgoing Servicer by the
Trustee).
SECTION 2.14. Effect of Service Transfer.
(a) Prior to any Service Transfer, the outgoing Servicer shall notify (or,
to the extent that the Servicer provided such notice pursuant to Section
2.13(c), confirm the notice to) Obligors of the existence of the Successor
Servicer. The Servicer shall be entitled to receive from the Collection Agent,
as extra compensation for such Services, a fee equal to $.60 for each such
notice given.
(b) After any Service Transfer, the outgoing Servicer shall have no
further obligations with respect to the management, servicing, custody or
monitoring of the collection of the Receivables and the Successor Servicer shall
have all of such obligations.
(c) A Service Transfer shall not affect the rights and duties of the
parties hereunder (including, but not limited to, the obligations and
indemnities of the outgoing Servicer pursuant to Article IV) other than those
relating to the management, servicing, custody or monitoring of the collection
of the Receivables by the Successor Servicer.
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SECTION 2.15. Annual Reports; Statements as to Compliance.
(a) On or before ninety (90) days after the end of each fiscal year
of the Servicer, the Servicer shall deliver to the Transferor and the Trustee
(who shall promptly forward a copy to each Certificateholder and each Rating
Agency), a copy of the financial statements of Computer Sciences Corporation and
Mitchell Sweet & Associates, Inc. (or the Successor Servicer) containing a
report of a firm of Independent Public Accountants to the effect that such firm
has examined certain books and records of Computer Sciences Corporation and
Mitchell Sweet & Associates, Inc. (or the Successor Servicer) and that, on the
basis of such examination conducted substantially in compliance with generally
accepted audit standards such financial statements accurately reflect the
financial condition of Computer Sciences Corporation and Mitchell Sweet &
Associates, Inc. (or the Successor Servicer).
(b) The Servicer shall deliver to the Collection Agent and the Trustee
(who shall promptly forward a copy to each Certificateholder and each Rating
Agency) by the fifth Business Day of each month an Officer's Certificate
stating, as to each signer thereof, that (a) a review of the activities of the
Servicer (and each Subservicer) during the preceding calendar month 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, each of
the Servicer and any Subservicer has fulfilled all its respective obligations
under this Agreement throughout such month, or, if there has been an Event of
Servicing Termination or if an event has occurred that with notice or lapse of
time or both would become an Event of Servicing Termination, specifying each
such Event of Servicing Termination or event known to such officer and nature
and status thereof, and remedies therefor being pursued. Notwithstanding the
obligation to deliver such certificates, the Servicer shall promptly (but in any
event within five Business Days) notify the Transferor, the Rating Agencies, the
Collection Agent and the Trustee upon receiving actual knowledge of any event
which constitutes an Event of Servicing Termination or would constitute an Event
of Servicing Termination but for the requirement that notice be given or time
elapse or both.
SECTION 2.16. Annual Independent Public Accountants' Servicing Report. On
or before ninety (90) days after the end of its fiscal year, the Servicer shall
cause a firm of Independent Public Accountants to furnish a statement to the
Trustee (who shall promptly forward a copy to the Collection Agent, the
Certificateholders and each Rating Agency), to the effect that such firm has
examined certain documents and records relating to the servicing of the
Receivables and the reporting requirements with respect thereto (including the
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activities of the Collection Agent) and that, on the basis of such examination,
such servicing and reporting requirements have been conducted in compliance with
this Agreement (and, in the case of the Collection Agent, the Pooling and Trust
Agreement), except for (i) such exceptions as such firm shall believe to be
immaterial, and (ii) such other exceptions as shall be set forth in such
statement. The cost to Servicer of such accountant's statements shall be limited
to 2% of the revenue payable to the Servicer under this Agreement for the fiscal
year in question, and any excess shall be paid by the Collection Agent.
SECTION 2.17. Servicer Reports.
(a) The Servicer shall furnish by close of business on each Determination
Date (or the next succeeding Business Day if such day is not a Business Day), to
the Collection Agent and the Trustee (who shall promptly forward a copy to each
Certificateholder and each of the Rating Agencies), an Officer's Certificate,
substantially in the form attached hereto as Exhibit B (the "Servicer Report"),
which Servicer Report shall contain all information necessary for the Trustee to
make the distributions from, and transfers among, the accounts required by the
Pooling and Trust Agreement or in such other form as is mutually acceptable to
the Servicer, the Collection Agent and the Trustee. In addition, the Servicer
and/or the Collection Agent shall provide the Trustee with such additional
written information and certifications as the Trustee may request in order for
the Trustee to make the distributions from, and transfers among, the various
accounts required by this Agreement and the Pooling and Trust Agreement on a
daily, or other, basis. Each of the parties hereto shall provide to the Rating
Agencies such additional information as they may reasonably request in order to
assist such Rating Agencies in their ongoing monitoring and assessment of the
performance of the Receivables. To the extent such information is not currently
provided in the form of Servicer Report, then the Servicer shall develop and
provide such information at its customary hourly rate and cost, which shall be
paid to Servicer as part of its compensation hereunder.
(b) The Servicer Report shall include a certification (i) that the
information contained in such certificate is accurate, (ii) that no Event of
Servicing Termination, or event that with notice or lapse of time or both would
become an Event of Servicing Termination, has occurred, or if an Event of
Servicing Termination or such event has occurred and is continuing, specifying
the Event of Servicing Termination or such event and its status and (iii) that
the representations and warranties of the Servicer contained in Section 2.03 of
this Agreement are true and correct as though made on and as of the date of such
certificate.
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SECTION 2.18. Confidentiality. Each of the Transferor, Collection Agent
and the Trustee acknowledges the proprietary nature of certain of the software,
software procedures, software development tools, know-how, methodologies,
processes and technologies of the Servicer ("Confidential Material") and agrees
(i) that it shall use the same means as it uses to protect its own confidential
information, but in no event less than reasonable means, to avoid disclosure, by
it or its agents or employees, to any third party of any confidential or
proprietary information of the Servicer identified as such by the Servicer to
it, except to the extent that any such person may be required to disclose any
such information (x) by law or any legal process or proceeding, including,
without limitation, in connection with an examination or audit by any
governmental regulatory agency, in which case such person shall give notice of
such event to the Servicer or (y) in connection with its duties and obligations
hereunder and under the other transaction documents, and (ii) that all such
confidential or proprietary software, software procedures, software development
tools, know-how, methodologies, process and technologies that are based upon
trade secrets or proprietary information of the Servicer identified as such by
the Servicer to it shall be and remain the property of the Servicer and that
each of the Transferor, the Collection Agent and the Trustee will have no
ownership interest therein or ownership claim thereto. Each of Transferor,
Trustee and Collection Agent shall confine the knowledge and use of the
Confidential Material only to its employees who require such knowledge and use
in the ordinary course and scope of their employment. Upon any expiration or
termination of this Agreement, each of Transferor, Trustee and Collection Agent
shall promptly return to the Servicer all property or information which is
covered by this section.
SECTION 2.19. Delivery of Documents.
(a) On the date hereof the Servicer shall have delivered to the
Transferor, the Collection Agent and the Trustee the following, in form and
substance satisfactory to the Transferor:
(i) the organizational documents of the Servicer and; a certificate
of existence, dated no more than ten days prior to such date, from the
Secretary of State of Texas and, if applicable, a good standing
certificate from each state in which the Servicer is required to qualify
to do business;
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(ii) a certificate of the managing partner of the Servicer (on which
certificate such party may conclusively rely until such time as it shall
receive from the Servicer a revised certificate meeting the requirements
of this subsection) certifying as of such date: (A) the names and true
signatures of the officers authorized on its behalf to sign this
Agreement, (B) a copy of the Servicer's organizational documents and (C) a
copy of the resolutions of the management committee of the Servicer
approving this Agreement and the transactions contemplated hereby;
(iii) an Officer's Certificate from the Servicer certifying that (A)
the representations and warranties of the Servicer contained in Section
2.03 of this Agreement are true and correct as though made on and as of
such date and (B) no Event of Servicing Termination, or event that with
notice or lapse of time or both would become an Event of Servicing
Termination, has occurred; and
(iv) the opinion of the Servicer's counsel dated such date in the
form of Exhibit C.
(b) On or prior to March 31 in each calendar year, beginning in 1997, the
Servicer shall deliver to the Collection Agent and the Trustee (who shall
promptly forward a copy to each of the Certificateholders and each Rating
Agency) an Officer's Certificate from the Servicer dated such date certifying to
the items listed in Section 2.19(a) (i) -(iii).
SECTION 2.20. Standard of Care. In performing its duties and obligations
hereunder and in administering, tracking and enforcing the insurance policies
maintained by obligors relating to the Receivables pursuant to this Servicing
Agreement, the Servicer will comply with all applicable state and federal laws
and will exercise that degree of skill and care consistent with the highest
degree of skill and care that the Servicer exercises with respect to similar
motor vehicle retail installment sales contracts or loans owned and/or serviced
by the Servicer, and will apply in performing such duties and obligations, those
standards, policies and procedures consistent with the best standards, policies
and procedures the Servicer applies with respect to similar motor vehicle retail
installment contracts or loans owned or serviced by it; provided, however, that
notwithstanding the foregoing, the Servicer shall not, except pursuant to a
judicial order from a court of competent jurisdiction, or as otherwise required
by applicable law or regulation, release or waive the right to collect the
unpaid balance on any Receivable. In performing its duties and obligations
hereunder, the Servicer shall comply with the VSI Policy and all applicable
federal and state laws and
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regulations, shall maintain all state and federal licenses and franchises
necessary for it to perform its servicing responsibilities hereunder, and shall
not impair the rights of the Transferor or the Trust in the Receivables.
ARTICLE III
COLLECTION AGENT
SECTION 3.01. Appointment of Collection Agent. (a) AutoBond agrees to act
as the Collection Agent under this Agreement. (b) The Collection Agent shall
perform its obligations pursuant to this Agreement on behalf of and for the
benefit of the Transferor, the Trustee and the Certificateholders in accordance
with the terms of this Agreement, the respective Receivables, the VSI Policy and
applicable law and, to the extent consistent with such terms, in the same manner
in which, and at least with the same care, skill, prudence and diligence with
which, it services and administers Receivables of similar credit quality for
other portfolios, if any, giving due consideration to customary and usual
standards of practice of prudent institutional automobile loan collection agents
and, in each case, taking into account its other obligations hereunder, but
without regard to:
(i) any relationship that the Collection Agent or any Affiliate of
the Collection Agent may have with the related Obligor;
(ii) the Collection Agent's right to receive compensation for its
services hereunder or with respect to any particular transaction; or
(iii) the ownership, or servicing for others, by the Collection
Agent, of any other automobile loans or property.
In furtherance of the servicing standard set forth above in this Section
3.01(b), and in accordance with the provisions of the AutoBond Program Manual
and subject to any express limitations set forth in this Agreement (and the
subrogation rights of any insurance company issuing the Insurance Policy), the
Collection Agent shall also seek to maximize the timely and complete recovery of
principal and interest on Receivables; provided, however, that nothing herein
contained shall be construed as an express or implied guarantee by the
Collection Agent of the collectibility of the Receivables.
SECTION 3.02. Representations and Warranties of the Collection Agent. The
Collection Agent represents and warrants to the Transferor, the Servicer, the
Trustee and the
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Certificateholders, as follows, as of the date hereof (which representations and
warranties shall be deemed repeated on each Transfer Date and on each date
during the term hereof as though made on and as of such date):
(i) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and 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; it will be in
compliance with the laws of each state to the extent necessary to perform
its obligations under this Agreement; and it has obtained all necessary
licenses with respect to it required by law to enable it to perform its
duties herein;
(ii) It has the corporate power and authority to execute, deliver
and perform this Agreement and the Pooling and Trust Agreement and the
transactions contemplated hereby and thereby;
(iii) The execution and delivery by it and the performance by it of
this Agreement and the Pooling and Trust Agreement, and the execution and
delivery by it and the performance by it of all other agreements,
instruments and documents which may be delivered by it pursuant hereto and
thereto, and the transactions contemplated hereby and thereby, (i) have
been duly authorized by all necessary corporate or other action, on the
part of it, (ii) do not contravene or cause it to be in default under (A)
its articles of incorporation, (B) any contractual restriction with
respect to any Debt of it or contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note, or other
material agreement or instrument binding it or its property or (C) any
law, rule, regulation, order, writ, judgment, award, injunction or decree
applicable to or binding it or its property, and (iii) do not result in or
require the creation of any Adverse Claim upon or with respect to any of
its properties;
(iv) Each of this Agreement and the Pooling and Trust Agreement has
been duly executed and delivered on behalf of it;
(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 it of this Agreement, the
Pooling and Trust Agreement or any other agreement, document or instrument
to be delivered by it hereunder or thereunder;
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(vi) Each of this Agreement and the Pooling and Trust Agreement is
its legal, valid and binding obligation enforceable against it in
accordance with its terms;
(vii) There is no pending or threatened action, suit or proceeding,
nor any injunction, writ, restraining order or other order of a material
nature against or affecting it, its officers or directors, or its
property, 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 or the Pooling and Trust Agreement, or any document to be
delivered by it hereunder or thereunder or (B) seeking any determination
or ruling that would reasonably be expected to materially and adversely
affect (I) the performance by it of its obligations under this Agreement
or the Pooling and Trust Agreement, or the interests of the
Certificateholders, or (II) the validity or enforceability of this
Agreement or the Pooling and Trust Agreement, or any document to be
delivered by it hereunder or thereunder (C) which is inconsistent with the
due consummation by it of the transactions contemplated by this Agreement
and the Pooling and Trust Agreement;
(viii) Its facilities, plant, personnel, records and products are
adequate for the performance of its duties hereunder and under the Pooling
and Trust Agreement;
(ix) The Collection Agent is not in default with respect to any
order or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, and there exists no
other event or circumstance, which default, event or circumstance would
reasonably be expected to have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations of
the Collection Agent or its properties or would reasonably be expected to
have consequences that would materially and adversely affect its
performance hereunder or under the Pooling and Trust Agreement or the
interests of the Certificateholders;
(x) Each certificate and each statement furnished in writing, report
or electronic medium delivered pursuant to the terms hereof or under the
Pooling and Trust Agreement by the Collection Agent is accurate and
complete with respect to the information purported to be set forth
therein;
(xi) The practices used by the Collection Agent to monitor
collections with respect to the Receivables and repossess and dispose of
the Financed Vehicles related to
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the Receivables have been, and will be, in all material respects, legal,
proper and in conformity with the requirements of the VSI Policy
procedures and as set forth with respect to the Collection Agent in the
AutoBond Program Manual;
(xii) The transactions contemplated by this Agreement and the
Pooling and Trust Agreement are in the ordinary course of business of the
Collection Agent; and
(xiii) The Financed Vehicle securing each Receivable shall not be
released by the Collection Agent in whole or in part from the security
interest granted by the Obligor, except as contemplated herein.
It is understood and agreed that the representations and warranties set forth in
this Section 3.02 shall survive the execution of this Agreement.
SECTION 3.03. Duties and Responsibilities of the Collection Agent.
(a) Until such time as the Collection Agent resigns or is removed, the
Collection Agent shall remain the prior lienholder of record with respect to
each Financed Vehicle relating to the Receivables held by the Trust; provided
that the Collection Agent shall remain the prior lienholder acting only as an
agent of the Trustee. Upon any resignation or removal of the Collection Agent in
accordance with Section 3.06 or 3.07, the Collection Agent shall, at its sole
expense, promptly take all action necessary for the Trustee to become the
lienholder in respect of each Financed Vehicle relating to the Receivables held
by the Trust. In the event the Servicer assumes the duties of the Collection
Agent hereunder, the Servicer may request from, and rely on, direction from the
Trustee as to the appropriateness of instituting any litigation necessary in
order to protect the Trust's interest in the Receivables.
(b) The duties and responsibilities of the Collection Agent shall consist
of (i) receiving and administering collections on the Receivables, (ii)
arranging for and administering repossessions of the Financed Vehicles related
to the Receivables, (iii) disposing of each Financed Vehicle related to a
Receivable whether following repossession or otherwise and (iv) filing of
insurance claims and performing the duties of the named insured under the VSI
Policy with respect to each Receivable affected by a repossession or otherwise.
Notwithstanding any other provision in this Agreement, the Collection Agent
shall administer collections on Receivables at all times in such a manner that
each Receivable shall remain eligible for coverage under the Insurance Policies.
The Collection Agent, on behalf of the
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Trustee (and any named insured under the Insurance Policies), shall take such
reasonable action as shall be necessary to permit recovery on each Receivable
under the Insurance Policies.
(c) The Collection Agent shall hold in trust for the benefit of the Trust
and shall forward to the Collection Account, the Trustee or the Lockbox Account,
as applicable, immediately upon receipt thereof any payment or partial payment
or deposit with respect to any Receivable received by the Collection Agent. The
Collection Agent shall not assert any right of set-off or any lien with respect
to such payment or deposit.
(d) Except as expressly provided herein in connection with its duty to
effect liquidations and repossessions, the Collection Agent shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Receivable (or any right to income in
respect thereof), or any account in which any payments with respect to any
Receivable are deposited, or assign any right to receive income in respect of
any Receivable.
(e) The Collection Agent shall promptly notify the Trustee following its
becoming aware that any Financed Vehicle is no longer eligible for coverage
under the Insurance Policies, or following its receipt of notice from Interstate
that it has rejected a claim submitted by the Collection Agent with respect to
any Financed Vehicle.
SECTION 3.04. Possession of Receivables. If the Collection Agent requires
possession of any Receivable or any documents related thereto in order to
perform its duties or obligations hereunder, prior to taking possession of any
such Receivable or documents, the Collection Agent shall deliver to the Trustee
a trust receipt substantially in the form attached hereto as Exhibit A. The
Collection Agent agrees to promptly return any such Receivable and documents,
possession of which the Collection Agent takes in accordance with this Section
3.04, after its need for possession thereof ceases.
SECTION 3.05. Collection Agent Fee; Collection Agent Expenses.
(a) On each Payment Date the Collection Agent shall be entitled to receive
by wire transfer of immediately available funds to an account designated in
writing by the Collection Agent to the Trustee from the funds on deposit in the
Collection Account an amount equal to the Monthly Administrator Fee as of such
Distribution Date.
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(b) The Collection Agent shall be reimbursed by the Transferor for all
expenses incurred by it in connection with its activities hereunder (including
any payments to accountants, counsel, or any other Person), in accordance with
the Pooling and Trust Agreement, and only to the extent of funds available
therefor, and subject to the priorities set forth, under the Pooling and Trust
Agreement; provided, further, that in the event the Servicer has assumed the
obligations of the Collection Agent, its right to reimbursement under this
Section is further limited to the extent stated in Section 2.08(b).
SECTION 3.06. Collection Agent Not to Resign.
(a) The Collection Agent shall not resign from the obligations and duties
hereby imposed on it except upon its determination that (a) the performance of
its duties hereunder has become impermissible under applicable law and (b) there
is no reasonable action which the Collection Agent could take to make the
performance of its duties hereunder permissible under applicable law. Any such
determination permitting the resignation of the Collection Agent shall be
evidenced as to clause (a) above by an Opinion of Counsel to such effect
delivered to the Transferor, the Servicer and the Trustee before any such
resignation and as to clause (b) by an Officer's Certificate to such effect
delivered to the Transferor, the Servicer and the Trustee before any such
resignation. The action referred to in the first clause (b) of this Section 3.06
will not be considered reasonable if it requires the payment of extraordinary
fees or costs for which the Collection Agent is not eligible for reimbursement
under Section 3.05.
(b) Upon any resignation or termination of the Collection Agent pursuant
to this Section 3.06 or Section 3.07, the Servicer shall become liable for all
duties and obligations assigned herein to the Collection Agent from the date the
Servicer succeeds to the duties of the Collection Agent. Upon an assumption by
the Servicer of the duties of the Collection Agent, the Servicer shall be
entitled to receive the Monthly Administrator Fee, without any corresponding
Obligation to assume the duties of the Administrator under the Pooling and Trust
Agreement (which duties and fees shall hereafter not be affected by any
modification not consented to in writing by the Servicer). Upon such an
assumption, the Servicer is authorized to accept and rely on all of the
accounting, records and work of the prior Collection Agent without any audit or
other examination thereof, and the Servicer shall have no duty, responsibility,
obligation or liability (collectively, "Liability") for the acts or omissions of
the prior Collection Agent. If any error, inaccuracy or omission (collectively,
"Errors") exists in any information received from the prior Collection Agent
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and such Errors should cause or materially contribute to the Servicer making, or
continuing to make, any Errors (collectively, "Continuing Errors"), the Servicer
shall have no liability for such Continuing Errors. In the event the Servicer
becomes aware of Errors or Continuing Errors, which in the opinion of the
Servicer impair its ability to perform its services hereunder, the Servicer may
with prior written notice to the Transferor and the Trustee, undertake such data
or records reconstruction as it deems appropriate to correct such Errors and
Continuing Errors and to prevent future Continuing Errors, and the Servicer's
reasonable expenses incurred in connection therewith shall be deemed expenses
owing to the Servicer hereunder for purposes of the Pooling and Trust Agreement.
SECTION 3.07. Events of Administrator Termination. If any of the following
events (each, an "Event of Administrator Termination") shall occur and be
continuing:
(a) Any failure by the Collection Agent to forward to the Collection
Account, the Trustee or the Lockbox Account, as applicable, any payment or
partial payment or deposit with respect to any Receivable received by the
Collection Agent and the continuance of such failure for a period of two
(2) Business Days after the date upon which such payment or deposit is
received by the Collection Agent; or
(b) Failure on the part of the Collection Agent to observe or
perform any term, covenant or agreement in this Agreement or as
Administrator under the Pooling and Trust Agreement or any Related
Document, which failure continues unremedied for 10 Business Days after
the earlier of the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Collection Agent by
the Transferor, the Servicer or the Trustee or the date on which a
Responsible Officer of the Collection Agent becomes aware of such failure;
or
(c) Any proceeding shall be instituted against the Collection Agent
or the Transferor (or, if the Collection Agent or the Transferor is
actively contesting the merits thereof, such proceeding is not dismissed
within 60 days) 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
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, or any of the actions
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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
(d) The commencement by the Collection Agent or the Transferor of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect of
the Collection Agent or the Transferor in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Collection Agent or the Transferor or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its Debts generally as they become due, or the taking of
corporate action by the Collection Agent or the Transferor in furtherance
of any such action; or
(e) There is a breach in any material respect of any of the
representations and warranties of the Collection Agent under Section 3.02
hereof or of the Administrator under the Sale Agreement or any other
Related Document; or
(f) The Delinquency Ratio for any calendar month shall exceed 9.5%;
or
(g) There shall have been any material adverse change in the
consolidated financial condition or operations of the Collection Agent
since December 31, 1994, or there shall have occurred any event which
materially adversely affects the collectibility of any material amount of
the Receivables, or there shall have occurred any other event which
materially adversely affects the ability of the Collection Agent to
collect any material amount of the Receivables or the ability of the
Collection Agent to perform in all material respects its obligations under
this Agreement and the Related Documents or the Collection Agent shall be
replaced as
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collection agent or servicer (or the equivalent) for cause in respect of
any securitization; or
(h) Any Rating Agency determines that having the Collection Agent
act hereunder will prevent such Rating Agency from issuing or maintaining
a rating on the Class A Certificates of not less than "A" in the case of
Fitch, and, in the case of Moody's, not less than "A3," and a rating on
the Class B Certificates of not less than "PDR-3" from Fitch, or will
result in a review with negative implications, suspension, downgrade,
withdrawal or other impairment of such rating;
then, and in any such event, the Trustee may, by delivery to the Collection
Agent of a written notice specifying the occurrence of any of the foregoing
events, terminate the responsibilities of the Collection Agent hereunder,
without demand, protest or further notice of any kind, all of which are hereby
waived by the Collection Agent; provided, that in the event any of the events
described in subsections (c) or (d) of this Section 3.07 shall have occurred,
termination of the duties and responsibilities of the Collection Agent shall
automatically occur, without, demand, protest, or further notice of any kind,
all of which are expressly waived by the Collection Agent. Upon any termination
of the Collection Agent pursuant to this Section 3.07, the Servicer shall become
liable for all duties and obligations assigned herein to the Collection Agent.
SECTION 3.08. Repossession and Disposal.
(a) The Collection Agent agrees to use its best efforts to arrange with a
third party for the repossession or other conversion of ownership of any
Financed Vehicle by a professional repossession service in the manner required
by the VSI Policy within 90 days after the related Auto Loan becoming past due
and agrees not to discriminate among Financed Vehicles in its performance of its
duties hereunder based on its right, if any, to receive bonus or increased
compensation with respect to the repossession and disposal of certain Financed
Vehicles, and otherwise in accordance with the AutoBond Program Manual, in order
to maximize collections.
(b) If requested by the Transferor, the Servicer or the Trustee, the
Collection Agent is authorized and empowered by the Transferor, the Servicer and
the Trustee to execute and deliver, on behalf of itself, the Transferor, the
Servicer or the Trustee, as the case may be, any and all instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to the Financed Vehicles related to
the Receivables, all in accordance with the standard of care set forth in
Section 3.09. Without limiting the generality of the foregoing, the
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Transferor, the Servicer and the Trustee shall, upon the receipt of a written
request of the Collection Agent, execute and deliver to the Collection Agent any
limited powers of attorney and other documents prepared by the Collection Agent
and reasonably necessary or appropriate (as certified in such written request)
to enable the Collection Agent to carry out its duties hereunder (including,
without limitation, matters relating to the certificates of title with respect
to the Financed Vehicles), and neither the Transferor, the Servicer nor the
Trustee shall be held responsible for any negligence by the Collection Agent in
its use of such limited powers of attorney.
(c) The Collection Agent shall forward the proceeds of any disposition of
a Financed Vehicle related to a Receivable upon receipt thereof to the
Collection Account. If subsequent to the disposal of a Financed Vehicle related
to a Receivable in accordance herewith and, as required by this Agreement, with
the AutoBond Program Manual, the transaction disposing of such Financed Vehicle
is rescinded or adjusted, through arbitration or otherwise, due to any condition
affecting such Financed Vehicle, then the Collection Agent shall be entitled to
reimbursement from the Collection Account (out of available funds) for any
amount which the Collection Agent pays in connection with such rescission or
adjustment which amount shall be the "Post-Sale Adjustment".
(d) The Collection Agent represents and warrants to the Transferor, the
Servicer, the Trustee and the Certificateholders and shall be deemed to
continuously represent and warrant to the Transferor, the Servicer and the
Trustee, with respect to each Financed Vehicle assigned to the Collection Agent
pursuant hereto and, as required by this Agreement, to the AutoBond Program
Manual, that the Collection Agent will comply in all material respects with the
VSI Policy, all applicable federal, state and local regulations pertaining to
its services hereunder, including disclosure requirements, required to be
complied with in conjunction with such services. The Collection Agent shall
defend, indemnify and hold the Transferor, the Servicer, and the
Certificateholders and the Trustee harmless from and against any claim, suit,
loss, cost or liability, direct or indirect, including reasonable attorney's
fees, arising out of any breach of any representation or warranty made by the
Collection Agent in the immediately preceding sentence.
(e) Except as expressly provided herein, in the Pooling and Trust
Agreement and in the AutoBond Program Manual, the Collection Agent shall not
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
create any Adverse Claim upon or with respect to, any Financed Vehicle related
to any Receivable (or any right to income in respect thereof), or
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assign any right to receive income in respect of any such Financed Vehicle.
SECTION 3.09. Standard of Care. In performing its duties and obligations
hereunder and in administering and enforcing the Insurance Policies relating to
the Receivables pursuant to this Servicing Agreement, the Collection Agent will
comply with all applicable state and federal laws and will exercise that degree
of skill and care consistent with the highest degree of skill and care that the
Collection Agent exercises with respect to similar motor vehicle retail
installment sales contracts or loans owned and/or serviced by the Collection
Agent and will apply in performing such duties and obligations, those standards,
policies and procedures consistent with the best standards, policies and
procedures the Collection Agent applies with respect to similar motor vehicle
retail installment contracts or loans owned or serviced by it. In performing its
duties and obligations hereunder, the Collection Agent shall comply with the VSI
Policy, all applicable federal and state laws and regulations, shall maintain
all state and federal licenses and franchises necessary for it to perform its
servicing responsibilities hereunder, and shall not impair the right of the
Transferor or the Trust in the Receivables.
ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES
SECTION 4.01. Liabilities of Obligors. No obligation or liability of any
Obligor under any of the Receivables is intended to be assumed by the
Transferor, the Servicer, the Collection Agent, the Trustee, the Trust or any
Certificateholder under or as a result of this Agreement and the transactions
contemplated hereby and, to the maximum extent permitted and valid under
mandatory provisions of law, the Transferor, the Servicer, the Collection Agent
and the Trustee, the Trust or any Certificateholder expressly disclaim such
assumption.
SECTION 4.02. Limitation on Liability of the Trustee and the Servicer.
(a) The Trustee and the Servicer shall each have no liability in
connection with this Agreement except to the extent of the obligations
specifically imposed by this Agreement, it being understood that no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or shall otherwise exist against the Trustee or the
Servicer.
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(b) None of the Trustee or the Servicer nor any of the directors,
officers, employees or agents thereof shall be under any liability to the
Transferor, to each other or to any other Person for any action taken, or for
refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Servicer, the Trustee or any such Person against any
breach of warranties or representations made herein or against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations or duties hereunder. The Servicer, the Trustee and any director,
officer, employee or agent thereof may rely in good faith on any document of any
kind which, prima facie, is properly executed and submitted by any appropriate
Person respecting any matters arising hereunder.
(c) Except to the extent resulting from the Servicer's willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of its obligation or duties hereunder, the Servicer
shall not be liable to any party indemnified under this Agreement, for any
liability, cost, expenses or financial loss which may arise as a result of the
economic performance of the Receivables or other Trust Assets.
SECTION 4.03. Indemnities of the Servicer and the Collection Agent.
(a) The Servicer agrees to indemnify the Transferor, the Trustee, the
Trust, the Certificateholders and the Collection Agent, and any of their
respective directors, officers, employees or agents from, and hold each of them
harmless against, any and all losses, liabilities, damages (other than
incidental or indirect damages), claims or expenses (including reasonable
attorneys' fees and expenses) proximately caused by the Servicer's acts or
omissions in violation of this Agreement, except to the extent the Transferor's,
the Trustee's, the Collection Agent's or the directors, officers, employees or
agents thereof, as the case may be, own bad faith, willful misconduct or
negligence contributes to the loss, liability, damage, claim or expense.
(b) The Servicer agrees to indemnify the Transferor, the Trustee, the
Trust, the Certificateholders and the Collection Agent and any of their
respective directors, officers, employees or agents from, and hold each of them
harmless against, any and all losses, liabilities, damages, claims or expenses
(including reasonable attorneys' fees and expenses) arising as a result of the
use, ownership or operation by the Servicer or any agent thereof of any Financed
Vehicle.
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(c) The Collection Agent agrees to indemnify the Transferor, the Trustee,
the Trust, the Certificateholders and the Servicer, and any of their respective
directors, officers, employees or agents from, and hold each of them harmless
against, any and all losses, liabilities, damages, claims or expenses (including
reasonable attorneys' fees and expenses) arising as a result of the Collection
Agent's acts or omissions in violation of this Agreement, or arising as a result
of or incurred in connection with, the acceptance or performance by such parties
of the duties contained in this Agreement, except to the extent the
Transferor's, the Trustee's, the Servicer's, or the directors, officers,
employees or agents thereof, as the case may be, own bad faith, willful
misconduct or negligence contributes to the loss, liability, damage, claim or
expense; provided that in the event the Servicer were to succeed to the rights,
duties and obligations of the Collection Agent hereunder, for purposes of the
indemnity to be provided hereunder by the Servicer as Collection Agent the term
"damages" shall exclude incidental and indirect damages and the phrase "arising
as a result of the Collection Agent's acts" shall be replaced with the phrase
"proximately caused by the Collection Agent's acts."
(d) Each of the Servicer, the Collection Agent, the Transferor and the
Trustee agrees to promptly notify the indemnifying party hereunder in writing of
the commencement of any action with respect to which indemnification may be owed
to it pursuant to this Section 4.03 promptly after receipt by such party of
notice of commencement thereof, but the omission so to notify such indemnifying
party hereunder will not relieve the indemnifying party from any liability which
it may have hereunder except to the extent the indemnifying party is prejudiced
thereby.
(e) This Section 4.03 shall survive the termination of this Agreement and
the resignation or removal of the Servicer or the Collection Agent. This
Agreement shall also survive the resignation or removal of the Trustee in
respect of rights accrued to it prior to such resignation or removal.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Beneficiaries. This Agreement will inure to the benefit of
and be binding upon the parties hereto, the Certificateholders and their
respective successors and permitted assigns. The Certificateholders are intended
as, and shall be, third party beneficiaries of this Agreement. No other Person
will have any right or obligation hereunder. Neither the Servicer, the Trustee
or the Collection Agent may
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assign any of its respective rights and obligations hereunder or any interest
herein, other than as provided in Section 10.09 of the Pooling and Trust
Agreement with respect to the Trustee, without the prior written consent of the
Transferor, the Trustee and the Collection Agent.
SECTION 5.02. Amendment. This Agreement may be amended from time to time
by the parties hereto only by a written instrument executed by all such parties,
and provided, further, that notice of any such amendment and a copy thereof
shall be given in writing promptly after the execution thereof to each of the
Rating Agencies and the Trustee.
SECTION 5.03. Notices. Unless otherwise expressly specified or permitted
by the terms hereof, notices and other communications required or permitted to
be given or made under the terms hereof shall be in writing. Any such
communication or notice shall be deemed to have been duly made or given (i) when
delivered personally, (ii) in the case of mail delivery, upon receipt, refusal
of delivery or return for failure of the intended recipient to retrieve such
communication or (iii) in the case of transmission by facsimile, upon telephone
and return facsimile confirmation and, in each case, if addressed to the
intended recipient as follows (subject to the next sentence of this Section
5.03):
If to the Transferor:
AutoBond Funding Corporation 1996-A
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
If to the Servicer:
Loan Servicing Enterprise
9330 LBJ Freeway, Suite 500
Dallas, Texas 75243-3429
Attention: Managing Partner
Facsimile Number: (214) 783-3561
Telephone Number: (214) 783-3532
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If to the Collection Agent:
AutoBond Acceptance Co.
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (512) 472-3600
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
William T. Milbauer
Facsimile Number: (612) 667-9825
Telephone Number: (612) 667-6878
If to the Rating Agencies:
Fitch Investors Service
One State Street Plaza
New York, NY 10004
Attention: Structured Finance Department
Facsimile Number: (212) 480-4438
Telephone Number: (212) 908-0502
Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Attention: ABS Monitoring Dept.
Facsimile Number: (212) 553-7820
Telephone Number: (212) 553-0300
Each party hereto may from time to time designate by notice in writing to the
other parties hereto a different address for communications and notices.
SECTION 5.04. Severability of Provisions. If any one or more of the
covenants, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, provisions or terms shall be
deemed severable from the remaining covenants, provisions or terms of this
Agreement, and shall in no way affect the validity or enforceability of the
other provisions of this Agreement.
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SECTION 5.05. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
NEW YORK.
(b) THE TRANSFEROR, THE SERVICER, THE COLLECTION AGENT AND THE TRUSTEE
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. THE TRANSFEROR, THE SERVICER AND THE TRUSTEE EACH
HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO
VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION SHALL AFFECT
THE RIGHT OF THE PARTIES HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY OF THEN TO BRING ANY ACTION OR
PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE TRANSFEROR, THE SERVICER, THE COLLECTION AGENT AND THE TRUSTEE
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 5.06. Counterparts. This Agreement may be executed in counterparts
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
SECTION 5.07. No Proceedings. Each of the Servicer and the Collection
Agent and the Trustee hereby agrees that it will not, directly or indirectly,
institute, or cause to be instituted, against the Transferor or the Trust any
proceeding of the type described in connection with the Servicer in Section
2.12(c) so long as there shall not have elapsed one year plus one day since the
Certificates issued by the Trust have been paid in full in cash. The foregoing
covenant shall not limit the right of the Servicer, the Trustee or the
Collection Agent, as the case may be, to institute legal proceedings of a type
other than those described in connection with the Servicer in Section 2.12(c)
against the Transferor for any breach by the Transferor of its obligations
hereunder.
SECTION 5.08. Further Assurance. The Servicer and the Collection Agent
shall cause to be promptly and duly taken, executed, acknowledged and delivered
all such further acts, documents and assurances as the Transferor or the Trustee
from time to time may reasonably request in order to carry out more
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effectively the intent and purposes of this Agreement and the transactions
contemplated hereby.
SECTION 5.09. Term of Agreement. The term of this Agreement shall begin on
the Closing Date and shall continue until the earlier of the day after the date
on which the Certificateholders have been paid in full under the Pooling and
Trust Agreement and July 15, 2002. The Trustee shall deliver to the Servicer a
copy of notice to be delivered to the Certificateholders regarding payment in
full of the Class A Certificates pursuant to Section 11.01(d) of the Pooling and
Trust Agreement.
SECTION 5.10 Limitation of Liability of Trustee. It is expressly
understood and agreed by the parties hereto that (a) Norwest Bank Minnesota,
National Association, is executing this Agreement not in its individual capacity
but solely in its capacity as trustee of the Trust pursuant to the Pooling and
Trust Agreement, as supplemented and amended, and (b) in no case whatsoever
shall Norwest Bank Minnesota, National Association in its individual capacity
or, except as provided in the Pooling and Trust Agreement, as the Trustee of the
Trust, have any liability for any of the statements, representations,
warranties, covenants, agreements or obligations of the Trust hereunder or in
any of the certificates, notices or agreements delivered pursuant hereto, all
such liability, if any, being expressly waived by the parties hereto. For all
purposes of this Agreement, in the performance of its duties or obligations
hereunder or in the performance of any duties or obligations of the Trust
hereunder, the Trustee shall be subject to, and entitled to the benefits of, the
terms and provisions of Article X of the Pooling and Trust Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Servicing
Agreement to be executed by their respective officers thereunto duly authorized
this 28th day of March, 1996.
AUTOBOND FUNDING CORPORATION 1996-A,
as Transferor
By: /s/ WILLIAM O. WINSAUER
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Name: William O. Winsauer
Title: President
CSC LOGIC/MSA L.L.P., as Servicer
By: /s/ JOHN F. KILGORE
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Name: John F. Kilgore
Title: Managing Partner
AUTOBOND ACCEPTANCE CO., as Collection
Agent
By: /s/ ADRIAN KATZ
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Name: Adrian Katz
Title: Vice Chairman
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee
By: /s/ WILLIAM T. MILBAUER
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Name: William T. Milbauer
Title: Vice President
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[Execution Copy - WP Version]
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SERVICING AGREEMENT
among
AUTOBOND FUNDING CORPORATION II,
CSC LOGIC/MSA L.L.P.,
doing business as "Loan Servicing Enterprise",
as Servicer
AUTOBOND ACCEPTANCE CORPORATION,
as Collection Agent
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Collateral Agent
Dated as of May 21, 1996
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TABLE OF CONTENTS
Page
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ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.01. Defined Terms........................................... 1
SECTION 1.02. Rules of Interpretation................................. 8
ARTICLE II
SERVICING OF PLEDGED ASSETS
SECTION 2.01. Appointment of Servicer................................. 9
SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer 9
SECTION 2.03. Representations and Warranties of the Servicer.......... 10
SECTION 2.04. Duties and Responsibilities of the Servicer............. 12
SECTION 2.05. Fidelity Bond, Errors and Omissions Insurance; Continent
Disaster Relief Protection.............................. 15
SECTION 2.06. Inspection.............................................. 16
SECTION 2.07. Possession and Payment of Auto Loans.................... 16
SECTION 2.08. Servicer Fee; Servicing Expenses........................ 17
SECTION 2.09. Collection Agent To Maintain Computer Link.............. 18
SECTION 2.10. Resignation or Termination of Servicer.................. 18
SECTION 2.11. Change in Business of the Servicer...................... 19
SECTION 2.12. Events of Servicing Termination......................... 19
SECTION 2.13. Appointment of the Successor Servicer................... 21
SECTION 2.14. Effect of Service Transfer.............................. 22
SECTION 2.15. Annual Reports; Statements as to Compliance............. 23
SECTION 2.16. Annual Independent Public Accountants' Servicing Report. 23
SECTION 2.17. Servicer Reports........................................ 24
SECTION 2.18. Confidentiality......................................... 24
SECTION 2.19. Delivery of Documents................................... 25
SECTION 2.20. Standard of Care........................................ 25
ARTICLE III
COLLECTION AGENT
SECTION 3.01. Appointment of Collection Agent......................... 26
SECTION 3.02. Representations and Warranties of the Collection Agent.. 26
SECTION 3.03. Duties and Responsibilities of the Collection Agent..... 28
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SECTION 3.04. Possession of Auto Loans................................ 29
SECTION 3.05. Collection Agent Fee; Collection Agent Expenses......... 29
SECTION 3.06. Collection Agent Not to Resign; Termination of Collection
Agent Without Cause..................................... 30
SECTION 3.07. Events of Collection Agent Termination.................. 30
SECTION 3.08. Repossession and Disposal............................... 32
SECTION 3.09. Standard of Care........................................ 33
ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES
SECTION 4.01. Liabilities of Obligors................................. 34
SECTION 4.02. Limitation on Liability of the Collateral Agent and the
Servicer ............................................... 34
SECTION 4.03. Indemnities of the Servicer and the Collection Agent.... 34
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Beneficiaries........................................... 36
SECTION 5.02. Amendment............................................... 36
SECTION 5.03. Notices................................................. 36
SECTION 5.04. Severability of Provisions.............................. 37
SECTION 5.05. GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL.................................... 38
SECTION 5.06. Counterparts............................................ 38
SECTION 5.07. No Proceedings.......................................... 38
SECTION 5.08. Status of Collateral Agent.............................. 38
SECTION 5.09. Further Assurance....................................... 39
EXHIBITS
EXHIBIT A - FORM OF TRUST RECEIPT
EXHIBIT B - FORM OF SERVICER REPORT
EXHIBIT C - FORM OF OPINION OF COUNSEL TO SERVICER
EXHIBIT D - AUTOBOND PROGRAM ADMINISTRATION MANUAL
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SERVICING AGREEMENT, dated as of May 21, 1996 (this "Agreement"), among
AUTOBOND FUNDING CORPORATION II (the "Borrower"), a Delaware corporation, CSC
LOGIC/MSA L.L.P., doing business as "Loan Servicing Enterprise", a Texas limited
liability partnership, in its capacity as servicer (the "Servicer"), AUTOBOND
ACCEPTANCE CORPORATION, a Texas corporation, as collection agent (the
"Collection Agent"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a
national banking association, as collateral agent (the "Collateral Agent").
W I T N E S S E T H :
WHEREAS, from time to time, the Borrower intends to purchase, pursuant to
the Loan Acquisition, Sale and Contribution Agreement (the "Origination
Agreement"), by and between the Borrower and AutoBond Acceptance Corporation
("AutoBond"), certain Auto Loans to be held pending transfer thereof to one or
more Securitization Trusts or transfer thereof or the grant of a security
interest therein in connection with one or more other Dispositions;
WHEREAS, the Collateral Agent has been appointed to hold certain Auto
Loans sold to the Borrower pursuant to the Origination Agreement as collateral
for certain secured parties and to make certain payments with respect thereto;
WHEREAS, the Borrower and the Collection Agent desires that a servicer be
appointed to perform certain servicing and insurance tracking functions in
respect of the Auto Loans to be acquired by the Borrower pursuant to the
Origination Agreement;
WHEREAS, CSC Logic/MSA L.L.P. has been requested and is willing to act as
the servicer hereunder;
WHEREAS, the Borrower, the Collection Agent and the Servicer desire that
AutoBond Acceptance Corporation act as collection agent hereunder.
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
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.01. Defined Terms. As used herein, the following terms shall
have the following meanings:
"Advances" means the advances made by the Lender pursuant to the Credit
Agreement.
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"Adverse Claim" means any 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 or purpose of creating a
lien or security interest, other than the security interest created under
the Security Agreement.
"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
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.
"Agreement" means this Servicing Agreement, as amended or supplemented from
time to time including all exhibits and schedules hereto.
"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.
"Auto Loan" means a fixed-rate, closed-end consumer installment automobile
loan which finances the purchase of a new or used automobile, light-duty
truck or van, which loan is secured by a lien and security interest in such
financed vehicle in favor of the loan holder.
"AutoBond" means AutoBond Acceptance Corporation, a Texas corporation.
"AutoBond Program Manual" means the AutoBond Program Administration Manual
attached hereto as Exhibit D, in effect as of the date hereof, as modified
from time to time.
"Automobiles" means new and used automobiles and light-duty trucks and
vans.
"Borrower" has the meaning specified in the first paragraph of this
Agreement.
"Business Day" means any day other than a Saturday or a Sunday, or another
day on which commercial banks in the State of New York, Minnesota, Kentucky
or Texas (or in any other state in which the principal place of business of
the Servicer or Autobond 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 AutoBond).
"Collateral Agent" has the meaning specified in the first paragraph of this
Agreement.
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"Collection Agent" means AutoBond Acceptance Corporation, a Texas
corporation, and its permitted successors and assigns.
"Collection Agent Fee" has the meaning specified in the Security Agreement.
"Collection Period" means with respect to the first Collection Period
following the date hereof, the period from May 21, 1996 to the last day of
the calendar month immediately preceding the first Payment Date, and
thereafter, the calendar month immediately preceding each subsequent
Payment Date.
"Credit Agreement" means the Credit Agreement dated as of the date hereof
among the Borrower, AutoBond, as administrator, and the Lender, as initial
lender.
"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 Agreements" has the meaning specified in the Origination Agreement.
"Debt" means for any Person, (a) indebtedness of such Person for borrowed
money, (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 generally accepted accounting principles, 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 and the regulations promulgated thereunder. 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.
"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
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Balance amount of 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 Auto Loans against which
insurance claims have been filed as of the end of the most recently ended
Collection Period and (B) Auto Loans for which the related Financed
Vehicles are subject to repossession as of the end of the most recently
ended Collection Periods and which are not included in (A), and (b) the
denominator of which equals the aggregate Unpaid Principal Balance of Auto
Loans outstanding as of the end of the most recently ended Collection
Period, minus the amount determined pursuant to clause (ii) above.
"Deposit Date" means the Business Day immediately preceding each related
Payment Date.
"Dispositions" means (i) structured-finance securitization transactions,
(ii) whole-loan sales or (iii) some other form of disposition, in each
case, involving Auto Loans.
"Electronic Ledger" means the electronic master record of the Auto Loans
maintained by the Servicer.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Financed Vehicle" means Automobile.
"Fitch" means Fitch Investors Service, L.P.
"Governmental Authority" means the United States of America, any state,
local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
thereof or pertaining thereto.
"Independent Public Accountant" means any of (a) Arthur Andersen & Co., (b)
Deloitte & Touche, (c) Coopers & Lybrand, (d) Ernst & Young, (e) KPMG Peat
Marwick and (f) Price Waterhouse (and any successors thereof); provided,
that such firm is independent with respect to the Servicer, or any
Subservicer, as the case may be, within the meaning of the Securities Act
of 1933, as amended.
"Lender" means Peoples Security Life Insurance Company or such other entity
or entities as shall from time to time be identified by notice from the
Borrower to the Servicer.
"Loan Documents" means, with respect to any Auto Loan (i) the original
retail installment loan contract and security agreement evidencing such
Auto Loan, (ii) the original confirmation of title or 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) a copy of the Funding Check
representing payment to the Dealer by AutoBond.
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"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 AutoBond Credit and Collection Policies.
"Loan Rate" means with respect to any Auto Loan, the contract annual
interest percentage rate on such Auto Loan.
"Loan Revenue Account" means a segregated account maintained by the
Collateral Agent and entitled the "AutoBond Funding Loan Revenue Account,
Norwest Bank Minnesota, National Association, as Collateral Agent" or such
other account specified in writing to the Servicer from time to time by the
Borrower.
"Lockbox" means the segregated lockbox and account established in the name
of the Collateral Agent for the sole purpose of receiving collections on
Specified Sold Auto Loans, pursuant to the Corporate Cash Management
Services Agreement, dated May 21, 1996, between Comerica Bank - Texas and
the Collateral Agent.
"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 as Schedule 2 to this Agreement.
"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
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 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.
"Officer's Certificate" means, with respect to any Person, a certificate
signed by the chairman of the board, vice chairman of the board, the
president, a vice president, the treasurer, the secretary or the manager or
any other duly authorized officer of such Person acceptable to the Borrower
and the Collateral Agent; provided that in making a determination as to
whether any such officer is acceptable, the Collateral Agent may request
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direction from the Lender and shall be fully protected in relying upon any
direction received from the Lender.
"Opinion of Counsel" means a written opinion of counsel which opinion is
acceptable to the Borrower and the Collateral Agent provided that in making
a determination as to whether any such opinion is acceptable, the
Collateral Agent shall only be required to determine whether such opinion
complies as to form with the requirements of this Agreement, and in so
doing, the Collateral Agent may request direction from the Lender and shall
be fully protected in relying upon any direction received from the Lender.
"Origination Agreement" has the meaning specified in recitals to this
Agreement.
"Payment Date" means the 15th day of each month (or, if such day is not a
Business Day, the next succeeding Business Day) commencing in the first
full calendar month following the date on which the first Auto Loan is sold
to the Borrower pursuant to the Origination Agreement.
"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.
"Post-Sale Adjustment" has the meaning specified in Section 3.08(c).
"Precomputed Auto Loan" 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".
"Rating Agency Condition" means, with respect to any proposed action, the
condition that the taking of such action shall not result in a withdrawal
or downgrade by Fitch of the then-current rating on the Notes.
"Records" means all documents, books, records and other information
(including, without limitation, computer programs, tapes, disks, punch
cards, data processing software and related property and rights) prepared
and maintained by the Servicer or by or on behalf of the Borrower with
respect to Auto Loans and the related Obligors.
"Responsible Officer" means any officer within the corporate trust
department of the Collateral Agent (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.
"Sale Assignment" means, with respect to any Auto Loan, the assignment
substantially in the form of the Retail Installment Contract and Security
Agreement attached as Exhibit A
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to the Origination Agreement pursuant to which such Auto Loan was purchased
by the Borrower.
"Scheduled Payment" means a payment due on an Auto Loan in accordance with
its terms.
"Securitization Trusts" means one or more trusts to which Auto Loans are
transferred in connection with structured-finance securitization
transactions.
"Security Agreement" means the Security Agreement among the Borrower,
AutoBond Acceptance Corporation and the Collateral Agent, dated as of May
21, 1996, as amended from time to time.
"Service Transfer" has the meaning specified in Section 2.12.
"Servicer" has the meaning specified in the first paragraph of this
Agreement.
"Servicer Closing Fee" means $3,500, payable by the Borrower at closing.
"Servicer Duties" has the meaning specified in Section 2.04(a).
"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 and (ii) the total number of Specified Sold Auto Loans
which were outstanding at any time during the preceding Collection Period
and (c) any expenses reimbursable in accordance with this Agreement.
"Servicer Report" has the meaning specified in Section 2.17.
"Servicing Officer" means any officer or employee of the Servicer involved
in, or responsible for, the administration and servicing of Auto Loans
whose name appears on a list of servicing officers attached to Officer's
Certificates furnished to the Borrower and the Collateral Agent by the
Servicer, as such list may be amended from time to time by the party
furnishing any such Officer's Certificate.
"Specified Sold Auto Loans" means the Auto Loans pledged to the Collateral
Agent from time to time pursuant to the Security Agreement.
"Subservicer" means any Person with whom the Servicer enters into a
Subservicing Agreement.
"Subservicing Agreement" means any written contract between the Servicer
and any Subservicer, relating to the Servicer Duties, in such form as has
been approved by the Borrower and the Lender.
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"Successor Servicer" has the meaning specified in Section 2.13(a).
"UCC" means the Uniform Commercial Code as in effect in the relevant state.
"Unpaid Principal Balance" means, with respect to any Specified Sold 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 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 certain amounts and ratios hereunder and
under the Credit Agreement).
"VSI Policy" means 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 1.02. Rules of Interpretation. The following rules apply to this
Agreement:
(a) the singular includes the plural and the plural includes the singular;
(b) "or" is not exclusive and "include" and "including" are not limiting;
(c) a reference to any agreement or other contract includes permitted
supplements and amendments;
(d) 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;
(e) a reference to a person includes its permitted successors and assigns;
(f) a reference to an Article, a Section, an Exhibit or a Schedule without
further reference is to the relevant Article, Section, Exhibit or Schedule of
this Agreement;
(g) any right may be exercised at any time and from time to time;
(h) the headings of the Articles and the Sections are for convenience and
shall not affect the meaning of this Agreement; and
(i) words such as "hereunder", "hereto", "hereof" and "herein" 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
Article, Section, subsection or clause hereof.
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ARTICLE II
SERVICING OF PLEDGED ASSETS
SECTION 2.01. Appointment of Servicer. The Borrower and the Collection
Agent hereby appoint the Servicer, and the Servicer accepts such appointment, to
perform its obligations pursuant to this Agreement on behalf of and for the
benefit of the Borrower and the Collateral Agent in accordance with the terms of
this Agreement, the respective Auto Loans, the VSI Policy, to the extent
applicable to the Servicer Duties set forth in Section 2.04, and applicable law
and, to the extent consistent with such terms, in the same manner in which, and
with the same care, skill, prudence and diligence with which, it services and
administers Auto Loans of similar credit quality for other portfolios, if any,
giving due consideration to customary and usual standards of practice of prudent
institutional automobile loan servicers and, in each case, taking into account
its other obligations hereunder, but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
Affiliate of the Servicer or any Subservicer may have with the related
Obligor; or
(ii) the ownership, or servicing for others, by the Servicer or any
Subservicer, of any other automobile loans or property.
In the event that the Servicer believes that it is unable to comply with the
requirements of this Section 2.01 with respect to any particular Auto Loan as a
result of one or more of the factors described in clauses (i) and (ii) of this
Section 2.01, it may enter into a Subservicing Agreement pursuant to Section
2.02 pursuant to which a Subservicer shall perform its duties with respect to
such Auto Loan. In such event, so long as such Subservicer performs such duties
on behalf of the Servicer in accordance with the requirements of this Section
2.01, then the Servicer shall be deemed to be in compliance therewith.
Notwithstanding the above, the Servicer must obtain the prior written consent of
the Collection Agent and the Collateral Agent and must give prior written notice
to the Rating Agency to any such Subservicing Agreement. In the event that the
Collection Agent and the Collateral Agent do not consent to such a Subservicing
Agreement proposed by the Servicer, the Borrower shall have the right to remove
the Servicer as the servicer with respect to such Auto Loan and to appoint a
Successor Servicer with respect to such Auto Loan pursuant to Section 2.13.
SECTION 2.02. Subservicing Agreements Between Servicer and Subservicer.
(a) Upon the prior written consent of the Collection Agent and the
Collateral Agent, the Servicer may enter into Subservicing Agreements with a
Subservicer for the performance of all or a part of the Servicer Duties.
References in this Agreement to actions taken or to be taken by the Servicer in
performance of the Servicer Duties include actions taken or to be taken by a
Subservicer on behalf of the Servicer. Each Subservicing Agreement will be upon
such terms and conditions as are not inconsistent with this Agreement. The
Servicer shall provide written notice to the Collection Agent, the Rating Agency
and the Collateral Agent promptly upon appointment of any Subservicer. For
purposes of this Agreement, the receipt by a Subservicer of any amount
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with respect to an Auto Loan (other than amounts representing servicing
compensation or reimbursement or an advance) shall be treated as the receipt by
the Servicer of such amount.
(b) Upon the prior written consent of the Borrower, the Servicer shall be
entitled to terminate any Subservicing Agreement that may exist in accordance
with the terms and conditions of such Subservicing Agreement and without any
limitation by virtue of this Agreement.
(c) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer or a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain directly obligated and directly liable to the Borrower
and the Collateral Agent for the servicing and administering of the Auto Loans
in accordance with the provisions of this Agreement without diminution of such
obligation or liability (including its indemnity obligations under Section 4.03)
by virtue of such Subservicing Agreements or arrangements or by virtue of
indemnification from the Subservicer or the Servicer and to the same extent and
under the same terms and conditions as if the Servicer alone were servicing and
administering the Auto Loans. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
(d) Any Subservicing Agreement that may be entered into pursuant to this
Agreement and any other transaction or services relating to the Auto Loans
involving a Subservicer in its capacity as such that is consented to by the
Borrower shall be deemed to be between the Subservicer and the Servicer alone
and the Borrower, the Collection Agent and the Collateral Agent shall not be
deemed parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the Subservicer.
(e) If the Servicer shall for any reason no longer be the Servicer
hereunder (including by reason of any Event of Servicing Termination), the
Servicer, upon prior written consent of the Borrower, the Collection Agent and
the Collateral Agent, shall thereupon terminate each Subservicing Agreement that
may have been entered into, and neither the Borrower, the Collection Agent, the
Collateral Agent nor the Successor Servicer shall be deemed to have assumed any
liability or obligation thereunder, of the Servicer's interest therein or to
have replaced the Servicer as a party to any such Subservicing Agreement.
SECTION 2.03. Representations and Warranties of the Servicer. The Servicer
represents and warrants to the Borrower, the Collection Agent and the Collateral
Agent, as follows, as of the date hereof (which representations and warranties
shall be deemed repeated on each date on which a Servicer Report is due to be
delivered hereunder as though made on and as of such date):
(i) It is a limited liability partnership duly organized, validly
existing and in good standing under the laws of the State of Texas and 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; it or a Subservicer is or will be in compliance with the laws
of each state to the extent necessary to perform its obligations under
this Agreement; and it or a
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Subservicer has obtained all necessary licenses with respect to it or such
Subservicer required by law to enable it to perform its duties herein;
(ii) It has the power and authority to execute, deliver and perform
this Agreement and the transactions contemplated hereby;
(iii) The execution and delivery by it and the performance by it or
a Subservicer of this Agreement, and the execution and delivery by it and
the performance by it or a Subservicer of all other agreements,
instruments and documents which may be delivered by it pursuant hereto,
and the transactions contemplated hereby, (i) have been duly authorized by
all necessary partnership or other action, on the part of it, (ii) do not
contravene or cause it to be in default under (A) its organizational
documents, (B) any contractual restriction with respect to any Debt of it
or contained in any indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note, or other material agreement or instrument
binding it or its property or (C) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to or binding it or its
property, and (iii) do not result in or require the creation of any
Adverse Claim upon or with respect to any of its properties;
(iv) This Agreement has been duly executed and delivered on behalf
of it;
(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 it (either directly or through
a Subservicer) of this Agreement or any other agreement, document or
instrument to be delivered by it hereunder;
(vi) This Agreement is its legal, valid and binding obligation
enforceable against it in accordance with its terms;
(vii) There is no pending or threatened action, suit or proceeding,
nor any injunction, writ, restraining order or other order of a material
nature against or affecting it, its officers or directors, or its
property, in any court or tribunal, or before any arbitrator of any kind
or before or by any Governmental Authority (i) asserting the invalidity of
this Agreement or any document to be delivered by it hereunder or (ii)
seeking any determination or ruling that would reasonably be expected to
materially and adversely affect (A) the performance by it of its
obligations under this Agreement, or (B) the validity or enforceability of
this Agreement or any document to be delivered by it hereunder or (iii)
which is inconsistent with the due consummation by it of the transactions
contemplated by this Agreement;
(viii) Its facilities, plant, personnel, records and products are
adequate for the performance of its duties hereunder;
(ix) The Servicer is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental
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agency, which would reasonably be expected to have consequences that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or its properties or would reasonably be
expected to have consequences that would materially and adversely affect
its performance hereunder;
(x) No certificate of an officer, statement furnished in writing,
report or electronic medium delivered pursuant to the terms hereof by the
Servicer contains any untrue statement of a material fact or omits to
state any material fact to make the certificate, statement or report not
misleading;
(xi) The transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer; and
(xii) The Financed Vehicle securing each Auto Loan shall not be
released by the Servicer or a Subservicer in whole or in part from the
security interest granted by the Obligor, except as contemplated herein.
It is understood and agreed that the representations and warranties set forth in
this Section 2.03 shall survive the execution of this Agreement.
SECTION 2.04. Duties and Responsibilities of the Servicer.
(a) The Servicer shall manage, administer, monitor and service the Auto
Loans, including providing data management, payment processing and customer
service; provided that, prior to a resignation or termination of the Collection
Agent pursuant to Sections 3.06 or 3.07, the Servicer will not act as Collection
Agent. In performing its duties hereunder, the Servicer shall have full power
and authority to do or cause to be done any and all things in connection with
such servicing and administration which it may deem necessary or desirable,
within the terms of this Agreement (the "Servicer Duties"). Prior to a
resignation or termination of the Collection Agent pursuant to Sections 3.06 or
3.07, the Servicer will provide the following services (together with other
activities not inconsistent with the description below and implicitly necessary
to accomplish the usual and customary activities, other than collections, of an
automobile loan servicer):
(i) Boarding Functions:
(1) Review for receipt of copies of Loan Files;
(2) Input of new Auto Loan information into loan accounting system;
and
(3) Preparation and mailing of welcome letters.
(ii) File Maintenance/Document Control Functions:
(1) Retention of copies of the Loan Files;
(2) Tracking of customer collision insurance on Automobiles and
reporting to Collection Agent exposed Automobiles; and
(3) Determination of Auto Loans being satisfied in full.
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(iii) Customer Service Functions:
(1) Preparation and transmittal of monthly billing statements to
Obligors;
(2) Response to Obligor inquiries;
(3) Research regarding billing statements, Obligor inquiries;
(4) Maintenance of Obligor information; and
(5) Preparation and transmittal of delinquency notices.
(iv) Payment Processing Functions:
(1) Coordination of lockbox procedures;
(2) Recording of loan payment information; and
(3) Referral to Collection Agent of instances of non-sufficient
funds.
(v) Reporting Functions:
(1) Preparation and delivery of Servicer's Report.
(vi) Data Processing Functions:
(1) Entry of data;
(2) Operation of data center;
(3) Operation of telecommunications; and
(4) Operation and maintenance of collection system.
Notwithstanding the foregoing, to the extent that any of the duties set
forth above are assigned to the Collection Agent pursuant to Article III hereof,
the Servicer shall have no liability for such duty so long as the Collection
Agent continues to act in such capacity hereunder. Upon a resignation or
termination of the Collection Agent pursuant to Section 3.06 or 3.07, all such
duties shall revert to the Servicer.
(b) The Servicer may not sue to enforce or collect upon an Auto Loan in
its own name, or as agent for the Collateral Agent without the prior written
consent of the Collateral Agent.
(c) In accordance with the standard of care in Section 2.01 the Servicer
may agree to grant to the Obligor on any Auto Loan any rebate, refund or
adjustment that the Servicer in good faith believes is required under the Auto
Loan or applicable law in connection with a prepayment in full of the Auto Loan,
and pursuant to written instructions from the Collection Agent, the Collateral
Agent shall remit the amount of any such rebate, refund or adjustment to the
applicable Obligors from the Collateral Account. The Servicer may not permit any
rescission or cancellation of any Auto Loan nor may it take any action with
respect to any Auto Loan or Sale Assignment which would invalidate the coverage
afforded by the VSI Policy to such Auto Loan or impair the rights of the
Borrower or the Collateral Agent therein or in the proceeds thereof.
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(d) The Collection Agent (and in the case of item (i) only, the Servicer)
shall not advise the Collateral Agent that the Automobile securing an Auto Loan
should be released by the Collateral Agent from the security interest granted in
connection with such Auto Loan in whole or in part, except:
(i) when such Auto Loan has been paid in full;
(ii) immediately upon any exchange or substitution of such
Automobile by the Dealer or manufacturer thereof in settlement of claims
as to defects, breach of warranties, insurance and similar matters, with
an Automobile of equal or greater collateral value as of the date of such
exchange in the reasonable judgment of the Collection Agent (subject to
all the terms hereof including the recordation of the lien thereon and the
requirements of the VSI Policy);
(iii) in connection with a repossession of an Automobile; or
(iv) when all insurance proceeds with respect to such Automobile
have been received by the Collateral Agent.
The Servicer shall not extend or otherwise amend the terms of any Auto Loan,
except in accordance herewith.
(e) The Servicer shall hold in trust and deposit in the Lockbox
immediately upon receipt thereof any payment or deposit with respect to any Auto
Loan received by the Servicer. The Servicer shall not assert any right of setoff
or any lien with respect to such payment or deposit.
(f) The Servicer agrees to monitor and track each Financed Vehicle for
maintenance of required physical damage insurance in the manner required by the
VSI Policy and to notify the Collection Agent and the Collateral Agent, as soon
as practicable but not later than 30 days after becoming initially aware, of
circumstances that would lead a reasonable person to believe that the insurance
on any Financed Vehicle is not being or will not be maintained in accordance
with applicable law and the terms of the applicable retail installment sales
contract, provided that if the VSI policy requirements should change, Servicer
is not obligated to comply with any different provision until such time as the
Servicer has been notified of such change, and has expressly agreed in writing
to the extent such modification would materially alter the obligations of the
Servicer.
(g) Except as expressly provided herein, the Servicer shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Auto Loan (or any right to income in
respect thereof), or any account in which any payments with respect to any Auto
Loan are deposited, or assign any right to receive income in respect of any Auto
Loan.
(h) The Servicer, the Borrower and the Collection Agent shall each
instruct each Obligor by written notice that all payments on Auto Loans shall be
mailed to the Lockbox, and, so long
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as AutoBond is serving as the Collection Agent hereunder, that such payments
shall be made payable to the order of "AutoBond Acceptance Corporation," in its
capacity as Collection Agent.
(i) To the extent any duty or obligation of the Servicer set forth herein
is assigned to the Collection Agent pursuant to Article III hereof, the Servicer
shall have no liability for such duty or obligation so long as the Collection
Agent continues to act in such capacity hereunder. Upon a resignation or
termination of the Collection Agent pursuant to Section 3.06 or 3.07, all such
duties shall revert to the Servicer.
SECTION 2.05. Fidelity Bond, Errors and Omissions Insurance; Continent
Disaster Relief Protection.
(a) The Servicer shall maintain, at its own expense, a blanket fidelity
bond and an errors and omissions insurance policy, with broad coverage with
responsible companies on all officers, employees or other Persons acting on
behalf of the Servicer in any capacity with regard to the Auto Loans to handle
funds, money, documents and papers relating to the Auto Loans. Any such fidelity
bond and errors and omissions insurance shall protect and insure the Servicer
against losses, including forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such Persons and shall be maintained in a form
and amount that would meet the requirements of prudent institutional auto loan
servicers, in the amount of $100,000 in the case of fidelity coverage, and in
the amount of $1,000,000 in the case of errors and omissions coverage. No
provision of this Section 2.05(a) requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The Servicer shall be deemed to have
complied with this provision with respect to itself if one of its respective
Affiliates has such fidelity bond and errors and omissions policy coverage and,
by the terms of such fidelity bond and errors and omissions policy, the coverage
afforded thereunder extends to the Servicer. The Servicer shall cause each and
every Subservicer for it to maintain a policy of insurance covering errors and
omissions and a fidelity bond which would meet such requirements. Upon request
of the Borrower or the Collateral Agent, the Servicer shall cause to be
delivered to the Collateral Agent a certification evidencing coverage under such
fidelity bond and insurance policy. The Collateral Agent shall have no
obligation (i) to request any such certification, unless directed to do so in
writing by the Lender or (ii) upon receipt of any such certification or of any
notice provided for in this Section 2.05(a), to approve, consent to, or
determine its compliance with, the requirements of this Section 2.05(a). Upon
receipt of any such certification or notice, the Collateral Agent's sole
responsibility shall be to deliver copies thereof to the Lender. Any such
fidelity bond or insurance policy shall (i) not be cancelled without ten days'
prior written notice to the Borrower, the Collection Agent (who shall promptly
forward a copy of such notice to the Rating Agency) and the Collateral Agent
immediately following the giving or receipt of such notice as is required or
allowed under the terms of such fidelity bond or insurance policy, as the case
may be, and (ii) not be modified in a materially adverse manner without ten
days' prior written notice by the Servicer to the Borrower, the Collection Agent
(who shall promptly forward a copy of such notice to the Rating Agency) and the
Collateral Agent.
(b) The Servicer currently maintains, at its own expense, a computer
disaster recovery plan and computer disaster recovery procedures in forms
consistent with industry standards of
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prudent institutional receivables servicers and shall continue to maintain, at
its own expense, such a plan and such procedures as are consistent with such
standards and shall not modify, amend or revoke such procedures without giving
prior written notice thereof to the Rating Agency and the Lenders. No provision
of this Section 2.05(b) requiring such a plan and such procedures shall diminish
or relieve the Servicer from its duties and obligations as set forth in this
Agreement. The Servicer shall be deemed to have complied with this provision if
one of its respective Affiliates has such a plan and such procedures which also
affords protection to the Servicer. Upon request of the Borrower, the Lender,
the Collection Agent or the Collateral Agent, the Servicer shall cause to be
delivered to the Borrower, the Lender, the Collection Agent or the Collateral
Agent, as the case may be, a certification as to the existence of such a plan
and such procedures. The Collateral Agent shall have no obligation (i) to
request any such certification, unless directed to do so in writing by the
Lender or (ii) upon receipt of any such certification or of any notice provided
for in this Section 2.05(b), to approve, consent to, or determine its compliance
with, the requirements of this Section 2.05(b). Upon receipt of any such
certification or notice, the Collateral Agent's sole responsibility shall be to
deliver copies thereof to the Lender.
SECTION 2.06. Inspection.
(a) At all times during the term hereof, the Servicer shall afford the
Borrower, the Collection Agent, the Rating Agency, the Collateral Agent, the
Lender and their authorized agents, upon reasonable notice, reasonable access
(subject to the security rules and regulations of the Servicer) during normal
business hours to its records relating to the Auto Loans and will cause its
personnel to assist in any examination of such records by the Persons, provided,
that the foregoing shall not require any of such Persons to conduct any
inspection. The examination referred to in this Section 2.06 will be conducted
in a manner which does not unreasonably interfere with the Servicer's normal
operations or customer or employee relations or require the Servicer to disclose
or expose confidential information related to its services hereunder or to its
other clients. Without otherwise limiting the scope of the examination, such
Persons may, using generally accepted auditing standards, verify the status of
each Auto Loan and review the copies of the Loan Files, Electronic Ledger and
records relating thereto for conformity to reports prepared pursuant to Section
2.17 and compliance with the standards represented or required to exist as to
each Auto Loan in this Agreement.
(b) All information obtained by each of such Persons regarding the
Obligors and the Auto Loans, whether upon exercise of their respective rights
under this Section 2.06 or otherwise, shall be maintained in confidence and
shall not be disclosed to any other Person, except as otherwise required by
applicable law or regulation or if such information has been previously
disclosed through no act of such Person.
SECTION 2.07. Possession and Payment of Auto Loans. The Servicer shall
determine when an Auto Loan has been paid in full. Upon request, and in no event
less than monthly, the Servicer shall notify the Collateral Agent, the
Collection Agent and the Borrower in writing as to the Auto Loans in connection
with which such a determination has been made. If the Servicer requires
possession of any Loan File or any documents related thereto in order to perform
its duties or obligations hereunder, prior to taking possession of any such Auto
Loan or documents, the
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Servicer shall deliver to the Collateral Agent a trust receipt substantially in
the form attached hereto as Exhibit A. The Servicer agrees to promptly return
any such Auto Loan and documents, possession of which the Servicer takes in
accordance with this Section 2.07, after its need for possession thereof ceases.
SECTION 2.08. Servicer Fee; Servicing Expenses.
(a) On each Payment Date the Servicer shall be entitled to receive from
the Borrower by wire transfer of immediately available funds to an account
designated in writing by the Servicer to the Collateral Agent from the funds on
deposit in the Loan Revenue Account an amount equal to the Servicer Fee as of
such Payment Date, subject to the priorities set forth in the Security Agreement
which priority shall not be modified without the Servicer's prior written
consent.
(b) The Servicer shall be required to pay for all expenses incurred by it
in connection with its activities hereunder (including any payments to
accountants, counsel, Subservicers, or any other Person) and shall not be
entitled to any payment or reimbursement therefor; provided, however, that the
Servicer shall be entitled to reimbursement by wire transfer of immediately
available funds to an account designated in writing by the Servicer to the
Collateral Agent for the amount of any other expenses incurred with the prior
written consent of the Borrower. No later than five Business Days prior to each
Payment Date, the Servicer shall provide the Borrower with a list of items
eligible for reimbursement pursuant to the immediately preceding sentence, in
such reasonable detail as the Borrower may request, together with its
certification by a Servicing Officer that all such items are eligible for
reimbursement hereunder. Any reimbursement to the Servicer for fees or costs
pursuant to this Section 2.08(b) shall be limited to the extent of the funds
available for reimbursement of Servicer, Administrator and Collection Agent fees
and expenses under the Security Agreement.
(c) The Servicer acknowledges and agrees that if an event of default under
the Credit Agreement shall have occurred and be continuing, the Servicer's right
to receive any fees, costs and expenses owing to the Servicer under this
Agreement shall be subordinate to the right of payment of the following amounts:
(i) all fees, costs and expenses owing to the Collateral Agent.
(d) Each of Borrower and the Collateral Agent covenants and agrees that
upon a Responsible Officer obtaining actual knowledge of the occurrence of an
event of default under the Credit Agreement, it shall promptly give notice
thereof to the Servicer; provided, that the Collateral Agent shall have no duty
to inquire or to investigate the occurrence of an Event of Default under the
Credit Agreement.
(e) Each of the Borrower, the Collection Agent and the Collateral Agent
agrees that, without the written consent of the Servicer, it will not amend the
Security Agreement (i) to change the source of the payment of the Servicer Fee
and to the extent the Servicer has assumed the Collection Agent's duties, rights
and obligations hereunder, the Collection Agent Fee, (ii) if such amendment
would further subordinate the payment to the Servicer of the Servicer Fee, to
change
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the priority of payment of the Servicer Fee, or (iii) to materially change the
rights, duties and obligations under this Agreement of the Servicer, whether as
Servicer hereunder or as Collection Agent, to the extent the Servicer has
assumed the rights, duties and obligations of the Collection Agent hereunder.
SECTION 2.09. Collection Agent To Maintain Computer Link. Without
limitation of its obligations in respect of the other provisions of this
Agreement, and in addition to the duties of the Servicer, the Collection Agent
has supported and will continue to support non-dedicated dial-up capability with
the Servicer. Notwithstanding any provision of the Agreement to the contrary,
the Collection Agent shall have no duty or obligation with respect to the
information provided via the computer link described in the preceding sentence.
SECTION 2.10. Resignation or Termination of Servicer.
(a) The Servicer may resign from the obligations and duties hereby imposed
on it upon its determination that (i) the performance of its duties hereunder
has become impermissible under applicable law and (ii) there is no reasonable
action which the Servicer could take to make the performance of its duties
hereunder permissible under applicable law. Any such determination permitting
the resignation of the Servicer shall be evidenced as to clause (i) above by an
Opinion of Counsel to such effect delivered to the Borrower, the Collection
Agent and the Collateral Agent before any such resignation and as to clause (ii)
by an Officer's Certificate to such effect delivered to the Borrower, the
Collection Agent and the Collateral Agent before any such resignation. The
action referred to in the first clause (ii) of this Section 2.10(a) will not be
considered reasonable if it requires the payment of extraordinary fees or costs
for which the Servicer is not eligible for reimbursement under Section 2.08.
Promptly upon such resignation, the Collection Agent shall notify the Rating
Agency, the Collateral Agent and the Lenders.
(b) The Collection Agent or the Borrower may, upon 30 days' notice to the
Servicer, terminate the Servicer as Servicer hereunder and as Collection Agent,
if the Servicer is then Collection Agent, without cause, subject to payment of a
fee of $6.50 per outstanding Specified Sold Auto Loan (but not less than
$3,500); provided, that such termination shall not be effective unless (i) a
Successor Servicer shall have been appointed pursuant to section 2.13 or (ii)
the Collateral Agent has agreed to become Successor Servicer in accordance with
Section 2.13.
(c) The Servicer may, upon 180 days' notice to the Borrower, the
Collateral Agent, the Collection Agent and each Lender, resign as Servicer
hereunder; provided, however, that such resignation may be effective earlier if
a Successor Servicer is appointed in accordance with Section 2.13 prior to the
expiration of such 180 day period; and provided, further, in the event the
Servicer resigns pursuant to this Section 2.10(c), and no successor is appointed
on or before the expiration of such 180 day period, then the Collateral Agent
may agree to assume the duties of the Servicer as Successor Servicer hereunder.
Each of the Collection Agent, the Borrower and the Lenders agree to cooperate
fully with the Servicer in connection with the appointment of a successor
Servicer.
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SECTION 2.11. Change in Business of the Servicer. Each of the Borrower,
the Collection Agent and the Collateral Agent has entered into this Agreement
with the Servicer in reliance upon its ability to perform the servicing duties,
if necessary, without any delegation thereof; the adequacy of its plant,
personnel, records and procedures; its integrity, reputation and financial
standing and the continuance of each of the foregoing. The Servicer shall not,
without prior written consent of the Borrower, the Collection Agent and the
Collateral Agent (a) make any material change in the character of its business;
or (b) merge with or into or consolidate with or into, or convey, transfer,
lease or otherwise dispose of all or substantially all of its assets (whether
now owned or hereafter acquired), or acquire all or substantially all of the
assets or capital stock or other ownership interest of, any other corporation.
SECTION 2.12. Events of Servicing Termination. If any of the following
events (each, an "Event of Servicing Termination") shall occur and be
continuing:
(a) Any failure by the Servicer to deposit into the Lockbox any
payment or partial payment or deposit identified with respect to any Auto
Loan received by the Servicer and the continuance of such failure for a
period of two Business Days after the date upon which such payment or
deposit is received by the Servicer; or
(b) Failure on the part of the Servicer to observe or perform any
term, covenant or agreement in this Agreement, including the Servicer
Duties (other than the agreement to deliver the Servicer Report pursuant
to Section 2.17), which failure continues unremedied for 30 days after
discovery by the Servicer or the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Servicer by the Borrower, the Collection Agent or, upon direction of the
Lender, by the Collateral Agent; or
(c) Any proceeding shall be instituted against the Servicer (or, if
the Servicer is actively contesting the merits thereof, such proceeding is
not dismissed within 60 days) 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 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
(d) The commencement by the Servicer of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Servicer in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or
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consent seeking reorganization or relief under any applicable federal or
state law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Servicer or of
any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its Debts generally as they become due, or the taking of
corporate action by the Servicer in furtherance of any such action; or
(e) The Servicer shall fail to deliver a report at the time, in the
form and containing the information expressly required by this Agreement,
and the continuance of such failure for a period of 5 Business Days after
the date upon which written notice of such failure shall have been given
to the Servicer by the Borrower, the Collection Agent or, upon direction
of the Lender, by the Collateral Agent; or
(f) There is a breach of any of the representations and warranties
of the Servicer set forth in section 2.03 which breach shall be in the
opinion of the Collection Agent or the Lender reasonably expected to have
a material adverse effect on the Auto Loans at the time when the notice
referred to in this clause (f) shall be given to the Servicer and such
breach shall not have been cured within 30 days or such longer period as
may be agreed to by the Collection Agent and the Lender after receipt of
written notice thereof by the Servicer; or
(g) The Rating Agency determines that having the Servicer act as
servicer hereunder will prevent the Rating Agency from issuing or
maintaining ratings of at least "A" or will result in a review with
negative implications, suspension, downgrade, withdrawal or other
impairment of any such rating;
then, and in any such event, either the Borrower, the Collection Agent or, upon
direction of the Lender, the Collateral Agent, may by delivery to the Servicer
of a written notice specifying the occurrence of any of the foregoing events
terminate the servicing and custodial responsibilities of the Servicer
hereunder, without demand, protest or further notice of any kind, all of which
are hereby waived by the Servicer (such termination and any termination of the
Servicer pursuant to Section 2.10 hereby called a "Service Transfer"); provided,
that in the event any of the events described in subsections (c) or (d) of this
Section 2.12 shall have occurred, termination of the duties and responsibilities
of the Servicer shall automatically occur, without, demand, protest, or further
notice of any kind, all of which are expressly waived by the Servicer.
Notwithstanding the above, if the Borrower, the Collection Agent or, upon the
direction of the Lender, the Collateral Agent notifies the Servicer that
circumstances exist that would result in the occurrence of an Event of Servicing
Termination described in Section 2.12(g), each party hereto will negotiate in
good faith with the other parties hereto and with the Rating Agency to prevent
the occurrence of such an Event of Servicing Termination; provided, however,
that such Event of Servicing Termination shall nevertheless occur upon
expiration of 30 days following the date of such notice unless the existing
circumstances leading to such Event of Servicing Termination have been cured to
the satisfaction of all parties hereto.
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SECTION 2.13. Appointment of the Successor Servicer.
(a) Upon the effectiveness of the termination of the Servicer's
responsibilities under this Agreement pursuant to Section 2.10(a) or Section
2.12, the Collateral Agent shall assume the responsibilities of the Servicer
hereunder as a successor Servicer (a "Successor Servicer"), unless and until
another Successor Servicer has been appointed by the Collection Agent. The
Collection Agent shall give the Collateral Agent and the Rating Agencies not
less than 30 days' prior written notice of its intent to appoint a Successor
Servicer pursuant to this Section 2.13(a). Such appointment shall become
effective following the expiration of such 30-day period (or such shorter period
agreed to by the Collection Agent, the Collateral Agent and the Rating Agency)
on a date to be specified by the Collection Agent; provided, that, on or before
such effective date, the Collateral Agent and the Collection Agent shall have
received written confirmation from the Rating Agency that the Rating Agency
Condition has been satisfied and the Collateral Agent shall have consented in
writing to the appointment of such party as Successor Servicer. Such Successor
Servicer shall succeed to all rights and assume all of the responsibilities,
duties and liabilities of the Servicer under this Agreement; provided, that such
Successor Servicer and the Collateral Agent shall have no responsibility for any
actions of the Servicer prior to the date of the appointment of such Successor
Servicer as Servicer. The standard of care, representations and warranties,
covenants, liabilities, rights of indemnification, and all other rights and
obligations of the Collateral Agent under this Agreement and the Security
Agreement shall also be applicable to the Collateral Agent in its capacity as
successor servicer hereunder. Such Successor Servicer shall be authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do any and all
acts or things necessary or appropriate to effect the purposes of such notice of
termination and to perform the duties of the Servicer hereunder (including its
duties as Successor Servicer hereunder but excluding its duty to indemnify
pursuant to Sections 4.03(a) and (b)). In the event that the Collateral Agent is
unable to act as the Successor Servicer, the Collection Agent shall appoint a
successor to the Servicer acceptable to the Lender and the Rating Agency. The
Collateral Agent shall have the right to appoint as its agent a third party to
perform the duties and obligations of the Collateral Agent as successor servicer
hereunder. The appointment of any such person shall require the prior written
approval of the Collection Agent, to the extent the Collection Agent is not the
Servicer, and the Lender, which will not be unreasonably withheld. If the
Collection Agent fails to appoint a Successor Servicer within thirty (30) days
after the effective date of the termination of the Servicer, the Collateral
Agent may petition a court of competent jurisdiction to appoint any established
institution having a net worth of not less than $5,000,000 and whose regular
business shall include the performance of duties and obligations like those of
the Servicer hereunder as the Successor Servicer, which petition may take the
form of an action against the Borrower to specifically enforce the obligation of
the Borrower to appoint a Successor Servicer hereunder. If for any reason, a
Successor Servicer has not been appointed either by the Borrower or by a court
of competent jurisdiction, or such Successor Servicer has not accepted such
appointment, within ninety (90) days after the effective date of termination of
the Servicer, then the Collateral Agent shall have no further responsibility or
obligation to act as Successor Servicer and shall have no responsibility or
liability for the acts or omissions of the Successor Servicer. The Collateral
Agent shall not be responsible for compensating the Borrower for any increase in
the Servicer Fee associated with a Successor Servicer.
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(b) As Successor Servicer, the Collateral Agent will be entitled to the
same compensation as the Servicer. Any Successor Servicer other than the
Collateral Agent appointed by the Borrower hereunder shall be entitled to
reasonable compensation (including the estimated costs of such servicing and a
reasonable profit) which shall be determined by the Collection Agent and
consented to by the Lender. Any Successor Servicer appointed by a court of
competent jurisdiction or any agent of the Collateral Agent as Successor
Servicer upon becoming the Successor Servicer pursuant to Section 2.13 (a),
shall be entitled to compensation (including the estimated costs of servicing
and a reasonable profit) equal to the prevailing market rate for such services,
but not in excess of the Servicer Fee. Any excess will be paid by the Collection
Agent.
(c) The outgoing Servicer, the Collection Agent, the Collateral Agent and
the Successor Servicer shall take such action, consistent with this Agreement
and the Security Agreement, that shall be reasonably necessary to effectuate any
such succession, including, without limitation, (i) the express assumption by
such Successor Servicer of the duties and obligations of the outgoing Servicer
hereunder (except as to the Collateral Agent as the Successor Servicer, the
Servicer's indemnification obligation under Section 4.03(a) and (b) shall not
apply), (ii) notifying Obligors in writing of the existence of the Successor
Servicer, and (iii) providing such Successor Servicer with all Records
maintained or held by the outgoing servicer as Servicer hereunder, including all
paper files and all electronic files, at no charge. In the event the Servicer is
terminated without cause pursuant to Section 2.10(b), it shall be entitled to
receive an additional one-time termination fee in the amount of $6.50 per
outstanding Specified Sold Auto Loan (but not less than $3,500) (the
"Termination Fee"), but no other additional or extra compensation beyond that
which would be otherwise due to it under this Agreement to and including the
date on which the Servicer is so terminated. Such Termination Fee shall be
payable from the Collection Agent's own funds and such termination of the
Servicer shall not be effective unless and until such termination fee is paid in
full to the Servicer.
(d) Upon appointment, any Successor Servicer shall be successor in all
respects to the outgoing Servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all responsibilities,
duties and liabilities relating thereto placed upon the Servicer by the terms
and provisions hereof (subject to the same limitations as are contained in this
Section 2.13 with respect to a succession to the outgoing Servicer by the
Collateral Agent).
SECTION 2.14. Effect of Service Transfer.
(a) Prior to any Service Transfer, the outgoing Servicer shall notify (or,
to the extent that the Servicer provided such notice pursuant to Section
2.13(c), confirm the notice to) Obligors of the existence of the Successor
Servicer.
(b) After any Service Transfer, the outgoing Servicer shall have no
further obligations with respect to the management, servicing, custody or
monitoring of the collection of the Auto Loans and the Successor Servicer shall
have all of such obligations.
(c) A Service Transfer shall not affect the rights and duties of the
parties hereunder (including, but not limited to, the obligations and
indemnities of the outgoing Servicer pursuant
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to Article IV) other than those relating to the management, servicing, custody
or monitoring of the collection of the Auto Loans by the Successor Servicer.
SECTION 2.15. Annual Reports; Statements as to Compliance.
(a) On or before one hundred twenty (120) days after the end of each
fiscal year of the Servicer, the Servicer shall deliver to the Borrower, the
Collateral Agent, the Lenders and the Rating Agency, a copy of the financial
statements of Computer Sciences Corporation and Mitchell Sweet & Associates,
Inc. (or the Successor Servicer) containing a report of a firm of Independent
Public Accountants to the effect that such firm has examined certain books and
records of Computer Sciences Corporation and Mitchell Sweet & Associates, Inc.
(or the Successor Servicer) and that, on the basis of such examination conducted
substantially in compliance with generally accepted audit standards such
financial statements accurately reflect the financial condition of Computer
Sciences Corporation and Mitchell Sweet & Associates, Inc. (or the Successor
Servicer).
(b) The Servicer shall deliver to the Borrower and the Collateral Agent by
the seventh Business Day of each month an Officer's Certificate stating, as to
each signer thereof, that (a) a review of the activities of the Servicer during
the preceding calendar month 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 Servicer has fulfilled all its respective
obligations under this Agreement throughout such month, or, if there has been an
Event of Servicing Termination or if an event has occurred that with notice or
lapse of time or both would become an Event of Servicing Termination, specifying
each such Event of Servicing Termination or event known to such officer and
nature and status thereof, and remedies therefor being pursued. Notwithstanding
the obligation to deliver such certificates, the Servicer shall promptly (but in
any event within seven Business Days) notify the Borrower, the Lender, the
Collection Agent and the Collateral Agent upon receiving actual knowledge of any
event which constitutes an Event of Servicing Termination or would constitute an
Event of Servicing Termination but for the requirement that notice be given or
time elapse or both.
(c) Upon receipt of any report, certificate or other information delivered
to the Collateral Agent pursuant to this Section 2.15, the Collateral Agent
shall deliver a copy thereof to the Lender in accordance with the Security
Agreement but shall have no duty or obligation to consent to, approve or
determine the compliance thereof with the requirements of this Agreement.
SECTION 2.16. Annual Independent Public Accountants' Servicing Report.
Within 90 days after each of its fiscal years, the Servicer at its expense shall
cause an Independent Public Accountant to furnish a statement to the Borrower,
the Collateral Agent, the Lenders and the Rating Agency to the effect that such
firm has examined certain documents and records relating to the servicing of the
Auto Loans and the reporting requirements with respect thereto and that, on the
basis of such examination, such servicing and reporting requirements applicable
to the Servicer have been conducted in compliance with this Agreement, except
for (a) such exceptions as such firm shall believe to be immaterial and (b) such
other exceptions as shall be set forth in such statement; provided, that to the
extent the expense of such report shall exceed 2% of the aggregate Servicer Fee
paid to the Servicer during such fiscal year, such expenses will be borne
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by the Collection Agent. Upon receipt of any report, certificate or other
information delivered to the Collateral Agent pursuant to this Section 2.16, the
Collateral Agent shall deliver a copy thereof to the Lender in accordance with
the Security Agreement but shall have no duty or obligation to consent to,
approve or determine the compliance thereof with the requirements of this
Agreement.
SECTION 2.17. Servicer Reports.
(a) The Servicer shall furnish by the seventh Business Day of each month,
to the Borrower, the Collection Agent, the Collateral Agent and the Lender, an
Officer's Certificate, substantially in the form attached hereto as Exhibit B
(the "Servicer Report"), which Servicer Report shall contain all information
necessary for the Collateral Agent to make the distributions from, and transfers
among, the accounts required by the Security Agreement. In addition, the
Servicer and/or the Collection Agent shall provide the Collateral Agent with
such additional written information and certifications as may be necessary for
the Collateral Agent to make the distributions from, and transfers among, the
various accounts required by this Agreement and the Security Agreement on a
daily, or other, basis.
(b) The Servicer Report shall include a certification (i) that the
information contained in such certificate is accurate, (ii) that no Event of
Servicing Termination, or event that with notice or lapse of time or both would
become an Event of Servicing Termination, has occurred, or if an Event of
Servicing Termination or such event has occurred and is continuing, specifying
the Event of Servicing Termination or such event and its status and (iii) that
the representations and warranties of the Servicer contained in Section 2.03 of
this Agreement are true and correct as though made on and as of the date of such
certificate.
(c) Upon receipt of any report, certificate or other information delivered
to the Collateral Agent pursuant to this Section 2.17, the Collateral Agent
shall deliver a copy thereof to the Lender in accordance with the Security
Agreement but shall have no duty or obligation to consent to, approve or
determine the compliance thereof with the requirements of this Agreement.
SECTION 2.18. Confidentiality. Each of the Borrower and the Collateral
Agent acknowledges the proprietary nature of certain of the software, software
procedures, software development tools, know-how, methodologies, processes and
technologies of the Servicer and agrees (i) that it shall use the same means as
it uses to protect its own confidential information, but in no event less than
reasonable means, to avoid disclosure, by it or its agents or employees, to any
third party of any confidential or proprietary information of the Servicer
identified as such by the Servicer to it, except to the extent that any such
person may be required to disclose any such information (x) by law or any legal
process or proceeding, including, without limitation, in connection with an
examination or audit by any governmental regulatory agency, in which case such
person shall give notice of such event to the Servicer or (y) in connection with
its duties and obligations hereunder and under the other transaction documents,
and (ii) that all such confidential or proprietary software, software
procedures, software development tools, know-how, methodologies, process and
technologies that are based upon trade secrets or proprietary information of the
Servicer identified as such by the Servicer to it shall be and remain the
property
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of the Servicer and that each of the Borrower, the Collection Agent and the
Collateral Agent will have no ownership interest therein or ownership claim
thereto.
SECTION 2.19. Delivery of Documents.
(a) On the date hereof the Servicer shall have delivered to the Borrower,
the Collection Agent and the Collateral Agent the following, in form and
substance satisfactory to the Borrower:
(i) the organizational documents; a certificate of existence, dated
no more than ten days prior to such date, from the Secretary of State of
Texas and, if applicable, a good standing certificate from each state in
which the Servicer is required to qualify to do business;
(ii) a certificate of the secretary or assistant secretary of the
Servicer (on which certificate such party may conclusively rely until such
time as it shall receive from the Servicer a revised certificate meeting
the requirements of this subsection) certifying as of such date: (A) the
names and true signatures of the officers authorized on its behalf to sign
this Agreement, (B) a copy of the Servicer's organizational documents and
(C) a copy of the resolutions of the general partner of the Servicer
approving this Agreement and the transactions contemplated hereby;
(iii) an Officer's Certificate from the Servicer certifying that (A)
the representations and warranties of the Servicer contained in Section
2.03 of this Agreement are true and correct as though made on and as of
such date and (B) no Event of Servicing Termination, or event that with
notice or lapse of time or both would become an Event of Servicing
Termination, has occurred; and
(iv) the opinion of the Servicer's counsel dated such date in the
form of Exhibit C.
(b) On or prior to March 31 in each calendar year, beginning in 1997, the
Servicer shall deliver to the Borrower an Officer's Certificate from the
Servicer dated such date certifying to the items listed in Section 2.19(a).
SECTION 2.20. Standard of Care. In performing its duties and obligations
hereunder and in administering and tracking the insurance policies maintained by
obligors relating to the Auto Loans pursuant to this Servicing Agreement, the
Servicer will comply with all applicable state and federal laws and will
exercise that degree of skill and care consistent with the highest degree of
skill and care that the Servicer exercises with respect to similar motor vehicle
retail installment sales contracts or loans owned and/or serviced by the
Servicer, and will apply in performing such duties and obligations, those
standards, policies and procedures consistent with the best standards, policies
and procedures the Servicer applies with respect to similar motor vehicle retail
installment contracts or loans owned or serviced by it; provided, however,
notwithstanding the foregoing, Servicer shall not be required to perform
optional services that it performs for some but not substantially all of its
clients unless such optional services are separately described in this
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agreement and further, the Servicer shall not, except pursuant to a judicial
order from a court of competent jurisdiction, or as otherwise required by
applicable law or regulation, release or waive the right to collect the unpaid
balance on any Auto Loan. In performing its duties and obligations hereunder,
solely with respect to insurance tracking as specified in the Servicer's duties
as set forth in Section 2.04(a), the Servicer shall comply with the VSI Policy
and all applicable federal and state laws and regulations, shall maintain all
state and federal licenses and franchises necessary for it to perform its
servicing responsibilities hereunder, and shall not impair the rights of the
Borrower or the Collection Agent in the Auto Loans.
ARTICLE III
COLLECTION AGENT
SECTION 3.01. Appointment of Collection Agent. The Collection Agent shall
perform its obligations pursuant to this Agreement on behalf of and for the
benefit of the Borrower in accordance with the terms of this Agreement, the
respective Auto Loans and applicable law and, to the extent consistent with such
terms, in the same manner in which, and with the same care, skill, prudence and
diligence with which, it services and administers Auto Loans of similar credit
quality for other portfolios, if any, giving due consideration to customary and
usual standards of practice of prudent institutional automobile loan collection
agents and, in each case, taking into account its other obligations hereunder,
but without regard to:
(i) any relationship that the Collection Agent or any Affiliate of
the Collection Agent may have with the related Obligor;
(ii) the Collection Agent's right to receive compensation for its
services hereunder or with respect to any particular transaction; or
(iii) the ownership, or servicing for others, by the Collection
Agent, of any other automobile loans or property.
In furtherance of the servicing standard set forth above in this Section
3.01(b), and in accordance with the provisions of the AutoBond Program Manual
and subject to any express limitations set forth in this Agreement (and the
subrogation rights of any insurance company issuing the Insurance Policy), the
Collection Agent shall also seek to maximize the timely and complete recovery of
principal and interest on Auto Loans; provided, however, that nothing herein
contained shall be construed as an express or implied guarantee by the
Collection Agent of the collectibility of the Auto Loans.
SECTION 3.02. Representations and Warranties of the Collection Agent. The
Collection Agent represents and warrants to the Borrower, the Servicer and the
Collateral Agent, as follows, as of the date hereof (which representations and
warranties shall be deemed repeated on each date on which a Collection Agent
Report is due to be delivered hereunder as though made on and as of such date):
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(i) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and 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; it will be in
compliance with the laws of each state to the extent necessary to perform
its obligations under this Agreement; and it has obtained all necessary
licenses with respect to it required by law to enable it to perform its
duties herein;
(ii) It has the corporate power and authority to execute, deliver
and perform this Agreement and the transactions contemplated hereby;
(iii) The execution and delivery by it and the performance by it of
this Agreement, and the execution and delivery by it and the performance
by it of all other agreements, instruments and documents which may be
delivered by it pursuant hereto, and the transactions contemplated hereby,
(i) have been duly authorized by all necessary corporate or other action,
on the part of it, (ii) do not contravene or cause it to be in default
under (A) its articles of incorporation, (B) any contractual restriction
with respect to any Debt of it or contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or
other material agreement or instrument binding it or its property or (C)
any law, rule, regulation, order, writ, judgment, award, injunction or
decree applicable to or binding it or its property, and (iii) do not
result in or require the creation of any Adverse Claim upon or with
respect to any of its properties;
(iv) This Agreement has been duly executed and delivered on behalf
of it;
(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 it of this Agreement or any
other agreement, document or instrument to be delivered by it hereunder;
(vi) This Agreement is its legal, valid and binding obligation
enforceable against it in accordance with its terms;
(vii) There is no pending or threatened action, suit or proceeding,
nor any injunction, writ, restraining order or other order of a material
nature against or affecting it, its officers or directors, or its
property, in any court or tribunal, or before any arbitrator of any kind
or before or by any Governmental Authority (i) asserting the invalidity of
this Agreement or any document to be delivered by it hereunder or (ii)
seeking any determination or ruling that would reasonably be expected to
materially and adversely affect (A) the performance by it of its
obligations under this Agreement, or (B) the validity or enforceability of
this Agreement or any document to be delivered by it hereunder or (iii)
which is inconsistent with the due consummation by it of the transactions
contemplated by this Agreement;
(viii) Its facilities, plant, personnel, records and products are
adequate for the performance of its duties hereunder;
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(ix) The Collection Agent is not in default with respect to any
order or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, which would reasonably
be expected to have consequences that would materially and adversely
affect the condition (financial or otherwise) or operations of the
Collection Agent or its properties or would reasonably be expected to have
consequences that would materially and adversely affect its performance
hereunder;
(x) Each certificate of an officer and each statement furnished in
writing, report or electronic medium delivered pursuant to the terms
hereof by the Collection Agent is accurate and complete with respect to
the information purported to be set forth therein;
(xi) The transactions contemplated by this Agreement are in the
ordinary course of business of the Collection Agent; and
(xii) The Automobile securing each Auto Loan shall not be released
by the Collection Agent in whole or in part from the security interest
granted by the Obligor, except as contemplated herein.
It is understood and agreed that the representations and warranties set forth in
this Section 3.02 shall survive the execution of this Agreement.
SECTION 3.03. Duties and Responsibilities of the Collection Agent.
(a) Until such time as the Collection Agent resigns or is removed, the
Collection Agent shall remain the prior lienholder of record with respect to
each Financed Vehicle relating to the Specified Sold Auto Loans; provided, that
the Collection Agent shall remain the prior lienholder acting only as an agent
of the Borrower. Upon any resignation or removal of the Collection Agent in
accordance with Section 3.06 or 3.07, the Collection Agent shall, at its sole
expense, promptly take all action necessary for the Borrower to become the
lienholder in respect of each Financed Vehicle relating to the Specified Sold
Auto Loans. In the event the Servicer assumes the duties of the Collection Agent
hereunder, the Servicer may request from, and rely on, direction from the
Borrower or during the continuance of an Event of Default under the Credit
Agreement, the Lender as to the appropriateness of instituting any litigation
necessary in order to protect the Borrower's and the Lender's interest in the
Auto Loans. In such event the Servicer shall be entitled to reimbursement for
any related expenses to the extent provided in Section 3.05(b).
(b) The duties and responsibilities of the Collection Agent shall consist
of (i) receiving and administering collections on the Specified Sold Auto Loans,
(ii) arranging for and administering repossessions of the Financed Vehicles
related to the Specified Sold Auto Loans, (iii) disposing of each Financed
Vehicle related to a Specified Sold Auto Loan whether following repossession or
otherwise and (iv) filing of insurance claims and performing the duties of the
named insured under the VSI Policy with respect to each Specified Sold Auto Loan
affected by a repossession or otherwise. Notwithstanding any other provision in
this Agreement, the Collection Agent shall administer collections on Specified
Sold Auto Loans at all times in such a manner that each Specified Sold Auto Loan
shall remain eligible for coverage under the Insurance Policies.
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The Collection Agent, on behalf of the Collateral Agent, shall take such
reasonable action as shall be necessary to permit recovery on each Specified
Sold Auto Loan under the Insurance Policies.
(c) The Collection Agent shall hold in trust for the benefit of the
Collateral Agent and shall forward to the Collateral Agent or the Lockbox
Account as applicable, immediately upon receipt thereof any proper payment or
deposit with respect to any Specified Sold Auto Loan received by the Collection
Agent. The Collection Agent shall not assert any right of setoff or any lien
with respect to such payment or deposit.
(d) Except as expressly provided herein in connection with its duty to
effect liquidations and repossessions, the Collection Agent shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create any
Adverse Claim upon or with respect to, any Specified Sold Auto Loan (or any
right to income in respect thereof), or any account in which any payments with
respect to any Specified Sold Auto Loan are deposited, or assign any right to
receive income in respect of any Specified Sold Auto Loan.
(e) The Collection Agent shall promptly notify the Collateral Agent
following its becoming aware that any Financed Vehicle is no longer eligible for
coverage under the Insurance Policies, or following its receipt of notice from
Interstate that it has rejected a claim submitted by the Collection Agent with
respect to any Financed Vehicle.
SECTION 3.04. Possession of Auto Loans. If the Collection Agent requires
possession of any Auto Loan or any documents related thereto in order to perform
its duties or obligations hereunder, prior to taking possession of any such Auto
Loan or documents, the Collection Agent shall deliver to the Collateral Agent a
trust receipt substantially in the form attached hereto as Exhibit A. The
Collection Agent agrees to promptly return any such Auto Loan and documents,
possession of which the Collection Agent takes in accordance with this Section
3.04, after its need for possession thereof ceases.
SECTION 3.05. Collection Agent Fee; Collection Agent Expenses.
(a) On each Payment Date the Collection Agent shall be entitled to receive
by wire transfer of immediately available funds to an account designated in
writing by the Collection Agent to the Collateral Agent from the funds on
deposit in the Loan Revenue Account an amount equal to the Collection Agent Fee,
and to the extent the Servicer is the Collection Agent, the Upfront Collection
Agent Fee, as of such Payment Date.
(b) The Collection Agent shall be reimbursed by the Borrower for all
expenses incurred by it in connection with its activities hereunder (including
any payments to accountants, counsel, or any other Person), in accordance with
the Security Agreement, and only to the extent of funds available therefor, and
subject to the priorities set forth, under the Security Agreement; provided,
further, that in the event the Servicer has assumed the obligations of the
Collection Agent it shall be entitled to receive the Collection Agent Fee and
the Upfront Collection Agent Fee as provided in the Security Agreement and its
right to reimbursement under this Section is further limited to the extent
stated in Section 2.08(b).
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SECTION 3.06. Collection Agent Not to Resign; Termination of Collection
Agent Without Cause.
(a) The Collection Agent shall not resign from the obligations and duties
hereby imposed on it except upon its determination that (a) the performance of
its duties hereunder has become impermissible under applicable law and (b) there
is no reasonable action which the Collection Agent could take to make the
performance of its duties hereunder permissible under applicable law. Any such
determination permitting the resignation of the Collection Agent shall be
evidenced as to clause (a) above by an Opinion of Counsel to such effect
delivered to the Borrower, the Servicer and the Collateral Agent before any such
resignation and as to clause (b) by an Officer's Certificate to such effect
delivered to the Borrower, the Servicer and the Collateral Agent before any such
resignation. The action referred to in the first clause (b) of this Section 3.06
will not be considered reasonable if it requires the payment of extraordinary
fees or costs for which the Collection Agent is not eligible for reimbursement
under Section 3.05.
(b) The Borrower may, upon 30 days' notice to the Collection Agent,
terminate the Collection Agent as Collection Agent hereunder without cause.
(c) Upon any termination of the Collection Agent pursuant to this Section
3.06, the Servicer shall become liable for all duties and obligations assigned
herein to the Collection Agent from the date the Servicer succeeds to the duties
of the Collection Agent. Upon an assumption by the Servicer of the duties of the
Collection Agent, the Servicer shall be entitled to receive the Collection Agent
fee (which duties and fees shall hereafter not be affected by any modification
not consented to in writing by the Servicer). Upon such an assumption, the
Servicer is authorized to accept and rely on all of the accounting, records and
work of the prior Collection Agent without any audit or other examination
thereof, and the Servicer shall have no duty, responsibility, obligation or
liability (collectively "Liability") for the acts or omissions of the prior
Collection Agent. If any error, inaccuracy or omission (collectively "Errors")
exists in any information received from the prior Collection Agent and such
Errors should cause or materially contribute to the Servicer making, or
continuing to make, any Errors (collectively "Continuing Errors"), the Servicer
shall have no liability for such Continuing Errors. In the event the Servicer
becomes aware of Errors or Continuing Errors, which in the opinion of the
Servicer impair its ability to perform its services hereunder, the Servicer may
with prior written notice to the Borrower and the Collateral Agent, undertake
such data or records reconstruction as it deems appropriate to correct such
Errors and Continuing Errors and to prevent future Continuing Errors, and the
Servicer's reasonable expenses incurred in connection therewith shall be deemed
expenses owing to the Servicer hereunder for purposes of Section 6.04(e)(iv) of
the Security Agreement.
SECTION 3.07. Events of Collection Agent Termination. If any of the
following events (each, an "Event of Collection Agent Termination") shall occur
and be continuing:
(a) Any failure by the Collection Agent to forward to the Collateral
Agent or the Lockbox Account, as applicable, any payment or partial
payment or deposit with respect to any Auto Loan received by the
Collection Agent and the continuance of such failure for
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a period of 2 Business Days after the date upon which such payment or
deposit is received by the Collection Agent; or
(b) Failure on the part of the Collection Agent to observe or
perform any term, covenant or agreement in this Agreement, which failure
continues unremedied for 10 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to
the Collection Agent by the Borrower, the Servicer or, upon direction of
the Lender, by the Collateral Agent; or
(c) Any proceeding shall be instituted against the Collection Agent
(or, if the Collection Agent is actively contesting the merits thereof,
such proceeding is not dismissed within 60 days) 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 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
(d) The commencement by the Collection Agent of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Collection Agent in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Collection Agent or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its Debts generally as they become due, or the taking of
corporate action by the Collection Agent in furtherance of any such
action; or
(e) The Delinquency Ratio for any calendar month shall exceed 9.5%;
or
(f) There shall have been any material adverse change in the
consolidated financial condition or operations of the Collection Agents
since December 31, 1995, or there shall have occurred any event which
materially adversely affects the collectibility of any material amount of
the Auto Loans, or there shall have occurred any other event which
materially adversely affects the ability of the Collection Agent to
collect any material amount of the Auto Loans or the ability of the
Collection Agent to perform in all material respects its obligations under
this Agreement and the Related Documents or the Collection
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Agent shall be replaced as collection agent or servicer (or the
equivalent) for cause in respect of any securitization; or
(g) Any rating agency involved in any Disposition determines that
having the Collection Agent act hereunder will prevent a desirable (in the
sole discretion of the Borrower) rating from being assigned to such
Disposition or will result in a review with negative implications,
suspension, downgrade, withdrawal or other impairment of the rating
assigned to such Disposition;
then, and in any such event, either the Borrower, the Servicer or, upon
direction of the Lender, the Collateral Agent, may by delivery to the Collection
Agent of a written notice specifying the occurrence of any of the foregoing
events terminate the responsibilities of the Collection Agent hereunder, without
demand, protest or further notice of any kind, all of which are hereby waived by
the Collection Agent; provided, that in the event any of the events described in
subsections (c) or (d) of this Section 3.07 shall have occurred, termination of
the duties and responsibilities of the Collection Agent shall automatically
occur, without, demand, protest, or further notice of any kind, all of which are
expressly waived by the Collection Agent. Upon any termination of the Collection
Agent pursuant to this Section 3.07, the Servicer shall become liable for all
duties and obligations assigned herein to the Collection Agent.
SECTION 3.08. Repossession and Disposal.
(a) The Collection Agent agrees to use its best efforts to arrange with a
third party for the repossession or other conversion of ownership of any
Financed Vehicle by a professional repossession service in the manner required
by the VSI Policy within 90 days after the related Auto Loan becoming past due
and agrees not to discriminate among Financed Vehicles in its performance of its
duties hereunder based on its right, if any, to receive bonus or increased
compensation with respect to the repossession and disposal of certain Financed
Vehicles, and otherwise in accordance with the AutoBond Program Manual, in order
to maximize collections.
(b) If requested by the Borrower, the Servicer and the Collateral Agent,
the Collection Agent is authorized and empowered by the Borrower, the Servicer
and the Collateral Agent to execute and deliver, on behalf of itself, the
Borrower, the Servicer or the Collateral Agent, as the case may be, any and all
instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other comparable instruments, with respect to the Automobiles
related to the Auto Loans, all in accordance with the standard of care set forth
in Section 3.09. Without limiting the generality of the foregoing, the Borrower,
the Servicer and the Collateral Agent shall, upon the receipt of a written
request of the Collection Agent, execute and deliver to the Collection Agent any
limited powers of attorney and other documents prepared by the Collection Agent
and reasonably necessary or appropriate (as certified in such written request)
to enable the Collection Agent to carry out its duties hereunder (including,
without limitation, matters relating to the certificates of title with respect
to the Automobiles), and neither the Borrower, the Servicer nor the Collateral
Agent shall be held responsible for any negligence by the Collection Agent in
its use of such limited powers of attorney.
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(c) The Collection Agent shall forward the proceeds of any disposition of
an Automobile related to an Auto Loan upon receipt thereof to the Collateral
Agent. If subsequent to the disposal of an Automobile related to an Auto Loan in
accordance herewith and, as required by this Agreement, with the AutoBond
Program Administration Manual, the transaction disposing of such Automobile is
rescinded or adjusted, through arbitration or otherwise, due to any condition
affecting such Automobile, then the Collection Agent shall be entitled to
reimbursement from the Loan Revenue Account for any amount which the Collection
Agent pays in connection with such rescission or adjustment which amount shall
be the "Post-Sale Adjustment." The Collection Agent shall notify the Servicer of
the amount of any Post-Sale Adjustment.
(d) The Collection Agent represents and warrants to the Borrower, the
Servicer and the Collateral Agent, and shall be deemed to continuously represent
and warrant to the Borrower, the Servicer and the Collateral Agent, with respect
to each Automobile assigned to the Collection Agent pursuant hereto and, as
required by this Agreement, to the AutoBond Program Administration Manual, that
the Collection Agent will comply in all material respects with all applicable
federal, state and local regulations pertaining to its services hereunder,
including disclosure requirements, required to be complied with in conjunction
with such services. The Collection Agent shall defend, indemnify and hold the
Borrower, the Servicer, the Collateral Agent and each Lender harmless from and
against any claim, suit, loss, cost or liability, direct or indirect, including
reasonable attorney's fees, arising out of any breach of any representation or
warranty made by the Collection Agent in the immediately preceding sentence.
(e) Except as expressly provided herein and in the AutoBond Program
Administration Manual, the Collection Agent shall not sell, assign (by operation
of law or otherwise) or otherwise dispose of, or create any Adverse Claim upon
or with respect to, any Automobile related to any Auto Loan (or any right to
income in respect thereof), or assign any right to receive income in respect of
any such Automobile.
SECTION 3.09. Standard of Care. In performing its duties and obligations
hereunder and in administering and enforcing the Insurance Policies relating to
the Sold Auto Loans pursuant to this Servicing Agreement, the Collection Agent
will comply with all applicable state and federal laws and will exercise that
degree of skill and care consistent with the highest degree of skill and care
that the Collection Agent exercises with respect to similar motor vehicle retail
installment sales contracts or loans owned and/or serviced by the Collection
Agent and will apply in performing such duties and obligations, those standards,
policies and procedures consistent with the best standards, policies and
procedures the Collection Agent applies with respect to similar motor vehicle
retail installment contracts or loans owned or serviced by it, provided however,
Servicer shall not be required to perform optional services that it performs for
some but not substantially all of its clients unless such optional services are
separately described in this Agreement. In performing its duties and obligations
hereunder, the Collection Agent shall comply with the VSI Policy, all applicable
federal and state laws and regulations, shall maintain all state and federal
licenses and franchises necessary for it to perform its servicing
responsibilities hereunder, and shall not impair the right of the Borrower or
the Collateral Agent in the Auto Loans.
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ARTICLE IV
LIMITATION ON LIABILITY; INDEMNITIES
SECTION 4.01. Liabilities of Obligors. No obligation or liability of any
Obligor under any of the Auto Loans is intended to be assumed by the Borrower,
the Servicer, the Collection Agent or the Collateral Agent under or as a result
of this Agreement and the transactions contemplated hereby and, to the maximum
extent permitted and valid under mandatory provisions of law, the Borrower, the
Servicer, the Collection Agent and the Collateral Agent expressly disclaim such
assumption.
SECTION 4.02. Limitation on Liability of the Collateral Agent and the
Servicer.
(a) The Collateral Agent and the Servicer shall each have no liability in
connection with this Agreement except to the extent of the obligations
specifically imposed by this Agreement, it being understood that no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or shall otherwise exist against the Collateral
Agent or the Servicer.
(b) None of the Collateral Agent or the Servicer nor any of the directors,
officers, employees or agents thereof shall be under any liability to the
Borrower, to each other or to any other Person for any action taken, or for
refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Servicer, the Collateral Agent or any such Person against
any breach of warranties or representations made herein or against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations or duties hereunder. The Servicer, the Collateral Agent and any
director, officer, employee or agent thereof may rely in good faith on any
document of any kind which, prima facie, is properly executed and submitted by
any appropriate Person respecting any matters arising hereunder.
(c) Except to the extent resulting from the Servicer's willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of reckless disregard of its obligation or duties hereunder, the Servicer
shall not be liable to any party indemnified under this Agreement, for any
liability, cost, expenses or financial loss which may arise as a result of the
economic performance of the Auto Loans or other assets.
SECTION 4.03. Indemnities of the Servicer and the Collection Agent.
(a) The Servicer agrees to indemnify the Borrower, the Collateral Agent,
the Collection Agent and each Lender, and any of their respective directors,
officers, employees or agents from, and hold each of them harmless against, any
and all losses, liabilities, damages, claims or expenses (including reasonable
attorneys' fees and expenses) arising as a result of the Servicer's acts or
omissions in violation of this Agreement, except to the extent the Borrower's,
the Collateral Agent's, the Collection Agent's, such Lender's or the directors,
officers, employees or agents
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thereof, as the case may be, own bad faith, willful misconduct or negligence
contributes to the loss, liability, damage, claim or expense.
(b) The Servicer agrees to indemnify the Borrower, the Collateral Agent,
the Collection Agent and each Lender, and any of their respective directors,
officers, employees or agents from, and hold each of them harmless against, any
and all losses, liabilities, damages, claims or expenses (including reasonable
attorneys' fees and expenses) arising as a result of the use, ownership or
operation by the Servicer or any agent thereof of any Automobile.
(c) The Collection Agent agrees to indemnify the Borrower, the Collateral
Agent, the Servicer and each Lender, and any of their respective directors,
officers, employees or agents from, and hold each of them harmless against, any
and all losses, liabilities, damages, claims or expenses (including reasonable
attorneys' fees and expenses) arising as a result of the Collection Agent's acts
or omissions in violation of this Agreement, except to the extent the
Borrower's, the Collateral Agent's, the Servicer's, such Lender's or the
directors, officers, employees or agents thereof, as the case may be, own bad
faith, willful misconduct or negligence contributes to the loss, liability,
damage, claim or expense.
(d) The Collection Agent agrees to indemnify the Borrower, the Collateral
Agent, the Servicer and each Lender, and any of their respective directors,
officers, employees or agents from, and hold each of them harmless against, any
and all losses, liabilities, damages, claims, costs, expenses (including
reasonable attorneys' fees and expenses) or taxes (other than income taxes on
fees and expenses payable thereto) arising as a result of, or incurred in
connection with, the acceptance or performance by such parties of the duties
contained in the Program Documents, except to the extent the Borrower's, the
Collateral Agent's, the Servicer's, such Lender's or the directors, officers,
employees or agents thereof, as the case may be, own bad faith, willful
misconduct or negligence contributes to the loss, liability, damage, claim or
expense.
(e) Each of the Servicer, the Collection Agent, the Borrower and the
Collateral Agent agrees to promptly notify the Lenders and the indemnifying
party hereunder in writing of the commencement of any action with respect to
which indemnification may be owed to it pursuant to this Section 4.03 promptly
after receipt by such party of notice of commencement thereof, but the omission
so to notify the Lender and such indemnifying party hereunder will not relieve
the indemnifying party from any liability which it may have hereunder except to
the extent the indemnifying party is prejudiced thereby.
(f) The Lender or Lenders shall be deemed a third-party beneficiary or
third-party beneficiaries, as the case may be, of this Section 4.03. This
Section 4.03 shall survive the termination of this Agreement and the resignation
or removal of the Servicer or the Collection Agent. This Agreement shall also
survive the resignation or removal of the Collateral Agent in respect of rights
accrued to it prior to such resignation or removal.
(g) It is the intention of the parties hereto that the Servicer be
considered an agent of the Borrower for purposes of the definition of
"Indemnified Party" in the Origination Agreement.
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ARTICLE V
MISCELLANEOUS
SECTION 5.01. Beneficiaries. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. No other Person will have any right or obligation hereunder.
Neither the Servicer, the Collateral Agent or the Collection Agent may assign
any of its respective rights and obligations hereunder or any interest herein,
other than as provided in Section 8.06 of the Security Agreement with respect to
the Collateral Agent, without the prior written consent of the Borrower. The
Borrower may assign all of its rights hereunder.
SECTION 5.02. Amendment. This Agreement may be amended from time to time
by the parties hereto only by a written instrument executed by all such parties.
SECTION 5.03. Notices. Unless otherwise expressly specified or permitted
by the terms hereof, notices and other communications required or permitted to
be given or made under the terms hereof shall be in writing. Any such
communication or notice shall be deemed to have been duly made or given (i) when
delivered personally, (ii) in the case of mail delivery, upon receipt, refusal
of delivery or return for failure of the intended recipient to retrieve such
communication or (iii) in the case of transmission by facsimile, upon telephone
and return facsimile confirmation and, in each case, if addressed to the
intended recipient as follows (subject to the next sentence of this Section
5.03):
If to the Borrower:
AutoBond Funding Corporation II
301 Congress Avenue
Austin, Texas 78701
Attention: President
Facsimile Number: (516) 472-1548
Telephone Number: (516) 472-3600
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If to the Servicer:
Loan Servicing Enterprise
9330 LBJ Freeway, Suite 500
Dallas, Texas 75243-3429
Attention: John Kilgore
Facsimile Number: (214) 783-3532
Telephone Number: (214) 783-3503
If to the Collection Agent:
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Attention: William O. Winsauer
Facsimile Number: (512) 472-1548
Telephone Number: (516) 472-3600
If to the Collateral Agent:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department - William T. Milbauer
Facsimile Number: (612) 667-9825
Telephone Number: (612) 667-6878
If to the Lender:
To the addresses which the Lender shall have furnished to the
Borrower in writing.
Each party hereto may from time to time designate by notice in writing to the
other parties hereto a different address for communications and notices.
SECTION 5.04. Severability of Provisions. If any one or more of the
covenants, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, provisions or terms shall be
deemed severable from the remaining covenants, provisions
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or terms of this Agreement, and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
SECTION 5.05. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
NEW YORK.
(b) THE BORROWER, THE SERVICER, THE COLLECTION AGENT AND THE COLLATERAL
AGENT 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. THE BORROWER, THE SERVICER AND THE COLLATERAL AGENT
EACH HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY OF THEN TO BRING ANY ACTION
OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE PARTIES HERETO 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 5.06. Counterparts. This Agreement may be executed in counterparts
each of which shall be an original, but all of which together shall constitute
one and the same instrument.
SECTION 5.07. No Proceedings. Each of the Servicer and the Collection
Agent hereby agrees that it will not, directly or indirectly, institute, or
cause to be instituted, against the Borrower any proceeding of the type
described in connection with the Servicer in Section 2.12(c) so long as there
shall not have elapsed one year plus one day since the latest maturing
securities issued by the Borrower or any Securitization Trust have been paid in
full in cash. The foregoing covenant shall not limit the right of the Servicer
or the Collection Agent, as the case may be, to institute legal proceedings of a
type other than those described in connection with the Servicer in Section
2.12(c) against the Borrower for any breach by the Borrower of its obligations
hereunder.
SECTION 5.08. Status of Collateral Agent. The parties hereto acknowledge
and agree that the Collateral Agent is a party hereto solely in order to
effectuate the security interest granted to the Secured Parties by the Borrower
under the Security Agreement and 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 to the payment
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of the fees and expenses under this Agreement shall continue. In performing its
duties and obligations under this Agreement, the Collateral Agent shall have the
benefit of the protections and rights afforded the Collateral Agent under the
Security Agreement.
SECTION 5.09. Further Assurance. The Servicer and the Collection Agent
shall cause to be promptly and duly taken, executed, acknowledged and delivered
all such further acts, documents and assurances as the Borrower from time to
time may reasonably request in order to carry out more effectively the intent
and purposes of this Agreement and the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized this 21st day of
May, 1996.
AUTOBOND FUNDING CORPORATION II
By: /s/ ADRIAN KATZ
-------------------------------
Name: Adrian Katz
Title: Vice President
CSC LOGIC/MSA L.L.P., as Servicer
By: /s/ JOHN F. KILGORE
-------------------------------
Name: John F. Kilgore
Title: Partner - Executive Director
AUTOBOND ACCEPTANCE CORPORATION, as
Collection Agent
By: /s/ WILLIAM O. WINSAUER
-------------------------------
Name: William O. Winsauer
Title: President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent
By: /s/ MICHAEL G. LUGER
-------------------------------
Name: Michael G. Luger
Title: Corporate Trust Officer
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EXECUTION COUNTERPART
- ------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED SECURED REVOLVING CREDIT AGREEMENT
Dated as of July 31, 1995
between
SENTRY FINANCIAL CORPORATION,
as Lender
and
AUTOBOND ACCEPTANCE CORPORATION.
as Borrower
- ------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS............................................................1
Section 1.01. Certain Defined Terms.............................1
Section 1.02. References; Interpretation; Accounting............8
ARTICLE II
CREDIT LIMIT; DISBURSEMENT AND PAYMENT.................................9
Section 2.01. Credit Limit......................................9
Section 2.02. Term.............................................10
Section 2.04. Interest.........................................11
Section 2.05. Prepayment.......................................11
Section 2.06. Payments; Repayment..............................11
Section 2.07. Taxes............................................12
Section 2.08. Evidence of Debt.................................13
Section 2.09. Use of Proceeds..................................13
Section 2.10. Lender's Fees....................................14
Section 2.11. Application of Payments..........................16
ARTICLE III
SECURITY..............................................................16
Section 3.01. Security for Line of Credit......................16
Section 3.02. Guarantees.......................................17
Section 3.03. Reserve..........................................17
Section 3.04. Funding Account..................................18
ARTICLE IV
CONDITIONS............................................................18
Section 4.01. Conditions Precedent to First Advance and
First Interim Advance............................18
Section 4.02. Conditions Precedent to All Advances.............19
Section 4.03. Conditions Precedent to All Interim Advances.....21
Section 4.04. Conditions Subsequent............................22
ARTICLE V
REPRESENTATIONS AND WARRANTIES........................................22
Section 5.01. Representations and Warranties of Borrower.......22
Section 5.02. Repetition of Representations and Warranties.....25
ARTICLE VI
COVENANTS.............................................................25
Section 6.01. Affirmative Covenants of Borrower................25
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Section 6.02. Negative Covenants of Borrower...................27
Section 6.03. Financial Covenants..............................28
Section 6.04. Reporting Requirements...........................28
ARTICLE VII
EVENTS OF DEFAULT.....................................................29
Section 7.01. Events of Default................................29
Section 7.02. No Waiver; Cumulative Remedies...................31
Section 7.03. Right of Set-off.................................31
ARTICLE VIII
INDEMNIFICATION.......................................................32
Section 8.01. Expenses.........................................32
Section 8.02. Enforcement Expenses.............................32
Section 8.03. Indemnity........................................32
ARTICLE IX
GOVERNING LAW.........................................................33
Section 9.01. Governing Law....................................33
Section 9.02. Jurisdiction; Immunity...........................33
ARTICLE X
MISCELLANEOUS.........................................................34
Section 10.01. Amendments and Waivers..........................34
Section 10.02. Notices.........................................34
Section 10.03. Cooperation.....................................34
Section 10.04. Amended and Restated............................34
Section 10.05. Replacement of Notes............................34
Section 10.06. Survival........................................35
Section 10.07. No Partnership or Joint Venture.................35
Section 10.08. Binding Effect..................................35
Section 10.09. Determinations by Lender........................35
Section 10.10. Entire Agreement................................35
Section 10.11. Execution in Counterparts.......................35
Section 10.12. Waiver of Jury..................................36
Section 10.13. Usury...........................................36
Section 10.14. No Broker.......................................36
Section 10.15. Severability....................................37
EXHIBIT A Form of Draw Down Notice........................................38
EXHIBIT B Form of Secured Promissory Note.................................39
ii
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This SECOND AMENDED AND RESTATED SECURED REVOLVING CREDIT AGREEMENT dated
as of July 31, 1995 (as amended or modified from time to time, this "Agreement")
is made and entered into in Salt Lake City, Utah between AUTOBOND ACCEPTANCE
CORPORATION, a Texas corporation formerly known as Auto Bond Acceptance Co.
("Borrower"), and SENTRY FINANCIAL CORPORATION, a Utah corporation ("Lender").
RECITALS
A. Borrower is in the business of analyzing, originating, purchasing and
securitizing sub-prime automobile installment loans (i.e., loans made to
individuals who do not qualify for conventional automobile financing), which
loans are evidenced by a pre-computed (add-on) or simple interest motor vehicle
contract and security agreement or other form of automobile retail installment
sale agreement ("Receivables") secured by new and used automobiles and
light-duty trucks and all accessions thereto ("Financed Vehicles").
B. Borrower acquires Receivables from its own origination efforts and from
other companies originating Receivables ("Originators"), with the intent of
disposing of such Receivables through securitizations or other structures.
Borrower and its Affiliates have completed approximately $190,000,000 of
securitizations involving Receivables.
C. Borrower entered into a Secured Revolving Credit Agreement with Lender
dated as of August 1, 1994 ("Credit Agreement") whereby Lender established a
revolving line of credit ("Line of Credit") with Borrower and Auto Bond, Inc., a
Colorado corporation ("ABI") to finance Borrower's origination and purchase of
Receivables.
D. Borrower had requested that Lender (i) increase the Credit Limit to
$10,000,000, and (ii) establish a separate line of credit ("Interim Line of
Credit") to finance Borrower's day-to-day purchase of Receivables until Borrower
is able to finance such Receivables with an Advance from the Line of Credit.
E. Lender agreed to (i) increase the Credit Limit to $10,000,000; (ii)
establish the Interim Line of Credit upon the occurrence of certain events; and
(iii) amend the Credit Agreement and restate it in its entirety pursuant to the
terms of that certain Amended and Restated Secured Revolving Credit Agreement
dated as of July 31, 1995 ("Amended and Restated Credit Agreement").
F. Borrower has requested that Lender extend the term of the Line of
Credit, and Lender has agreed to such extension and to amend the Amended and
Restated Credit Agreement and restate it in its entirety.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
(the legal sufficiency of which is hereby acknowledged) the parties hereby amend
the Credit Agreement and restate it in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings:
"Advance Documents" means the Drawdown Notice, Note, Security Agreement
Schedule, UCC financing statement and any other document evidencing or relating
to an Advance.
"Affiliate" of a Person means any other Person controlling, controlled by
or under common control with such Person. For the purposes of this definition,
"control" means the power to direct the management and policies of an entity,
directly or indirectly, whether through the ownership of voting securities, by
contract or
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otherwise, and "controlling" and "controlled" have correlated meanings.
"Auditor" means Coopers & Lybrand or such other independent public
accounting firm acceptable to Lender.
"Authorized Officer" means any officer of a Person who has been
specifically authorized by law, resolution, power of attorney or otherwise to
act on behalf of that Person with respect to a particular matter.
"Average Unused Balance" has the meaning given to it in Section 2.10(b).
"Bankruptcy Act" has the meaning given to it in Section 7.01(h).
"Borrower" means Auto Bond Acceptance Co., a Texas corporation, and Auto
Bond, Inc., a Colorado corporation. As used herein, "Borrower" shall be deemed
to include both entities unless the context otherwise requires.
"Business Day" means a day (other than a Saturday or a Sunday) on which
commercial banks in Utah, Texas and New York are open for business.
"Class A Interest" means in respect of any Disposition, the class of
interest having the most senior rights to the cashflows generated by the
Receivables sold in such Disposition. In the Dispositions completed by an
Affiliate of Borrower known as "1994-C" and "1994-D", this interest was
evidenced by the "Class A Certificates".
"Class B Interest" means in respect of any Disposition, the class of
interest having the rights to the cashflows generated by the Receivables sold in
such Disposition which class of interest is subordinate in right to receive
payments only to the Class A Interest, and is superior to at least one other
level of interest, e.g., the "Class C interest". In the Disposition completed by
an Affiliate of Borrower known as "1994-C", this interest was evidenced by the
limited partnership interests in Auto Bond Receivables 1994-C, L.P., a Delaware
limited partnership, which limited partnership interests were senior in right to
receive certain payments to the interest of Auto Bond Receivables Company
1994-C, a Colorado corporation, the general partner of such limited partnership,
and owner of the "Class C interest".
"Class B Discount Rate" means with respect to a Class B Interest, the
"cash on cash" return on investment (as reasonably determined by Lender) a
purchaser of such Class B Interest is projected to receive based on the actual
sales of such Class B interests to Persons who are not an Affiliate of Borrower
or Guarantor, or projected sales if there have been no actual sales. The Class B
Discount Rate shall not be less than 14.00%.
"Collateral" means, collectively, the Reserve, the Reserve Account, the
Funding Account, the Loss Default Insurance, the Interim Facility Collateral,
and the "Collateral" (as defined in the Security Agreement).
"Commitment Period" has the meaning given to it in Section 2.01(c).
"Credit Limit" means an amount provided for in Section 2.01(b), which
shall be the maximum permitted outstanding amount of all Advances at any one
time.
"Custodian" means Norwest Bank Minnesota, National Association, or such
other Person acceptable to Lender.
"Custodian Agreement" means the Custodian Agreement among Lender, Borrower
and the Custodian dated as of August 1, 1994, whereby the Custodian agrees,
among other things, to maintain possession of the Receivable Documents for the
benefit of Lender.
"Custodian Documents" means the Custodian Agreement and all documents
related thereto.
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"Default" means any event or occurrence not yet constituting an Event of
Default but which, with the giving of notice or the passage of time or both,
would constitute an Event of Default.
"Delinquency Ratio" means, with respect to each Advance as of a given
date, the quotient (expressed as a percentage) of (i) the sum of the outstanding
principal amount of each Overdue Receivable acquired with the proceeds of such
Advance and are still part of the Collateral, divided by (ii) the outstanding
principal amount of such Advance.
"Disbursement Date" has the meaning given to it in Section 2.03(a).
"Disposition" means the sale, assignment, securitization or other
permanent conveyance or permanent disposition of Receivables by Borrower.
"Dollars" and the sign "$" each means lawful money of the U.S.
"Disbursement Date" means, with respect to each Advance, the date for
funding by Lender of that Advance specified by Borrower in accordance with
Section 2.03.
"Drawdown Notice" has the meaning given to it in Section 2.03(a).
"Early Termination Notice" has the meaning given to it in Section 2.01(d).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any Person, any trade or business
(whether or not incorporated) which is under common control with such Person
within the meaning of Section 4001(a)(14) of ERISA.
"Event of Default" means any of the events specified in Section 7.01.
"Excess Interest" has the meaning given to it in Section 10.13.
"Excess Reserve" has the meaning given to it in Section 3.03(d).
"Financed Vehicle" has the meaning given to it in Recital A.
"Funding Account" means that certain bank account of Borrower acceptable
to Lender.
"Funding Account Documents" means the documents establishing the Funding
Account, granting Lender a first priority security interest in the Funding
Account, and the governing the control of the funds deposited therein.
"GAAP" means generally accepted accounting principles in the U.S. as in
effect from time to time.
"Guarantees" means, collectively (i) the Winsauer Guarantee, and (ii) the
Interim Guarantee.
"Guarantor" means Winsauer.
"Guarantor Event" means collectively a "Guarantor Event" as such term is
defined in any of the Guarantees.
"Guarantor Obligations" means all of the obligations of Guarantor under
the Guarantees.
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"Government Entity" shall mean and include (i) any national government,
political subdivision thereof or local jurisdiction therein; (ii) any board,
commission, department, division, organ, instrumentality, court or agency
thereof, however constituted; and (iii) any association, organization or
institution of which any of the aforesaid is a member or to whose jurisdiction
any of the aforesaid is subject or in whose activities any of the aforesaid is a
participant.
"Indebtedness" means, with respect to any Person, any amount payable by
that Person as debtor, borrower or guarantor pursuant to an agreement or
instrument involving or evidencing money borrowed or received, the advance of
credit, a conditional sale or a transfer with recourse or with an obligation to
repurchase, or pursuant to a lease with substantially the same economic effect
as any such agreement or instrument.
"Insurance Broker" means Intercontinental Brokerage Incorporated or such
other insurance broker acceptable to Lender.
"Insurance Documents" means all policies, certificates and other documents
related to the Loss Default Insurance.
"Insurance Proceeds" means all monies paid pursuant to the Loss Default
Insurance.
"Interest Rate" means the floating rate per annum, compounded monthly
equal to the sum of (i) the Prime Rate and (ii) 175 basis points.
"Interim Advance" has the meaning given to it in Section 2.01(a).
"Interim Advance Documents" means the Drawdown Notice, Note, Security
Agreement Schedule, UCC financing statement and any other document evidencing or
relating to an Interim Advance.
"Interim Credit Limit" means an amount provided for in Section 2.01(b),
which shall be the maximum permitted outstanding amount of all Interim Advances
at any one time.
"Interim Facility Collateral" means, collectively, the "Collateral" as
defined in any Security Agreement Schedule securing an Interim Advance.
"Interim Facility Fee" has the meaning given to it in Section 2.10(c).
"Interim Guarantee" means that certain Guarantee and Waiver (Interim
Facility) of Guarantor in favor of Lender of even date herewith.
"Interim Interest Rate" means the floating rate per annum, compounded
monthly equal to the sum of (i) the Prime Rate and (ii) 200 basis points.
"Interim Line of Credit" has the meaning given to it in Recital E.
"Interim Loan Amount" means the total outstanding amount owed by Borrower
to Lender pursuant to the Interim Advance Documents.
"Interim Receivables" means all Receivables acquired or financed by
Borrower with the proceeds of the Interim Advances, which have not yet been
financed by an Advance from the Line of Credit.
"Lender" shall mean Sentry Financial Corporation, a Utah corporation.
"Lender Accumulation Account" has the meaning given to it in the Servicing
Agreement.
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"Lender Receivables" means all Receivables acquired or financed by
Borrower with the proceeds of the Line of Credit, and all Interim Receivables.
"Lien" means, with respect to any asset of any Person, any mortgage, deed
of trust, pledge, security interest, hypothecation, assignment, lease, deposit
arrangement, charge, encumbrance, lien (statutory or other), claim or right of
others under any interchange or pooling agreement, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever with
respect to such asset (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing and the filing of any financing
statement under the UCC or comparable law of any jurisdiction).
"Line of Credit" shall have the meaning given to it in Recital C.
"Loan Amount" means, at a given point of time, the total outstanding
amount owed by Borrower to Lender pursuant to the Loan Documents.
"Loan Documents" means, collectively this Agreement, the Security
Agreement, the Custodian Documents, the Servicer Documents, the Guarantees, the
Funding Account Documents, the Advance Documents, and the Interim Advance
Documents.
"Loss Default Insurance" means Comprehensive Single Interest Policy Number
CA4-1000024 issued by Interstate Fire and Casualty Company to Auto Bond
Acceptance Co. and providing All Risk Physical Damage Loan Insurance, Instrument
Non-Filing Insurance, Confiscation and Skip Insurance and Repossessed Vehicles
Insurance, or comparable insurance issued by other insurance companies and upon
terms acceptable to Lender.
"Losses" means any losses, costs, charges, expenses, interest, fees,
payments, demands, liabilities, claims, actions, proceedings, penalties, fines,
damages, adverse judgments, orders or other sanctions but excludes Taxes.
"Maturity Date" means, with respect to each Advance or Interim Advance,
the earlier to occur of (i) the Takeout Closing Date in respect of such Advance
or Interim Advance, or (ii) six months from the first day of calendar month
following the Disbursement Date for such Advance or Interim Advance.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Non-Utilization Fee" has the meaning given to it in Section 2.10(b).
"Note" has the meaning given to it in Section 2.08.
"Obligations" means all of the obligations of Borrower under the Loan
Documents.
"Obligor" means the owner of a Financed Vehicle.
"Operative Documents" means the Loan Documents, the Receivable Documents,
the Receivables Purchase Documents, and the Insurance Documents.
"Originators" has the meaning given to it in Recital B.
"Overdue Rate" means a rate equal to 1.50% per month compounded monthly.
"Overdue Receivable" means a Lender Receivable where any payment due by
the Obligor thereof is
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more than 60 days past due. Any Lender Receivable where the Financed Vehicle has
been or is in the process of being repossessed and/or remarketed shall be deemed
to be an "Overdue Receivable" until such time as (i) all sums due thereunder
have been repaid, (ii) the Financed Vehicle has been sold pursuant to the
procedures required by the Loss Default Insurance or (iii) Lender has received
Insurance Proceeds in respect of such Receivable.
"Payment" means any amounts paid or payable by Borrower pursuant to any
Loan Document.
"Payment Date" means (i) the 15th day of each calendar month commencing
with the calendar month immediately after the month in which the first
Disbursement Date occurs, and (ii) each Maturity Date.
"Payment Period" means, with respect to each Payment Date, (i) the
calendar month immediately prior to the month in which such Payment Date occurs,
or at the option of Lender, (ii) the period beginning the day after each Payment
is received by Lender and ending the day the next Payment is received by Lender.
"Permitted Liens" means (i) Liens for Taxes, assessments or other
governmental charges which are either not delinquent or the validity of which is
being contested in good faith by appropriate proceedings and which do not exceed
$100,000 in the aggregate, at any time; (ii) statutory Liens of materialmen,
mechanics, warehousemen, vendors, carriers or employees or other similar Liens
arising in the ordinary course of business and securing obligations which are
either not delinquent or the validity of which is being disputed in good faith
and which do not exceed $100,000 in the aggregate, at any time; (iii) any
judgment Lien unless, within 10 days after the entry thereof the judgment
secured thereby shall not have been discharged, vacated, reversed or execution
thereof shall not have been stayed pending appeal, or shall not have been
discharged, vacated or reversed within 10 days after expiration of any such
stay; (iv) any Lien on a Financed Vehicle created by an act or omission of an
Obligor, (v) any Liens created by the Loan Documents; and (vi) any Liens created
by the WC Loan Documents.
"Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization or association, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) maintained for employees of Borrower or any ERISA Affiliate and covered by
Title IV of ERISA.
"Prime Rate" for any day means the base rate of interest (expressed as an
annual rate) on corporate loans posted by U.S. banks as reasonably determined by
Lender based on the Prime Rate as published from time to time in the Wall Street
Journal, and the Prime Rate charged to Lender by Lender's funding sources.
"Receivable Documents" means all documents evidencing or relating to a
Receivable other than the Receivables Purchase Agreement, but including, as
applicable, the retail installment sale contract, promissory note, security
agreement, certificate of title, dealer guarantee of title or application for
title and proof of insurance.
"Receivables" has the meaning given to it in Recital B.
"Receivable Purchase Agreements" means, in respect of each Advance, (i)
where Borrower is the originator of the Target Receivables, the agreement
evidencing or relating to Borrower's acquisition of the Target Receivables; and
(ii) where Borrower is not the Originator of the Target Receivables, all
documents evidencing or relating to the Originator's acquisition of the Target
Receivables and Borrower's acquisition of such Target Receivables from the
Originator(s).
"Receivables Purchase Price" means, in respect of each Advance, the
consideration paid by Borrower to acquire the Target Receivables.
"Receivables Release Amount" means, in respect of a Lender Receivable, an
amount (as of a given
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date) equal to the portion of the principal balance of the Advance attributable
to such Lender Receivable, plus accrued interest thereon.
"Required Amount" has the meaning given to it in Section 2.06(a).
"Requirement of Law" shall mean, as to any Person, the articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or a final
and binding determination of an arbitrator or a determination of a court or
other governmental authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Reserve" means, in respect of each Advance or Interim Advance, an amount
equal to 6% of the original principal amount of each Target Receivable.
"Reserve Account" means the account established by Lender to hold the
Reserve.
"S&P" means Standard & Poor's Ratings Group.
"Security Agreement" means the Master Security Agreement dated as of
August 1, 1994 between Lender and Borrower.
"Security Agreement Schedule" means each schedule to the Security
Agreement.
"Servicer" means CSC Logic/MSA L.L.P. d/b/a Loan Servicing Enterprise, a
Texas limited liability partnership, or such other Person acceptable to Lender.
"Servicer Agreement" means that certain Servicing Agreement dated as of
August 1, 1994 among, Borrower, Lender and Servicer.
"Servicer Documents" means the Servicing Agreement and all other
agreements between or among Borrower, a Servicer and any subservicers thereof.
"SPC" has the meaning given to it in Section 6.01(v).
"Subsidiary" means, for any Person, any corporation, joint venture,
partnership or other entity of which more than 50% of the outstanding voting
stock or other equity interest entitled ordinarily to vote in the elections of
director or other governing body (however designated) of the Person is owned
directly, indirectly or beneficially by such Person.
"Takeout Closing Date" means, in respect of each Advance, the date the
Disposition by Borrower of all or any portion of the Target Receivables is
consummated.
"Target Receivables" means, in respect of each Advance or Interim Advance,
the Receivables to be acquired or financed by Borrower with the proceeds of such
Advance or Interim Advance.
"Tax" means all taxes, levies, imports, duties or charges of any nature
whatsoever and whether present or future, including without limitation any
income, gross receipts, franchise, transfer, sales, use, business, occupation,
value added, excise, personal property, real property, stamp, withholding or
other taxes imposed by any Government Entity.
"Term" means, with respect to each Advance or Interim Advance, the meaning
given to that term in Section 2.02.
"Termination Date" means the earlier to occur of (i) December 31, 2000, or
(ii) the date set forth in an
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Early Termination Notice pursuant to the terms of Section 2.01(d).
"UCC" means the Uniform Commercial Code of Utah as in effect on a given
date or, at the option of Lender, any jurisdiction in which a UCC financing
statement with Lender as secured party is filed.
"United States" and "U.S." each means the United States of America.
"Utilization Fee" has the meaning given to it in Section 2.10(a).
"Warehouse Facility Fee" has the meaning given to it in Section 2.10(c).
"WC Loan Documents" has the meaning given to it in the WC Loan Agreement.
"WC Loan Agreement" means that certain Amended and Restated Secured
Working Capital Loan Agreement dated as of July 31, 1995 between Winsauer and
Lender.
"Winsauer" means William O. Winsauer, an individual.
"Winsauer Guarantee" means that certain Amended and Restated Guarantee and
Waiver of Winsauer in favor of Lender of even date herewith.
"Winsauer Guarantee Release Date" means the date, if any, Lender releases
Winsauer from his obligations under the Winsauer Guarantee pursuant to the terms
of the Winsauer Guarantee.
Section 1.02. References; Interpretation; Accounting.
(a) References. Any references in this Agreement (i) to an Article, a
Section, a Schedule or an Exhibit is a reference to an article hereof, a section
hereof, a schedule hereto or an exhibit hereto, respectively; and (ii) to a
subsection or a clause is, unless otherwise stated, a reference to a subsection
or a clause of the Section or subsection in which the reference appears.
(b) Interpretation. In this Agreement the singular includes the plural and
the plural the singular; "hereof," "herein," "hereto," "hereunder" and the like
mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears; words
importing any gender include the other genders; references to statutes are to be
construed as including all statutory provisions consolidating, amending or
replacing the statute referred to; references to "writing" include printing,
typing, lithography and other means of reproducing words in a tangible visible
form; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to something being
"acceptable to Lender" or "satisfactory to Lender" shall be deemed to be
followed by the words "in its sole discretion"; references to agreements and
other contractual instruments shall be deemed to include all subsequent
amendments and other modifications and supplements thereto, but only to the
extent such amendments and other modifications and supplements are not
prohibited by the terms of this Agreement or any other Loan Document; and
references to Persons include their respective permitted successors and assigns.
(c) Accounting Terms. All references to financial statements, assets,
liabilities, income, consolidation, consolidated, net worth and similar
accounting items not specifically defined herein mean such financial statements
or such items prepared or determined in accordance with GAAP consistently
applied and, except where otherwise specified, all financial data submitted
pursuant to this Agreement shall be prepared in accordance with such principles.
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ARTICLE II
CREDIT LIMIT; DISBURSEMENT AND PAYMENT
Section 2.01. Credit Limit.
(a) Commitment to Lend.
(i) Line of Credit. Lender agrees, on the terms and conditions set
forth herein, to make loans to Borrower pursuant to the Line of Credit (each
such loan shall hereinafter be referred to as an "Advance") from time to time
during the Commitment Period in an aggregate principal amount outstanding at any
one time not exceeding the Credit Limit.
(ii) Interim Line of Credit. Lender agrees, on the terms and
conditions set forth herein, to make interim loans to Borrower pursuant to the
Interim Line of Credit (each such loan shall hereinafter be referred to as an
"Interim Advance") from time to time during the Commitment Period in an
aggregate principal amount outstanding at any one time not exceeding the Interim
Credit Limit.
(b) Amount of Credit Limit.
(i) Line of Credit. The amount of the Credit Limit shall initially
be $10,000,000. Lender shall use its best efforts to locate participants or
other third party funding sources to enable Lender to increase the Credit Limit.
On or before December 31, 1995, Lender shall have the right to increase the
Credit Limit to an amount up to $20,000,000 upon written notice to Borrower. Any
increase in the Credit Limit above the amount of the Credit Limit on January 1,
1996 shall be upon the mutual agreement of Borrower and Lender.
(ii) Interim Line of Credit. The amount of the Interim Credit Limit
shall be $750,000. The amount of the Interim Credit Limit may be increased at
the sole and absolute discretion of Lender after a request by Borrower.
(c) Commitment Period. Subject to Section 2.01(d), the Line of Credit and
the Interim Line of Credit shall be available to Borrower for a period
("Commitment Period") commencing on the date hereof and expiring on the
Termination Date.
(d) Early Termination. Borrower and Lender each shall have the option to
terminate the Commitment Period upon 90 days written notice to the other party
("Early Termination Notice"). The Early Termination Notice shall set forth the
date on which the Commitment Period shall terminate, so long as no Early
Termination Notice shall be provided by either party prior to July 31, 1998.
Section 2.02. Term.
The "Term" of each Advance or Interim Advance shall mean the period
beginning with the applicable Disbursement Date and ending on the Maturity Date
for such Advance or Interim Advance.
Section 2.03. Notice of Intention and Commitment to Borrow.
(a) Borrower may request an Advance or an Interim Advance hereunder by
delivering to Lender the original or a facsimile of a notice substantially in
the form set forth in Exhibit A ("Drawdown Notice"), with all blank spaces
appropriately completed, in compliance with Section 2.03(b). The Drawdown Notice
must be given to Lender no later than 10:00 a.m. (Salt Lake City time) at least
two Business Days before the day Borrower designates therein as the
"Disbursement Date". Any Drawdown Notice purported to have been given under this
Section 2.03 that does not arrive by the specified time, that does not have all
its blank spaces appropriately completed or does not comply in all respects with
this Section 2.03 shall, at the option of Lender, be deemed not to have been
given. In addition Borrower shall use its best efforts to provide Lender notice
by telephone of the approximate amount of each Advance and the approximate date
such Advance will be needed by Borrower no later than three Business Days prior
to the anticipated Disbursement Date.
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(b) The Drawdown Notice shall specify whether it is for an Advance or
Interim Advance, the Disbursement Date for such Advance or Interim Advance, and
the amount of such Advance or Interim Advance. The Disbursement Date so
specified must be a Business Day on or before the Termination Date. Each Advance
or Interim Advance shall be in an amount equal to the then outstanding principal
amount of the Target Receivable to be acquired with the proceeds of such
Advance. The aggregate principal amount of any Advance to be made on a
Disbursement Date shall be an amount which, when taken together with the Loan
Amount (calculated immediately prior to the making of such Advance) does not
exceed the Credit Limit. The aggregate principal amount of any Interim Advance
to be made on a Disbursement Date shall be an amount which, when taken together
with the Interim Loan Amount (calculated immediately prior to the making of such
Interim Advance) does not exceed the Interim Credit Limit. Notwithstanding
anything herein to the contrary, Lender may, in its sole discretion, make an
Advance in excess of the Credit Limit (or an Interim Advance in excess of the
Interim Credit Limit), which excess shall be subject to all of the terms and
conditions contained herein, and shall be secured by the Collateral, and such
excess shall be payable on demand. If Lender makes any Advances or Interim
Advances in excess of the Credit Limit, such action shall not establish a course
of conduct, past business practice or otherwise obligate Lender to make similar
Advances in the future. The giving of a Drawdown Notice as provided in this
Section shall constitute Borrower's irrevocable commitment to borrow an amount
equal to the specified amount of such Advance (or Interim Advance) on the
Disbursement Date, and interest on such Advance (or Interim Advance) shall
accrue as of such Disbursement Date whether or not such Advance (or Interim
Advance) is disbursed on such Disbursement Date; provided, however, if such
Advance (or Interim Advance) is never made the provisions of Section 8.03 shall
determine Borrower's liability to Lender.
(c) The proceeds of all Advances and Interim Advances shall only be paid
to the Funding Account. Subject to the conditions set forth herein, Lender shall
fund each Advance (or Interim Advance) on the Disbursement Date thereof by
wiring an amount equal to such Advance to the Funding Account.
Section 2.04. Interest.
(a) Basic Rate. Except as otherwise expressly provided in Section 2.04(b),
interest shall accrue on all Advances at the Interest Rate, and on all Interim
Advance at the Interim Interest Rate, from the Disbursement Date of each Advance
or Interim Advance, and shall be calculated for each Payment Period on the
average outstanding Loan Amount during such Payment Period. Interest shall
continue to accrue on all sums owed to Lender until the date payment thereof is
received by Lender.
(b) Interest on Overdue Payments. In the event that any amount of
principal of or interest on any Advance, or any other amount payable hereunder,
under the Notes or under any other Loan Document is not paid in full when due
(whether at stated maturity, by acceleration or otherwise), Borrower agrees to
pay (in the case of interest on overdue interest, to the extent permitted by
applicable law) interest on such unpaid principal or other amount for each day
from the date such amount becomes due until the date such amount is paid in
full, payable on demand, at an interest rate per annum equal to the Overdue
Rate.
(c) Computation of Interest. All computations of interest in respect of
the Line of Credit shall be made on the basis of a year of 360 days for the
actual number of days occurring in the period for which such interest is
payable.
Section 2.05. Prepayment.
(a) Borrower shall not prepay all or any portion of the principal amount
of any Advance without the prior written consent of Lender in each instance
unless: (i) such prepayment is required by Section 2.06 or Section 6.03(b); (ii)
such prepayment is in connection with a Disposition of Lender Receivables and 30
days prior written notice of such Disposition has been provided to Lender; or
(iii) such prepayment is in connection with a refinancing of an Advance and 30
days prior written notice of such prepayment has been provided to Lender.
(b) Borrower may prepay all or any portion of the principal amount of any
Interim Advance upon
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prior written notice to Lender.
Section 2.06. Payments; Repayment.
(a) Payment Amount.
(i) Subject to the provisions of Section 2.06(e), on each Payment
Date, Borrower shall make a Payment to Lender in an amount ("Required Amount")
equal to (1) accrued interest on the Loan Amount for the relevant Payment
Period, calculated in accordance with Section 2.04, plus (2) the portion of all
monies received by Borrower and/or Servicer, during such Payment Period in
respect of the Lender Receivables attributable to the repayment of principal
under the Receivable Documents, including amounts attributable to the principal
of the Lender Receivables which are received under the Loss Default Insurance or
upon liquidation of Financed Vehicles which have been repossessed by Borrower
upon default by the Obligors of the related Lender Receivables.
(ii) In the event Lender elects the Payment Period to be a calendar
month, interest on the amount of each Payment for the period beginning on the
day after the end of each Payment Period, through the date such Payment is
received by Lender, shall be payable within 10 days of the date such Payment is
received. The amounts received by Lender shall be applied in accordance with
Section 2.11.
(b) Place of Payment. Borrower shall make each Payment hereunder and under
the Notes without set-off or counterclaim not later than 11:00 A.M. (Salt Lake
City time) on each Payment Date to Lender, in Dollars, and in immediately
available funds by deposit of such funds in Lender's Account No. 26029678 at
First Interstate Bank of Utah, 3776 South Highland Drive, Salt Lake City, UT
84106, A.B.A. Routing No. 124000025 (801) 350-7251, or in such other account as
Lender shall from time to time designate by notice to Borrower.
(c) Due Dates. Whenever any Payment hereunder or under the Notes shall be
stated to be due or whenever any other date specified hereunder would otherwise
occur on a day other than a Business Day, such Payment shall be made and such
other date shall occur on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of interest. Payments
received on a date which is not a Payment Date shall be deemed to be received on
the next Business Day.
(d) Increased Payments. The provisions of Section 2.06(a) notwithstanding
if a Default or an Event of Default shall have occurred and be continuing, or
any Advance has not been repaid in full within 180 days of the Disbursement
Date, then the Required Amount of the Payment due on each Payment Date in
respect of such Advance shall be an amount equal to the greater of (I) all
monies received by Borrower and/or Servicer (less any fees payable to Servicer
pursuant to the Servicer Agreement and to the Custodian pursuant to the
Custodian Agreement) in respect of the Lender Receivables, Interim Receivables
and the Collateral financed by or securing such Advance, or (II) accrued
interest on such Advance calculated in accordance with Section 2.04.
(e) Repayment.
(i) Subject to Sections 2.06(e)(ii) and 2.06(e)(iii), on the
Maturity Date of each Advance or Interim Advance, Borrower shall repay all
amounts owed to Lender with respect to such Advance or Interim Advance.
(ii) If: (1) at a Takeout Closing Date, the Disposition with respect
thereto is for some but not all of the Lender Receivables financed by such
Advance; and (2) Borrower increases the amount of the Reserve for such Advance
with respect to the Overdue Receivables which are not part of such Disposition
on such Takeout Closing Date to an amount acceptable to Lender; then Borrower
shall not be required to repay that portion of such Advance attributable to such
Overdue Receivables on the Maturity Date; provided, however, such amounts shall
be due and payable on the earliest to occur of: (A) the first day of the month
following the
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three month anniversary of such Takeout Closing Date, and (B) the date all
Liquidation Proceeds (as defined in the Servicing Agreement) have been received
by Lender for all such Lender Receivables. For the avoidance of doubt, this
Section 2.06(e) shall not extend the Maturity Date for any Advance to the extent
of Lender Receivables which are not Overdue Receivables on a Takeout Closing
Date.
(iii) Lender agrees to extend the Maturity Date for an Advance for
an additional period of up to 30 days if Borrower has provided Lender evidence
reasonably acceptable to Lender that a Disposition of the Lender Receivables
financed with the proceeds of such Advance is imminent.
Section 2.07. Taxes.
(a) Withholding; Gross-up. Each Payment shall be made without withholding
on account of any Taxes; provided, however, if any Taxes are required to be
withheld, Borrower shall (i) give notice to that effect to Lender, make the
necessary withholding and make timely payment of the amount withheld to the
appropriate Government Entity; and (ii) immediately pay any additional amount
that may be necessary to ensure that the net amount actually received by Lender
free and clear of all Taxes is equal to the amount Lender would have received
had no Taxes been withheld. All Taxes so withheld shall be paid before penalties
attach thereto or interest accrues thereon. If any such penalties or interest
nonetheless become due, Borrower shall promptly pay such amounts to the
appropriate Government Entity. If Lender pays any amount in respect of Taxes or
any Payment, or penalties or interest thereon, Borrower shall reimburse Lender
in Dollars for such payment upon demand together with interest thereon from the
date of such demand until the date of reimbursement at the Overdue Rate. Lender
shall provide Borrower with a IRS form W-9 upon the written request of Borrower.
Anything in this Section 2.07 to the contrary notwithstanding, Borrower shall be
under no obligation to pay any Taxes based upon the net income of Lender.
(b) Stamp Taxes. Borrower shall pay all Taxes with respect to the
execution, delivery, acquisition, registration or enforcement of this Agreement,
any other Loan Document or any agreement, document or instrument relating hereto
along with interest or penalties incurred in connection with any amount required
to be paid under this Section 2.07(b).
(c) Tax Receipts. Within 30 days after payment of any Tax pursuant to this
Section 2.07, Borrower shall furnish to Lender an original or a certified copy
of a receipt for payment from the appropriate taxing authority evidencing
payment of such Tax, together with such other information and documents as
Lender may reasonably request.
Section 2.08. Evidence of Debt.
(a) As additional evidence of the indebtedness of Borrower to Lender
resulting from each Advance or Interim Advance, Borrower shall execute a
promissory note in substantially the form of Exhibit B hereto, dated the
Disbursement Date and with other appropriate insertions and delivered pursuant
to Section 4.01 ("Note"). Each Note shall specify whether it evidences an
Advance or an Interim Advance.
(b) The execution and delivery of the Notes shall not limit or reduce in
any way the obligations of Borrower under this Agreement, and the rights and
claims of Lender under the Notes shall not replace or supersede the rights and
claims of Lender hereunder; provided that payment of any part of the principal
of a Note, to the extent that such payment if made hereunder would discharge
Borrower's obligations hereunder in respect of the payment of the Advance or
Interim Advance evidenced by such Note, shall discharge such obligations pro
tanto, and the repayment of any principal of the Advance or Interim Advance in
accordance with the terms hereof shall discharge the obligations of Borrower
under the Note evidencing the Advance or Interim Advance to the extent of such
repayment.
Section 2.09. Use of Proceeds.
The proceeds of each Advance or Interim Advance shall be used by Borrower
only to pay the
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Receivable Purchase Price, the Loss Default Insurance premiums, to make deposits
to the Reserve Account required in connection with the Advance, and to pay any
reasonable fees to Persons, who are not an Affiliate of Borrower (not to exceed
2% the Receivable Purchase Price) incurred by Borrower in connection with
Borrower's acquisition of the Target Receivables. The Receivable Purchase Price
for any Target Receivable shall not be less than 88.00% of the then outstanding
principal amount of each Receivable unless otherwise approved in writing by
Lender.
Section 2.10. Lender's Fees
As additional consideration for Lender entering into this Agreement,
Borrower shall pay to Lender the Utilization Fee, the Non-Utilization Fee, the
Warehouse Facility Fee and the Interim Facility Fee (as such terms are defined
below) during the Commitment Period.
(a) Utilization Fee. Borrower shall pay Lender a fee ("Utilization Fee")
in an amount equal to a percentage per month of the average outstanding balance
of the Line of Credit. The percentages to be used to calculate the Utilization
Fee are as follows:
Percent of Average
Amount of Credit Limit Outstanding Balance
---------------------- -------------------
up to $10,000,000 0.20834% per month
$10,000,001 to $20,000,000 0.12500% per month
$20,000,001 to $50,000,000 0.10417% per month
$50,000,001 and above 0.08334% per month
During the Commitment Period, the Utilization Fee shall be due and payable by
Borrower to Lender on each Payment Date calculated for the Payment Period for
such Payment Date. For example, if the Credit Limit was $15,000,000, and the
average outstanding balance for the month of October, 1995 was $9,000,000, the
amount of the Utilization Fee for October, 1995 would be $18,750(1), which
(together with interest at the Interest Rate through the date of receipt by
Lender) would be due and payable on November 15, 1995.
(b) Non-Utilization Fee.
(i) Borrower shall pay Lender a fee ("Non-Utilization Fee") in an
amount equal to a percentage per quarter of the Average Unused Balance. The
"Average Unused Balance" shall be the amount by which the amount of the Credit
Limit exceeds the average outstanding balance of the Line of Credit. The
percentages to be used to calculate the Non-Utilization Fee are as follows:
Amount of Credit Limit Percent of Excess
---------------------- -------------------
up to $10,000,000 0.62500% per quarter
$10,000,001 to $30,000,000 0.25000% per quarter
$30,000,001 to $40,000,000 0.21875% per quarter
$40,000,001 and above 0.18750% per quarter
During the Commitment Period, the Non-Utilization Fee shall be due and payable
with respect to each calendar quarter by Borrower to Lender on the next Payment
Date following the end of each such calendar quarter. For example, if the Credit
Limit was $32,000,000, and the average outstanding balance for the months of
October, November, and December 1995 was $18,000,000, the amount of the
Non-Utilization Fee for the fourth quarter
- --------
(1) The calculation would be as follows:
Average Outstanding Balance for October, 1995 = $9,000,000
Utilization Fee for October, 1995 is ($9,000,000) x (.0020834) = $18,750.
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of 1995 would be $34,375(2), which would be due and payable on January 15, 1996.
(ii) Borrower shall have the option of paying up to one-half of the
Non-Utilization Fee due at the end of each calendar quarter, by execution and
delivery of a note, a security agreement and such other documents required by
Lender (each in a form acceptable to Lender) which documents shall grant Lender
a first priority Lien on an amount of Class B Interests reasonably acceptable to
Lender. Interest on such note shall accrue at the Class B Discount Rate for the
Class B Interests securing repayment of such note, and such note shall be due
and payable 180 days after the date such Non-Utilization Fee was due to be paid.
(iii) If through no fault of Borrower, Loss Default Insurance is not
available to Borrower for a period of 12 consecutive months during the
Commitment Period, and the lack of Loss Default Insurance is the sole reason
Borrower is unable to satisfy the conditions set forth in Section 4.02 for the
making of an Advance, Borrower shall use its best efforts to structure a credit
support reasonably acceptable to Lender to replace the Loss Default Insurance.
Thereafter, if Borrower and Lender are unable to agree on such a replacement
credit support by the end of such twelfth month, and no Default or Event of
Default shall have occurred and be continuing, Borrower shall no longer be
obligated to pay the Non-Utilization Fee for any period after such twelfth
month.
(c) Warehouse Facility Fee. The "Warehouse Facility Fee" shall be in the
amount of $700,000 payable as follows: (1) $500,000 within one Business Day of
the date the first Disposition of Receivables is completed by Borrower (or any
Affiliate thereof) on or after the date hereof; (2) $100,000 within one Business
Day of the date the second Disposition of Receivables is completed by Borrower
(or any Affiliate thereof) on or after the date hereof; and (3) $100,000 within
one Business Day of the date the third Disposition of Receivables is completed
by Borrower (or any Affiliate thereof) on or after the date hereof.
(d) Interim Facility Fee. Borrower shall pay Lender a fee ("Interim
Facility Fee") in the amount of 0.33334% per month of the average outstanding
balance of the Interim Line of Credit. The monthly equivalent of the Interim
Facility Fee shall be due and payable by Borrower to Lender on each Payment Date
with respect to the Payment Period for such Payment Date. For example, if the
average outstanding balance on the Interim Line of Credit for the month of
November, 1995 was $750,000, the amount of the Interim Facility Fee for
November, 1995 would be $2,500(3), which would be due and payable on December
15, 1995.
- --------
(2) The calculation would be as follows:
Average Unused Balance for fourth quarter 1995:
($32,000,000 - $18,000,000) = $14,000,000
Non-Utilization Fee for fourth quarter 1995 based on $14,000,000:
($12,000,000) x (.0025000)= $30,000
($ 2,000,000) x (.0021875)= $ 4,375
-------
Total Non-Utilization Fee $34,375
(3) The calculation would be as follows:
Average Outstanding Balance for November, 1995 = $750,000
Interim Facility Fee for November, 1995:
($750,000) x (.0033334) = $2,500.
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Section 2.11. Application of Payments.
All amounts received by Lender under the Loan Documents shall from time to
time (but no less frequently than each Payment Date provided Servicer has
provided all information required by Lender to properly apply such amount) be
applied by Lender:
(a) prior to the occurrence and continuation of a Default or an Event of
Default in the following order:
(i) in payment of any costs, fees, expenses or other amounts then
due to Lender under the Loan Documents other than principal of and interest on
the Advances or Interim Advances;
(ii) next the Required Amount to the payment of any interest on
and/or principal of any one or more of the Advances or Interim Advances as
determined by Lender;
(iii) next, in payment of any amount due to Servicer or Custodian
under the Operative Documents; and
(iv) the balance (if any) to Borrower.
(b) upon the occurrence and continuation of a Default or an Event of
Default in the following order:
(i) in payment of any costs, fees, expenses or other amounts then
due to Lender under the Loan Documents other than the principal of and interest
on the Advances or Interim Advances;
(ii) next in payment of any and all interest on and/or principal of
any one or more of the Advances or Interim Advances as determined by Lender;
(iii) next, in payment of any amount due to Servicer or Custodian
under the Operative Documents; and
(iv) the balance (if any) to Borrower.
ARTICLE III
SECURITY
Section 3.01. Security for Line of Credit.
As security for the payment and performance of the Obligations and the
Guarantor Obligations, Borrower shall grant or cause to be granted to Lender a
perfected first priority Lien on all of the Collateral (subject only to
Permitted Liens), including all of Borrower's right, title and interest in, to
and under the Lender Receivables and the other Operative Documents, whether now
owned or hereafter acquired. Borrower shall deliver to Lender, in accordance
with Section 4.01, the Security Agreement and duly executed by Borrower.
Provided no Default or Event of Default shall have occurred and be continuing,
and subject to prepayment restriction set forth in Section 2.05, upon receipt by
Lender of the Receivable Release Amount in respect of a Lender Receivable after
a Disposition of such Lender Receivable, Lender shall promptly execute a UCC
termination statement or other documents reasonably required to release Lender's
Lien on such Lender Receivable.
Section 3.02. Guarantees.
As additional security for the payment and performance of the Obligations
and the Guarantor
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Obligations, Borrower shall cause each Guarantor to execute and deliver the
appropriate Guarantee to Lender in accordance with Section 4.01(a). Upon the
occurrence (if at all), of the conditions of release as set forth in the
Winsauer Guarantee, Lender shall release Winsauer from his obligations under the
Winsauer Guarantee in accordance with the terms of the Winsauer Guarantee.
Section 3.03. Reserve.
(a) Establishment and Maintenance of Reserve Account. As additional
security for the payment and performance of the Obligations and the Guarantor
Obligations, Lender shall establish the Reserve Account as a segregated account
entitled "Sentry Financial Corporation Auto Bond - Reserve Account," at Key Bank
of Utah. The Reserve Account shall be maintained at either Key Bank of Utah or a
bank or trust company, the long-term debt obligations of which are rated no less
than "A" by S&P or "A2" by Moody's.
(b) Reserve. Borrower shall deposit or cause to be deposited an amount
equal to the Reserve into the Reserve Account on each Disbursement Date. All
interest earned on the Reserve shall remain in the Reserve Account and become
part of the Reserve. Borrower acknowledges that the Reserve and the Reserve
Account are part of the Collateral, and Borrower agrees that the use and
application of the Reserve shall, subject to Section 3.03(c), be solely within
the discretion of Lender. In the event Lender elects to apply some or all of the
Reserve to repay the amounts owed to Lender pursuant to the Loan Documents,
Lender shall apply the Reserve in accordance with the provisions of Section
2.11.
(c) Release of Reserve to Borrower. Provided no Default or Event of
Default shall have occurred and be continuing, Lender may, from time to time,
release a portion of the Reserve as follows: (i) upon repayment of an Advance,
Lender shall, subject to Section 2.06(e)(ii), release that portion of the
Reserve held by Lender with respect to such Advance; and (ii) from time to time
(but no less frequently than 30 days after the end of each calendar quarter
provided Servicer has timely provided all information required by Lender),
Lender shall release and pay to Borrower the Excess Reserve. The "Excess
Reserve" means at a given point of time, the amount by which the Reserve exceeds
6.00% of the Loan Amount.
(d) Investment of Funds Deposited in Reserve Account. Lender shall either
maintain the Reserve on deposit in the Reserve Account (which shall be interest
bearing) or invest and reinvest the Reserve (or any portion thereof) only in
Permitted Investments, which Permitted Investments shall mature or be redeemable
at the option of Lender at any time. "Permitted Investments" means the
following:
(i) federal funds, certificates of deposit, time deposits and
bankers' acceptances with final maturities of one (1) year or less issued by
banks or trust companies organized under the laws of the U.S. or any state
thereof and having unsecured long-term debt rated "A" or better by S&P or "A2"
or better by Moody's; provided, however, that any such certificates of deposit
that are rated by both such rating agencies shall be rate "A" or better by S&P
and "A2" or better by Moody's;
(ii) commercial paper of corporations organized under the laws of a
jurisdiction within the U.S. 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;
(iii) direct obligations (excluding principal-linked securities)
issued or unconditionally guaranteed by the U.S. or any agency thereof and
maturing within one (1) year from the date of acquisition thereof, and
repurchase agreements on such obligations; provided, that the short-term debt
rating of the party agreeing to repurchase is at least "A-1" by S&P or "P-1" by
Moody's;
(iv) debt securities (excluding principal-linked securities) or
corporations organized under the laws of a jurisdiction within the U.S. (i) with
a maturity of one (1) year or less and rated "A" or better by S&P or "A2" or
better by Moody's provided, however, that any such debt security that is rated
by both such rating
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agencies shall be rated "A" or better by S&P and "A2" or better by Moody's; and
(v) securities of money market funds rated at least "AAm" by S&P and
"P-1" by Moody's.
Section 3.04. Funding Account.
As additional security for the payment and performance of the Obligations
and the Guarantor Obligations, Borrower shall establish the Funding Account and
Borrower shall deposit or cause to be deposited all proceeds of the Advances and
the Interim Advances into the Funding Account on each Disbursement Date.
Borrower acknowledges that the Funding Account is part of the Collateral, and
Borrower shall enter into Funding Account Documents (acceptable to Lender) which
shall give Lender control of the funds in the Funding Account after an Event of
Default.
ARTICLE IV
CONDITIONS
Section 4.01. Conditions Precedent to First Advance and First Interim
Advance.
The obligation of Lender to make the first Advance after the date hereof,
and the first Interim Advance, shall be subject to fulfillment of each of the
following conditions to the satisfaction of Lender on or prior to the initial
Disbursement Date:
(a) Loan Documents. A fully executed copy of each of the Loan Documents
(each in a form satisfactory to Lender) shall have been delivered to each party
thereto, with an executed original delivered to Lender.
(b) Operative Documents. A fully executed copy of each of the other
Operative Documents shall have been delivered to each party thereto, and Lender
shall have received a copy of each such Operative Document (other than the
Receivable Documents) certified by Borrower as true and correct.
(c) Accounts. Lender shall have received evidence that the Reserve Account
and the Funding Account have each been established with a bank and upon terms
acceptable to Lender.
(d) Corporate Organization and Authority. Lender shall have received the
following, in each case in form and substance satisfactory to it:
(i) a copy of the Articles of Incorporation and of the By-laws of
Borrower, certified by the Secretary or an Assistant Secretary of Borrower, and
a copy of the resolutions of the board of directors and, if necessary, the
shareholders of Borrower, similarly certified, duly authorizing the execution,
delivery and performance by Borrower of this Agreement and the other Loan
Documents and each other document required to be executed and delivered by
Borrower in accordance with the provisions hereof and thereof, together with an
incumbency certificate as to the person or persons authorized to execute and
deliver said documents on behalf of Borrower;
(ii) a copy of the resolutions or other authorizing actions of
Servicer similarly certified, duly authorizing the execution, delivery and
performance by Servicer of the Loan Documents to which it is a party and each
other document required to be executed and delivered by Servicer in accordance
with the provisions hereof and thereof, together with an incumbency certificate
as to the person or persons authorized to execute and deliver said documents on
behalf of Servicer;
(iii) a copy of the resolutions of the board of directors of the
Custodian similarly certified, duly authorizing the execution, delivery and
performance by the Custodian of the Loan Documents to which it
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is a party and each other document required to be executed and delivered by the
Custodian in accordance with the provisions hereof and thereof, together with an
incumbency certificate as to the person or persons authorized to execute and
deliver said documents on behalf of the Custodian; and
(iv) any other corporate or partnership documents from other parties
involved in the transactions contemplated by the Loan Documents as requested by
Lender.
(e) Opinions of Counsel. Lender shall have received the following opinions
of counsel each in a form acceptable to Lender and its counsel:
(i) The opinion of Kirkley, Schmidt & Cotten as local Texas counsel
to Borrower; and
(ii) such other opinions of counsel to other parties as requested by
Lender.
Section 4.02. Conditions Precedent to All Advances.
The obligation of Lender to make any Advance (including the first Advance)
shall be subject to fulfillment of each of the following conditions to the
satisfaction of Lender on or prior to the Disbursement Date for such Advance:
(a) Representations and Warranties. The representations and warranties of
Borrower contained herein and in the other Loan Documents shall be true and
correct in all material respects on and as of the Disbursement Date as though
made on and as of such date; and Lender shall have received a certificate
executed by an Authorized Officer of Borrower certifying to the truth and
accuracy of the foregoing dated as of such Disbursement Date.
(b) No Default. On the Disbursement Date (I) each of the Operative
Documents shall be in full force and effect, (II) no Default or Event of Default
shall have occurred and be continuing hereunder or under the other Operative
Documents, or shall result from the making of the Advance; and Lender shall have
received a certificate executed by an Authorized Officer of Borrower certifying
to the truth and accuracy of the foregoing dated as of such Disbursement Date.
(c) Advance Documents. A fully executed copy of each of the Advance
Documents shall have been delivered to each party thereto, with an executed
original delivered to Lender.
(d) Operative Documents. A fully executed copy of each new Operative
Document shall have been delivered to each party thereto, and Lender shall have
received a copy of each such Operative Document (other than the Receivable
Documents) certified by Borrower as true and correct.
(e) Receivable Purchase Agreements. Borrower shall have performed all of
its obligations under the Receivable Purchase Agreement(s) due to be performed
on or prior to such date, and Lender shall have confirmation that upon funding
of the Advance, Borrower shall have paid all sums due to the seller thereunder,
such seller retains no interest in the Target Receivables and none of the
proceeds of such Advance are to be paid to Borrower or any Affiliate of Borrower
except as expressly contemplated by Section 2.09.
(f) Receivable Documents. Lender shall have received evidence that (I)
Custodian has in its possession the sole original of each Receivable Document
(other than the title or application of title); (II) the Custodian is
maintaining possession of such Receivable Documents for Lender's benefit
pursuant to the Custodian Agreement, (III) each such document has been properly
completed on a form approved by Lender, validly executed and is enforceable in
accordance with its terms, and (IV) none of the payments due by Obligor under
the Receivable Documents is past due by more than 30 days.
(g) Reserve. Lender shall have received evidence that, simultaneously with
the funding of such Advance, Borrower will deposit or cause to be deposited the
Reserve in the Reserve Account.
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(h) Collateral. Lender shall have received evidence that (A) UCC financing
statements have been filed or registered with the appropriate governmental
offices with respect to the Collateral; and (B) any other actions which are
necessary to perfect a Lien on Collateral have been taken, all establishing the
first priority Lien of Lender in the Collateral.
(i) Use of Proceeds. Lender shall have received evidence that the proceeds
of the Advance are to be used solely to (I) pay or reimburse Borrower for the
purchase price of the Target Receivables (II) pay the Loss Default Insurance
premiums for such Target Receivables, and (III) make deposits to the Reserve
Account required in connection with the Advance.
(j) Insurance. Lender shall have received (I) evidence that the Loss
Default Insurance required under Section 6.01(j) has been obtained, is in full
force and effect, has been collaterally assigned to Lender as additional
security for the Advance, and (II) a letter of undertaking from the Insurance
Broker in a form acceptable to Lender. In the event the Loss Default Insurance
is no longer available to Borrower, Lender agrees that Borrower may satisfy this
condition with a comparable credit support from a Person, upon terms and in a
form acceptable to Lender.
(k) Auditor's Report. Lender shall have received a written report from
Auditor in a form acceptable to Lender.
(l) Servicer Certificate. Lender shall have received a certificate from
the Servicer in the form of Exhibit B to the Servicing Agreement.
(m) Registration; Title. Lender shall have received from Auditor evidence
that (i) there shall have been delivered to the Custodian with respect to each
such Financed Vehicle either an original certificate of title or original
guarantee of title or copy of application for title, (ii) each Financed Vehicle
securing a Target Receivable is registered or is in the process of being
registered with the motor vehicle authority of the state where the related
Obligor resides, and (iii) upon the completion of such registration the Obligor
for each Target Receivable is or will be the registered owner and Auto Bond
Acceptance Co. (or such other Originator of the Target Receivable) is or will be
the lienholder of the relevant Financed Vehicle.
(n) Releases of Prior Liens. Lender shall have received a copy of the
release of all Liens against the Collateral (other than the Financed Vehicles)
and such other documents as Lender may require in connection with the
termination of any and all Liens affecting the Collateral other than Permitted
Liens.
(o) Approval of Agreements. Lender shall have consented in writing to the
form and substance of each of the Operative Documents.
(p) Corporate Organization and Authority. Lender shall have received an
incumbency certificate as to the person or persons authorized to execute and
deliver the Advance Documents on behalf of Borrower, and such other related
documentation as reasonably requested by Lender.
(q) Ownership of Receivables. Lender shall have received evidence to the
effect that, concurrently with the Disbursement Date, Borrower has (or
immediately upon disbursement of the proceeds of the Advance, will have) good
and marketable title to the Target Receivables to be acquired with the proceeds
of the Advance free and clear of Liens, except for Permitted Liens.
(r) Agent for Service of Process. Lender shall have received evidence to
the effect that the irrevocable appointments of Borrower's agent for service of
process pursuant to Section 9.02(c) shall be in full force and effect.
(s) Other Indebtedness. As of the Disbursement Date, neither Borrower nor
Guarantor shall have failed (i) to pay any Indebtedness in excess of $250,000 or
any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
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continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or (ii) to perform or observe any
term, covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Indebtedness, when required to be
performed or observed, and such failure shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such failure to perform or observe is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment or a mandatory prepayment), prior
to the stated maturity thereof.
(t) No Change. Nothing shall have occurred which materially and adversely
has affected or may affect the ability of Borrower or any other party to the
Loan Documents to carry on its business and to perform its obligations under
such Loan Documents.
(u) Amount of Advance. The amount of such Advance shall not be less than
65.00% of the outstanding principal amount of the Interim Line of Credit on the
Disbursement Date.
(w) Other Documents. Lender shall have received such other documents,
opinions of counsel, instruments, certificates, Lien releases, and assurances
relating to the making of the Advance, and all proceedings in connection with
the transactions contemplated by the Operative Documents, as Lender may
reasonably request in form and substance satisfactory to Lender and its counsel.
Section 4.03. Conditions Precedent to All Interim Advances.
The obligation of Lender to make any Interim Advance (including the first
Interim Advance) shall be subject to fulfillment of each of the conditions set
forth in Section 4.02 (other than conditions 4.02(f), 4.02(k), 4.02(l), and
4.02(m), ) to the satisfaction of Lender on or prior to the Disbursement Date
for such Interim Advance, with all references in Section 4.02 to "Advances"
being deemed to be references to "Interim Advances" as determined by Lender.
Section 4.04. Conditions Subsequent.
Within 135 days of each Disbursement Date, Borrower shall provide evidence
to Lender that the Custodian has received the original certificates of title to
the Financed Vehicles securing the Target Receivables and that such certificates
of title show the appropriate Obligor as the owner of the Financed Vehicle and
Auto Bond Acceptance Co. (or such other originator of the Target Receivables) as
the first lienholder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties of Borrower.
Borrower represents and warrants to Lender as follows:
(a) Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, is qualified to do
business and is in good standing in each jurisdiction in which such
qualification is required in view of its business and operations or the
ownership of its properties, and has all requisite corporate power and authority
to own its own assets and carry on its business and to execute and deliver and
perform its obligations under each of the Operative Documents to which Borrower
is a party.
(b) Borrower has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under each of the
Operative Documents to which Borrower is a party, and all other documents to be
executed and delivered in connection therewith, and such action does not and
will not
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(i) violate any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree or the like affecting Borrower or any provision of the
articles of incorporation or by-laws of Borrower, (ii) result in a breach of or
constitute a default under any indenture, loan agreement, lease, instrument or
other contract to which Borrower is a party or by which it or its properties may
be bound or affected or (iii) require the approval of or notice to any creditor
of Borrower.
(c) No authorization, consent, approval, license, exemption of or filing
or registration with any court or Government Entity is required for the due
execution, delivery or performance by Borrower of any of the Operative Documents
to which Borrower is a party, except for filing of UCC financing statements and
the filing of applications for title to the Financed Vehicles securing the
Target Receivables.
(d) Each of the Operative Documents to which Borrower is a party is the
legal, valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium and similar laws affecting creditors' rights generally, and subject
as to enforceability to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(e) The Receivable Documents delivered to the Custodian constitute all of
the documents evidencing the Target Receivables and no money is owed to the
seller of the Target Receivables in respect of Borrower's acquisition of the
Target Receivables.
(f) At the time of Borrower's acquisition thereof, none of the payments
due by any Obligor under any Receivable Document evidencing a Target Receivable
is more than 30 days past due unless express written notice thereof has been
provided to Lender.
(g) A certified copy of all the Operative Documents (other than the Loan
Documents and the Receivable Documents) has been delivered to Lender.
(h) Each of the Operative Documents to which Borrower is a party, and each
of the Receivable Documents, comply with all applicable laws, including federal
and state "truth-in-lending" laws.
(i) (I) The obligations of Borrower under each of the Loan Documents to
which it is a party are not subordinated in priority of payment to any other
Indebtedness of Borrower; (II) there is no Lien upon or with respect to any of
the properties or income of Borrower which secures Indebtedness of any Person
except as contemplated in the Loan Documents and except for Liens permitted
under Section 6.02(b) hereof.
(j) There are no pending or, to the best of Borrower's knowledge,
threatened actions, suits or proceedings before any court or governmental
agency, arbitrator or instrumentality affecting Borrower (or Guarantor), which
if adversely determined will materially and adversely affect Borrower's ability
(or Guarantor's ability) to perform the Obligations (or the Guarantor
Obligations).
(k) As of the date hereof, all of the outstanding shares of capital stock
of Borrower are owned by Winsauer and all of such shares are validly issued,
fully paid and nonassessable. No securities convertible into or exchangeable for
any shares of capital stock of Borrower or any options, warrants or other rights
to purchase or otherwise acquire any shares of capital stock of Borrower are
outstanding.
(l) Neither Borrower nor any ERISA Affiliate of Borrower is in violation
of any applicable rules relating to any Plan or Multiemployer Plan to which it
is a party.
(m) Borrower is not in material default under any contract, lease,
agreement, judgment, decree or order to which it is a party or by which it or
its properties may be bound unless written notice thereof has been provided to
Lender, which notice shall include details related thereto reasonably acceptable
to Lender.
(n) Borrower and all Affiliates of Borrower have duly filed all tax and
information returns required
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to be filed with respect to Borrower and its Affiliates, and have paid all taxes
and other charges shown thereon to be due and payable. Neither this Agreement
nor any other Loan Document nor any filing required or permitted hereunder or
thereunder is subject to any registration tax, stamp duty or similar tax.
(o) Borrower (or the Person granting a Lien on any Collateral) has good
and marketable title to the Collateral. The Liens granted under the Loan
Documents, upon filing of UCC financing statements with the appropriate
governmental offices, shall be valid and perfected first priority Liens on the
Collateral (other than the Financed Vehicles), subject only to Permitted Liens.
Upon filing of the application for title thereof listing Borrower as the
"lienholder", the Receivable Documents create a valid and perfected first
priority Lien on each Financed Vehicle.
(p) The principal place of business and chief executive office of Borrower
is located at the address specified for Borrower on the signature page hereof.
Borrower does not conduct its business under any trade names or trade styles,
except as disclosed to Lender.
(q) All written information given by Borrower to Lender in relation to
this Agreement or any of the other Operative Documents is accurate and complete
with respect to the information purported to be set forth therein, and does not
omit any fact which would be necessary to make any statement or representation
or warranty contained herein or therein not materially misleading.
(r) In any proceedings in relation to any Operative Document, Borrower
will not be entitled to claim for itself or any of its assets immunity from
suit, execution, attachment or other legal process.
(s) In any proceedings in relation to any Loan Document which is expressed
to be governed by Utah law, under the laws of Texas in force at the date hereof
the choice of Utah law as the governing law of such agreement will be recognized
and Utah law will be applied.
(t) It is not necessary or advisable that this Agreement or any other Loan
Document or Operative Document or particulars thereof be filed, recorded, or
registered with any court or Government Entity, other than UCC-1 financing
statements filed with the Secretary of State of Texas against the Collateral,
and certificates of title with respect to the Financed Vehicles.
(u) All acts, conditions and things required to be done, fulfilled and
performed in order to enable Borrower lawfully to enter into, exercise its
rights under and perform and comply with the obligations expressed to be assumed
by it in each Operative Document to which it is a party have been done,
fulfilled, and performed.
(w) Neither Borrower, nor any Affiliate of Borrower, shall receive
(directly or indirectly) any of the proceeds of any Advance or Interim Advance
except as expressly contemplated by Section 2.09 hereof.
(x) Borrower's audited financial statements dated March 31, 1995 covering
the period from September 1, 1994, through March 31, 1995, heretofore delivered
to Lender, have been prepared in accordance with generally accepted accounting
principles consistently applied, and fairly and accurately present the financial
condition of Borrower as of that date and the results of its operations for that
period subject to normal year end adjustments.
(y) There has been no material adverse change since March 31, 1995 in the
financial condition of Borrower or in Borrower's ability to perform its
obligations under the Operative Documents to which Borrower is a party.
(z) None of the transactions contemplated in this Agreement including the
borrowings hereunder and the use of the proceeds thereof (but excluding any
assignments or participations of any Advance by Lender), will violate or result
in a violation of any provision of the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended (or any regulations issued
pursuant thereto).
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(aa) As of the date hereof, all matters stated in the Recitals to this
Agreement are true and correct.
Section 5.02. Repetition of Representations and Warranties.
Each representation and warranty set forth in Section 5.01 shall (unless
otherwise set forth therein) be deemed to be made as of the first Disbursement
Date, and repeated on each subsequent Disbursement Date and on each Payment Date
as if made on and as of that date.
ARTICLE VI
COVENANTS
Section 6.01. Affirmative Covenants of Borrower.
So long as any Advance or Interim Advance or any other amount payable by
Borrower under this Agreement or any other Loan Document shall remain unpaid,
Borrower shall:
(a) Preservation of Existence, Etc. (I) Maintain and preserve its
corporate existence, and (II) its rights to transact business and all other
rights, franchises and privileges necessary or desirable for the normal course
of its business and operations and the ownership of its properties and the
performance of its obligations under the Loan Documents, including all
certificates, consents, approvals, licenses and authorizations of any
Governmental Entity.
(b) Payment of Taxes, Etc. Pay and discharge all Taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a Lien upon any of
the properties of Borrower except to the extent such Taxes, assessments,
governmental charges or levies or claims are being contested in good faith and
do not exceed $100,000 in the aggregate at any time.
(c) Compliance with Laws, Etc. Comply in all respects with the
requirements of all applicable laws, rules, regulations and orders of any
Government Entity and (except to the extent inconsistent with Borrower's
obligations hereunder) the terms of any indenture, contract or other instrument
to which it is a party or under which it or its properties may be bound, where
the failure to comply would have a materially adverse effect on Borrower's
ability to perform the Obligations or Guarantor's ability to perform the
Guarantor Obligations.
(d) Inspection Rights. At any reasonable time and from time to time upon
reasonable prior notice, permit Lender or any of its respective agents or
representatives to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, Borrower and discuss the
business affairs, finances and accounts of Borrower with any of its officers,
employees or accountants.
(e) Keeping of Records and Books of Account. Keep adequate records and
books of account in which complete entries will be made according to GAAP
consistently applied, reflecting all financial transactions of Borrower. Such
records and books of account shall be kept in accordance with applicable rules
and regulations of any Governmental Entity or regulatory authority having
jurisdiction over Borrower or the transactions contemplated by this Agreement.
(f) Receivable Reports. Provide or cause to be provided to Lender reports
from the Servicer (or Borrower or otherwise) describing (i) the payments made by
the Obligors in respect of the Lender Receivables and (ii) such other
information from time to time requested by Lender.
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(g) Pari Passu. Ensure that at all times its obligations under this
Agreement are not subordinated to its obligations owed to all its unsecured
creditors except those whose claims are given preferred status by any
bankruptcy, insolvency or other similar laws of general application.
(h) Change of Chief Executive Office. Give Lender at least 30 days' prior
written notice of any change in the location of the principal place of business
or chief executive office of Borrower; provided, however, that no change of
Borrower's principal place of business or chief executive office shall be made
if such change will affect Lender's ability to preserve the rights and Lien
status created under the Loan Documents.
(i) Notices. Deliver to Lender promptly upon receipt thereof by Borrower a
copy of all notices received by Borrower from any Government Entity or any other
party which could reasonably materially and adversely affect the value of the
Collateral (taken as a whole).
(j) Insurance. (i) Maintain the Loss Default Insurance with respect to all
Lender Receivables, (ii) use its best efforts to maintain the Loss Default
Insurance (or a similar policy acceptable to Lender) with companies and upon
terms satisfactory to Lender for all future Lender Receivables; (iii) deliver to
Lender a monthly report of all claims made against the Loss Default Insurance by
or on behalf of Borrower; and (iv) ensure that all requirements of the Loss
Default Insurance are complied with.
(k) Enforcement of Operative Agreements. (i) Fulfill or perform all
conditions and covenants of the Loan Documents to be fulfilled or performed by
Borrower, (ii) enforce the fulfillment or performance of all conditions and
covenants of the other Operative Documents where the failure to do so could
reasonably materially reduce the value of the Collateral (taken as a whole), and
(iii) deliver to Lender promptly upon receipt thereof a copy of all notices and
upon the request of Lender all reports delivered by or to Borrower pursuant to
the Operative Documents (other than the Receivable Documents).
(l) Consents. Obtain, comply with the terms of and do all that is
necessary to maintain in full force and effect all authorizations, approvals,
licenses and consents required by all applicable laws and regulations to enable
it lawfully to enter into and perform its obligations under each of the
Operative Documents or to ensure the legality, validity, priority, or
enforceability against Borrower of each of the Operative Documents.
(m) Security. Ensure that all filings and other acts necessary to perfect
and maintain Lender's first priority Lien on the Collateral are properly
completed, and Lender's Lien on the Collateral is maintained and perfected in
such manner as Lender may reasonably require.
(n) Lender Accumulation Account. Borrower shall cause all payments made by
the Obligors of all Lender Receivables to be deposited directly into the Lender
Accumulation Account.
(o) Receivable Documents. Within 5 Business Days of receipt of Lender's
written request therefor, provide Lender with the original of or a copy of any
Receivable Document.
(p) Further Assurances and Additional Acts. (i) Execute, acknowledge,
deliver, file, notarize and register at its own expense all such further
agreements, instruments, certificates, documents and assurances and perform such
acts as Lender shall reasonably deem necessary or appropriate to effectuate the
purposes of the Loan Documents, (ii) promptly obtain from time to time and
maintain in full force and effect at its own expense all such governmental
licenses, authorizations, consents, permits and approvals as may be required to
enable Borrower to comply with its obligations under the Operative Documents,
and all other documents made and delivered, or to be made and delivered,
pursuant thereto, and (iii) promptly provide Lender with evidence of the
foregoing satisfactory in form and substance to Lender.
(q) Use of Proceeds of Advance. Use the proceeds of each Advance only in a
manner expressly permitted by Section 2.09 hereof.
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(r) Servicer. If Servicer shall fail in a material respect to perform any
of its obligations under any of the Servicer Documents: (i) use its best efforts
to cause such failure to be remedied as soon as possible, and (ii) if such
failure is not remedied within 10 days after written notice thereof shall have
been given to Borrower by Lender, replace Servicer with another servicer
(performing the same duties as Servicer) acceptable to Lender within 45 days of
Borrower's receipt of such notice.
(s) Custodian. If Custodian shall fail in a material respect to perform
any of its obligations under any of the Custodian Documents: (i) use its best
efforts to cause such failure to be remedied as soon as possible, and (ii) if
such failure is not remedied within 10 days after written notice thereof shall
have been given to Borrower by Lender, replace Custodian with another custodian
(performing the same duties as Custodian) acceptable to Lender within 45 days of
Borrower's receipt of such notice.
(t) Winsauer. Ensure that Winsauer remains actively involved in the
management of the business affairs of Borrower, and owns a significant
percentage of the stock of Borrower, both as reasonably determined by Lender.
(u) Ownership of Borrower. Notify Lender of any change in the ownership of
the outstanding shares of capital stock of Borrower, and the issuance of any
securities convertible into or exchangeable for any shares of capital stock of
Borrower or any options, warrants or other rights to purchase or otherwise
acquire any shares of capital stock of Borrower are outstanding.
(v) Special Purpose Borrower. Upon written notice to Borrower, cause a
Person to be formed as an Affiliate of Borrower ("SPC"), whose sole legal
purpose shall be to purchase Target Receivables financed by the Line of Credit,
effect Dispositions of such Receivables, and such other matters related thereto
but approved by Lender. Borrower shall cause SPC to enter into documents
approved by Lender, reasonably acceptable to Borrower, and substantially similar
to the Loan Documents, except that such documents shall prohibit SPC from
conducting any business other than as described in the prior sentence. The type
of entity which SPC shall be, and the form and substance of the organizational
documents of SPC, shall both be acceptable to Lender, and include provisions
required by Lender limiting SPC's right to file for protection under the
Bankruptcy Act without the consent of a Person approved by Lender. Borrower
shall comply with all of the requirements of this Section 6.01(v) or cause such
requirements to be complied with, within 30 days of Borrower's receipt of
Lender's written notice with respect thereto.
Section 6.02. Negative Covenants of Borrower.
So long as any Advance or Interim Advance or any other amount payable by
Borrower under this Agreement or any other Loan Document shall remain unpaid,
Borrower shall not, except with the prior written consent of Lender (which
consent shall not be unreasonably withheld):
(a) Additional Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness which ranks in priority of payment greater than pari passu with the
Obligation, other than Indebtedness of Borrower to Lender under the Loan
Documents and Indebtedness of Borrower to a Person secured by one or more assets
of Borrower other than the Collateral.
(b) Liens; Etc. Create, incur, assume or suffer to exist any Lien upon or
with respect to any of the Collateral, whether now owned or hereafter acquired,
or assign any right to receive income other than (i) Liens in favor of Lender to
secure Indebtedness to Lender under the Loan Documents, (ii) Permitted Liens,
and (iii) Liens consented to in writing by Lender.
(c) Fundamental Changes. (i) Engage in any business activities other than
origination, acquisition, servicing and securitization of Receivables, (ii)
transfer the origination, servicing, collection or other similar activities
related to the Lender Receivables to another Person, or (iii) merge or
consolidate with, liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution) or, except as expressly contemplated by this
Agreement, assign, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all
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or substantially all of its assets (whether now owned or hereafter acquired) to
any Person.
(d) Distributions, Etc. During the continuance of a Default or Event of
Default, declare or pay any dividends, purchase, redeem, retire or otherwise
acquire for value any of its capital stock, or options or other rights in
respect thereof, now or hereafter outstanding, or make any distribution of
assets to its stockholders as such.
(e) Amendment of Operative Documents. Amend, modify or waive any provision
of, or release, surrender, cancel or terminate any of the Operative Documents
(other than the Receivable Documents or the Receivable Purchase Documents) or
consent to any of the foregoing.
(f) Funding Account. Use the funds on deposit in the Funding Account only
in a manner expressly permitted by Section 2.09. Borrower shall not deposit any
funds in the Funding Account other than the proceeds of the Advances and the
Interim Advances, or otherwise commingle any other funds with the funds on
deposit in the Funding Account.
(g) Interim Receivables. Finance any Interim Receivable with any Person
other than Lender, except pursuant to a Disposition of Interim Receivables.
Section 6.03. Financial Covenants.
(a) So long as any Advance or Interim Advance or any other amount payable
by Borrower under this Agreement or any other Loan Document shall remain unpaid,
Borrower will maintain a positive net worth and a positive balance in cash and
cash equivalents.
(b) If at the end of a Payment Period the Delinquency Ratio for any
Advance is (i) 25% or higher, but less than 50%, Borrower shall, within 5 days
of receipt of notice thereof, cause the Reserve for such Advance to be increased
to an amount equal to 9% of the outstanding principal balance of such Advance;
and (ii) 50% or higher, Borrower shall, within 5 days of receipt of notice
thereof, repay such Advance together with any interest due thereon.
Section 6.04. Reporting Requirements.
So long as any Advance or Interim Advance or any other amount payable by
Borrower under this Agreement or any other Loan Document shall remain unpaid,
Borrower shall furnish to Lender:
(a) Quarterly Financial Statements and Reports of Borrower. As soon as
available and in any event not later than 45 days after the end of each fiscal
quarter, financial statements of Borrower as of the end of such quarter,
including balance sheets and income statements, prepared without footnotes and
subject to normal year-end adjustments but otherwise in accordance with GAAP
consistently applied, setting forth in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year (if
applicable), all in reasonable detail, together with a certificate of an
Authorized Officer of Borrower stating that such Authorized Officer has no
knowledge that any Event of Default, or Default, has occurred, and if such Event
of Default or Default has occurred and is continuing, indicating the nature
thereof and the action which Borrower proposes to take with respect thereto.
(b) Annual Financial Statements. (i) As soon as available and in any event
not later than 120 days after the end of each fiscal year of Borrower, a
duplicate original of the annual audited financial statements for such year for
Borrower, including balance sheets and income statements, all in reasonable
detail, together with a certificate of an Authorized Officer of Borrower as
having been audited by a public accounting firm acceptable to Lender in
accordance with GAAP consistently applied and stating that such Authorized
Officer has no knowledge that any Event of Default, or Default has occurred or,
if such Event of Default or Default has occurred and is continuing, indicating
the nature thereof and the action which Borrower proposes to take with respect
thereto; and (ii) promptly after filing with the Internal Revenue Service, a
copy of the tax return for
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Borrower.
(c) Notice of Default. As soon as possible after the occurrence of any
Event of Default or Default, a statement of the chief financial officer or other
Authorized Officer of Borrower setting forth details of such Event of Default or
Default and the action which Borrower proposes to take with respect thereto.
(d) Notice of Litigation. Promptly, and in any event within ten Business
Days after the commencement thereof, notice of all actions, suits and
proceedings before any court or governmental agency, arbitrator or
instrumentality affecting Borrower which if adversely decided may have a
material adverse effect on the financial condition, properties or operations of
Borrower.
(e) Funding Account. (i) A copy of each bank statement for the Funding
Account within 5 days of Borrower's receipt thereof, and (ii) a copy of any and
all canceled checks for the Funding Account promptly upon Lender's request
therefor, but in all events within 10 Business Days of Lender's request
therefor.
(f) Compliance Certificate. Upon the written request of Lender, promptly
provide Lender with a certificate as to whether any Default or Event of Default
has occurred and is continuing.
(g) Other Information. Such other information respecting the business or
properties, or the condition, financial or otherwise, of Borrower as Lender may
from time to time reasonably request.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01. Events of Default.
If any of the following events (each an "Event of Default") shall occur
and be continuing during the term of this Agreement:
(a) Borrower shall fail to pay any amount of principal of or interest on
any Advance or any Note when due, or Borrower shall fail to pay within ten days
of the due date any other amount payable by Borrower hereunder or under any of
the other Loan Documents; or
(b) Any representation or warranty by Borrower (or any of its respective
officers) in this Agreement, any other Loan Document or any certificate or other
document delivered pursuant hereto or thereto shall prove to have been incorrect
in any material respect when made or deemed made; or
(c) Borrower shall fail in any material respect to perform or observe any
term, covenant or agreement contained in the Security Agreement or the
Assignment, or contained in subsections (a)(I), (g), or (h) of Section 6.01,
Section 6.02 or Section 6.03(b) of this Agreement; or
(d) Any representation or warranty by Guarantor in any of the Guarantees
shall be or prove to have been incorrect in any material respect when made or
deemed made; or
(e) Borrower shall fail in any material respect to perform or observe any
term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to Borrower by Lender (other
than those referred to in subsections (a), (b) or (c) of this Section 7.01 for
which there shall be no grace period); or
(f) A Guarantor Event shall occur, or Guarantor shall fail in any material
respect to perform or observe any term, covenant or agreement contained in any
of the Guarantees or in any other Operative
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Document to which Guarantor is a party, and any such failure shall remain
unremedied for 5 days after written notice thereof shall have been given to
Borrower by Lender; or
(g) Borrower shall fail (i) to pay any Indebtedness in excess of $250,000
or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or (ii) to perform or observe any
term, covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Indebtedness, when required to be
performed or observed, and such failure shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such failure to perform or observe is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof; or
(h) Borrower or Guarantor shall admit in writing its inability to, or
shall fail generally or be generally unable to, pay its debts (including its
payrolls) as such debts become due, or shall make a general assignment for the
benefit of creditors; or Borrower or Guarantor shall file a voluntary petition
in bankruptcy or a petition or answer seeking reorganization, to effect a plan
or other arrangement with creditors or any other relief under the Bankruptcy
Reform Act of 1978 (as amended from time to time, the "Bankruptcy Act") or under
any other state or federal law relating to bankruptcy or reorganization granting
relief to debtors, whether now or hereafter in effect, or shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition filed against Borrower or Guarantor pursuant to the
Bankruptcy Act or any such other state or federal law; or any order for relief
shall be entered against Borrower or Guarantor in any involuntary proceeding
under the Bankruptcy Act or any such other state or federal law, or Borrower or
Guarantor shall be adjudicated a bankrupt, or shall make an assignment for the
benefit of creditors, or shall apply for or consent to the appointment of any
custodian, receiver or trustee for all or any substantial part of Borrower's or
Guarantor's property, or shall take any action to authorize any of the actions
set forth above in this subsection (g); or an involuntary petition seeking any
of the relief specified in this subsection (g) shall be filed against Borrower
or Guarantor and shall not be dismissed or stayed within 60 days; or
(i) A final judgment or order for the payment of money, the portion of
which a creditworthy insurance company is not obligated to pay, shall exceed
$100,000, shall be rendered against Borrower and within 30 days after entry
thereof such judgment or order shall not have been discharged, satisfied or the
execution thereof stayed pending appeal, or, within 30 days after the expiration
of any such stay, such judgment or order shall not have been discharged or
satisfied; or
(j) Any Government Entity or judicial authority shall condemn, seize or
appropriate all or a material part of the Collateral or all or substantially all
of Borrower's assets and Borrower does not receive an award in compensation
thereof or insurance payments with respect thereto within 120 days of such
condemnation, seizure or appropriation; or
(k) Lender shall be prevented by any order of any court obtained by or on
behalf of Borrower or by any law from sending any notice permitted or required
to commence a period during which Borrower may cure any Default or Event of
Default hereunder; or
(l) There should be a materially adverse change in the financial quality
of the Lender Receivables with respect to any Advance, or Borrower's or
Winsauer's financial condition; or
(m) Any Loan Document shall cease to be in full force and effect, the
validity or enforceability of any Loan Document shall be contested by any party
thereto, or any party thereto shall deny that it has any or further liability
under any Loan Document; or
(n) Any Interim Receivable has not been financed by the Line of Credit
within 15 Business Days of Borrower's acquisition of such Interim Receivables,
unless such Interim Receivable has been the subject of
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a Disposition; or
(o) An Event of Default shall have occurred under the WC Loan Documents.
THEN, and in any such event, (i) Lender may, at its option, by notice to
Borrower, declare the entire unpaid principal amount of any or all Advances and
Notes, all interest accrued and unpaid thereon and all other amounts payable
under this Agreement and the other Loan Documents to be forthwith due and
payable, whereupon the Loan Amount and the Notes, all such accrued interest and
all such other amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower; provided, however, that if an event
described in subsection (g) of this Section 7.01 shall occur, the result which
would otherwise occur only upon giving of notice by Lender to Borrower as
specified in clause (i) above shall occur automatically, without the giving of
any such notice; and (ii) Lender may immediately, and whether or not the actions
referred to in the preceding clause (i) have been taken, exercise any or all of
Lender's rights and remedies under the Loan Documents, including the rights of a
secured party pursuant to the UCC.
Section 7.02. No Waiver; Cumulative Remedies.
No failure on the part of Lender to exercise, and no delay in exercising,
any right hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies provided in this Agreement or in any other Loan Document are cumulative
and not exclusive of any remedies provided by law.
Section 7.03. Right of Set-off.
Upon the occurrence and during the continuance of any Event of Default,
Lender hereby is authorized at any time and from time to time, without notice to
Borrower (any such notice being expressly waived by Borrower), to set off and
apply any and all funds of Borrower at any time in the possession of or under
the control of Lender and other indebtedness at any time owing by Lender to or
for the credit or the account of Borrower against any and all of the Obligations
of Borrower (or Guarantor Obligations of Guarantor) now or hereafter existing
under this Agreement and the other Loan Documents, irrespective of whether
Lender shall have made any demand under this Agreement or such other Loan
Documents and although such Obligations or Guarantor Obligations may be
unmatured. Lender agrees promptly to notify Borrower after any such set-off and
application made by Lender; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application nor
constitute a default by Lender of any of its obligations hereunder. The rights
of Lender under this Section 7.03 are in addition to other rights and remedies
(including, other rights of set-off) which Lender may have.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Expenses.
Borrower shall reimburse Lender for any reasonable costs and expenses
incurred by Lender from time to time in connection with any Advance or any
Interim Advance, including fees related to or associated with the Reserve
Account, the Lender Accumulation Account, the Funding Account or any other bank
account related to the transactions contemplated by the Loan Documents, UCC and
other title search fees, and filing fees.
Section 8.02. Enforcement Expenses.
Borrower shall pay on demand all Losses, if any, of Lender (including
reasonable outside counsel fees,
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allocated costs of internal counsel and disbursements for both) in connection
with (i) the enforcement of this Agreement and the other Loan Documents and
other documents delivered thereunder, including any out-of-court workout or in
any bankruptcy case, and (ii) the preservation of and realization upon any of
the Collateral, including Losses sustained by Lender as a result of any failure
by Borrower to perform or observe its obligations contained in this Agreement or
the other Loan Documents.
Section 8.03. Indemnity.
Borrower hereby agrees to indemnify Lender and its directors, officers and
employees from and hold each of them harmless against any and all Losses
incurred by any of them arising out of or by reason of any investigation,
litigation or other proceeding (regardless of whether Lender is a party thereto)
related to the financing provided pursuant to this Agreement or any transaction
effected or proposed to be effected by Borrower with the proceeds of the Line of
Credit, including the reasonable fees and disbursements of counsel and allocated
costs of internal counsel and other expenses incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
Losses incurred by reason of the negligence or wilful misconduct of the person
to be indemnified) and, if and to the extent that the foregoing indemnification
is for any reason held unenforceable, Borrower agrees to make the maximum
contribution to the payment and satisfaction of each of such Loss which is
permissible under applicable law.
ARTICLE IX
GOVERNING LAW
Section 9.01. Governing Law.
This Agreement, the other Loan Documents, and all of the transactions
contemplated thereby shall be governed by and construed in accordance with the
laws of the State of Utah, without regard to any conflict of law rule which
might result in the application of the laws of any other jurisdiction. Lender is
a Utah corporation with its principal place of business and chief executive
offices located at 201 South Main Street, Salt Lake City, Utah. A substantial
part of the negotiations with respect to this Agreement were either conducted in
Lender's office in Salt Lake City, Utah or shall be deemed to have been
conducted in Lender's office in Salt Lake City, Utah. This Agreement and the
other Loan Documents shall be deemed to have been executed in Lender's office in
Salt Lake City, Utah, and the payment of all sums due under the Loan Documents
and the performance of all other Obligations and Guarantor Obligations due to
Lender shall be performed or deemed to be performed in Salt Lake City, Utah.
Borrower, Guarantor and Lender have entered into this Agreement and the other
Loan Documents in specific reliance upon Section 35.51 of the Texas Business and
Commerce Code, and but for the ability of the parties hereto to agree that the
law of Utah would govern the Loan Documents and transactions contemplated
thereby, Lender would not have entered into the Loan Documents, nor would Lender
have made any of the Advances.
Section 9.02. Jurisdiction; Immunity.
(a) Borrower hereby irrevocably consents that any legal action related in
any way to this Agreement or any of the Loan Documents ("Proceeding") may be
brought in any court of the State of Utah located in Salt Lake City or in the
United States District Court for the District of Utah, Central Division, and by
execution and delivery of this Agreement, Borrower hereby irrevocably submits to
the jurisdiction of the courts of the State of Utah located in Salt Lake City
and of the United States District Court for the District of Utah, Central
Division.
(b) Any Proceeding may be brought or enforced against Borrower in any
place where Borrower of any of its property may be found, and Borrower
irrevocably submits to the jurisdiction of each such court in respect of any
Proceeding.
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(c) Borrower hereby irrevocably designates and appoints Prentice Hall
Corporation presently located at One Utah Center, 201 South Main #1800, Salt
Lake City, UT, 84111, c/o Parsons Behle and Latimer, Attention Sherie Lamprecht
(or its successors), as its agent for the service of process in Utah and agrees
to consider any legal process or any demand or notice made or served on said
agent as being made on it. The foregoing, however, shall not limit the right of
Lender to serve process in any other manner permitted by law or to bring any
legal action or proceeding to protect and enforce its rights either hereunder,
or under the other Loan Documents or any other agreements, documents,
instruments or otherwise or to obtain execution of judgment in any court of
competent jurisdiction. Borrower hereby irrevocably waives any objection which
Borrower may now or hereafter have to the laying of venue of any suit, action or
proceeding relating to this Agreement or any other Loan Document in the State of
Utah and further irrevocably waives any claim that the State of Utah is not a
convenient forum for any such suit, action or proceeding. To the extent that
Borrower has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service of notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, Borrower hereby irrevocably waives such
immunity in respect of its obligations under this Agreement and the other Loan
Documents.
ARTICLE X
MISCELLANEOUS
Section 10.01. Amendments and Waivers.
Lender and Borrower may from time to time enter into a written amendment
to any provision of this Agreement and the other Loan Documents, and Lender may
from time to time execute and deliver to Borrower a written instrument waiving
any provision of this Agreement or any other Loan Document or consenting to any
departure by Borrower therefrom. Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Borrower agrees to make any amendments to the Loan Documents requested by
Lender in connection with an assignment or participation provided such amendment
does not increase Borrower's financial obligations hereunder.
Section 10.02. Notices.
All notices and other communications provided for hereunder shall, unless
otherwise provided herein, be in writing (including by telecopier or any other
form of telecommunication) and sent or delivered by messenger, telecopier or
overnight courier service, as to each party hereto, at its address set forth
under its name on the signature pages hereof or at such other address as shall
be designated by such party in a written notice to the other party hereto. All
such notices and communications shall be effective when received as follows: if
sent by hand delivery or overnight courier, upon delivery; and if sent by
telecopier, upon receipt; provided, however, a copy of all notices sent by
telecopier shall also be sent by overnight courier or first class mail.
Section 10.03. Cooperation.
(a) Borrower agrees to coordinate with Lender with respect to Borrower's
seeking to obtain financing from other financing sources. Without the express
prior written consent of Lender, Borrower shall not enter into any loan or
financing agreement(s) (which are for or include financing similar to the
financing provided by the Loan Documents) with any party with which Lender has
notified Borrower that Lender is then discussing (or has discussed within the
prior 6 months) an assignment of or participation with Lender in providing such
financing, or a loan to Lender, where some portion or all the proceeds of which
shall be used to fund one or more Advance.
(b) Borrower agrees to cooperate fully and in utmost good faith with
Lender with respect to Lender's search for additional funding capacity from
third party financing sources to increase the Credit Limit.
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Section 10.04. Amended and Restated.
This Agreement amends and restates that certain Amended and Restated
Secured Revolving Credit Agreement dated as of July 31, 1995 between Borrower
and Lender ("Prior Agreement") in its entirety. Effective as of the date hereof,
the terms of this Agreement shall apply to all Advances made pursuant to the
Prior Agreement. All provisions, terms, and conditions of the other Loan
Documents shall remain in full force and effect, and this Agreement, as hereby
amended, and the other Loan Documents are hereby confirmed and ratified in their
entirety.
Section 10.05. Replacement of Notes.
Upon the loss, theft, destruction or mutilation of any Note and (i) in the
case of loss, theft or destruction, upon receipt by Borrower of indemnity or
security reasonably satisfactory to it (except that if the holder of that Note
is Lender or any other financial institution of recognized responsibility, the
holder's own agreement of indemnity shall be deemed to be satisfactory) or (ii)
in the case of mutilation, upon surrender to Borrower of the mutilated Note;
Borrower shall execute and deliver in lieu thereof a new Note, dated the date of
the Note being replaced, in the same principal amount.
Section 10.06. Survival.
All representations, warranties, covenants and agreements of Borrower
herein contained or made in writing in connection with this Agreement and the
other Loan Documents shall survive the execution and delivery of this Agreement,
and each Loan Document shall continue in full force and effect until the
Advances and all other amounts payable under this Agreement and the other Loan
Documents shall be paid in full and shall bind and inure to the benefit of the
respective successors and assigns of Lender, Borrower and Guarantor including
any holder of any Note.
Section 10.07. No Partnership or Joint Venture.
Nothing in this Agreement shall be deemed to cause Lender to be considered
a partner of or joint venturer with Borrower.
Section 10.08. Binding Effect.
This Agreement shall become effective when it shall have been executed by
Borrower and Lender and thereafter shall be binding upon, inure to the benefit
of and be enforceable by Borrower, Lender and their respective successors and
assigns, except that Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of Lender.
Lender shall have the right to assign all or any portion of its rights and
benefits hereunder and under the other Loan Documents, provided Lender retains
the responsibility of administering the Line of Credit. Assignments hereunder
shall become effective only upon delivery of notice thereof to Borrower. Upon
the effectiveness of a permitted assignment hereunder, each reference in this
Agreement to "Lender" shall be deemed to be a reference to the assignor and the
assignee to the extent of their respective interests. Borrower shall, from time
to time at the request of Lender, execute and deliver any documents that are
necessary to give full force and effect to a permitted assignment hereunder,
including one or more new Notes in exchange for any Note held by Lender. Lender
shall be free at any time to sell participations in its interests hereunder.
Section 10.09. Determinations by Lender.
Each determination by Lender hereunder shall, in the absence of manifest
error, be conclusive and binding on the parties.
Section 10.10. Entire Agreement.
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This Agreement and the other Loan Documents reflect the entire agreement
between Lender and Borrower with respect to the matters set forth herein and
therein.
Section 10.11. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement.
Section 10.12. Waiver of Jury.
BORROWER AND LENDER IRREVOCABLY WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BROUGHT TO ENFORCE ANY PROVISION OF THIS AGREEMENT, THE
NOTE OR ANY OTHER LOAN DOCUMENT.
Section 10.13. Usury.
All agreements between Borrower and Lender are expressly limited so that
in no contingency or event whatsoever, whether by reason of the making of any
Advance, acceleration of maturity of the unpaid principal balance thereof or
otherwise, shall the amount paid or agreed to be paid to Lender, or charged by
Lender for the use, forbearance or detention of the money to be advanced
hereunder exceed the highest lawful rate permissible under any applicable usury
laws. If, from any circumstances whatsoever, fulfillment of any provision hereof
or of any Note or any other Loan Document shall involve transcending the limit
of validity prescribed by any law which a court of competent jurisdiction may
deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity and, neither Borrower, Guarantor nor
any other Person shall be obligated to pay any Excess Interest (as defined
below). It is the intent of Borrower, Guarantor and Lender to at all times
comply with the usury and other laws relating to this Agreement and the other
Loan Documents, and any subsequent legislative revision, repeal or judicial
interpretations of such laws. If at any time from any circumstance Lender shall
ever receive, collect or apply as interest (or any amount which is determined to
be interest) an amount which would exceed the highest lawful rate, such amount,
which would be excessive interest (which amount shall hereinafter be referred to
as "Excess Interest"), shall be applied to the reduction of the unpaid principal
balance due hereunder and not to the payment of interest; and if upon such
application the principal balance due hereunder is paid in full, any remaining
sum shall be paid to Borrower. In such event, the provisions of this Agreement
and the other Loan Documents shall be immediately deemed reformed and the
amounts collectible thereunder reduced without the necessity of the execution of
any new document in order to comply with then applicable law in order to permit
the recovery of the fullest amount of interest otherwise called for pursuant to
such applicable laws. In determining whether or not the interest paid or payable
under any specific circumstances is Excess Interest, Borrower or Lender shall to
the maximum extent permitted under applicable law, amortize, prorate, compound,
allocate and spread the total amount of interest throughout the entire term of
the applicable Note or other Loan Document so that the amount or rate of
interest charged for any and all periods of time during the term such Note or
other Loan Document is to the greatest extent possible less than the maximum
amount or rate of interest allowed to be charged by law during the relevant
period of time. However, if at any time the applicable laws are changed so as to
permit a higher rate or amount of interest to be charged than that permitted
prior to such change, then unless prohibited by law, references in this
Agreement or in any other Loan Document to "applicable law" for purposes of
determining the maximum interest or rate of interest that may be charged will be
deemed to refer to such applicable aw as then amended to allow the greater
amount or rate of interest. This provision shall control every other provision
of all agreements between Borrower and Lender contemplated hereunder.
Section 10.14. No Broker.
Borrower and Lender agree that Lender owes no fees to brokers or
consultants in connection with the consummation of this Agreement, and that
Borrower shall pay its own such fees so incurred. Borrower hereby agrees to
indemnify and hold the Lender harmless from any and all liabilities and costs
(including costs of
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counsel) to any person or entity claiming brokerage commissions or finder's fees
on account of this Agreement.
Section 10.15. Severability.
If one or more provisions contained in this Agreement or any other Loan
Document to which Borrower is a party shall be invalid, illegal or unenforceable
in any respect in any jurisdiction or with respect to any party, such
invalidity, illegality or unenforceability in such jurisdiction or with respect
to such party shall, to the fullest extent permitted by applicable law, not
invalidate or render illegal or unenforceable any such provision in any other
jurisdiction or with respect to any other party, or any other provisions of this
Agreement or any other Loan Document to which Borrower is a party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Salt Lake City, Utah by their respective officers or agents
thereunto duly authorized, as of the date first above written.
BORROWER
AUTOBOND ACCEPTANCE CORPORATION,
a Texas corporation
By:___________________
Name: William O. Winsauer
Title: President
301 Congress Avenue
9th Floor
Austin, TX 78701
Telephone: 512-472-8300
Telefax: 512-472-1548
Attention: William O. Winsauer
LENDER
SENTRY FINANCIAL CORPORATION,
a Utah corporation
By:__________________
Name: Jonathan M. Ruga
Title: Chief Executive Officer
One Utah Center
201 S. Main Street
Suite 1400
Salt Lake City, UT 84111-2215
Telephone: 801-596-9600
Telefax: 801-596-9630
Attention: General Counsel
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EXHIBIT A
Form of Draw Down Notice
Date: ________________
SENTRY FINANCIAL CORPORATION
One Utah Center
201 South Main Street
Suite 1400
Salt Lake City, Utah 84111
Re: [Advance or Interim Advance] No. ____
Gentlemen:
We refer to that certain Second Amended and Restated Secured Revolving Credit
Agreement dated as of July 31, 1995 ("Agreement") between AutoBond Acceptance
Corporation, a Texas corporation ("Borrower") and Sentry Financial Corporation
("Lender") providing for loans to Borrower in an aggregate principal amount up
to the Credit Limit at any one time outstanding. All terms defined in the
Agreement and used but not defined herein have the meanings given to them in the
Agreement.
Pursuant to Section 2.03 of the Agreement, Borrower hereby gives Lender notice
that (1) Borrower irrevocably commits to borrow under the Agreement as an
[Advance or Interim Advance] the aggregate principal amount of $________________
on ______________, 199___ ("Disbursement Date") and (2) the proceeds of the
borrowing are to be credited to the Funding Account.
The Borrower hereby certifies that the representations and warranties made by it
in the Agreement are true and correct as if made on and as of the date hereof.
If any such representation or warranty ceases to be true and correct at and as
of any time before the disbursement of the Loan on the Disbursement Date,
Borrower will immediately give you notice to that effect.
Sincerely,
AUTOBOND ACCEPTANCE CORPORATION,
a Texas Corporation
By:____________________
Name: William O. Winsauer
Title: President
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EXHIBIT B
Form of
SECURED
PROMISSORY NOTE
(Advance or Interim Advance No. ___)
$[ ] ______________, 199_
Salt Lake City, Utah
FOR VALUE RECEIVED, AUTOBOND ACCEPTANCE CORPORATION, a Texas corporation
("Borrower"), unconditionally promise to pay to SENTRY FINANCIAL CORPORATION, a
Utah corporation ("Lender"), by wire transfer of immediately available funds in
lawful money of the United States of America to Lender's Account No. 26029678 at
First Interstate Bank of Utah, 3776 South Highland Drive, Salt Lake City, UT
84106, A.B.A. Routing No. 124000025 (801) 350-7251 or such other account as
Lender or the holder hereof from time to time shall designate by notice to
Borrower, the principal sum of[ DOLLARS] ($ ). Borrower further promises to make
any mandatory prepayment required by the terms and provisions of the Second
Amended and Restate Secured Revolving Credit Agreement dated as of July 31,
1995, between Borrower and Lender ("Loan Agreement"). Capitalized terms not
otherwise defined herein shall have the meanings give to such terms in the Loan
Agreement. This Note evidences an [Advance or Interim Advance] made pursuant to
the [Line of Credit or Interim Line of Credit].
This Note is one of the Notes referred to in the Loan Agreement, is
secured as provided in the Loan Agreement and is entitled to the benefits and is
subject to the terms of the Loan Agreement and the other Loan Documents. All
terms and conditions of the Loan Agreement are hereby incorporated herein and
made a part hereof as if such terms and conditions were set forth herein.
Borrower further promises to pay interest on the unpaid principal amount
hereof from the date hereof until the maturity thereof (whether at stated
maturity, by acceleration or otherwise) at a floating rate per annum calculated
in accordance with Section 2.04 of the Loan Agreement. Interest and principal
shall be payable pursuant to the terms and provisions of Article II of the Loan
Agreement.
The principal hereof may not be prepaid other than as expressly provided
for in Section 2.05 of the Loan Agreement.
Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest.
In the event that any amount of principal hereof or interest hereon, or
any other amount payable hereunder, is not paid in full when due (whether at
stated maturity, by acceleration or otherwise), Borrower promises to pay (in the
case of interest on overdue interest, to the extent permitted by applicable law)
interest on such unpaid principal or other unpaid amount for each day from the
date such amount becomes due until the date such amount is paid in full, payable
on demand, at an interest rate per annum equal to the Overdue Rate.
All computations of interest in respect of this Note shall be made on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable. Interest shall continue to accrue on all sums outstanding hereunder
through the date payment is received by Lender. Borrower shall make each payment
hereunder without set-off or counterclaim.
All amounts received on account of this Note shall be applied in the
manner provided for in Section 2.11 of the Loan Agreement.
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The Loan Agreement provides, among other things, for acceleration (which
in certain cases shall be automatic) of the maturity hereof upon the occurrence
of certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived.
Borrower agrees to pay all costs and expenses (including reasonable
counsel fees and disbursements and allocated costs of internal counsel) incurred
by Lender in enforcing payment hereof.
No failure on the part of Lender to exercise, and no delay in exercising,
any right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided herein or in
any other Loan Document are cumulative and not exclusive of any remedies
provided by law.
If one or more provisions contained in this Note shall be invalid, illegal
or unenforceable in any respect in any jurisdiction, such invalidity, illegality
or unenforceability in such jurisdiction shall, to the fullest extent permitted
by applicable law, not invalidate or render illegal or unenforceable any such
provision in any other jurisdiction or with respect to any other party, or any
other provisions of this Note. This Note shall be binding upon the successors
and assigns of Borrower.
This Note shall be governed by and construed in accordance with the laws
of the State of Utah, without regard to any conflict of law rule which might
result in the application of the laws of any other jurisdiction. Borrower hereby
irrevocably consents that any legal action related in any way to this Note
("Proceeding") may be brought in any court of the State of Utah located in Salt
Lake City or in the United States District Court for the District of Utah,
Central Division, and by execution and delivery of this Agreement, Borrower
hereby irrevocably submits to the jurisdiction of the courts of the State of
Utah located in Salt Lake City and of the United States District Court for the
District of Utah, Central Division.
"BORROWER:"
AUTOBOND ACCEPTANCE CORPORATION,
a Texas corporation
By:______________________
Name: William O. Winsauer
Title: President
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MANAGEMENT, ADMINISTRATION AND SERVICES AGREEMENT
THIS MANAGEMENT, ADMINISTRATION AND SERVICES AGREEMENT (the "Agreement")
is made as of the 1st day of January, 1996 by and between AUTOBOND, INC., a
Texas corporation ("ABI"), and AUTOBOND ACCEPTANCE CORPORATION, a Texas
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, ABI is an affiliate of the Company engaging in the management of
certain general partnership and limited partnership interests in automobile
finance contract securitization trusts.
WHEREAS, ABI wishes to retain the Company to provide certain management,
administration and accounting services, and the Company is willing to furnish
such services.
WHEREAS, ABI wishes to use office space, furnishings and equipment, and
the services of certain of the Company's employees, to be provided by the
Company.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment.
ABI hereby appoints the Company to provide certain management,
administration and accounting services to ABI for the period and on the terms
set forth in this Agreement. The Company accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Section 5 of this Agreement.
The Company hereby agrees to provide ABI with office space, furnishings
and equipment, and with the services of certain of its employees on the terms
and subject to the conditions set forth in this Agreement.
2. Management Services.
Subject to the discretion of the Board of Directors and officers of ABI,
the Company agrees to provide
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the following management functions during the term of this
Agreement:
(a) Manage ABI's portfolio of partnership interests in auto finance
contract securitization trusts.
(1) Monitor the performance of pools of receivables securitized in
20 securitization transactions (the "ABI Trusts"), including
ongoing monitoring of delinquency, default and repossession
rates.
(2) Monitor the performance of third-party servicers of
receivables in the ABI Trusts and monitor claims processing
under ABI's venders comprehensive single interest policy and
risk default policies.
(3) Monitor payments of principal and interest to
certificateholders and other interested parties under the ABI
Trusts and related Pooling and Servicing Agreements; monitor
principal balances of investor certificates; and monitor
actual and required account balance levels in cash reserve
accounts.
(4) Report to and correspond with Duff & Phelps Credit Rating Co.,
and any other rating agency rating securities issued by the
ABI Trusts.
(5) Monitor compliance with the covenants, conditions and
agreements of ABI and its affiliates contained in the Pooling
and Servicing Agreements and other documentation relating to
the ABI Trusts, including monitoring of compliance with
ongoing notice and reporting duties and obligations to
cooperate with trustees and third party servicers of the ABI
Trusts in connection with the execution and public filing of
necessary instruments and other documents.
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(b) Oversee ABI's cash management.
(i) Advise as to the need to draw down credit lines, finance
assets or obtain additional capital.
(ii) Advance funds on behalf of ABI in order to pay ordinary
business expenses; such advances not to exceed $5,000 per
month.
(c) Advise as to regulatory compliance including maintenance of all
required licenses, permits, certifications and corporate filings and
qualifications, including payment of all necessary franchise taxes.
3. Administrative Services.
The Company will provide the following administrative functions during the
term of this Agreement:
(a) To the extent ABI is so required, administer and maintain lockbox
accounts, collection accounts and any other cash collateral accounts
required under the ABI Trusts.
(b) Administer and maintain other ABI accounts.
(c) Provide secretarial and miscellaneous clerical services.
4. Accounting Services.
The Company will perform the following accounting functions during the
term of this Agreement:
(a) Account for ABI's investment, capital and income and expense
activities.
(b) Account for payments to ABI and its sole shareholder pursuant to the
ABI Trusts.
(c) Maintain individual ledgers, if required, for each ABI Trust.
(d) Maintain historical tax lots, if required, for each ABI Trust.
(e) Update the cash availability of ABI as required.
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(f) Post to and prepare ABI's Statement of Assets and Liabilities and
the Statement of Operations.
(g) Calculate various contractual expenses of ABI (e.g., any management,
servicing, trustee or rating agency fees).
(h) Control all disbursements from ABI and authorize such disbursements
upon instructions.
(i) Calculate capital gains and losses of ABI.
(j) Determine ABI's net income.
(k) Monitor expense accruals and notify officers of ABI of any proposed
adjustments.
(l) Prepare monthly financial statements of ABI.
(m) Verify payment to the Company of (i) all quarterly installments of
principal and interest due from ABI under the ABI Note and (ii) all
management fees and expenses due from ABI pursuant hereto.
(n) Prepare support schedules necessary for completion of ABI's
consolidated federal and state tax returns.
(o) Provide advice to ABI in connection with ABI's retention from time
to time of a firm or firms of independent accountants for the
purpose of auditing the books, records, financial condition and
operations of ABI.
(p) Keep the following records for ABI:
(i) All books and records with respect to books of account of ABI;
and
(ii) Records of ABI's interests in the ABI Trusts and other
investment transactions.
The books and records pertaining to ABI which are in the possession
of the Company shall be the property of ABI.
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5. Compensation; Expense Reimbursement.
(a) As compensation for services rendered by the Company to ABI
prior to the date hereof, ABI hereby delivers to the Company
the promissory note (the "ABI Note") in the form attached
hereto as Annex A. The amount owing to the Company by ABI as
of December 31, 1995 was $255,597.
(b) As compensation for the services rendered by the Company
during the term of this Agreement, ABI will pay to the Company
an annual fee of $50,000, payable in equal quarterly
installments, which amount may be adjusted upward or downward
as may be agreed to in writing from time to time by the
Company and ABI.
(c) In addition, ABI shall reimburse the Company, quarterly in
arrears, for all out-of-pocket fees, costs and expenses
incurred or advanced by the Company on behalf of ABI in
connection with this Agreement. The Company shall present ABI
with a written request detailing such fees, costs and
expenses, from time to time as it deems necessary. Payment of
such fees, costs and expenses shall not be deemed satisfaction
of ABI's obligation to pay to the Company the annual
management fee due pursuant to this Section 5.
6. Confidentiality.
Each party agrees that it will keep confidential and not disclose any
information provided to the other in connection with the services being rendered
hereunder to any other person without the consent of the party from whom the
information was obtained, unless the information is known or becomes known to
the public other than through the breach of any provision of this Agreement or
such disclosure is required by law. Upon termination of this Agreement, each
party agrees to return all information to the other person, including all copies
thereof, unless the returning person is otherwise required to retain such
information by law.
7. Default.
In the event that ABI fails to pay any part of the amounts set forth in
Sections 5(b) and 5(c) above when and as due, and ABI does not cure such failure
within 10 days after the date on which such payment was due, then ABI shall be
in default under this Agreement. ABI agrees to reimburse the Company for any and
all costs and expenses incurred by the Company, including reasonable counsel
fees and expenses,
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in connection with such default and any litigation or other proceedings
instituted for the collection of payments due hereunder.
8. Indemnification.
ABI shall indemnify and hold harmless the Company and its directors,
officers, employees, agents and controlling persons (each being an "Indemnified
Party") from and against any and all losses, claims, damages and liabilities,
joint or several, to which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise, relating to or arising out of the
provision of services contemplated by this Agreement. ABI shall reimburse any
Indemnified Party for all costs and expenses, including reasonable counsel fees
and expenses, incurred in connection with the investigation of, preparation for
or defense of any pending or threatened claim or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party. ABI shall
not be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability or expense is found in a final judgment by a
court of competent jurisdiction to have resulted primarily from the bad faith or
gross negligence of the Company.
9. Duration and Termination.
This Agreement shall continue until the earlier of
(a) termination by the Company or ABI upon 60 days' prior written
notice;
(b) either party materially breaches or is in default of any of its
material obligations under this Agreement and such breach or default
is not cured within 10 days after written notice to such party by
the other party; or
(c) either party is declared insolvent or bankrupt by a court of
competent jurisdiction or liquidation proceedings are commenced by
or against either party and such proceedings are not dismissed
within 30 days after the commencement of such proceedings.
10. Permissible Activities.
Nothing herein shall in any way preclude the Company from engaging in any
activities, including activities competitive with the business of ABI, or from
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performing services for its own account or for the account
of others.
11. Further Actions.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
12. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS CONFLICT OF LAWS
PRINCIPLES.
13. Entire Agreement.
This Agreement constitutes the entire agreement between the parties hereto
with respect to the matters covered hereby and supersedes all prior agreements
and understandings between the parties.
14. Assignment.
This Agreement shall not be assignable by operation of law or otherwise
without the prior written consent of each party hereto, provided that the
Company may assign its rights under this Agreement to any wholly-owned, direct
or indirect subsidiary of the Company or any person that controls or is under
common control with the Company.
15. Amendment; Successors; Counterparts.
(a) The terms of this Agreement shall not be waived, altered, modified,
amended or supplemented in any manner whatsoever except by written instrument
signed by both parties hereto.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors.
(c) This Agreement may be executed in several counterparts, each of which
shall be deemed an original hereof.
16. Captions.
The captions in this Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
AUTOBOND, INC.
By_________________________
AUTOBOND ACCEPTANCE
CORPORATION
By_________________________
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ANNEX A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR STATE SECURITIES LAWS. NO REGISTRATION OF
TRANSFER OF THIS NOTE WILL BE MADE ON THE BOOKS OF AUTOBOND, INC. UNLESS SUCH
TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE PROVISIONS UNDER STATE
SECURITIES LAW OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH PROVISIONS.
NOTE
$________ January 1, 1996
AUTOBOND, INC., a Texas corporation ("ABI"), FOR VALUE RECEIVED, hereby
promises to pay to the order of AUTOBOND ACCEPTANCE CORPORATION (the "Holder")
the principal sum of ________________________ ($_______), payable on May 31,
1998.
ABI promises also to pay interest on the unpaid principal amount hereof in
like money at said office until paid at a rate equal to 10% per annum, said
interest to be payable at the time specified in the above paragraph with respect
to the payment of principal. This Note is subject to prepayment, without penalty
at any time, in whole or in part.
The indebtedness was evidenced by this Note is issued in accordance with
the Management Agreement dated as of January 1, 1996 between AutoBond and the
Holder.
Nothing contained in this Note is intended to or shall impair as between
ABI, its creditors and the Holder, the obligations of ABI, to pay to the Holder,
as and when the same shall become due and payable in accordance with terms of
this Note, or to affect the relative rights of the Holder and creditors of ABI.
The provisions of this Note constitute a continuing agreement and shall be
binding upon the Holder of this Note, ABI and their respective successors,
transferees and assignees.
The obligations of ABI hereunder are obligations solely of ABI and shall
not constitute a debt or obligation of any other person.
The terms contained herein may not be amended so as to adversely affect
the Holder without the written consent of such
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Holder and any purported amendment without such consent shall be void.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW
PROVISIONS OF SUCH LAWS.
AUTOBOND, INC.
By:_________________________
Name:
Title:
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated November 15, 1995, between Auto Bond
Acceptance Co., a Texas corporation (the "Company"), and Adrian Katz, 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 Vice Chairman and
Chief Operating Officer of the Company for a three-year term commencing on the
date hereof and continuing until the three-year anniversary of the date hereof
(such period being hereinafter sometimes called the "term of this Agreement");
provided, however, that the Company shall give the Employee at least six months
notice of its intention not to extend the term of this Agreement and the term of
this Agreement shall be automatically extended until six months shall have
elapsed following delivery of such notice. 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 Vice Chairman and Chief Operating Officer 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 Vice Chairman and Chief Operating Officer 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
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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 (i) grant Employee the Bonus Shares in
accordance with the provisions of Section 10 hereof and (ii) pay to the Employee
a salary of $12,500 (the "Salary") per full calendar 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, 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. 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 all pre-approved out-of-pocket expenses incurred by the
Employee in relocating to the Austin, Texas area.
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
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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 Company terminated this Agreement. 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 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,
10 and 12 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
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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, (v) has breached any material term
or provision of this Agreement or (iv) has failed to relocate his
residence to the Austin, Texas area on or prior to June 30, 1996. 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.
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
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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 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
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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 being permitted to acquire
shares of Company common stock and/or options or warrants to purchase shares of
Company common stock, the 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. Notwithstanding the foregoing, nothing in this Agreement shall
prevent the Employee from engaging in the business of marketing securities
backed or secured by sub-prime automobile financing loans.
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(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 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. Bonus Stock. Subject to the execution by the Employee of a
Shareholders' Agreement among the Company and each of its shareholders, on
January 1, 1996, the Company shall issue to the Employee a number of shares
("Bonus Shares") of the Company's common stock, no par value per share ("Common
Stock"), equal to 10% of the Company's outstanding shares of Common Stock
following the issuance of the Bonus Shares. The grant of the Bonus Shares shall
be subject to the following conditions:
(a) Issuance of and Restrictions on Bonus Shares. In the event that
all or any portion of the Bonus Shares herein granted are at risk of
forfeiture (herein, the "Forfeit Bonus Shares") at the termination of the
Employee's employment with the Company due to voluntary termination by the
Employee or discharge for cause (pursuant to Section 7(c) or 7(d) hereof),
such shares shall be forfeited by Employee and shall be returned to the
Company. Until such time as the Bonus Shares are no longer at risk of
forfeiture or are forfeited, the Employee shall have all of the voting,
dividend and other
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rights of a stockholder of the Company, except as otherwise provided
herein. Certificates representing the Bonus Shares shall be promptly
issued in Employee's name, and shall bear a legend referring to the risks
of forfeiture contained herein and prohibiting transfer by the Employee
until such time as such shares are no longer at risk of forfeiture. As a
condition to the receipt of the Bonus Shares hereunder, Employee shall
execute and deliver to the Secretary of the Company an assignment separate
from certificate transferring any Forfeit Bonus Shares to the Company.
(b) Forfeiture. Except as otherwise provided herein, the Bonus
Shares shall be subject to the following forfeiture conditions:
(i) 50% of the Bonus Shares shall not be subject to forfeiture
at any time under any circumstances;
(ii) 25% of the Bonus Shares shall be at risk of forfeiture
until November 16, 1996, unless the Employee remains an employee of
the Company on that date, in which case such risk of forfeiture
shall lapse; and
(iii) the remaining 25% of the Bonus Shares shall be at risk
of forfeiture until November 16, 1997, unless the Employee remains
an employee of the Company on that date, in which case such risk of
forfeiture shall lapse; and
(iv) under all circumstances, 100% of the Bonus Shares shall
not be forfeited if the Employee is discharged otherwise than for
cause, as defined in Section 7(d).
(c) Employee's Agreement. Employee expressly and specifically agrees
that:
(i) within 30 days of the date the Bonus Shares are granted to
the Employee hereunder, the Employee shall make an election under
Section 83(b) of the Internal Revenue Code of 1986 to include in his
gross income for federal income tax purposes the amount of the fair
market value of the Bonus Shares at the date of grant; provided that
the Company and the Employee agree that the fair market value shall
be equal to the book value of such shares on the last date such book
value was determined prior to the date of grant; and
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(ii) the grant of Bonus Shares is special incentive
compensation which shall not be taken into account as "wages" or
"salary" in determining the amount of payment or benefit to the
Employee under any pension, thrift, stock or deferred compensation
plan of the Company; and
(iii) on behalf of the Employee's beneficiary, the grant of
Bonus Shares shall not affect the amount of any life insurance
coverage available to such beneficiary under any life insurance plan
covering employees of the Company.
(d) Non-Transferability. Until such time as the shares are no longer
at risk of forfeiture as herein provided, the applicable Bonus Shares
granted hereunder are not transferable or assignable by Employee.
11. 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.
12. Board Membership. Immediately following the execution of this
Agreement, the Company agrees to increase the number of members of its Board by
one and shall appoint the Employee to fill the resulting vacancy. The Company
agrees that during the term of this Agreement, the Company shall nominate and
recommend to the Company's stockholders the Employee for election to the
Company's Board.
13. 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.
14. 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
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or on the date mailed, postage prepaid, by certified mail, return receipt
requested, if addressed to the respective parties as follows:
If to Employee: 641 Fifth Avenue
New York, New York 10022
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.
15. Specific Performance. The Employee acknowledges that a remedy at law
for any breach or attempted breach of Section 8, 9, 10 or 12 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 posting of any bond in connection with the obtaining of any such
injunctive or any other equitable relief.
16. 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.
17. 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.
18. 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.
19. Binding Effect. Subject to the provisions of Section 18, 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.
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20. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the matters covered
hereby.
21. Amendment. This Agreement may be amended only by an instrument in
writing executed by the parties hereto.
22. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the law of the State of Texas.
23. Survival. The provisions of this Sections 8, 9, 10 and 12 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.
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/ ADRIAN KATZ
----------------------------------
ADRIAN KATZ
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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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EMPLOYMENT AGREEMENT
This Agreement is entered into this 30th day of May, 1996, but effective
for all purposes on May 1, 1996 (the "Effective Date"), between AutoBond
Acceptance Corporation, a Texas corporation (the "Company"), and William O.
Winsauer, who resides in Austin, Texas ("Employee").
RECITALS
WHEREAS, the Company desires to employ Employee as Chief Executive Officer
of the Company, for a period of not less than five years, upon the terms and
conditions provided herein; and
WHEREAS, Employee desires to be so employed.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the above recitals, and for and in
consideration of the mutual promises set forth below, the parties agree as
follows:
1. Employment. The Company hereby employs Employee as Chief Executive
Officer of the Company, and Employee hereby accepts employment with the Company
upon the terms and conditions herein stated.
2. Term. Subject to the provisions for termination as set forth in
Paragraph 11, this Agreement shall be for the period commencing on the Effective
Date and ending five years from such date (the "Expiration Date"), which period
of employment may be extended or terminated under the terms and conditions set
forth in Paragraph 11.
3. Position and Duties. Employee shall serve the Company in an executive
capacity as Chief Executive Officer of the Company. The Employee's duties shall
include, in addition to those enumerated in the Bylaws of the Company, those
duties as may be directed by the Board of Directors of the Company (the
"Board").
4. Extent of Services; Covenant Not to Compete. Employee shall devote his
best efforts and full business time (with allowances for vacations and sick
leave) and attention to furthering the business of the Company, and shall not
during the term of this Agreement be engaged in other activities which require
substantial services or which are in competition with the Company, it being
understood, however, that activities by the Employee on behalf of AutoBond,
Inc., pursuant to the Management Agreement dated as of
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January 1, 1996, shall not be deemed violative of this covenant. The foregoing
shall not be construed as preventing Employee from maintaining or making
investments, or engaging, in other noncompetitive business enterprises or civic,
charitable or public service functions, provided such investments, business or
enterprises do not require services on the part of Employee which would
materially impair the performance of his duties under this Agreement.
5. Compensation. As his regular compensation for all services rendered by
Employee under this Agreement to the Company, its subsidiaries and affiliates,
the Company shall pay Employee a salary (the "Regular Salary") of not less than
$240,000 per annum, payable in substantially equal semi-monthly installments
during the term hereof. It is understood that the Company will review annually
and may, in the discretion of the Board (or any committee thereof), increase
Employee's Regular Salary, in which case the amount of such increased salary
shall thereafter be deemed to be the amount of Regular Salary contracted for in
this Agreement for all purposes and, if so increased, the Regular Salary shall
not thereafter during the term of this Agreement be decreased to less than
$240,000 per annum. All salary and any other current compensation (if any) paid
to Employee shall be subject to such payroll and withholding deductions as are
required by the laws of any jurisdiction, federal, state or local, with taxing
authority with respect to such salary and other compensation (if any). Regular
Salary payments (including any increased Regular Salary payments) hereunder
shall not in any way limit or reduce any other obligation of the Company
hereunder, and no other compensation, benefit or payment hereunder shall in any
way limit or reduce the obligation of the Company to pay the Employee's Regular
Salary hereunder.
6. Incentive Compensation. The Company shall pay to Employee cash
incentive compensation as shall be determined by the Board (or any committee
thereof) from time to time. Employee shall be entitled to participate in any
bonus or incentive plan established for the Company's executive officers at a
level to provide Employee compensation commensurate with Employee's position and
responsibilities. Upon the establishment of such plans, this Agreement shall be
deemed to be automatically amended to include all applicable terms of such
plans.
7. Other Benefits. The Company shall provide the following employee
benefits to Employee during the term of this Agreement:
a. Major Medical Insurance. The Company shall maintain in full force and
effect, and Employee shall be entitled to participate in the Company's major
medical benefit plan.
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b. Disability. The Company shall maintain in full force and effect, and
Employee shall be entitled to receive, as disability insurance protection, the
disability coverage as is provided to other full-time executives of the Company.
c. Other Benefits. Employee shall be entitled to all other benefits and to
participate in and be covered by all such other employee benefits plans,
including deferred compensation programs, if any, as are provided to other
full-time executive employees of the Company from time to time.
d. Automobile and Travel Expenses. The Company shall pay Employee a
monthly automobile allowance of $1,500 and shall pay all fees, tags, insurance
premiums and oil, gas and maintenance bills regarding such automobile.
e. Vacations. The Employee shall be entitled to six weeks paid vacation in
each calendar year and to compensation in respect of earned but unused vacation
days determined in accordance with the Company's vacation plan if such plan so
provides. The Employee shall also be entitled to all paid holidays given by the
Company to its executives.
Nothing paid to the Employee under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
Regular Salary payable to the Employee pursuant to Paragraph 5. The Company
shall not make any changes in any plans or arrangements provided pursuant to
this Paragraph 7 which would adversely affect the Employee's rights or benefits
thereunder unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
reduction in the rights or benefits to Employee as compared with any other
executive of the Company.
8. Violation of Laws. As a material inducement to the Company to enter
into this Agreement, Employee represents and warrants to the Company that, to
the best of Employee's knowledge, he is not now, nor has he been in the past,
the subject of any regulatory agency's investigation for violation of state or
federal securities law, nor has he had any judgment against him for violation of
these laws in any civil action in any court.
9. Working Facilities and Staff. The Company shall furnish Employee with
such facilities, staff and services as are suitable to his position and adequate
for the performance of his duties.
10. Expenses. The Company shall pay or reimburse Employee for all
reasonable expenses for entertainment, travel, meals, hotel
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accommodations, and fees and the like incurred by him in the interest of the
business of the Company and its affiliates, such payment or reimbursement to be
upon submission of an itemized accounting statement by Employee documenting such
expenses as may be required by the Internal Revenue Code of 1986, as amended;
provided, however, that Employee shall be reimbursed for such expenses whether
or not such expenses are deductible by the Company under the Internal Revenue
Code of 1986, as amended.
11. Termination of Agreement.
a. Notwithstanding any other provision hereof, Employee's employment
hereunder shall terminate:
i. upon the death of Employee (subject to the terms of Paragraph 12
below);
ii. upon the disability of Employee, which for the purpose of this
Agreement shall be the physical or mental inability of Employee
to carry out the normal and usual duties of his employment on a
full-time basis for an entire period of six continuous months
together with the reasonable likelihood as determined by the
Board that Employee, upon the advice of a qualified physician,
will be unable to carry out the normal and usual duties of his
employment on a full-time basis for the following continuous
period of six months, and within 30 days after Notice of
Termination is given Employee shall not have returned to the
performance of his duties on a full-time basis (subject to the
terms of Paragraphs 7(c) and 12);
iii. "for cause" (as defined in subparagraph (b) below), upon written
notice of termination for cause given by the Company to Employee;
or
iv. on the Expiration Date (subject to the terms of subparagraph (h)
below).
b. As used herein, "for cause" shall mean any of the following events:
i. Willful misconduct or intentional and continual neglect of duties
which in the business judgment of the Board has materially
adversely affected the Company; provided, however, that Employee
shall have first received written notice from such Board advising
of the acts or omissions that constitute the misconduct or
neglect of duties, and such misconduct or neglect of duties
continues after
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Employee shall have had a reasonable opportunity to correct the
same;
ii. Theft or conviction of any crime involving dishonesty or moral
turpitude;
iii. Willful and continual failure or refusal to substantially perform
duties in accordance with this Agreement (other than any such
failure resulting from Employee's incapacity due to physical or
mental illness); provided, however, that Employee shall have
first received written notice from the Board advising of the acts
or omissions that constitute the failure or refusal to
substantially perform duties, and such failure or refusal
continues after Employee shall have had a reasonable opportunity
to correct the same.
For purposes of this paragraph, no act, or failure to act, on Employee's part
shall be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission was in the
best interest of the Company. Notwithstanding the foregoing, Employee shall not
be deemed to have been terminated for cause without (i) reasonable notice to the
Employee setting forth the reasons for the Company's intention to terminate for
cause, (ii) an opportunity for the Employee, together with his counsel, to be
heard before the Board, and (iii) delivery to the Employee of a Notice of
Termination as defined in subparagraph (e) hereof from the Board finding that in
the good faith opinion of the Board the Employee was guilty of conduct set forth
above in clause (i), (ii), or (iii) of the preceding sentence, and specifying
the particulars thereof in detail.
c. Termination "for cause" shall require the vote of a majority of the
Board.
d. The Employee may terminate his employment hereunder for Good Reason (as
hereinafter defined).
For purposes of this Agreement, "Good Reason" shall mean (A) the failure
by the Board to reelect Employee as the Chief Executive Officer of the Company,
or Employee's removal from such office, or if at any time during the term of
employment, Company's failure to vest Employee with the powers and authority of
the Chief Executive Officer of the Company, as described above, except in
connection with a termination for cause as contemplated by subparagraph (a)
(iii) of this Agreement; (B) a significant change in the scope, nature or status
of Employee's responsibilities or employment
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prerogatives; (C) a reduction in Employee's Regular Salary after a Change in
Control (as hereinafter defined) or a failure by the Company to increase
Employee's salary from time to time or to pay Employee a bonus at a level
comparable to the level of salary increases or bonuses paid prior to a Change in
Control; (D) Employee's relocation by the Company to any place other than a
location within the Austin, Texas area, except for a relocation consented to by
Employee; (E) a failure by the Company to comply with any material provision of
this Agreement which has not been cured within ten (10) days after notice of
such noncompliance has been given by the Employee to the Company; (F) the
failure by the Company to continue in effect any compensation plan in which
Employee participates unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan in
connection with a Change in Control or the failure of the Company to continue
Employee's participation therein or the taking of any action by the Company
which would materially and adversely affect Employee's participation in any such
plan or reduce Employee's benefits thereunder; (G) the failure by the Company to
continue to provide Employee with benefits not less than those enjoyed under any
of the Company's pension, life insurance, medical, health and accident, or
disability plans in which Employee was participating at the time of a Change in
Control or the taking of any action by the Company which would directly or
indirectly materially reduce any such benefits; (H) the failure of the Company
to obtain a satisfactory agreement from any successor or parent thereof to
assume and agree to perform this Agreement, as contemplated in Paragraph 16
hereof; or (I) any purported termination of the Employee's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
subparagraph (e) hereof (and for purposes of this Agreement no such purported
termination shall be effective).
e. Any termination of the Employee's employment by the Company or by the
Employee (other than termination pursuant to subparagraph (a)(i) above) shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the provision
so indicated.
f. "Date of Termination" shall mean (i) if the Employee's employment is
terminated by his death, the date of his death, (ii) if the Employee's
employment is terminated pursuant to subparagraph (a)(ii) above, 30 days after
Notice of Termination is given (provided that the Employee shall not have
returned to the
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performance of his duties on a full-time basis during such 30-day period), (iii)
if the Employee's employment is terminated pursuant to subsection (d) above, the
date specified in the Notice of Termination, and (iv) if the Employee's
employment is terminated for any other reason, the date on which a Notice of
Termination is given; provided that if within 30 days after any Notice of
Termination is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
g. In the event of termination of this Agreement pursuant to subparagraph
(a) and except as provided in Paragraphs 5, 6, 12 and 13, Employee shall have no
right to receive any compensation, remuneration, bonus or benefit for any period
subsequent to the Date of Termination.
h. In the event Employee shall continue to be employed on the Expiration
Date, or the last day of December of each year thereafter, and no previous
Notice of Termination of this Agreement by the Company or Employee is effective
on that date, this Agreement and Employee's employment hereunder shall be
automatically extended one additional year, subject to termination by either
party upon not less than 30 days written notice to the other party prior to the
end of any year thereafter.
i. At any time during the term of this Agreement, the Company and Employee
may mutually agree to extend or terminate this Agreement upon such terms as
shall be satisfactory to the Company and Employee.
12. Compensation Upon Termination or During Disability.
a. During any period that the Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), the Employee shall continue to receive his Regular Salary
at the rate then in effect for such period until his employment is terminated
pursuant to Paragraph 11(a)(ii) hereof, provided that payments so made to the
Employee during the disability period shall be reduced by the sum of the
amounts, if any, payable to the Employee to or prior to the time of any such
payment under disability benefit plans of the Company and which were not
previously applied to reduce any such payment.
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<PAGE>
b. If the Employee's employment is terminated pursuant to Paragraph
11(a)(ii) because of his disability, the Company shall pay to the Employee,
commencing on the next succeeding day which is the fifteenth day or the last day
of the month, as the case may be, and semimonthly thereafter on the fifteenth
and last days of each month, until a number of payments has been made equal to
twice the number of months remaining between the Date of Termination and the
applicable Expiration Date determined pursuant to Paragraph 11(h), an amount on
each payment date equal to the semi-monthly installment of the Regular Salary
payment payable to the Employee pursuant to Paragraph 5 hereof at the time of
his disability. Employee shall also be paid (i) the vested portion of any
incentive compensation plan to which Employee is entitled and (ii) a pro rata
portion of any incentive compensation plan to which Employee is entitled for the
full fiscal year in which Employee's employment is terminated based on a 365 day
year and the number of days elapsed prior to the Date of Termination. All
payments made to the Employee pursuant to this subparagraph (b) shall be reduced
by the sum of the amount, if any, payable to the Employee to or prior to the
time of any such payment under disability benefit plans of the Company and which
were not previously applied to reduce any such payment. If Employee should die
prior to the time that he has received all the payments provided for pursuant to
this subparagraph (b), the balance of such payments shall be paid to the
Employee's estate in equal amounts, or to such other person or trust as Employee
may have designated in writing to the Company.
c. If the Employee's employment is terminated pursuant to Paragraph
11(a)(i) because of his death, the Company shall pay to the Employee's estate in
equal amounts or to such other person or trust as Employee may have designated
in writing to the Company, commencing on the next succeeding day which is the
fifteenth day or last day of the month, as the case may be, and semimonthly
thereafter on the fifteenth and last days of each month, until a number of
payments has been made equal to twice the number of months remaining between the
Date of Termination and the then applicable Expiration Date determined pursuant
to Paragraph 11(h), an amount on each payment date equal to the semi-monthly
installment of the Regular Salary payment payable to the Employee pursuant to
Paragraph 5 hereof at the time of his death. Such persons shall also be paid (i)
the vested portion of any incentive compensation plan to which Employee is
entitled and (ii) the pro rata portion of any incentive compensation plan to
which Employee is entitled for the full fiscal year in which Employee's
employment is terminated based on a 365 day year and the number of days elapsed
prior to the Date of Termination.
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<PAGE>
d. If the Employee's employment shall be terminated for cause, the Company
shall pay the Employee (i) his Regular Salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given and (ii) the
vested portion of any incentive compensation plan to which Employee is entitled
in accordance with the terms of such plan.
e. Other than following a Change in Control (as hereinafter defined), if
(A) in breach of this Agreement, the Company shall terminate the Employee's
employment or (B) the Employee shall terminate his employment for Good Reason,
then:
i. The Company shall pay the Employee his Regular Salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given;
ii. in lieu of any further salary payments to the Employee for
periods subsequent to the Date of Termination, the Company shall
pay as severance pay to the Employee an amount equal to the
product of (A) the Employee's Regular Salary in effect as of the
Date of Termination, multiplied by (B) the number of years
(including partial years) remaining until the applicable
Expiration Date determined pursuant to Paragraph 11(h), such
payment to be made in substantially equal semimonthly
installments on the fifteenth and last days of each month
commencing with the month in which the Date of Termination occurs
and ending on the Expiration Date; and
iii. if termination of the Employee's employment arises out of a
breach by the Company of this Agreement, the Company shall pay
all other damages to which the Employee may be entitled as a
result of such breach, including damages for any and all loss of
benefits to the Employee under the Company's employee benefit
plans and incentive compensation plans, including employee bonus
and residual pools, which the Employee would have received if the
Company had not breached this Agreement and had the Employee's
employment continued for the full term provided in Paragraph 2
hereof (including specifically, but without limitation, the
benefits which the Employee would have been entitled to receive
pursuant to any supplemental retirement income plan or
arrangement or incentive compensation plan, had his employment
continued for the full term provided in Paragraph 2 hereof at the
rate of compensation specified herein), and including all legal
fees and expenses incurred by him as a result of such
termination. All amounts that would be payable
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<PAGE>
pursuant to Paragraph 6, if any, shall be paid at the times
specified in Paragraph 6.
f. Unless Employee is terminated for cause or pursuant to Paragraph
11(a)(i) or (ii), the Company shall maintain in full force and effect, for the
continued benefit of Employee until the then applicable Expiration Date
determined pursuant to Paragraph 11(h), all employee benefit plans and programs
in which the Employee was entitled to participate immediately prior to the Date
of Termination provided that the Employee's continued participation is possible
under the general terms and provision of such plans and programs. In the event
that the Employee's participation in any such plan or program is barred, the
Company shall arrange to provide the Employee with benefits substantially
similar to those which the Employee would otherwise have been entitled to
receive under such plans and programs from which his continued participation is
barred.
g. The Employee shall not be required to mitigate the amount of any
payment provided for in this Paragraph 12 by seeking or accepting other
employment or otherwise.
13. Compensation Upon Termination After Change in Control.
a. Change in Control
i. Except in the case of an Anticipatory Termination, no benefits
shall be payable under this Paragraph 13 unless there shall have
been a Change in Control of the Company, as defined below, and
Employee's employment shall thereafter have been terminated in
accordance with subparagraph (b). For purposes of this Agreement,
a "Change in Control" shall have occurred only if: (i) any person
or group of persons (excluding the Employee) acting in concert
(within the meaning of Section 13(d) of the Securities Exchange Act
of 1934) shall have become the beneficial owner of a majority of
the outstanding common stock of the Company; (ii) the stockholders
of the Company shall cause a change in a majority of the members of
the Board within a twelve-month period, provided, however, that the
election of a newly-elected director shall not be deemed to be a
change in the membership of the Board if the nomination for
election by the Company's stockholders of such new director was
approved by the vote of two-thirds of the directors then still in
office who were directors at the beginning of such twelve-month
period; or (iii) the Company or its stockholders shall enter into
an agreement to dispose of all or
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<PAGE>
substantially all of the assets or outstanding capital stock of the
Company in any manner (including, but not limited to, by means of
sale, merger, reorganization or liquidation).
ii. For purposes of this Agreement an "Anticipatory Termination" means
the termination of Employee's employment with the Company in
contemplation of the consummation of a pending transaction that
subsequently results in a Change in Control, if such termination is
by the Company other than for cause, death or disability.
b. If any of the events described in subparagraph (a) hereof constituting
a Change in Control of the Company shall have occurred, Employee shall be
entitled to the benefits provided in subparagraph (c) hereof upon the subsequent
termination of Employee's employment pursuant to a Notice of Termination given
on or prior to the expiration of two years following the Change in Control,
unless such termination is because of Employee's death or retirement, by the
Company for cause or disability, or by Employee other than for Good Reason.
c. Payment on Termination
i. If Employee's employment has been terminated by means of an
Anticipatory Termination or if Employee is entitled to receive
benefits hereunder pursuant to subparagraph (b) above, then the
Company shall pay to Employee in a lump sum, in cash, on or prior
to the fifth day following the Date of Termination an amount equal
to three times the sum of (i) Employee's Regular Salary; (ii)
Employee's annual Management Incentive Compensation; and (iii)
Employee's planned level of annual Perquisites. "Management
Incentive Compensation" shall mean the amount, if any, fixed as the
targeted level of annual incentive compensation (as evidenced by
schedules normally found in Employee's employment folder) with
respect to the year in which the Change in Control or Date of
Termination occurred, whichever year would yield a greater amount,
such targeted amount being determined as if 100% of the Company's
earnings goal (and, if applicable, 100% of Employee's personal
performance goal) pertaining to such compensation program were met
and achieved. "Perquisites" shall mean at any time the aggregate
of those other annual amounts payable to Employee as bonuses or
other incentive payments and the equivalent cash value of
Employee's participation in benefit and perquisite programs
(including but not limited to (i) medical, dental
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<PAGE>
and life insurance (but excluding the equivalent cash value of any
insurance coverage maintained for Employee's benefit pursuant to
subparagraph (e)(ii)); (ii) use of an automobile or automobile
payments, whichever is applicable to Employee prior to the Change
in Control; and (iii) any bonus plan or other plan). "Perquisites"
does not otherwise include any amounts or benefits to be received
by Employee in respect of any options to purchase common stock of
the Company granted to Employee, and all of Employee's rights in
respect thereof shall be determined in accordance with the terms
and conditions of such plan or agreement, and, except as
specifically provided in subparagraph (e) hereof, this Agreement is
not intended to modify such plan or agreement.
ii. (A) If the aggregate of all payments in the nature of compensation
and other benefits to Employee that are to be paid to Employee
contingent on the Change in Control (the "Aggregate Amount") would
constitute a "parachute payment" (as defined in Section 280G of the
Internal Revenue Code of 1986, as amended or supplemented (the
"Code")), the lump sum payment otherwise payable to Employee
pursuant to subparagraph (c)(i) shall be reduced to the largest
amount as will result in no portion of the Aggregate Amount being
subject to the excise tax imposed by Section 4999 of the Code. The
determination of any reduction in the lump sum payment under
subparagraph (c)(i) pursuant to this section shall be made by
Employee and the Company in good faith, and in the event Employee
and the Company disagree, such determination shall be made by means
of arbitration to be conducted at the Company's expense. Any such
arbitration shall be conducted in Austin, Texas, by one arbitrator,
who shall be a member of a nationally recognized accounting firm
that is not then engaged by the Company or any of its major
stockholders, and who shall be jointly designated by the parties;
provided, that if the parties cannot agree on the selection of an
arbitrator, the Company's then current independent auditors shall
select such arbitrator. The findings of the arbitrator shall be
conclusive and binding on the parties.
(B) Notwithstanding subparagraph (A) above, Employee may elect to
receive, in lieu of the reduced amount described in such
subparagraph, the full amount of such lump sum, together with the
other benefits that Employee have the right to receive from the
Company, provided Employee so
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<PAGE>
notifies the Company in writing within 15 days of Employee's Date
of Termination.
d. The Employee shall not be required to mitigate the amount of any
payment provided in this Paragraph 13 by seeking or accepting other employment
or otherwise.
e. If Employee is entitled to receive benefits under subparagraph (c),
then Employee shall be entitled to the following additional benefits:
i. Employee shall be entitled to receive all benefits payable to
Employee under any grants of options to purchase shares of common
stock of the Company as if Employee were fully vested thereunder,
and such benefits shall be paid to Employee promptly following the
Date of Termination but no later than such benefits would normally
be paid to a withdrawing participant in the plan or agreement.
ii. The Company, at its expense, shall maintain in full force and
effect for Employee's continued benefit until the earlier of (A) 24
months after the Date of Termination or (B) Employee's commencement
of full-time employment with a new employer, all life, disability,
medical, dental accident and health insurance coverage to which
Employee was entitled immediately prior to the Notice of Termina-
tion. In the event that Employee's participation in any such
coverage is barred under the general terms and provisions of the
plans and programs under which such coverage is provided, or any
such coverage is discontinued or the benefits thereunder
materially reduced, the Company shall provide or arrange to provide
Employee with benefits substantially similar to those which
Employee was entitled to receive under such coverage immediately
prior to the Notice of Termination. At the end of the period of
coverage hereinabove provided for, Employee shall have the option
to have assigned to Employee at no cost and with no apportionment
of prepaid premiums, any assignable insurance owned by the Company
and relating specifically to Employee and Employee shall be
entitled to all health and similar benefits that are or would have
been made available to Employee under law.
14. Counsel Fees and Indemnification.
a. In the event either the Company or Employee is required to employ legal
counsel to enforce the performance of this
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<PAGE>
Agreement or recover damages because of any breach of this Agreement, the
prevailing party shall be entitled to recover from the other party reasonable
attorneys' fees and the reimbursement of all necessary expenses and court costs.
b. The Company shall indemnify and hold Employee harmless to the maximum
extent permitted by law against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees and costs incurred by Employee,
in connection with the defense of, or as a result of any action or proceeding
(or any appeal from any action or proceeding) in which Employee is made or is
threatened to be made a party by reason of the fact that Employee is or was an
officer of the Company or any of its subsidiaries or affiliates, regardless of
whether such action or proceeding is one brought by or in the right of the
Company or any of its subsidiaries or affiliates, to procure a judgment in its
favor (or other than by or in the right of the Company or any of its
subsidiaries or affiliates). The Company shall also, to the maximum extent
permitted by law, promptly make advance reimbursement of expenses incurred in
defense of any such claim to the Employee upon receipt of a request for such
advance along with any required undertakings from the Employee.
The undertakings of subparagraph (a) above, is independent of, and shall
not be limited or prejudiced by the undertakings of subparagraph (b).
15. Notices. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date of service if served
personally on the party to whom notice is to be given and acknowledged by
written receipt, or on the seventh day after mailing if mailed (return receipt
requested), postage prepaid and properly addressed as follows:
The Company: AutoBond Acceptance Corporation
301 Congress Avenue, 9th Floor
Austin, Texas 78701
Attn: Board of Directors
Employee: William O. Winsauer
301 Congress Avenue, 9th Floor
Austin, Texas 78701
Any party may change its address for purposes of this Paragraph 15 by giving the
other parties written notice of the new address in the manner set forth above.
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<PAGE>
16. Assignment; Binding Effect. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by any party without the prior
written consent of the other parties. This Agreement is binding upon and inures
to the benefit of Employee, the Company and their respective heirs, personal
representatives and permitted successors and assigns. The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Company in the
same amount and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason following a Change in Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, the "Company" shall mean the Company as hereinbefore defined and
any successors to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Paragraph 16 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
17. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of Texas.
18. Waiver. Any waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
thereof or of any other provision of this Agreement.
19. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matters hereof and
supersedes any and all prior and contemporaneous promises, agreements and
representations not set forth in this Agreement. This Agreement may not be
amended except by a mutual written agreement signed by all parties; provided,
however, that the terms of any cash incentive compensation plan or stock option
plan established by the Company subsequent to the date hereof in accordance with
terms previously outlined by the Company shall automatically become part of this
Agreement when established.
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<PAGE>
20. Severability. Should any one or more of the provision hereof be
determined to be illegal or unenforceable, all other provisions hereof shall be
given effect separately therefrom and shall not be affected thereby.
IN WITNESS WHEREOF, the Company and Employee have executed and delivered
this Agreement as of the date written above.
AUTOBOND ACCEPTANCE CORPORATION
By: /s/ WILLIAM J. STAHL
___________________________________
Name: William J. Stahl
_________________________________
Title: V.P. & CFO
________________________________
EMPLOYEE:
/s/ WILLIAM O. WINSAUER
______________________________________
William O. Winsauer
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<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Venders Part Two INTERSTATE
Comprehensive This Declaration Page and FIRE & CASUALTY
Single Interest Policy Policy Provisions (Part COMPANY
One), with Coverage Executive Offices: 55 E. Monroe Street
Parts/Forms and Chicago, Illinois 60603
Endorsements issued to form
a part thereof complete the
below numbered policy.
Policy Number CA4-1000024
- -------------------------------------------------------------------------------------------------------------
Declarations Renewal of No.
- -------------------------------------------------------------------------------------------------------------
Item 1. Named Insured Auto Bond Acceptance Corporation
The Named Insured is: [ ] Individual [ ] Partnership [ ] Joint
Venture [X] Corporation [ ] Other
Street Address 8080 N. Central Expressway, Suite 1620
City, State, Zip Dallas, TX 75206
</TABLE>
<TABLE>
<S> <C> <C> <C>
Item 2. Policy Period From: Producer: Intercontinental Brokerage, Inc.
12:01 AM Std. Time at the 5-01-94 Office Address: 445 Livernois, Suite 233
address of the Named Insured as To: City, State, Zip: Rochester Hills, MI 48063
stated herein. 5-01-95 No.:
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ATTENTION The insurance afforded is only with of such coverage shall be as stated
respect to the following coverage herein, subject to all the terms and
where a premium charge is shown. The conditions of this policy having
limit of the company's liability reference thereto.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Item 3. Coverage Coverage Limit of Liability Premium
-------------------------------------------------------------------------
A. All Risk Physical States in Policy $82.00
Damage Conditions #21
Loan Insurance
$40,000 per vehicle
-------------------------------------------------------------------------
B. Instrument Non- State in Policy $ Included
Filing Conditions #21
Insurance
$40,000 per vehicle
-------------------------------------------------------------------------
C. Confiscation and Stated in Policy $ Included
Skip Insurance Conditions #21
$40,000 per vehicle
-------------------------------------------------------------------------
D. Repossessed Vehicles $25,000 per Occurrence $ Included
Coverage
-------------------------------------------------------------------------
Subject to Endorsements ABAC-1, ABAC-2, ABAC-3, ABAC-4, ABAC-5, ABAC-6,
and Coverage Form(s) ABAC-7.
Part(s) identified
here by number
-------------------------------------------------------------------------
Subject to a Minimum Total Premium $82.00 per vehicle
Monthly Premium of Deposit Premium $N/A
$5,000, plus applicable
surplus lines taxes.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
Item 4. Rate Calculation Rate of Premium Calculation (per loan)
<S> <C> <C> <C> <C>
Per Vehicle Per Watercraft Per Recreational Per Chattel
Vehicle
$82.00 $ N/A $82.00 $ N/A
-------- -------- -------- ------
All premiums shall be fully earned when paid and no refund of premium be
made by the Company upon concellation for any reason whatsoever.
- -----------------------------------------------------------------------------------------------------------------
Item 5. Audit Period [X] Monthly [ ] Quarter [ ] Semi-annually
- -----------------------------------------------------------------------------------------------------------------
This policy is made and accepted subject to the foregoing provisions and
stipulations and those hereinafter stated which are hereby made a part
of this Policy, together with such other provisions, stipulations, and
agreements as may be added hereto.
5/9/94 /s/ [SIGNATURE]
----------------- -------------------------------------------------------
Date Prepared Authorized Representative
</TABLE>
<PAGE>
<PAGE>
ONE OF THE INTERSTATE INSURANCE COMPANIES
AS DESIGNATED ON THE DECLARATIONS PAGE
(A Stock Company, herein called the Company)
Mailing Address: 55 E. Monroe Street, Chicago, Il 60603
In consideration of the payment of the premium, in reliance upon the statements
made a part hereof and subject to all the terms of this Policy, the Company
shown on the Declarations page agrees with the Named Insured as follows:
I. INSURING AGREEMENTS
COVERAGE A-ALL RISK PHYSICAL DAMAGE INSTALLMENT LOAN INSURANCE-To indemnify the
Named Insured against all risks of physical loss or damage from any external
cause to vehicles, except as hereinafter excluded, which the Named Insured holds
as collateral for an installment or deferred payment loan under an instrument,
as hereinafter defined.
COVERAGE B-INSTRUMENT NON-FILING INSURANCE-To indemnify the Named Insured
against any direct loss which the Named Insured may sustain during the term of
this Policy by reason of having in good faith, and in the usual course of
business, taken, received, made advances on, made loans against or extended
credit upon an instrument as hereinafter defined, as security for a loan to a
customer of the Named Insured, or purchased from a dealer of the Named Insured,
but only insofar as the Named Insured is damaged solely through being prevented
from:
1. Obtaining possession of the vehicle represented by such instrument and/or
retaining the proceeds thereof; and/or
2. Enforcing its rights under such instrument;
Solely because the Named Insured has UNINTENTIONALLY not recorded or filed the
instrument with the proper Public Officer or Public Office, or has not had the
proper Public Officer or Public Office show the Named Insured's encumbrance
thereon if the Instrument be a Certificate of Title.
COVERAGE C-CONFISCATION AND SKIP INSURANCE-To indemnify the Named Insured
against any direct loss which the Named Insured, may sustain during the term of
this Policy:
1. By reason of the inability of the Named Insured to locate neither the
borrower, the vehicle nor any obligee of the instrument; or
2. By reason of the confiscation of the vehicle by a Public Officer or Public
Office;
But only in the event that the Named Insured shall have in good faith and in the
usual course of business taken, received, made advances on, made loans against,
or extended credit upon an instrument, as security for a loan to a customer of
the Named Insured, or purchased such instrument for a dealer of the Named
Insured.
COVERAGED D-REPOSSESSED VEHICLES INSURANCE-To indemnify the Named Insured for a
period not to exceed sixty (60) days, against all risk of physical loss or
damage from any external cause to repossessed vehicles as hereinafter defined.
Repossessed Vehicle insurance will cover:
1. Repossessed vehicles that the Named Insured has possession of and exercises
rights of ownership over; and/or
2. Vehicles while being repossessed by the Named Insured; or
3. While such repossessed vehicles are held by the Named Insured for sale but
excluding:
a. Vehicles owned by the Named Insured for use in its business;
b. Vehicles rented or leased to others;
c. Vehicles sold by the Named Insured subject to any security interest of
the Named Insured; or
d. Vehicles in the care, custody or control of sales agencies or dealers.
II. DEFINITIONS
For the purpose of this insurance:
A. Instrument-'Instrument' shall be understood to mean a Chattel Mortgage, a
Security Agreement, a Conditional Bill of Sale, a Conditional Sales Contract, a
Chattel Trust Deed, a Trust Deed, A Trust Receipt, a Deed of Trust or a Bill of
Sale to Secure Debt, all creating or reserving a lien in chattels which is held
as Collateral for a loan made by the Named Insured and scheduled for payment on
a monthly basis, of not less than three (3) consecutive months.
B. Vehicle-'Vehicle' shall be defined as a four wheeled land motor vehicle of
the private passenger type including walk-in type vans and pick-up trucks with a
loan capacity of no more than 2,000 pounds which have been licensed for road use
through the Motor Vehicle Commissioner or through the appropriate licensing
authority of a State or territory or possession of the United States.
C. Repossessed Vehicles-'Repossessed Vehicles' shall mean any vehicle, insured
by this Policy, of which the Named Insured has gained possession peacefully or
through legal process, by virtue of a legal right to such possession.
D. Date of Loss-
1. The Date of Loss under Coverage A shall be the date on which the
actual physical loss or damage occurred to the vehicle insured
hereunder. If such date is undeterminable the Date of Loss shall be
the date the vehicle is repossessed.
2. The Date of Loss under Coverage B shall be the date on which the
adverse party filed its lien on the vehicle insured hereunder which
lien is superior to that of the Name Insured.
3. The Date of Loss under Coverage C shall be the date that the first
delinquency occurs.
4. The date of Loss under Coverage D shall be the date on which the
actual physical loss or damage occurred to the vehicle insured
hereunder.
E. Named Insured-Named Insured shall mean the entity(ies) or organization named
in Item 1. of the Declarations of this Policy.
Page 1 of 5
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III. EXCLUSIONS
This insurance shall not indemnify the Named Insured in respect of any loss or
losses:
A. resulting from losses occurring prior to the effective date of this Policy;
B. resulting directly or indirectly from any dishonest, fraudulent or criminal
act of any officer or employee of the Named Insured or of any dealer from which
the Named Insured acquired the instrument or of any officer or employee of such
dealer, or anyone acting in any capacity as agent for the Named Insured in
obtaining a loan;
C. resulting from forgery, or use of an alias;
D. resulting from any lien, encumbrance or defect in title which existed at the
time the loan was made by the Named Insured;
E. resulting from any instrument due and payable more than sixty (60) calendar
months after the making thereof, even though on the date of loss the date of
maturity of the instrument may be less than sixty (60) months.
F. under Coverage A and D, caused by or resulting from wear and tear, gradual
deterioration, obsolescence, rust, corrosion, latent defect, inherent vice,
freezing or overheating;
G. under Coverage A and D, caused by or resulting from any repairing or
restoration or remodeling process, structural, mechanical or electrical
breakdown or failure unless fire or other accident ensues and then only for the
loss or damage by such ensuing fire or accident;
H. to vehicles held as collateral under any floor plan or field warehouse type
of financing;
I. resulting from any loan made to a dealer, or their employees, whether or not
the property is held for resale;
J. on loans on any vehicles designed for racing or modified for use as a public
livery vehicle;
K. resulting from the Named Insured's failure to initiate a professional attempt
to repossess the security (vehicle) within ninety (90) days after the account
becomes delinquent;
L. under Coverage A, B and C to any loan made to a borrower who was responsible
for a claim being paid under this Policy;
M. caused by or resulting from:
1. hostile or warlike action in time of peace or war, including action in
hindering, combating or defending against an actual impending or
expected attack;
a. by any government or sovereign power (de jure or de facto), or by
any authority maintaining or using military, naval or air forces;
or
b. by military, naval or air forces, or
c. by any agent of any such government, power, authority or forces;
2. any weapon of war employing atomic fission or radioactive force
whether in time of peace or war;
3. insurrection, rebellion, revolution, civil war, usurped power, or
action taken by governmental authority in hindering, combating or
defending against such an occurrence, seizure or destruction under
quarantine or customs regulations, confiscation by order of any
government or public authority, unless Coverage C is provided and is
so indicated in the Declarations, risks or contraband or illegal
transportation or trade;
N. caused by or resulting from nuclear reaction or nuclear radiation or
radioactive contamination, all whether controlled or uncontrolled, and whether
such loss be direct or indirect, proximate or remote, or be in whole or in part
caused by, contributed to, or aggravated by the peril(s) insured against in this
Policy.
IV. CONDITIONS
(UNLESS OTHERWISE NOTED, THESE CONDITIONS APPLY TO ALL COVERAGES.)
1. POLICY PERIOD, TERRITORY-This Policy shall be effective from the date
of inception as shown on the Declarations and shall remain
continuously in effect until terminated as hereinafter provided. This
policy applies only to loss during the policy period within the United
States of America, its territories or possessions, or Canada. There
shall be no coverage under this Policy when it is determined that the
vehicle has been removed from the United States of America, its
territories or possessions, or Canada.
2. NOTICE OF LOSS-COVERAGES A,B & D- The Named Insured shall as soon as
practicable reort to this Company or its agent every loss or damage
which may become a claim under this Policy and shall also file with
the Company or its agent within ninety (90) days from date of loss, as
herein defined, a detailed sworn proof of loss. Failure by the Named
Insured to report the said loss or damage and to file such sworn proof
of loss as hereinbefore provided shall invalidate any claim under this
Policy for such loss.
COVERAGE C-Notice shall be filed, as above, within one hundred eighty
(180) days from the date of loss as herein defined.
3. EXAMINATION UNDER OATH-The Named Insured shall submit, and so far as
is within its power, shall cause all other persons interested in the
vehicle insured and members of the household and employees to submit
to examinations under oath by any persons named by the Company,
relative to any and all matters in connection with a claim and
subscribe the same; and shall produce for examination all books of
account, bills, invoices, and other vouchers or certified copies
thereof it originals be lost, at such reasonable time and place as may
be designated by the Company or its representatives, and shall permit
extracts and copies thereof to be made.
4. VALUATION-Unless otherwise provided, this Company shall not be liable
beyond the actual cash value of the vehicle at the date of loss and
the loss or damage shall be ascertained or estimated according to such
actual cash value with proper deduction for depreciation, however
caused, and shall in no event exceed what it would then cost to repair
or replace the same with material of like kind and quality.
Page 2 of 5
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5. SETTLEMENT OF CLAIMS-All adjusted claims shall be paid or made good to
the Named Insured within sixty (60) days after presentation and
acceptance of satisfactory proof of interest and loss at the office of
this Company. No claim shall be paid hereunder if the Named Insured
can collect the same from others.
6. NO BENEFIT TO BAILEE-This insurance shall in no way inure directly or
indirectly to the benefit of any carrier, bailee, borrower or any
other person or entity other than the Named Insured.
7. SUBROGATION-In the event of any payment under this Policy the Company
shall be subrogated to all the Named Insured's rights of recovery
therefor against any person or organization and the Named Insured
shall execute and deliver instruments and papers and do whatever else
is necessary to secure such rights. The Named Insured shall do nothing
after loss to prejudice such rights.
8. PARTS-In case of loss or injury to any part of the insured vehicle
consisting, when complete for sale or use, of several parts this
Company shall only be liable for the insured value of the insured part
lost or damaged.
9. DUTIES OF THE NAMED INSURED-In the event of loss or damage, the Named
Insured shall:
(a) make every professional effort at its own expense to recover and
safeguard the vehicles, or any part thereof, insured under this
Policy, initiate suit or cooperate with the Company in the
conduct of any suit and enforce any right of contribution or
indemnify against any person or organization who may be liable to
the Named Insured because of loss to which this insurance applies
but there shall be no abandonment to the Company;
(b) do all things a professional should do to avoid or diminish any
loss covered under this Policy;
(c) protect the vehicle from any further loss or damage; expenses
incurred in affording such protection and any further loss or
damage due to the Named Insured's failure to protect shall not be
recoverable under this Policy.
10. SUIT AGAINST COMPANY-No suit, action or proceeding for the recovery of
any claim under this Policy shall be sustainable in any court of law
or equity unless the same be commenced within twelve (12) months next
after discovery by the Named Insured of the occurrence which gives
rise to the claim. Provided, however, that if by the laws of the State
within which this Policy is issued such limitation is invalid, than
any such claim(s) shall be void unless such action, suit or proceeding
be commenced within the shortest limit of time permitted by the laws
of such State to be fixed herein.
11. APPRAISAL-If the Named Insured and the Company fail to agree as to the
amount of loss, each shall, on the written demand of either, made
within sixty (60) days after receipt of proof of loss by the Company,
select a competent and disinterested appraiser and the appraisal shall
be made at a reasonable time and place. The appraisers shall first
select a competent and disinterested umpire and, failing for fifteen
(15) days to agree upon such umpire, then on the request of the Named
Insured or the Company, such umpire shall be selected by a judge of a
court of record in the State in which such appraisal is pending. The
appraisers shall than appraise the loss, stating separately the actual
cash value at the date of loss and the amount of loss, and failing to
agree shall submit their differences to the umpire. An award in
writing of any two shall determine the amount of loss. The Named
Insured and the Company shall bear equally the expenses of the
appraisal and umpire. The Company shall not be held to have waived any
of its rights by an act relating to appraisal.
12. CONFORMITY TO STATUTE-Terms of this Policy which are in conflict with
the statutes of the State wherein this Policy is issued are hereby
amended to conform to such statutes.
13. CHANGES-Notice to any agent or knowledge possessed by any agent or by
any other person shall not effect a waiver or a change in any part of
this Policy, or estop the Company from asserting any right under the
terms of this Policy, nor shall the terms of this Policy be waived or
changed except by endorsement issued to form a part of this Policy.
14. DECLARATIONS-By acceptance of this Policy, the Named Insured agrees
that the statements in the Declarations are its agreements and
representations, that this Policy is issued in reliance upon the truth
of such representations and that this Policy, together with any
application(s) or representations in connection therewith, embodies
all agreements existing between itself and the Company or any of its
agents relating to this insurance.
15. PRIMARY INSURANCE-COVERAGE A-It is understood and agreed that the
Named Insured will require all borrowers to agree to carry physical
damage insurance with loss payable clause in favor of the Named
Insured, for such insurance and in such amounts as normally would be
required had not this insurance be effected. Failure on the part of
the borrower to provide such insurance shall not be deemed a violation
of this Policy provided the Named Insured has obtained agreement
from borrower to carry insurance.
16. IMPAIRMENT OF INTEREST-Under no circumstances will any payment be made
for a loss under this Policy unless the interest of the Named Insured
is impaired by reason of the borrower having defaulted in his
obligation to the Named Insured.
17. LOCATION OF VEHICLE-COVERAGE A-As respects damage, it shall be
necessary for the Named Insured to locate and to take title to the
vehicle or be in a position to convey good title to the Company upon
demand, before any loss shall be paid under this coverage.
18. LOCATION OF VEHICLE-COVERAGE B-There shall be no liability, under this
policy unless at the time claim is made the vehicle represented by the
Instrument has been located by the Named Insured or the person,
persons, or corporation who has title to the vehicle has been located
by the Named Insured and it definitely has been determined that such
person, persons, or corporation has claim or title lawfully superior
to the lien held by the Named Insured. The company shall not be liable
for the expenses of the Named Insured in locating the person or
vehicle or determining the status of title described above.
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<PAGE>
19. LOCATION OF VEHICLE-COVERAGE C
A. 'SKIP' LOSSES ONLY
This policy shall not apply (1) unless every professional effort
is made to (a) locate the vehicle represented by the instrument
and (b) locate the person or obligee of the instrument, or
(2) if the Named Insured is successful as respects (1)(a) or
(1)(b) preceding. Expenses so incurred by the Named Insured shall
not be recoverable under this Policy. When within one hundred
eighty (180) days from the date of delinquency, the Named Insured
determines that a 'SKIP' has occurred within the meaning of this
Policy, as distinquished from a borrower who is merely delinquent
in his obligation to the Named Insured, prompt written notice
shall be given to the Company or its agent setting forth all
circumstances concerning the loss and particularly the efforts
that have been made pursuant to the paragraph above. The Company
shall then have sixty (60) days in which to locate either the
vehicle represented by the instrument or any obligee of the
Instrument.
If the Company locates the vehicle represented by the instrument
prior to payment of the claim, its maximum liability shall be
100% of the reasonable expense of locating and returning the
vehicle to the office of the Named Insured, subject however to a
maximum limit of liability to the Company of $250.00 for this
purpose.
B. CONFISCATION LOSSES ONLY-This Policy shall not apply unless the
Named Insured locates the vehicle and follows all necessary
procedures to reclaim the vehicle. Expenses so incurred by the
Named Insured shall not be recoverable.
20. VEHICLES HELD AS COLLATERAL-With regard to vehicles, as herein
defined, held as collateral for loans, it is agreed that:
A. The Named Insured will hold the Certificate of Title with its
records until the loan has been satisfied;
B. The Named Insured will file or record its lien with the Motor
Vehicle Commissioner or with the appropriate authority of a State
or territory or possession of the United States;
C. Unintentional error or omission in filing a lien with the Motor
Vehicle Commissioner or appropriate authority of a State or
territory or possession of the United States shall not violate
this requirement.
21. LIMITS OF LIABILITY-This Company shall not be liable under this Policy
for
A. an amount exceeding the lowest of the following:
1. cost of repair or replacement of the vehicle; or
2. the actual cash value of the vehicle at time of loss or
damage, less salvage value; or
3. the amount of any impairment of the Named Insured's interest
as represented by his customer's unpaid balance not more
than 90 days past due less interest, insurance, finance, and
other carrying charges, computed pro rata as of the date of
loss, less salvage value. Such carrying charges shall be
deemed to accrue in equal installments on the payment dates
fixed by the purchase contract or loan agreement and shall
not include penalties or other charges which may have been
added to such unpaid balance after the inception date of
purchase contract or loan agreement.
B. More than the balance due the Named Insured under 21.A. less the
amount due under all other valid insurance on the damaged or
destroyed vehicle, less salvage value.
22. PAYMENT OF LOSS-The Company shall have the option of paying the loss
in money or pay repair or replace the vehicle or damaged part thereof
with other of like kind and quality, with deduction for depreciation,
or may return any stolen vehicle with payment of any resultant damage
thereto at any time before the loss is paid or the vehicle is so
replaced, or may take all or such part of the vehicle at the agreed or
appraised value, but there shall be no abandonment to the Company.
23. OTHER INSURANCE-coverage under this Policy is excess insurance over
any other insurance or indemnity and shall not be treated as
contributing with any other insurance or indemnity.
24. ASSISTANCE AND COOPERATION OF THE NAMED INSURED-The Named Insured
shall use due diligence and do and concur in doing all things
reasonable and practicable to avoid or diminish any loss covered under
this insurance; failure to record or file an instrument with the
proper Public Officer or Public Office shall not be considered as
failure by the Named Insured to use due diligence.
25. EXTENSION OF MATURITY-The Named Insured may grant extensions of
maturity without the consent of the Company as it may be deemed
advisable in the regular course of business, without prejudice to the
rights of the Named Insured hereunder; but in no event shall the total
period of the loan, including extensions, exceeds sixty-two (62)
calendar months in all, provided that this limitation shall not apply
to any extension which involves any increase in the balance due before
interest and carrying charges, it being agreed that such extension
shall be considered a new loan and that premium thereon shall be paid
accordingly.
26. SETTLEMENT BY NAMED INSURED, INVALID-any settlement made by or for the
Named Insured on any loan secured by an instrument in respect of which
there is a claim under this insurance without written authority from
the Company or its representatives to make such settlement shall
render this insurance void as to any loss in respect of that loan.
27. INSPECTION OF NAMED INSURED'S RECORDS-The Company or its
representatives may at any reasonable time during business hours
inspect the Named Insured's records for the purpose of determining the
amount of premium due the Company under this insurance.
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<PAGE>
28. CANCELLATION CLAUSE - This Policy may be cancelled by the Named
Insured by surrender of the Policy to the Company or its authorized
agent or by mailing written notice to the Company stating therein the
date cancellation shall be effected. This Policy may be cancelled by
the Company by mailing to the Named Insured at the address shown in
the Policy written notice stating when not less than thirty (30) days
thereafter such cancellation shall be effective; provided that, if the
Named Insured fails to discharge when due any of its obligations in
connection with the payment of premium for this Policy or any
installment thereof, whether payable directly to the Company or its
agent or indirectly under any premium finance plan or extension of
credit, this Policy may be cancelled by the Company by mailing to such
Named Insured written notice stating when not less than ten (10) days
thereafter such cancellation shall be effective. The effective date by
cancellation stated in the notice shall become the end of the policy
period.
29. REPORTS AND PREMIUM - The Named Insured agrees to keep accurate
records of notes or Instruments having collateral of a type coverage
herein as normally processed, purchased or made by the Named Insured
and shall render to the Company or its authorized representative, on
forms provided by the Company, a statement of such transactions
required for determination of premiums not later than the fifteenth
(15) day of the month following the close of each Audit Period as
specified in Item 5 of the Declarations. On this date the premium is
due and payable. Premium for this policy shall be computed in
accordance with the Company's rules, rates and rating plans applicable
to the insurance afforded herein.
30. MISREPRESENTATION AND FRAUD - This Policy shall be void if the Named
Insured has concealed or misrepresented any material fact or
circumstance concerning this insurance or the subject thereof or in
case of any fraud, attempted fraud or false swearing by the Named
Insured touching any matter relating to this insurance or the subject
thereof, whetehr before or after a loss.
31. ASSIGNMENT - Assignment of this Policy shallnot be valid unless the
company gives its written consent.
The policy provisions included herein along with the Declarations Page and any
endorsements issued complete the policy.
IN WITNESS WHEREOF, the Company indicated on the Declarations Page of the policy
has caused the policy to be signed by its president and secretary, but this
policy shall not be valid unless the Declarations are countersigned, when
necessary, by a duly authorized representative of the Company.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
Page 5 of 5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
CHANGE ENDORSEMENT
- --------------------------------------------------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY, PLEASE READ IT CAREFULLY.
ADDITIONAL INSURED
The following is hereby noted and agreed:
The following is added as an Additional Insured:
Auto Bond, Inc. (a Colorado Corporation)
Auto Bond Receivables Corporation (a Delware Corporation)
or any affiliate, subsidiary, partnership or joint venture thereof
This policy is extended to include the above Additional
Insured but only for its interest as such. All rights and
conditions of the policy remain with the insured named in
Item 1 of the Policy Declarations.
Such inclusion of Additional Insured shall not increase the
Company's liability under this policy.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
===============================================================================
The premium for this endorsement is Additional Premium $
included in the premium shown on the Return Premium $
declarations unless a specific amount is
shown here.
- --------------------------------------------------------------------------------
ENDORSEMENT NO.: 1 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto and Acceptance Corporation
- --------------------------------------------------------------------------------
Dated Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
CHANGE ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
ADDITIONAL INSURED
The following is hereby noted and agreed:
The following is added as an Additional Insured:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, TRUSTEE FOR
AUTO BOND RECEIVABLES TRUST 1994-__
NORWEST CENTER, SIXTH AND MARQUETTE
MINNEAPOLIS, MN 55479-0069
This policy is extended to include the above Additional insured but only for its
interest in property itemized in the attached schedule which becomes a part of
the policy, herein identified as:
Schedule ___________________________________, which is hereby covered under this
policy. All rights and conditions of the policy remain with the insured named in
Item 1 of the policy Declarations.
Such inclusion of Additional Insured shall not increase the Company's liability
under this policy.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is included in the Additional Premium $
premium shown on the declarations unless a specific Return Premium $
amount is shown here.
ENDORSEMENT NO.:2 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-100024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
<PAGE>
<PAGE>
CHANGE ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
IN CONSIDERATION OF THE PREMIUM CHARGED AND ALL OTHER TERMS AND CONDITIONS OF
THE POLICY, A $500.00 DEDUCTIBLE SHALL BE APPLIED PER LOSS; AND THE POLICY IS
HEREBY AMENDED AS FOLLOWS:
I. INSURING AGREEMENTS, COVERAGE C - CONFISCATION AND SKIP INSURANCE, Part 1. is
deleted and replaced by:
1. By reason of the inability of the Named Insured to locate either the
borrower, the vehicle or any obligee of the instrument; or
I. INSURING AGREEMENTS, COVERAGE D - REPOSSESSED VEHICLE INSURANCE is deleted
and replaced by:
COVERAGE D - REPOSSESSED VEHICLE INSURANCE - To indemnify the Named Insured
for a period not to exceed sixty (60) days, against all risk of physical loss
or damage from any external cause to repossessed vehicles as hereinafter
defined.
Repossessed Vehicle insurance will cover:
1. Repossessed vehicles that the Named insured or their authorized
representative has possession of and exercise rights of ownership over;
and/or
2. Vehicles while being repossessed by the Named Insured or their authorized
representative; or
3. While such repossessed vehicles are held by the Named Insured for sale but
excluding:
a. Vehicles owned by the Named Insured for use in its business;
b. Vehicles rented or leased by others;
c. Vehicles sold by the Named Insured subject to any security interest of
the Named Insured; or
d. Vehicles in the care, custody or control of sales agencies or dealers,
with the exception of dealerships owned by the Named Insured.
II. DEFINITIONS, Part A. is hereby revised to include Certificates of Title or
other evidence of title.
II. DEFINITIONS, Part D.3. is deleted and replaced by:
D. Date of Loss -
3. The Date of Loss under Coverage C shall be the date that the Named
Insured notifies the Company of the loss.
II. DEFINITIONS, is revised by the addition of the following:
F. ACTUAL CASH VALUE - 'Actual Cash Value' shall be defined to mean 100% of
the retail value of the vehicle on the Date of Loss, as listed in the
Kelly Blue Book for the territory in which the vehicle is principally
garaged; less all deductions, including but not limited to depreciation
and mileage adjustments, as prescribed in the Kelly Blue Book. For
vehicles which have no Kelly Retail Value available, or when the vehicle
is located in a territory where Kelly is not customarily used, actual cash
value will be determined using the best information available, which the
Company believes accurately reflects the retail value of the vehicle and
is customarily used as the basis for establishing retail value for
vehicles in the territory in which the vehicle is principally garaged.
III. EXCLUSIONS, Part E. is deleted and replaced by:
E. resulting from any instrument due and payable more than seventy-two (72)
calendar months after the making thereof, even though on the date of loss
the date of maturity of the instrument may be less than seventy-two
(72) months.
III. EXCLUSIONS, Part I. is deleted and replaced by:
I. resulting from any loan made to a dealer, whether or not the property is
held for resale.
IV. CONDITIONS, Part 2. NOTICE OF LOSS is deleted and replaced by:
2. NOTICE OF LOSS - COVERAGES A, B & D - The Named Insured or their duly
authorized representative shall as soon as practicable report to this
Company or its agent every loss or damage which may become a claim under
this Policy and shall also file with the Company or its agent within
ninety (90) days from date of loss, as herein defined, a detailed sworn
proof of loss. Failure by the Named Insured or their duly authorized
representative to report the said loss or damage and to file such sworn
proof of loss as hereinbefore provided shall invalidate any claim under
this policy for such loss.
Page 1 of 2
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<PAGE>
IV. CONDITIONS, Part 9. DUTIES OF THE NAMED INSURED is deleted in its entirety
and replaced by:
9. DUTIES OF THE NAMED INSURED
A. Promptly notify the Company of the loss.
B. Provide details as to how when and where the loss occurred.
C. Provide a copy of the police report if the loss is caused by theft,
vandalism or malicious mischief.
D. Cooperate with the Company in the investigation, settlement or the
conduct of any suit. The Named Insured will not make settlement with
others for loss to any vehicle. The Named Insured will not, except at
its own cost, voluntarily make any payment, assume any obligation to
incur any expense.
E. Permit the Company to inspect and appraise the damaged vehicle before
its repair or disposition.
F. Take reasonable steps after loss to protect the vehicle from further
loss. If the Named Insured does not protect the vehicle, such
additional loss will be deducted from the Company's payment.
G. Not, except at the Named Insured's expense offer any reward, assume any
other obligations or expense unless specifically authorized in
writing by the Company.
H. Submit a Proof Of Loss as required by the Company.
IV. CONDITIONS, Part 15. PRIMARY INSURANCE - COVERAGE A is hereby amended as
follows:
15. PRIMARY INSURANCE - COVERAGE A - It is understood and agreed that the
Named Insured will require all borrowers to agree to carry physical
damage insurance with loss payable clause in favor of the Named Insured,
for such insurance and in such amounts as normally would be required had
not this insured been effected. Failure on the part of the borrower to
provide such insurance shall not be deemed a violation of this Policy
provided the Named Insured has complied with the following monitoring
provisions.
As a condition precedent for coverage, the Named Insured shall at all
times monitor each instrument for other insurance or indemnity by a
Company approved automated insurance monitoring system. Through this
automated insurance monitoring system, the Named Insured must notify any
borrower identified as not having physical damage insurance, naming you
as loss payee, in writing, of the lack of primary insurance protecting
the interest of the Named Insured. This requirement shall remain in
effect for as long as coverage exists on ay instrument written through
this policy, and as long as coverage exists under any instrument written
through this policy, the Company shall retain the right to examine the
Named Insured's records to verify that this requirement is being
maintained.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is included in the Additional Premium $
premium shown on the declarations unless a specific Return Premium $
amount is shown here.
ENDORSEMENT NO.: 3 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
Page 2 of 2
<PAGE>
<PAGE>
CHANGE ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
IN CONSIDERATION OF THE PREMIUM CHARGED AND ALL OTHER TERMS AND CONDITIONS OF
THE POLICY, THE POLICY IS HEREBY AMENDED AS FOLLOWS:
IV. CONDITIONS, Part 20. VEHICLES HELD AS COLLATERAL are deleted and replaced
by:
20. VEHICLES HELD AS COLLATERAL - With regard to vehicles, as herein defined
as collateral for loans, it is agreed that:
A. The Named Insured, an Additional Insured or an assign will hold the
Certificate of Title with its record until the loan has been
satisfied.
B. The Named Insured, and Additional Insured or an assign will file or
record its lien with the Motor Vehicle Commissioner or with the
appropriate authority of a State or territory or possession of the
United States;
C. Unintentional error or omission in filing a lien with the Motor
Vehicle Commissioner or appropriate authority of a State or territory
or possession of the United States shall not violate this requirement.
IV. CONDITIONS, Part 25. EXTENSION OF MATURITY is hereby revised to limit the
total period of the loan, including extensions to not exceed seventy-two
(72) months in all.
IV. CONDITIONS, Part 28. CANCELLATION CLAUSE is deleted in its entirety and
replaced with the following:
28. CANCELLATION CLAUSE - The Named Insured may cancel this policy by
returning it to the Company or by giving the Company written notice
stating when thereafter such cancellation shall be effective. The
Company may cancel this policy by mailing or delivering to the Named
Insured and all Additional Insureds at least thirty (30) days written
notice at each party's last mailing address known by the Company. Proof
of mailing of any notice will be sufficient proof of notice. The
effective date of cancellation stated in the notice shall become the end
of the policy period. Cancellation of this policy by either the Named
Insured or the Company will not affect coverage for any vehicle which
was reported to the Company prior to cancellation of this policy and for
which premiums were paid. Coverage of these loans will remain in force
for the term of the instrument and are non-cancelable. Premium for each
vehicle insured hereunder is fully earned at inception and
non-refundable.
IV. CONDITIONS, Part 31. ASSIGNMENT is deleted in its entirety and replaced with
the following:
31. ASSIGNMENT - Assignment of the policy shall not be valid unless the
Company gives its written consent. In the event of assignment, the
obligation to pay all premiums shall remain with the Named Insured.
IV. CONDITIONS, Part 5. SETTLEMENT OF CLAIMS is deleted and replaced by:
5. SETTLEMENT OF CLAIMS - All adjusted claims shall be paid or made good
to the Named Insured or their duly appointed agent or representative
within sixty (60) days after presentation and acceptance of
satisfactory proof of interest and loss at the office of this
Company. No claim shall be paid hereunder if the Named Insured or
their duly appointed agent or representative can collect the same
from others.
It is agreed that neither the Named Insured nor the Company may make subsequent
revisions to the terms and conditions of this policy, with the exception of the
premium rate per vehicle, without notifying all Additional Insureds in writing.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is included in the Additional Premium $
premium shown on the declarations unless a specific Return Premium $
amount is shown here.
ENDORSEMENT NO.:4 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
<PAGE>
<PAGE>
CHANGE ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
In consideration of the premium charged and all other terms and
conditions, Article IV. CONDITIONS, 1. POLICY PERIOD, TERRITORY is
amended to include the following:
MEXICO COVERAGE EXTENSION
DAMAGE TO INSURED VEHICLES WHILE OPERATED IN MEXICO
WARNING
NOTHING IN THIS POLICY AFFORDS BODILY INJURY LIABILITY, PROPERTY DAMAGE
LIABILITY, PERSONAL INJURY LIABILITY, OR OTHER LIABILITY INSURANCE FOR
CLAIMS OR SUITS RESULTING FROM INJURY TO A PERSON OR DAMAGE TO THE
PROPERTY OF OTHERS RESULTING, OR ALLEGEDLY RESULTING, FROM ANY ACTION
OR NON-ACTION OF A PERSON OR ORGANIZATION INSURED UNDER THIS POLICY.
UNLESS THE INSURED HAS AUTOMOBILE LIABILITY INSURANCE WRITTEN BY A
MEXICAN INSURANCE COMPANY, THE DRIVER OF A VEHICLE MAY SPEND MANY HOURS
OR DAYS IN JAIL IF INVOLVED IN AN ACCIDENT IN MEXICO. INSURANCE
COVERAGE SHOULD BE SECURED FROM A COMPANY LICENSED UNDER THE LAWS OF
MEXICO TO WRITE SUCH INSURANCE IN ORDER TO AVOID COMPLICATIONS AND
OTHER PENALTIES POSSIBLE UNDER THE LAWS OF MEXICO, INCLUDING THE
POSSIBLE IMPOUNDMENT OF A VEHICLE IMPROPERLY INSURED UNDER MEXICAN LAW.
Provided that the place of residence of the purchaser or borrower was
established as being within the United States at the time that coverage
attached under this policy, this policy is hereby extended to cover
damage to an insured vehicle while such vehicle is located within the
Republic of Mexico.
In the event of loss or damage to an insured vehicle while in Mexican
territory, the adjustment of a claim for such loss or damage shall be
at the nearest point in the United States where such adjustment can be
made.
The cost of towing, transportation or salvage of an insured vehicle
while within Mexican territory shall not be recoverable hereunder and
is not a contingency insured against.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is included in the Additional Premium $
premium shown on the declarations unless a specific Return Premium $
amount is shown here.
ENDORSEMENT NO.:5 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
<PAGE>
<PAGE>
LENDER'S COMPREHENSIVE SINGLE
LICENSE INSURANCE
DEFICIENCY BALANCE ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
In consideration of the premium charged and subject to all conditions,
limitations and exclusions of this policy, our liability to you is amended to
include direct loss you have sustained due to a deficiency which was the result
of the actual amount obtained in liquidating the repossessed vehicle including
the total amount recoverable from all other applicable insurance being less than
the Net Payoff Balance as of the date of loss, subject to a maximum limit of
liability of $15,000 per instrument. Our liability for physical damage
insurance and deficiency in Net Payoff Balance shall not exceed the Net Payoff
Balance.
LIMITS OF LIABILITY, SETTLEMENT PROCEDURE, AND MAXIMUM COVERAGE
(1) Under no circumstances shall the Company's liability for Loss exceed
the amount financed, as shown on the original loan.
(2) Any claim due the Insured shall be payable within sixty (60) days after
the Insured's compliance with each of the conditions precedent to
settlement of the claim, including the Company's receipt of the claim
for loss.
(3) Payment of a claim shall be a full and final discharge of the Company's
liability with respect to the original loan giving rise to such claim.
(4) No original loan agreement insured by this Policy may exceed
ninety-five percent (95%) of the manufacturer's suggested retail price
(MSRP) plus approved cancelable items for new vehicles or ninety-five
percent (95%) of the retail amount listed in an approved Automobile
guide approved by the Company, plus approved cancelable items for used
vehicles. Sales tax, title fees and license fees are excluded.
(6) All modifications of the original loan agreement such as rescheduling
of payments, substitution of collateral and transfer of equity must be
approved in writing by the Company.
(7) No claim will be paid unless the repossessed vehicle is sold, in
accordance with the applicable federal and state laws and the approved
remarketing plan filed with the insurer.
Coverage under this Endorsement is strictly and absolutely conditional to the
Insured maintaining and adhering to the credit underwriting criteria provided
and approved by the Company prior to the inception of this insurance coverage as
follows:
(1) One year continuous employment.
(2) Minumum annual income of $12,000 U.S. Proof of all income, to be
considered as a basis for repaying the obligation, (including alimony,
child support, rental income, disability or pension income, etc.) must
be verified and documented in writing by the Purchaser and the Insured.
If self-employed, only the last two (2) years Federal Income Tax
Returns can be used for verification. There can be no exceptions to
this.
(3) Lives in Metropolitan area for a minimum of three (3) years with six
month's continuous residence. Consideration will be given for
transferred employees with the same employer or within the same
industry.
(4) The monthly payment on any original loan covering Subject Vehicle can
not exceed twenty percent (20%) of the Purchaser(s) monthly Gross
Income. Purchaser(s) overall Debt Ratio can not exceed fifty percent
(50%) of monthly Gross Income.
(5) If the Purchaser does not have a credit history the application must
be accompanied by an acceptable endorser or guarantor.
(6) An acceptable endorser or guarantor must meet all credit requirements.
Additionally, the Purchaser must meet income, employment and residence
requirements.
(7) There can be no unresolved bankruptcies.
(8) There can be no more than (1) foreclosure or repossession.
(9) There can be no open tax liens, judgements or lawsuits pending.
(10) There can be no delinquent automobile notes for any amount other than
the repossession referred to in #(8) above.
(11) If married, both husband and wife must sign the note regardless of
whether or not both are employed.
Page 1 of 2
<PAGE>
<PAGE>
SUBROGATION
Anything contained in the Policy to the contrary notwithstanding, in the
event of any payment of a claim under this Policy endorsement, all of the
Insured's rights of recovery against the Purchaser for any of its losses,
including costs of repossession or loss due to a sale price of the
repossessed Vehicle being less than that of the Net Payoff Balance as of the
Date of Loss shall be subrogated to the Company and the Insured shall
execute and deliver to the Company any and all instruments or documents
requested by Company and do whatever else may be required pursuant to such
rights of subrogation. The Insured shall do nothing to prejudice the
subrogation rights of the Company.
DEFINITIONS
Net Payoff Balance means the outstanding balance plus any loan pre-payment
provisions, sales tax, license and registration fees, late fees and approved
Over-Advances included in the original instrument financing; less all payments
and corresponding interest more than 90 days after the date of default and the
unearned portion of cancelable items.
In no event shall Net Payoff Balance include repossession, disposition,
collection or remarketing expense, or any other fee, penalties or assessment
included in the instrument.
Over-Advances means the cost of insurance premiums and vehicle service
contracts, including, but not limited to warranty insurance, accident and
health, credit life and credit physical damage premiums and factory installed
items listed in an N.A.D.A. guide, Official Car Guide, Kelley Blue Book or an
equivalent Automobile Guide approved by the Company. Conversion packages and
customizing packages are excluded for advance purposes.
Date of Loss shall mean the date of sale of the repossessed Vehicle.
The premium for this endorsement is included in the premium shown on the
declarations unless a specific amount is shown here.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is included in the Additional Premium $
premium shown on the declarations unless a specific Return Premium $
amount is shown here.
ENDORSEMENT NO.: 6 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
Page 2 of 2
<PAGE>
<PAGE>
CHANGE ENDORSEMENT
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
It is hereby agreed that the Insured's credit underwriting criteria and
Remarketing Agreement (which is attached hereto) becomes a part of the policy
conditions.
Premium for the Deficiency Balance coverage as provided in Endorsement #6
(ABAC-6) shall be based on the outstanding loan balance per vehicle at
origination of the loan per the following schedule:
Months 49 and over: 4.25%
Months 37 - 48: 4.00%
Months 36 and under: 3.25%
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is included in the Additional Premium $
premium shown on the declarations unless a specific Return Premium $
amount is shown here.
ENDORSEMENT NO.: 7 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
CHANGE ENDORSEMENT
- --------------------------------------------------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
IN CONSIDERATION OF THE PREMIUM CHARGED AND ALL OTHER TERMS AND CONDITIONS OF
THE POLICY, THE POLICY IS HEREBY AMENDED AS FOLLOWS:
1. INSURING AGREEMENTS, COVERAGE D - REPOSSESSED VEHICLE INSURANCE is deleted
and replaced by:
COVERAGE D - REPOSSESSED VEHICLES INSURANCE - To indemnify the Named
Insured for a period not to exceed ninety (90) days, against all risk of
physical loss or damage from any external cause to repossessed vehicles as
hereinafter defined. Repossessed Vehicle insurance will cover:
1. Repossessed vehicles that the Named Insured or their authorized
representative has possession of and exercises rights of ownership
over, and/or
2. Vehicles while being repossessed by the Named Insured or their
authorized representative; or
3. While such repossessed vehicles are held by the Named Insured or
approved remarketing facility for sale but excluding:
a. Vehicles owned by the Named Insured for use in its business;
b. Vehicles rented or leased to others;
c. Vehicles sold by the Named Insured subject to any security
interest of the Named Insured; or
d. Vehicles in the care, custody or control of sales agencies or
dealers, with the exception of dealerships owned by the Named
Insured or an approved remarketing facility.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is Additional Premium $
included in the premium shown on the Return Premium $
declarations unless a specific amount is
shown here.
ENDORSEMENT NO.: 8 Effective: 05/01/94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation
Date Issued: Authorized Representative:
5/9/94 /s/ [SIGNATURE]
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
DEFICIENCY BALANCE ENDORSEMENT
- --------------------------------------------------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
It is hereby noted that this Endorsement will supercede Endorsement #6 (ABAC-6)
in its entirety.
In consideration of the premium charged and subject to all conditions,
limitations and exclusions of this policy, our liability to you is amended to
include direct loss you have sustained due to a deficiency which was the result
of the actual amount obtained in liquidating the repossessed vehicle including
the total amount recoverable from all other applicable insurance being less than
the Net Payoff Balance as of the date of loss, subject to a maximum limit of
liability of $15,000 per instrument. Our liability for physical damage insurance
and deficiency in Net Payoff Balance shall not exceed the Net Payoff Balance.
LIMITS OF LIABILITY, SETTLEMENT PROCEDURE, AND MAXIMUM COVERAGE
(1) Under no circumstances shall the Company's liability for Loss exceed the
amount financed, as shown on the original loan.
(2) Any claim due the Insured shall be payable within sixty (60) days after
the Insured's compliance with each of the conditions precedent to
settlement of the claim, including the Company's receipt of the claim for
loss.
(3) Payment of a claim shall be a full and final discharge of the Company's
liability with respect to the original loan giving rise to such claim.
(4) No original loan agreement insured by this Policy may exceed ninety-five
percent (95%) of the manufacturer's suggested retail price (MSRP) plus
approved cancelable items for new vehicles or ninety-five percent (95%) of
the retail amount listed in an approved Automobile guide approved by the
Company, plus approved cancelable items for used vehicles. Sales tax,
title fees and license fees are excluded.
(6) All modifications of the original loan agreement such as rescheduling of
payments, substitution of collateral and transfer of equity must be
approved in writing by the Company.
(7) No claim will be paid unless the repossessed vehicle is sold, in
accordance with the applicable federal and state laws and the approved
remarketing plan filed with the insurer.
Coverage under this Endorsement is strictly and absolutely conditional to the
Insured maintaining and adhering to the credit underwriting criteria provided
and approved by the Company prior to the inception of this insurance coverage as
follows:
(1) One year continuous employment. Any transition period in employment (i.e.,
employment gap) will not exceed 28 calendar days.
(2) Minimum annual income of $12,000 U.S. Proof of all income, to be
considered as a basis for repaying the obligation, (including alimony,
child support, rental income, disability or pension income, etc.) must be
verified and documented in writing by the Purchaser and the Insured. If
self-employed, only the last two (2) years Federal Income Tax Returns can
be used for verification. There can be no exceptions to this.
(3) Has residence history for a minimum of three (3) years with six month's
continuous residence. Consideration will be given for transferred
employees with the same employer or within the same industry.
(4) The monthly payment on any original loan covering Subject Vehicle can not
exceed twenty percent (22%) of the Purchaser(s) monthly Gross Income.
Purchaser(s) overall Debt Ratio can not exceed fifty percent (50%) of
monthly Gross Income.
(5) If the Purchaser does not have a credit history the applicable must be
accompanied by an acceptable endorser or guarantor.
(6) An acceptable endorser or guarantor must need all credit requirements.
Additionally, the Purchaser must meet income, employment and residence
requirements.
(7) There can be no unresolved bankruptcies.
(8) There can be no more than (1) foreclosure or repossession.
(9) There can be no open tax liens or unsatisfied judgements aggregating in
excess of $1,000.00.
(10) There can be no open auto loans with delinquency presently 45 or more days
past the time of approval for the auto loan.
(11) If the income of the applicant's spouse is being considered during the
approval process, both husband and wife shall sign the original loan
agreement.
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<PAGE>
<PAGE>
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SCHEDULE OF NAMED INSUREDS
- --------------------------------------------------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
DECLARATIONS
(Supplement)
The Declarations of the policy is amended to include as Named Insured the
organization(s) shown in the SCHEDULE below, to the extent of their collateral
interest:
SCHEDULE
Name of organization(s)
SENTRY FINANCIAL CORPORATION
ONE UTAH CENTER
201 SOUTH MAIN, SUITE 1400
SALT LAKE CITY, UTAH 84111-2215
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is Additional Premium $
included in the premium shown on the Return Premium $
declarations unless a specific amount is
shown here.
ENDORSEMENT NO.: 9 Effective: ATTACHED TO POLICY WHEN ISSUED
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by one of the Interstate Insurance Companies as named in the policy.
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation & Sentry Financial Corporation,
As Their Interest May Appear.
Dated Issued: Authorized Representative:
10-6-94 /s/ [SIGNATURE]
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
SUBROGATION
Anything contained in the Policy to the contrary notwithstanding, in the
event of any payment of a claim under this Policy endorsement, all of
the Insured's rights of recovery against the Purchaser for any of its
losses, including costs of repossession or loss due to a sale price of
the repossessed Vehicle being less than that of the Net Payoff Balance
as of the Date of Loss shall be subrogated to the Company and the
Insured shall execute and deliver to the Company any and all instruments
or documents requested by Company and do whatever else may be required
pursuant to such rights of subrogation. The Insured shall do nothing to
prejudice the subrogation rights of the Company.
DEFINITIONS
Net Payoff Balance means the outstanding balance plus any loan pre-payment
provisions, sales tax, license and registration fees, late fees and approved
Over-Advances included in the original instrument financing; less all payments
and corresponding interest more than 90 days after the date of default and the
unearned portion of cancelable items.
In no event shall Net Payoff Balance include repossession, disposition,
collection or remarketing expense, or any other fee, penalties or assessment
included in the instrument.
Over-Advances means the cost of insurance premiums and vehicle service
contracts, including, but not limited to warranty insurance, accident and
health, credit life and credit physical damage premiums and factory installed
items listed in an N.A.D.A. guide, Official Car Guide, Kelley Blue Book or an
equivalent Automobile Guide approved by the Company. Conversion packages and
customizing packages are excluded for advance purposes.
Date of Loss shall mean the date of sale of the repossessed Vehicle.
The premium for this endorsement is included in the premium shown on the
declarations unless a specific amount is shown here.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is Additional Premium $
included in the premium shown on the Return Premium $
declarations unless a specific amount is
shown here.
ENDORSEMENT NO.: 10 Effective: 5-1-94
Is attached to and forms part of your evidence of insurance no.:
Issued by: Interstate Fire & Casualty
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation & Sentry Financial Corporation,
As Their Interest May Appear
Dated Issued: Authorized Representative:
12-27-94
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
CHANGE ENDORSEMENT
- --------------------------------------------------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
In consideration of the premium charged, it is hereby understood and agreed that
Item 2. POLICY PERIOD on the Declaration Page is amended to read:
2. POLICY PERIOD
Effective Date: May 1, 1994
Expiration Date: Continuous Until Canceled
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
- --------------------------------------------------------------------------------
The premium for this endorsement is Additional Premium $
included in the premium shown on the Return Premium $
declarations unless a specific amount is
shown here.
ENDORSEMENT NO.: 11 Effective: 5-1-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation & Sentry Financial Corporation,
As Their Interest May Appear.
Dated Issued: Authorized Representative:
5-12-95
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
LENDER'S COMPREHENSIVE SINGLE INTEREST INSURANCE
- --------------------------------------------------------------------------------
DEFICIENCY BALANCE ENDORSEMENT
- --------------------------------------------------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
It is hereby noted that this Endorsement will supercede Endorsement #10
(ABAC-10) in its entirety.
In consideration of the premium charged and subject to all conditions,
limitations and exclusions of this policy, our liability to you is amended to
include direct loss you have sustained due to a deficiency balance which was the
result of the Actual Cash Value plus the total amount recoverable from all other
applicable insurance, being less than the Net Payoff Balance as of the Date of
Loss, subject to a maximum limit of liability of $15,000.00 per Instrument. Our
liability for physical damage insurance and deficiency balance insurance,
combined, shall not exceed the Net Payoff Balance.
LIMITS OF LIABILITY, SETTLEMENT PROCEDURE, AND MAXIMUM COVERAGE:
(1) Under no circumstances shall the Company's liability for Loss exceed
the amount financed, as shown on the original Instrument.
(2) Any claim due the Insured shall be payable within sixty (60) days
after the Insured's compliance with each of the conditions precedent
to settlement of the claim.
(3) Payment of a claim shall be full and final discharge of the Company's
liability with respect to the original Instrument giving rise to such
claim.
(4) No original Instrument insured by this Policy may exceed ninety-five
percent (95%) of the manufacture's suggested retail price (MSRP) plus
approved cancelable items for new vehicles or ninety-five percent
(95%) of the retail amount listed in an automobile guide approved by
the Company plus approved cancelable items for used vehicles. Sales
tax, license or title fees, inventory tax, and documentation or
preparation fees are excluded.
(5) All modifications of the original Instrument such as rescheduling of
payments, substitution of collateral and transfer of equity must be
approved in writing by the Company.
(6) No claim will be paid unless the repossessed vehicle is sold in
accordance with the applicable federal and state laws.
1 of 4
<PAGE>
<PAGE>
Coverage under this Endorsement is strictly and absolutely conditional to the
Insured maintaining and adhering to the following credit underwriting criteria.
On the date of the original Instrument, the Purchaser(s) must:
(1) Be employed and must have been employed at least one continuous year
immediately preceding the date of the original Instrument. Any
transition period of unemployment (i.e. employment gap) can not exceed
28 calendar days and Purchaser shall not be in any transition period
of unemployment on the date of the original instrument.
(2) Have a minimum annual gross income of $12,000 (U.S. dollars). Proof of
all income to be considered as a basis for repaying the obligation
must be verified and documented in writing by the Purchaser and the
Insured. If Purchaser is self-employed, only the last two (2) years
Federal Income Tax Returns can be used for verification. If the
Purchaser has been self-employed less than two (2) years, Federal
Income Tax Returns for the years of self-employment and proof of
income prior to self-employment must be used for verification.
(3) Have verified residence history for a minimum of three (3) years
immediately preceding the original instrument date with six (6) months
continuous residence in the same community or metropolitan area.
Consideration will be given for transferred employees with the same
employer or within the same industry or profession, students and home
buyers.
(4) Have an overall debt ratio, including the monthly payment on the
original Instrument, which does not exceed fifty percent (50%) of
Purchaser(s)' monthly gross income. Additionally, the monthly payment
on any original Instrument covering subject vehicle can not exceed
twenty-two percent (22%) of the Purchaser(s)' monthly gross income.
(5) Have the original Instrument co-signed by an acceptable Co-Obligor, if
the Purchaser does not have a credit history or meet all of this
credit underwriting criteria An acceptable Co-Obligor must meet all
credit underwriting criteria. Additionally, the Purchaser must meet
income, employment and residence requirements.
(6) Have no unresolved bankruptcies.
(7) Have no more than either one (1) foreclosure or one (1) repossession.
(8) Have no open tax liens or unsatisfied judgments with current balances
aggregating in excess of $1,000.00.
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<PAGE>
(9) Have no open automobile loans with delinquency presently forty-five
(45) or more days past due.
All individuals whose income and/or credit histories are being considered during
the approval process of the original Instrument must sign the original
Instrument and become liable thereunder.
SUBROGATION:
Anything contained in the Policy to the contrary notwithstanding, in the event
of any payment of a claim under this Policy endorsement, all of the Insured's
rights of recovery against the Purchaser(s) for any of its losses, including
costs of repossession or loss due to the Actual Cash Value plus the total amount
recoverable from all other applicable insurance being less than the Net Payoff
Balance as of the Date of Loss shall be subrogated to the Company and the
Insured shall execute and deliver to the Company any and all instruments and
documents required by Company and do whatever else may be required pursuant to
such rights of subrogation. The Insured shall do nothing to prejudice the
subrogation rights of the Company.
DEFINITIONS:
Actual Cash Value, for the purposes of this Endorsement only, means the greater
of the price for which the Subject Vehicle is sold or the wholesale market value
at the time of the loss as determined by an Automobile Guide approved by the
Company applicable to the region in which the vehicle is sold.
Co-Obligor means a Co-Buyer, Co-Purchaser, Co-Signer, Endorser, Guarantor or any
other designation for a second individual who signs the original Instrument and
becomes jointly and severally liable for the debt and obligation owed on the
original Instrument.
Net Payoff Balance means the outstanding balance plus any loan pre-payment
provisions, sales tax, license and registration fees, late fees and approved
Over-Advances included in the original Instrument financing: less all payments
and corresponding interest more than ninety (90) days after the date of default
and the unearned portion of cancelable items. In no event shall Net-Payoff
Balance include destination fees, document preparation fees, or any other fees,
additional taxes, penalties or assessments included in the original Instrument,
or repossession, disposition, collection, remarketing expenses or any other
fees, taxes and expenses incurred.
Over-Advances means the cost of insurance premiums and vehicle service
contracts, including, but not limited to warranty insurance, credit life and
disability insurance and financed physical damage and/or liability insurance
premiums and factory or dealer installed items listed in NADA Official Used Car
Guide or an equivalent Automobile Guide approved by the Company for new vehicles
or factory installed items listed in NADA Official Used Car Guide or an
equivalent Automobile Guide approved by the Company for used vehicles.
Conversion packages and customization packages or items are excluded for
Over-Advance purposes.
3 of 4
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<PAGE>
Instrument, for the purpose of this endorsement, in addition to the definition
of "Instrument" in the original policy itself, shall be understood to mean any
loan, lease or other agreement, e.g., a conditional sales contract, motor
vehicle retail sales contract, etc. which is scheduled for payment on a monthly
basis of not less than three (3) consecutive months and which (a) creates or
reserves a lien in chattels that is held as collateral for the loan made by the
named Insured or its assignor or (b) is a lease for a motor vehicle titled in
the name of the Insured.
Date of Loss shall mean the date of sale of the repossessed Vehicle.
The premium for this endorsement is included in the premium endorsement attached
to this policy.
ALL OTHER TERMS AND CONDITIONS OF THE POLICY REMAIN UNCHANGED.
/s/ [SIGNATURE] /s/ [SIGNATURE]
Secretary President
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The premium for this endorsement is Additional Premium $
included in the premium shown on the Return Premium $
declarations unless a specific amount is
shown here.
ENDORSEMENT NO.: 12 Effective: 5-01-94
Is attached to and forms part of your evidence of insurance no.: CA4-1000024
Issued by: Interstate Fire & Casualty Company
Executive Offices: 55 E. Monroe St.
Chicago, Illinois 60603
Insured: Auto Bond Acceptance Corporation & Sentry Financial Corporation,
As Their Interest May Appear.
Dated Issued: Authorized Representative:
5/31/95
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Neither this Warrant nor the shares of Common Stock to be issued upon exercise
hereof have been registered under the Securities Act (as defined below), and
this Warrant has been, and the shares of Common Stock to be issued upon exercise
hereof will be, acquired for investment and not with a view to, or for release
in connection with, any distribution thereof. No such sale or other disposition
may be made without an effective registration statement under the Securities Act
or unless an exemption from such a registration is available.
Warrant No. 1-A
WARRANT
to Purchase
Common Stock
of
AUTOBOND ACCEPTANCE CO.
THIS IS TO CERTIFY THAT Steven W. Bischoff ("Warrantholder"),
is entitled, at any time and from time to time from (and including) the Start
Date (as defined below) until 5:00 P.M., New York City time, on the Warrant
Expiration Date (as defined below), to purchase from AUTOBOND ACCEPTANCE CO., a
Delaware corporation, 24.5 shares of Common Stock (adjusted as provided below),
in whole or in part, at the Purchase Price Per Share set forth herein, all on
the terms and conditions and pursuant to the provisions hereinafter provided.
SECTION 1. DEFINITIONS. The terms defined in this Section 1,
whenever used in this Warrant, shall, unless the context otherwise requires,
have the respective meanings hereinafter specified.
"Additional Shares of Nonpreferred Stock" means all shares of
Nonpreferred Stock issued by the Company after the date hereof, other than the
Warrant Stock.
"Affiliate" has the meaning attributed to it under the
Securities Act.
"Board" means the Board of Directors of the Company.
"Business Day" means a day other than a Saturday, a Sunday or
a day on which commercial banks in the State of Texas are permitted or required
by law to close.
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"Commission" means the Securities and Exchange Commission or
any other governmental body then administering the Securities Act.
"Common Stock" means the Company's authorized voting Common
Stock as constituted on the date of original issuance of this Warrant, and any
shares of stock into which such Common Stock may thereafter be changed, or that
may be issued in respect of, in exchange for, or in substitution for, such
Common Stock by reason of any stock splits, stock dividends, distributions,
mergers, consolidations or other like events and shall also include stock of the
Company of any other class issued to the holders of shares of Common Stock upon
any reclassification thereof.
"Company" means AutoBond Acceptance Co., a corporation, and
any successor corporation whether by merger or otherwise.
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for Additional Shares of Nonpreferred Stock, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Current Market Price" per share of Common Stock for the
purposes of any provision of this Agreement at the date herein specified shall
mean, for any date after the initial public offering of the Company's Common
Stock:
(i) if the Common Stock is listed on a domestic exchange or
quoted on NASDAQ, the average of the daily market prices of the Common
Stock over a period of 20 consecutive Business Days prior to the day on
which Current Market Price is being determined.
As used in this clause (i), "market price" for each such
Business Day shall be the average of the closing prices on such day of the
Common Stock on all domestic primary national securities exchanges on which the
Common Stock is then listed, or, if there shall have been no sales on any such
exchange on such day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or if the Common Stock shall not be
so listed, the average of the representative bid and asked prices at the end of
such Business Day as reported by NASDAQ; or
(ii) if the Common Stock shall not be listed on any domestic
exchange or quoted on NASDAQ, then the Current Market Price shall be
Fair Market Value divided by the number of shares of Diluted Common
Stock outstanding.
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"Current Warrant Price" per share of Common Stock for the
purpose of any provision of this Warrant at the date herein specified, shall
mean the product of (i) the Purchase Price Per Share in effect on such date, and
(ii) the number of Shares for which this Warrant is exercisable on such date.
"date hereof", "date of original issuance of this Warrant" and
similar references mean the date identified at the foot of this Warrant beside
the name of the Company.
"Exchange Act" means the Securities Exchange Act of 1934
(including any rules and regulations promulgated thereunder), as the same shall
be amended and in effect from time to time.
"Fair Market Value" means the highest price for which the
Company and its subsidiaries could be sold as a going concern in an arm's length
transaction to an independent third party within 12 months after the Valuation
Date (as defined below), as determined by agreement or appraisal in accordance
with the procedures described below.
Within ten (10) calendar days after the date of the occurrence
of any event requiring the determination of Fair Market Value pursuant to this
Warrant (a "Valuation Date"), the Company on the one hand, and the Majority
Holders on the other hand, shall each designate a representative and such two
(2) representatives will meet and use their best efforts to reach an agreement
on the Company's Fair Market Value. If such representatives have been unable to
reach such agreement, the Company on the one hand, and the Majority Holders on
the other hand, will use their best efforts to agree within 20 calendar days
after the Valuation Date upon the selection of an independent appraiser
experienced in valuing businesses of this type. Such appraiser will have 20
calendar days in which to determine the Company's Fair Market Value, and its
determination thereof will be final and binding on all parties concerned. If the
Company and the Majority Holders are unable to reach an agreement as to an
independent appraiser within 20 calendar days after the Valuation Date, the
Company on the one hand, and the Majority Holders on the other hand, will each
within five (5) calendar days thereafter select one independent appraiser
experienced in valuing businesses of this type. The Company, and the Majority
Holders, will each cause the appraiser selected by them respectively to
determine independently the Company's Fair Market Value within 20 calendar days
after their appointment. If the lesser of the two (2) appraised values (the "Low
Value") exceeds or is equal to 90% of the greater of the two (2) appraised
values (the "High Value"), the Company's Fair Market Value will be the average
of the two
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(2) appraisals. If the Low Value is less than 90% of the High Value, the two (2)
appraisers will themselves appoint a third independent appraiser experienced in
valuing businesses of this type within five (5) calendar days after the two (2)
appraisals have been rendered. Such third appraiser will have 20 calendar days
in which to determine independently the Company's Fair Market Value. The
Company's Fair Market Value in such case will be the mean of the two (2)
appraised values which are closest to each other; provided, however, that in the
event the high and the low appraised values are equidistant from the middle such
value, the middle such value shall be deemed the Fair Market Value. The Company
will provide each appraiser with all information about the Company and its
Subsidiaries which any such appraiser reasonably deems necessary for determining
the Fair Market Value. The expenses of the appraisal process will be paid by the
Company.
"Financial Statement" means the annual audited financial
statements, prepared in accordance with GAAP, which the Company provides to its
shareholders.
"GAAP" means generally accepted accounting principles.
"Holder" means a holder of this Warrant.
"Majority Holders" means the holders of Warrants entitling the
holders thereof to exercise a majority of the Warrant Stock.
"NASDAQ" means, the National Association of Securities Dealers
Automated Quotation System.
"Nonpreferred Stock" means the Common Stock and shall also
include all stock of the Company of any other class unless senior in respect of
the right to participate in dividends and distributions of assets, and shall
include the Common Stock.
"Permitted Transferee" means any transferee agreed to by
Company.
"Person" means any individual, corporation, partnership,
association, trust, joint venture or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Purchase Price Per Share" means the price at which the Holder
is entitled to purchase a Share from the Company pursuant to this Warrant, such
price being $405 per Share, subject to adjustment as provided for herein.
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"Securities Act" means the Securities Act of 1933 (including
any rules and regulations promulgated thereunder), as the same shall be amended
and in effect from time to time.
"Share" means one share of Common Stock, as such stock was
constituted on the date of original issuance of this Warrant, and thereafter
shall mean such number of shares (including any fractional share) of Common
Stock and other securities, cash or property as shall result from the
adjustments provided for herein, to such one share, specified in Section 4.
"Start Date" means the date that is six months after the first
date on which shares of the Company's Common Stock are sold to the public.
"Warrant" means this warrant and each warrant issued in
replacement of or substitution herefor or therefor in accordance herewith or
therewith, whether as a result of transfer, division or combination.
"Warrants" means this Warrant and all warrants issued to
others as a result of transfer of any portion of this Warrant to such others.
"Warrant Expiration Date" means the later to occur of (i)
March 12, 1998 and (ii) the second anniversary date of the completion of the
first public offering for shares of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
"Warrant Shares" means the Common Stock issuable, from time to
time, upon exercise of the Warrants.
"Warrant Stock" means the shares of Common Stock purchasable
by the Holder upon the exercise of this Warrant.
SECTION 2. EXERCISE OF WARRANT.
A. Manner of Exercise. This Warrant may be exercised at any
time or from time to time from the Start Date until 2:00 P.M., New York City
time, on the Warrant Expiration Date for all or any part of the Shares. In order
to exercise this Warrant, in whole or in part, the Holder shall deliver to the
Company at its office or agency maintained for this purpose pursuant to Section
14: (i) a
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written notice of the Holder's election to exercise this Warrant, which notice
shall specify the number of Shares to be purchased, (ii) either (a) a certified
or official bank check or checks drawn on a New York Clearing House bank payable
to the order of the Company or (b) an electronic funds transfer of immediately
available funds in an amount equal to the aggregate Purchase Price Per Share for
all Shares as to which this Warrant is exercised. Such notice shall be in the
form of Exhibit A. Upon receipt thereof, the Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter, execute
or cause to be executed, and deliver to the Holder a certificate or certificates
representing the aggregate number of shares of Warrant Stock issuable upon such
exercise. The stock certificate or certificates so delivered shall be registered
in the name of the Holder or, such other name as shall be designated in such
notice. Unless otherwise specified in such notice, one certificate representing
the aggregate number of shares of Warrant Stock issued upon such exercise shall
be so delivered. This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the Holder
or any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date such
notice, together with such check or checks or other form of payment, and this
Warrant are received by the Company as aforesaid. If this Warrant shall have
been exercised and/or surrendered in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock issuable
upon such exercise, deliver to or on the order of the Holder a new Warrant
evidencing the right of the Holder to purchase the unpurchased and/or
unsurrendered shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant, or, at the request of the Holder,
appropriate notation may be made on this Warrant and the same returned to the
Holder.
B. Payment of Taxes, etc. All shares of Warrant Stock shall be
validly issued, fully paid and non-assessable, and the Company shall pay all
expenses (including any stamp or like taxes) in connection with, or that may be
imposed in respect of, the issue or delivery thereof; provided, however, that
the Holder shall pay all income, franchise and transfer taxes in connection with
such issue and delivery. The Company shall not be required to pay any tax or
other charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Warrant Stock in any name other than that of the
registered Holder of this Warrant (or any Affiliate thereof), and in such case
the Company shall not be required to issue or deliver any stock certificate
until such tax or
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other charge has been paid or it has been established to the Company's
reasonable satisfaction that no such tax or other charge is due.
SECTION 3. TRANSFER, DIVISION AND COMBINATION. This Warrant
and all rights hereunder are transferable (i) only to Permitted Transferees,
(ii) in whole or in part, and (iii) on the books of the Company to be maintained
for such purpose, upon surrender of this Warrant at the office or agency of the
Company maintained for the purpose pursuant to Section 14, together with a
written assignment (in whole or in part) of this Warrant duly executed by the
Holder or its agent or attorney. Upon surrender the Company shall execute and
deliver a new warrant or warrants in the name of the assignee or assignees
(including, if such assignment is only a partial assignment by the Holder, in
the name of the Holder), and each such warrant shall be identical in form and
substance (including its date) to this Warrant except for the warrant number
(which shall be as determined by the Company), the name of the named holder of
the warrant (if an assignee of the Holder), and the actual number of Shares
(each of which shall be as specified by the Holder), and this Warrant shall
promptly be canceled.
This Warrant may be divided or combined with other Warrants
upon presentation hereof (and thereof, in the case of combination) at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with the
preceding paragraph as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new warrant or warrants in
exchange for the warrant or warrants to be divided or combined in accordance
with such notice.
The Company shall pay all expenses and other charges payable
in connection with the preparation, issuance and delivery of Warrants under this
Section 3. The holder of a Warrant shall pay all taxes (other than any stamp or
like taxes, which shall be paid by the Company) in connection with such issuance
and delivery.
The Company agrees to maintain, at the office or agency of the
Company maintained for the purpose pursuant to Section 14, books for the
registration and transfer of the Warrant.
SECTION 4. ADJUSTMENT OF SHARES. The number of shares of
Common Stock comprising a Share shall be subject to adjustment from time to time
as set forth in this Section 4.
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A. Stock Dividends, Subdivisions and Combinations. In case at
any time or from time to time the Company shall:
(1) take a record of the holders of its Nonpreferred Stock for
the purpose of entitling them to receive a dividend payable in, or
other distribution of, Nonpreferred Stock, or
(2) subdivide its outstanding shares of Nonpreferred Stock
into a larger number of shares of Nonpreferred Stock, or
(3) combine its outstanding shares of Nonpreferred Stock into
a smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Share immediately after
the happening of any such event shall be adjusted so as to consist of the number
of shares of Common Stock which a record holder of the number of shares of
Common Stock comprising a Share immediately prior to the happening of such event
would own or be entitled to receive after the happening of such event; provided,
however, that in no event shall the Company take any action referred to in
Section 4.A(3) if the effect would be that a share after giving effect thereto
and to any corresponding adjustment of Shares would collectively constitute less
than one share of Common Stock.
B. Issuance of Additional Shares of Nonpreferred Stock. In
case at any time or from time to time the Company shall (except as hereinafter
provided) issue any Additional Shares of Nonpreferred Stock at a price per share
that is lower than the Current Market Price per share of Common Stock on the
date of such issuance, then the number of shares of Common Stock thereafter
comprising a Share shall be adjusted to that number determined by multiplying
the number of shares of Common Stock comprising a Share immediately prior to
such adjustment by a fraction (i) the numerator of which shall be the number of
shares of Nonpreferred Stock outstanding immediately after such issuance of such
shares of Additional Shares of Nonpreferred Stock, and (ii) the denominator of
which shall be an amount equal to the sum of (x) the number of shares of
Nonpreferred Stock outstanding immediately prior to the issuance of such shares
of Additional Shares of Nonpreferred Stock plus (y) the number of shares of
Nonpreferred Stock which the aggregate consideration received by the Company for
the total number of such Additional Shares of Nonpreferred Stock (as determined
in accordance with Section 4.G) so issued would then purchase at the Current
Market Price per share of Common Stock. No adjustment to the number of shares of
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Common Stock comprising a Share shall be made under this Section 4.C upon the
issuance of any Additional Shares of Nonpreferred Stock which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Sections 4.D or E.
C. Issuance of Warrants or Other Rights. In case at any time
or from time to time the Company shall issue any warrants or other rights to
subscribe for or purchase (i) any Additional Shares of Nonpreferred Stock or
(ii) any Convertible Securities and the consideration per share for which
Additional Shares of Nonpreferred Stock may at any time thereafter be issuable
pursuant to such warrants or other rights or pursuant to the terms of such
Convertible Securities shall be less than the Current Market Price per share of
Common Stock, then the number of shares of Common Stock thereafter comprising a
Share shall be adjusted (as at the applicable date specified in the last
sentence of this Section 4.D) as provided in Section 4.C on the basis that (i)
the maximum number of Additional Shares of Nonpreferred Stock issuable pursuant
to all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date for the determination of the Current Market Price per share of
Common Stock as hereinafter provided, and (ii) the aggregate consideration for
such maximum number of Additional Shares of Nonpreferred Stock shall be deemed
to be the minimum consideration received and receivable by the Company for the
issuance of such Additional Shares of Nonpreferred Stock pursuant to such
warrants or other rights or pursuant to the terms of such Convertible
Securities. For purposes of this Section 4.C, the date as of which the Current
Market Price per share of Common Stock shall be computed shall be the earlier of
(a) the date on which the Company shall enter into a firm contract for the
issuance of such warrants or other rights or (b) the date of actual issuance of
such warrants or other rights.
D. Issuance of Convertible Securities. In case at any time or
from time to time the Company shall issue any Convertible Securities and the
consideration per share for which Additional Shares of Nonpreferred Stock may at
any time thereafter be issuable pursuant to such Convertible Securities shall be
less than the Current Market Price per share of Common Stock, then the number of
shares of Common Stock thereafter comprising a Share shall be adjusted (as at
the applicable date specified in the penultimate sentence of
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this Section 4.E) as provided in Section 4.C on the basis that (i) the maximum
number of Additional Shares of Nonpreferred Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the date for the determination of the Current Market
Price per share of Common Stock as hereinafter provided, and (ii) the aggregate
consideration for such maximum number of Additional Shares of Nonpreferred Stock
shall be deemed to be the minimum consideration received and receivable by the
Company for the issuance of such Additional Shares of Nonpreferred Stock
pursuant to the terms of such Convertible Securities. For purposes of this
Section 4.E, the date as of which the Current Market Price per share of Common
Stock shall be computed shall be the earlier of (a) the date on which the
Company shall enter into a firm contract for the issuance of such Convertible
Securities, or (b) the date of actual issuance of such Convertible Securities.
No adjustment of the number of shares of Common Stock comprising a Share shall
be made under this Section 4.E upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant to Section 4.D.
E. Superseding Adjustment of Shares. If, any time after any
adjustment of the number of shares comprising a Share shall have been made
pursuant to Section 4.D or Section 4.E on the basis of the issuance of warrants
or other rights or the issuance of other Convertible Securities, or after any
new adjustment of the number of shares comprising a Share shall have been made
pursuant to this Section 4.F, such warrants or rights or the right of conversion
or exchange in such other Convertible Securities shall expire, and a portion of
such warrants or rights, or the rights of conversion or exchange in respect of a
portion of such other Convertible Securities, as the case may be, shall not have
been exercised, such previous adjustment shall be rescinded and annulled and the
Additional Shares of Nonpreferred Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the basis of
(1) treating the number of Additional Shares of Nonpreferred
Stock, if any, theretofore actually issued or issuable pursuant to the
previous exercise of such warrants or rights or such right of
conversion or
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exchange, as having been issued on the date or dates of such exercise,
and
(2) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of the last date of such
exercise,
and, if and to the extent called for by the foregoing provisions of this Section
4 on the basis of the aforesaid, a new adjustment of the number of shares
comprising a Share shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
If the exercise price provided for in any warrant or right, or
the rate at which any Convertible Securities referred to in Section 4.D or
Section 4.E are convertible into or exchangeable for Additional Shares of
Nonpreferred Stock, shall change or a different exercise price or rate shall
become effective at any time or from time to time (other than under or by reason
of provisions designed to protect against dilution) then, upon such change
becoming effective, the number of shares comprising a Share shall forthwith be
increased or decreased to such number as would have obtained had the adjustments
made and required to be made upon the issuance of such rights or options or
Convertible Securities been made upon the basis of (a) the issuance of the
number of Additional Shares of Nonpreferred Stock theretofore actually delivered
upon the exercise of such options or rights or upon the conversion or exchange
of such Convertible Securities and (b) the original issuance at the time of such
change of any such options, rights and Convertible Securities then still
outstanding. If the exercise price provided for in any right or option, or the
rate at which any Convertible Securities referred to in Section 4.D or Section
4.E are convertible into or exchangeable for Additional Shares of Nonpreferred
Stock, shall decrease at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in the case of the delivery
of Additional Shares of Nonpreferred Stock upon the exercise of any such right
or option or upon the conversion or exchange of any Convertible Securities, the
number of shares comprising a Share shall forthwith be increased to such number
as would have obtained had the adjustments made upon issuance of such right or
option or such Convertible Securities been made upon the basis of the issuance
of (and with respect to total consideration received for) the Additional Shares
of Nonpreferred Stock delivered as aforesaid.
F. Other Provisions Applicable to Adjustments Under this
Section 4. The following provisions shall be
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applicable to the making of adjustments of the number of shares of Common Stock
comprising a Share provided for in this Section 4:
(1) Treasury or Company Stock. The sale or other disposition
of any issued shares of Nonpreferred Stock owned or held by or for the
account of the Company shall be deemed an issuance thereof for purposes
of this Section 4.
(2) Computation of Consideration. To the extent that any
Additional Shares of Nonpreferred Stock or any Convertible Securities
of any warrants or other rights to subscribe for or purchase, any
Additional Shares of Nonpreferred Stock or any Convertible Securities
shall be issued for a cash consideration, the consideration received by
the Company therefor shall be deemed to be the amount of the cash
received by the Company therefor, or, if such Additional Shares of
Nonpreferred Stock or Convertible Securities are offered by the Company
for subscription, the subscription price, or, if such Additional Shares
of Nonpreferred Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding
any amounts paid or receivable for accrued interest or accrued
dividends and without deduction of any compensation, discounts or
expenses paid or incurred by the Company for and in the underwriting
of, or otherwise in connection with, the issuance thereof. To the
extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith
by the Board. The consideration for any Additional Shares of
Nonpreferred Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received
or receivable by the Company for issuing such warrants or other rights,
plus the additional consideration payable to the Company upon the
exercise of such warrants or other rights. The consideration for any
Additional Shares of Nonpreferred Stock issuable pursuant to the terms
of any Convertible Securities shall be the consideration received or
receivable by the Company for issuing any warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the
exercise of the right of conversion or
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exchange in such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Nonpreferred Stock or Convertible
Securities in payment or satisfaction of any dividend upon any class of
stock other than Nonpreferred Stock, the Company shall be deemed to
have received for such Additional Shares of Nonpreferred Stock or
Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(3) When Adjustments to be Made. The adjustments required by
Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall have occurred. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(4) When Adjustments Not Required. If the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution
thereof to shareholders, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
G. Merger, Consolidation or Disposition of Assets. The Company
shall not consolidate or merge with another Person, or sell, transfer or
otherwise dispose of all or substantially all of its assets to another Person
unless the Company shall have notified the Holder no less than 20 Business Days
prior to the effective date of such consolidation, merger, sale, transfer or
disposal, and shall have given the Holder the right to exercise all its rights
under this Warrant and participate fully in such transaction as a holder of
shares of Common Stock. Alternatively, at the Company's option, such transaction
shall be effected in such a way that holders of Nonpreferred Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Nonpreferred Stock, then, as a condition of such consolidation, merger or
sale, the Company or such successor or purchasing corporation, as the case may
be, shall assume the obligations of the Company under this Warrant and execute
an agreement providing that the Holder shall have the right thereafter and until
the expiration hereof to exercise this Warrant for the kind and amount of stock,
securities or assets receivable upon such consolidation, merger or sale by a
holder of the number of
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shares of Common Stock for which this Warrant might have been exercised
immediately prior to such consolidation, merger or sale, subject to adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4.
H. Other Action Affecting Common Stock. If the Company takes
any action affecting its Common Stock after the date hereof, other than an
action described in any of Sections 4.B through 4.H, inclusive, which would have
an adverse effect upon the rights of the holder of this Warrant hereunder, then
the number of shares of Common Stock comprising a Share shall be adjusted in
such manner and at such time as the Board shall in good faith determine to be
equitable under the circumstances.
SECTION 5. NOTICES TO WARRANT HOLDERS.
A. Notice of Adjustment of Share. Whenever the composition of
a Share shall be adjusted pursuant to Section 4, the Company shall forthwith
obtain a certificate signed by the Company's chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which the Board determined the Current Market Price pursuant to Sections 4.B,C
or D or the fair value of any evidences of indebtedness, shares of stock, other
securities or property or warrants or other subscription or purchase rights
referred to in Section 4.F) and specifying the number of shares of Common Stock
comprising a Share and (if such adjustment was made pursuant to Section 4.G or
Section 4.H) describing the number and kind of any other indebtedness, shares of
stock or other securities or property or warrants or other subscription or
purchase rights comprising a Share, and any change in the purchase price or
prices thereof, after giving effect to such adjustment or change. The Company
shall promptly, and in any case within 10 calendar days after the making of such
adjustment, cause a signed copy of such certificate to be delivered to the
Holder in accordance with Section 15. The Company shall keep at its office or
agency, maintained for the purpose pursuant to Section 14, copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the Holder or any prospective purchaser of all
or part of this Warrant designated by the Holder.
B. Notice of Certain Corporate Action. In case the Company
shall propose (a) to pay any dividend payable in stock of any class to the
holders of its Nonpreferred Stock or to make any other distribution to the
holders of its Nonpreferred Stock, or (b) to offer to the holders of its
14
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Nonpreferred Stock rights to subscribe for or to purchase any Additional Shares
of Nonpreferred Stock or shares of stock of any class or any other securities,
rights or options, or (c) to effect any reclassification of its Nonpreferred
Stock (other than a reclassification involving only the subdivision, or
combination, of outstanding shares of Nonpreferred Stock), or (d) to effect any
capital reorganization, or (e) to effect any consolidation, merger or sale,
transfer or other disposition of all or substantially all of its property,
assets or business, or (f) to effect the liquidation, dissolution or winding up
of the Company, then in each such case, the Company shall give to each holder of
a Warrant, in accordance with Section 14, a notice of such proposed action,
which shall specify the date on which a record is to be taken for purposes of
such stock dividend, distribution or offer of rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of Nonpreferred Stock, if any such
date is to be fixed, and shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Nonpreferred Stock and the number and kind of any other property which will
comprise a Share, and the purchase price or prices thereof, after giving effect
to any adjustment which will be required as a result of such action. Such notice
shall be so given in the case of any action covered by clause (a) or (b) above
at least 10 calendar days prior to the record date for determining holders of
the Nonpreferred Stock for purposes of such action, and in the case of any other
such action, at least 10 calendar days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of
Nonpreferred Stock, whichever shall be the earlier.
C. Notice of Warrant Expiration Date. The Company shall give
to the Holder, in accordance with Section 12, a written reminder of the Warrant
Expiration Date. Such written reminder shall be given by the Company not less
than 30 days but not more than 120 calendar days prior to the Warrant Expiration
Date.
SECTION 6. RESERVATION AND AUTHORIZATION OF NONPREFERRED
STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY. The Company
shall at all times reserve and keep available for issuance upon the exercise of
the Warrant such number of its authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of the Warrant. All shares of
Common Stock which shall be so issuable, when issued upon exercise of this
Warrant, shall be duly authorized, validly issued,
15
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<PAGE>
fully paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions (other than encumbrances or
restrictions imposed by this Warrant or the Warrant Agreement).
Before taking any action which would cause an adjustment
reducing the Purchase Price Per Share below the then par value, if any, of the
shares of Common Stock issuable upon exercise of this Warrant, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares, free and clear of all liens, security interests, charges
and other encumbrances or restrictions (other than encumbrances or restrictions
imposed by this Warrant or the Warrant Agreement), of such Common Stock at such
adjusted Current Warrant Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock comprising a Share or in the Current
Warrant Price per share of Common Stock, the Company shall obtain all such
authorizations or exceptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
SECTION 7. REGISTRATION RIGHTS.
7.1 Incidental Registration. (a) If the Company at any time
proposes to register any of its Common Stock under the Securities Act for sale
to the public (other than with respect to the initial public offering of its
Common Stock), whether for its own account or for the account of security
holders or both (excluding any registration statement on Form S-4, S-8 or
another form not available for registering the Warrant Shares for sale to the
public), each such time it will give written notice to all Incidental Rights
Holders (as defined below) of its intention so to do. For purposes of this
Section 7, the term "Warrant Shares" shall not include any shares which have
been (x) effectively registered under the Securities Act and disposed of in
accordance with any registration statement covering such shares or (y) sold
pursuant to Rule 144 (or any similar provision then in force) and may be further
sold without limitation and an "Incidental Rights Holder" shall mean any Holder
in connection with the registration statement giving rise to the benefits of
this Section 7.1. Upon the written request of any such Incidental Rights 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 Holder, the Company will use
its best efforts to cause the Warrant Shares as to which registration shall
16
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<PAGE>
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 Incidental Rights 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 an
Incidental Rights Holder under this subsection (a) in a separate registration
statement to be filed concurrently with the registration statement proposed to
be filed by the Company. In the event that any registration statement filed
pursuant to this Section 7.1 shall be in whole or in part, in connection with an
underwritten public offering, the number of Warrant Shares to be included in
such registration statement may be reduced or no Incidental Rights Holders may
be included in such registration, subject to and in accordance with subsection
(b) below, if and to the extent that the managing underwriter(s) 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, there shall be no limit to the number of registrations that may be
requested pursuant to this Section 7.1.
(b) Any reduction in the number of Warrant Shares owned by
Incidental Rights Holders requested to be included in a registration statement
pursuant to subsection (a) above, or the exclusion of such shares therefrom,
shall be subject to the following conditions:
(i) No such reduction or exclusion shall be made if any
securities are to be included in such registration
statement for the account of any person other than
the Company or the Holders.
(ii) Any such reduction in the number of Warrant
Shares owned by Incidental Rights Holders
otherwise permitted under this subsection (b)
shall be made pro rata among the requesting
Incidental Rights Holders based upon the
number of Warrant Shares requested to be
registered by such remaining Incidental
Rights Holders in accordance with this
Section 8.2.
(c) In the event that a distribution of Common Shares covered
by a registration statement referred to in subsection (a) above is to be
underwritten, then the distribution of Warrant Shares for the account of the
Incidental Rights Holders shall be underwritten by the same underwriters who are
underwriting the distribution of the securities for the account of the Company
and/or any other persons whose securities are covered by such registration
17
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<PAGE>
statement, and the Holders that are selling Warrant Shares pursuant to such
registration statement shall enter into the agreement with such underwriters
contemplated under Section 8.4.
7.2 Registration Procedures. If and whenever the Company is
required by the provisions of this Section 7 to use its best efforts to effect
the registration of any Warrant Shares under the Securities Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement which, in the case of an underwritten public offering, shall be on
such form of general applicability satisfactory to the managing underwriter
selected as herein provided and shall include the Warrant Shares and use its
best efforts to cause such registration statement to become and remain effective
for the period of the distribution contemplated thereby (determined as
hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Warrant Shares covered
by such registration statement in accordance with the Holder's intended method
of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Warrant Shares and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Warrant Shares covered by such registration statement;
(d) use its best efforts to register or qualify the Warrant
Shares covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as each seller of Warrant Shares or, in the case of
an underwritten public offering, the managing underwriter shall reasonably
request, and do any and all other acts and things which may be necessary under
such securities or blue sky laws to enable such seller to consummate the public
sale or other distribution in such jurisdiction to be sold by such seller,
except that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified
18
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<PAGE>
or to consent to general service of process or subject itself to taxation in any
such jurisdiction;
(e) use its best efforts to list the Warrant Shares covered by
such registration statement with any securities exchange or automated quotation
system on which any security of the Company is then listed;
For purposes of Section 7.2(a) and 7.2(b), the period of
distribution of Warrant Shares in a firm commitment underwritten public offering
shall be deemed to extend until each underwriter has completed the distribution
of all securities purchased by it, and the period of distribution of Warrant
Shares in any other registration shall be deemed to extend until the earlier of
the sale of all Warrant Shares covered thereby or 120 days after the effective
date thereof.
In connection with each registration pursuant to this Section
7, the sellers of Warrant Shares will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
reasonably shall be necessary and shall be requested by the Company in order to
assure compliance with federal and applicable state securities laws.
In connection with each registration pursuant to Sections 7.1
covering an underwritten public offering, if such underwriting agreement
contains restrictions upon the sale of securities of the Company, other than the
securities which are to be included in the proposed distribution, then such
restrictions shall be binding upon the sellers of Warrant Shares for a period
not exceeding 180 days (or such longer time as is customary and required) from
the effective date of the registration statement and, if requested by the
Company, such sellers shall enter into a written agreement to that effect. In
the event of the Company's initial public offering, if requested by the
Company's underwriters, the holders of Warrants and Warrant Shares agree not to
sell, pledge or otherwise transfer their Warrants or Warrant Shares for a period
not exceeding 180 days (or such longer time as is customary and required).
7.3 Expenses. All expenses incurred by the Company in
complying with Sections 7.1, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., fees of a national securities exchange or the Nasdaq National
Market, transfer taxes, fees of transfer agents and
19
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<PAGE>
registrants, costs of insurance and but excluding any Selling Expenses, are
called "Registration Expenses." "Selling Expenses" as used herein means all
underwriting discounts and selling commissions and fees and disbursements of the
sellers of Warrant Shares and all other secondary shares (which counsel shall be
selected by the sellers of Warrant Shares), applicable to the sale of Warrant
Shares. The Company will pay all Registration Expenses and the sellers of
Warrant Shares will pay all Selling Expenses in connection with each
registration statement prepared or filed under Sections 7.1.
7.4 Indemnification and Contribution. (a) In the event of a
registration of any Warrant Shares under the Securities Act pursuant to Sections
8.1, the Company shall indemnify and hold harmless, to the full extent permitted
by law, each seller of such Warrant Shares thereunder and each partner, officer,
trustee, director, employee, agent or Affiliate of such seller (collectively,
for purposes of this Section 8.5, a "seller"), against any losses, claims,
damages, liabilities or expenses, joint or several, to which such seller
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such Warrant
Shares were registered under the Securities Act pursuant to Sections 7.1, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall pay or
reimburse each such seller for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to a seller, if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller furnished in
writing to the Company by such seller specifically for use in such registration
statement, prospectus, amendment or supplement.
7.5 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Warrant Shares to the public without registration,
on and after the completion of the Company's initial public offering, the
Company agrees to:
20
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<PAGE>
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell and Warrant Shares without registration.
SECTION 8. NO IMPAIRMENT. The Company shall not take any
action, including, without limitation, by amendment of its certificate of
incorporation or by-laws or through any consolidation, merger or arrangement,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate to protect the rights of the holder of this
Warrant against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (a) will take such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Warrant Stock on the exercise of this Warrant, (b)
will not take any action which results in any adjustment pursuant to Section 4
of this Warrant if the total number of shares of Common Stock issuable after
such action would exceed the total number of shares of Common Stock then
authorized by the Company's certificate of incorporation and available for the
purpose of issue upon such exercise, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
SECTION 9. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS.
(a) In case of all dividends or other distributions by the Company to the
holders of its Nonpreferred Stock with respect to which provisions of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a
21
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<PAGE>
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
warrant transfer books so as to result in preventing or delaying the exercise or
transfer of this Warrant.
(b) If this Warrant is divided between or among more than one
Holder, any time any action, waiver or consent of the Holder of this Warrant is
called for, such action, waiver or consent shall be binding if taken or given by
the Majority Holders (provided that any Warrants owned by the Company or any of
its Affiliates shall not be counted).
SECTION 10. LOSS OR MUTILATION. Upon receipt by the Company of
evidence satisfactory to it (in the exercise of reasonable discretion) of the
ownership of and the loss, theft, destruction or mutilation of this Warrant and
(in case of loss, theft or destruction) of indemnity satisfactory to it, and in
case of mutilation, upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new warrant of like tenor and date.
SECTION 11. OFFICE OF THE COMPANY. As long as this Warrant
remains outstanding, the Company shall maintain an office or agent at ,
where this Warrant may be presented for exercise, registration, transfer,
division or combination as in this Warrant provided. Such office or agent shall
be maintained at said address unless and until the Company shall designate and
maintain another office or agent for such purposes and give written notice
thereof to the Holder.
SECTION 12. NOTICES GENERALLY. No notice or other
communication shall be deemed given hereunder unless sent in any of the manners,
and to the persons, specified in this Section 12. All notices and other
communications hereunder will be in writing and will be deemed given (a) upon
receipt if delivered personally, mailed by registered or certified mail, or sent
by overnight courier or (b) upon dispatch if transmitted by telex, telegraph,
telecopy or other means of facsimile, in any case to the Holder at the Holder's
last known address appearing on the books of the Company or to the Company at
its address (or at such other address for a party as will be specified by like
notice).
SECTION 13. LIMITATION OF LIABILITY. No provision hereof, in
the absence of affirmative action by the Holder to purchase shares of Common
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of the Holder for the purchase price or
as a stockholder of the Company,
22
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<PAGE>
whether such liability is asserted by the Company or by creditors of the Company
or by anyone else.
SECTION 14. SURVIVAL. All covenants and agreements of the
Company, and all rights and duties of the Holder from time to time of this
Warrant or any Common Stock issued pursuant to exercise of this Warrant, shall
be deemed to survive any surrender hereof to the Company upon exercise hereof by
the Holder as contemplated by Section 2 or expiration of the right of the Holder
to exercise any unexercised balance hereof on the Warrant Expiration Date.
SECTION 15. CERTAIN WARRANTS DEEMED NOT OUTSTANDING. For the
purposes of determining whether the Holder entitled to purchase a requisite
number of Shares at any time has taken any action, any Warrants owned by the
Company or any Affiliate of the Company, shall be deemed not to be outstanding.
SECTION 16. AUTHORITY; EXECUTION AND DELIVERY. The Company
hereby represents and warrants that the Company has full corporate power and
authority to enter into this Agreement and to issue the Warrants and the Warrant
Shares in accordance with the terms hereof. The execution, delivery and
performance of this Agreement by the Company have been duly and effectively
authorized by the Company. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
SECTION 17. GOVERNING LAW. This Warrant shall be governed by
and construed in accordance with the laws of the State of New York without
giving effect to the conflict of laws rules therein.
23
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated as of March 12, 1996 AUTOBOND ACCEPTANCE CO.
By: /s/ WILLIAM O. WINSAUER
______________________________________
Name: William O. Winsauer
Title: CEO
Attest:
/s/ JOHN S. WINSAUER
__________________________________
Secretary
24
<PAGE>
<PAGE>
Exhibit A to Warrant
EXERCISE NOTICE
(To be executed only upon exercise of Warrant)
The undersigned registered owner of Warrant No. _____
irrevocably exercises such Warrant for the purchases of _____ Shares of AUTOBOND
ACCEPTANCE CO. purchasable with such Warrant, and herewith makes payment
therefor, by check, in the amount of $___________, all at the price and on the
terms and conditions specified in such Warrant and requests that certificates
for the shares of Common Stock hereby purchased, and any securities or other
property issuable upon such exercise, be issued in the name of and delivered to
______________________________________________________________ whose address is
____________________________, and, if such Shares shall not include all of the
Shares issuable as provided in this Warrant that a new Warrant of like tenor and
date for the balance of the Shares issuable thereunder be delivered to the
undersigned.
Dated: _____________, 19__
_________________________________________
(Signature of Registered Owner)
_________________________________________
(Street Address)
_________________________________________
(City, State, Zip Code)
or
_________________________________________
(Signature of Transferee)
_________________________________________
(Street Address)
_________________________________________
(City, State, Zip Code)
25
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<PAGE>
EXHIBIT 16.1
May 31, 1996
Board of Directors
AutoBond Acceptance Corporation
301 Congress Avenue
Austin, Texas 78701
Dear Sirs:
Reference is made to the Registration Statement on Form S-1 (the
'Registration Statement'), of AutoBond Acceptance Corporation (the 'Company').
We hereby concur with the statements in the Registration Statement made by the
Company, under the caption 'Change in Accountants,' concerning our status as the
Company's principal accountants.
Very truly yours,
MANN FRANKFORT STEIN & LIPP
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
AutoBond Funding Corporation I, a Delaware corporation
AutoBond Funding Corporation II, a Delaware corporation
AutoBond Funding Corporation 1995, a Delaware corporation
AutoBond Funding Corporation 1996-A, a Delaware corporation
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 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
June 6, 1996
<PAGE>
<PAGE>
EXHIBIT 23.3
CONSENTS OF DIRECTOR DESIGNEES
May 31, 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statements of income on pages F-3
and F-4 of the Company's Form S-1 Registration Statement as filed with the
Securities and Exchange Commission on June 6, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 93 670
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 4,029 2,764
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 11,065 13,081
<CURRENT-LIABILITIES> 3,759 3,251
<BONDS> 0 0
<COMMON> 1 1
0 0
0 0
<OTHER-SE> 3,025 4,051
<TOTAL-LIABILITY-AND-EQUITY> 11,065 13,081
<SALES> 0 0
<TOTAL-REVENUES> 5,437 3,525
<CGS> 0 0
<TOTAL-COSTS> 2,283 1,151
<OTHER-EXPENSES> 1,463 287
<LOSS-PROVISION> 619 456
<INTEREST-EXPENSE> 2,100 593
<INCOME-PRETAX> 1,072 1,631
<INCOME-TAX> 199 560
<INCOME-CONTINUING> 873 1,071
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 873 1,071
<EPS-PRIMARY> 0.17 0.19
<EPS-DILUTED> 0.17 0.19
<FN>
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
</FN>
<PAGE>
